Filed 2025-09-30 · Period ending 2025-06-30 · 99,612 words · SEC EDGAR
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# Damon Inc. (DMNIF) — 10-K
**Filed:** 2025-09-30
**Period ending:** 2025-06-30
**Accession:** 0001213900-25-093259
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/2000640/000121390025093259/)
**Origin leaf:** 107580454a348c5d03ac3c4a1dfbfee0b8cc5d9e2b720d0476dd63b5e55da2e2
**Words:** 99,612
---
**
UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington,
D.C. 20549**
****
**FORM
10-K**
****
**(Mark
One)**
**
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
****
**For
the fiscal year ended June 30, 2025**
**OR**
****
**
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
****
**For
the transition period from ______________ to _______________**
****
**Commission
File Number 001-42190**
****
**DAMON
INC.**
(Exact
name of registrant as specified in its charter)
| British Columbia | | Not Applicable | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
****
**4601
Canada Way,**
**Suite
#402
Burnaby, BC V5G 4X7**
(Address
of principal executive offices)
(Zip
Code)
**(236)
326-3619**
(Registrants
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
****
| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered | |
| Common Shares | DMN* | The Nasdaq Stock Market LLC* | |
****
|
* | The
Nasdaq Stock Market LLC has determined to delist the Companys common shares and filed a Form 25 with the U.S. Securities and Exchange
Commission on July 18, 2025. As a result, the Companys registration under Section 12(b) of the Securities Exchange Act of 1934,
as amended, is expected to terminate on October 16, 2025, and its common shares are expected to become registered under Section 12(g)
thereafter. The Companys common shares are currently quoted on the OTCIQ Basic Market, operated by OTC Markets Group Inc., under
the symbol DMNIF. |
|
****
Securities
registered pursuant to Section 12(g) of the Act:
****
**None**
**(Title
of class)**
****
****
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesNo
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. Yes No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T ( 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller
reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | | Accelerated filer | | |
| Non-accelerated filer | | Smaller reporting company | | |
| | | Emerging growth company | | |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2024, the
last business day of the registrants most recently completed second fiscal quarter, was $17,355,619 based upon the closing price
reported for such date on the Nasdaq Stock Market LLC (Nasdaq).
As of September 29, 2025, there were 19,603,815 shares of the
registrants common shares outstanding.
**DOCUMENTS
INCORPORATED BY REFERENCE**
None.
**DAMON
INC.**
**TABLE
OF CONTENTS**
****
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT |
|
iii | |
|
|
|
| |
|
PART
I |
|
1 | |
|
|
|
| |
|
ITEM
1: |
|
BUSINESS |
|
1 | |
|
ITEM
1A: |
|
RISK
FACTORS |
|
21 | |
|
ITEM
1B: |
|
UNRESOLVED
STAFF COMMENTS |
|
64 | |
|
ITEM
1C: |
|
CYBERSECURITY |
|
64 | |
|
ITEM
2: |
|
PROPERTIES |
|
65 | |
|
ITEM
3: |
|
LEGAL
PROCEEDINGS |
|
65 | |
|
ITEM
4: |
|
MINE
SAFETY DISCLOSURES |
|
65 | |
|
|
|
|
|
| |
|
PART
II |
|
66 | |
|
|
|
| |
|
ITEM
5: |
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|
66 | |
|
ITEM
6: |
|
[RESERVED] |
|
66 | |
|
ITEM
7: |
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
67 | |
|
ITEM
7A: |
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
75 | |
|
ITEM
8: |
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA |
|
75 | |
|
ITEM
9: |
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
|
76 | |
|
ITEM
9A: |
|
CONTROLS
AND PROCEDURES |
|
76 | |
|
ITEM
9B: |
|
OTHER
INFORMATION |
|
77 | |
|
ITEM
9C: |
|
DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
|
77 | |
|
|
|
|
|
| |
|
PART
III |
|
78 | |
|
|
|
| |
|
ITEM
10: |
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
|
78 | |
|
ITEM
11: |
|
EXECUTIVE
COMPENSATION |
|
84 | |
|
ITEM
12: |
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|
101 | |
|
ITEM
13: |
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
|
102 | |
|
ITEM
14: |
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES |
|
105 | |
|
|
|
|
|
| |
|
PART
IV |
|
106 | |
|
|
|
| |
|
ITEM
15: |
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES |
|
106 | |
|
ITEM
16: |
|
FORM
10-K SUMMARY |
|
106 | |
|
|
|
SIGNATURE |
|
111 | |
i
**EXPLANATORY
NOTE**
**About
the Company**
On
December 27, 2023 (the record date), we were spun off by our former parent company, XTI Aerospace Inc., formerly known
as Inpixon (the Parent), by means of a transfer of all of our then outstanding common shares held by the Parent (the spinoff
shares) to the Grafiti Holding Inc. Liquidating Trust (the trust), to be held for the benefit of holders of the
Parents common stock, preferred stock and those outstanding warrants that were contractually entitled to participate in the distribution
(collectively, the participating Parent securityholders). Following the effectiveness of our registration statement on
Form 10-12B filed in connection with the spinoff on November 12, 2024, the trust delivered the spinoff shares to the participating Parent
securityholders, as beneficiaries of the trust, pro rata in accordance with their ownership of shares or underlying shares of the Parents
common stock as of the record date.
On
November 13, 2024, we completed a business combination transaction with Damon Motors Inc. (Damon Motors), resulting in
Damon Motors becoming our wholly-owned subsidiary (the Business Combination). Upon completion of the Business Combination
with Damon Motors, we changed our corporate name from Grafiti Holding Inc. to Damon Inc. For further information
about these transactions, please refer to the current report on Form 8-K filed by us with the Securities and Exchange Commission
(the SEC) on November 18, 2024.
Unless
otherwise stated or the context otherwise requires, we, the Company, us, our
and similar terms refer to Damon Inc. (Damon), formerly known as Grafiti Holding Inc. (Grafiti Holding),
and as appropriate, its subsidiaries.
In
this report, references to a fiscal year (e.g., Fiscal Year 2025) refer to the fiscal year ended on June 30 of that year.
**About
Our Foreign Private Issuer Status**
As a corporation organized under the laws of British Columbia, Canada,
the Company qualifies as a foreign private issuer, as defined in Rule 3b-4 under the Securities Exchange Act of 1934 (the
Exchange Act) in the United States, based on the applicable criteria as of the last business day of the Companys
most recently completed second fiscal quarter, ended December 31, 2024. Notwithstanding the Companys qualification as a foreign
private issuer, the Company has voluntarily chosen to file with the U.S. Securities and Exchange Commission (the SEC) periodic
and current reports and registration statements on forms prescribed for U.S. domestic issuers, including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and registration statements on Form S-1, instead of filing on the reporting
and registration forms available to foreign private issuers.
Although
the Company has voluntarily chosen to file periodic reports and current reports, as well as registration statements, on U.S. domestic
issuer forms, the Company will maintain its status as a foreign private issuer. Accordingly, as a foreign private issuer, the Company
remains exempt from the U.S. federal proxy rules pursuant to Section 14 of the Exchange Act and Regulations 14A and 14C thereunder, Regulation
FD, and its officers, directors, and principal shareholders are not subject to the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.
**About
Our Reverse Stock Split**
The
Company effected a reverse stock split of its outstanding common shares at a ratio of 1-for-125, effective as of July 3, 2025. No fractional
shares were issued; fractional shares less than one-half were cancelled, and those equal to or greater than one-half were rounded up
to one whole share. We have reflected the reverse stock split herein, unless otherwise indicated.
All
dollar amounts in this Annual Report on Form 10-K are presented in United States dollars, unless otherwise indicated, which is the functional
currency of the Company.
ii
****
**SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION**
**CONTAINED
IN THIS REPORT**
This
report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(the Securities Act) and Section 21E of the Exchange Act. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, could, expects, plans,
intends, anticipates, believes, estimates, predicts, potential,
or continue, or the negative of such terms and other comparable terminology. These forward-looking statements include,
without limitation, statements about our market opportunity, our strategies, ability to improve and expand our capabilities, competition,
expected activities and expenditures as we pursue our business plan, the adequacy of our available cash resources, regulatory compliance,
plans for future growth and future operations, the size of our addressable market, market trends, and the effectiveness of the Companys
internal control over financial reporting. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Actual results may differ materially
from the projections discussed in these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified. These risks and other factors include, but are not limited to, those listed under *Risk Factors*. Additional
factors that could materially affect these forward-looking statements and/or projections include, among other things:
|
(i) | the risk that the price of common shares may be volatile due to a variety
of factors, including changes in the highly competitive industries in which the Company operates, variations in performance across competitors,
changes in laws or regulations that may impose additional costs and compliance burdens on the Companys operations, changes in technologies,
global supply chain disruptions and shortages and macro-economic and social environments affecting the Companys businesses; |
|
|
(ii) | the
inability to implement the Companys business plans, forecasts and other expectations, or identify and realize additional opportunities; |
|
|
(iii) | the risk that the Company has not achieved sales and production capacity
at scale, and that the Company and its current and future collaborators may be unable to successfully develop and market the Companys
electric personal mobility products or solutions, or may experience significant delays in doing so; |
|
|
(iv) | the
risk that the Company may never achieve or sustain profitability; |
|
|
(v) | the risk of the Companys ability to continue as a going concern; |
|
|
(vi) | the
risk of the Companys status as a foreign private issuer; |
|
|
(vii) | the
impact of our recent delisting from Nasdaq and the Companys ability to develop and maintain adequate trading liquidity on the
OTCID Basic Market; |
|
|
(viii) | the risk that the Company may be unable to raise additional capital
on acceptable terms or in sufficient amounts to finance our operations and remain a going concern; |
|
|
(ix) | the risk that the Company continues to experience difficulties in expanding
its operations or, if our operations are expanded, managing our growth; |
|
iii
|
(x) | any
adverse changes in U.S., Canadian or global general economic, business, market, financial, political or legal conditions, including as
a consequence of the ongoing uncertainties relating to inflation, interest rates, global supply chain disruptions, international trade
tensions, armed conflicts, or other geopolitical developments; |
|
|
(xi) | any inability to successfully create demand for our products and services
and economically manufacture and distribute our electric personal mobility products at scale; |
|
|
(xii) | reliance
on key management and any inability to attract and/or retain key personnel; |
|
|
(xiii) | any
inability to raise additional funds to meet our capital requirements and pursue our growth strategy when and in the amounts needed; |
|
|
(xiv) | any
inability to secure adequate insurance coverage or a potential increase in insurance costs; |
|
|
(xv) | our ability to develop and maintain effective internal controls; |
|
|
(xvi) | the risk of potential litigation resulting in the diversion of managements
time and attention, and the Companys access to capital needed to address any such litigation that may arise; and |
|
|
(xvii) | any
inability to secure adequate insurance coverage or a potential increase in insurance costs; and |
|
|
(xviii) | other factors discussed in this report. |
|
Management
has included projections and estimates in this report, which are based primarily on managements experience in the industry, assessments
of our results of operations, discussions and negotiations with third parties, and a review of information filed by our competitors with
the SEC or otherwise publicly available.
In
some cases, you can identify forward-looking statements by terms such as may, could, will,
should, would, expect, plan, intend, anticipate,
believe, estimate, predict, potential, project or continue,
or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance
on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases,
beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current
expectations include, among other things, those listed under the heading *Risk Factors* and elsewhere in this report.
If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results
may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee
of future performance.
The
forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in
this report. We do not intend to update or otherwise revise the forward-looking statements in this report, whether as a result of new
information, future events or otherwise.
iv
**PART
I**
****
**ITEM
1: BUSINESS**
****
**Our
Group Structure**
****
The
following organization chart indicates the intercorporate relationships of the Company and its significant subsidiaries, together with
the jurisdiction of formation, incorporation or continuance of each entity, following the consummation of the Business Combination.
*
**Our
Business**
****
**Our
Motorcycle and Other Personal Mobility Products Development Business through Damon Motors**
The
material business of the Company operates through Damon Motors. Damon Motors is a British Columbia based company aiming to commercialize
a smart and technologically advanced motorcycle and other personal mobility products with zero emissions while maintaining performance
and safety and incorporating connectivity and artificial intelligence, and to leverage its technologies through potential licensing,
software-as-a-service (SAAS) and related service offerings.
Damon
Inc., through its wholly-owned subsidiary, Damon Motors, is developing electric motorcycles and other personal mobility products and
services that seek to empower the personal mobility industry through innovation, data intelligence and strategic partnerships. Damon
Motors is developing technology and investing in the capabilities to lead an integrated personal mobility ecosystem from individual travels
to last mile delivery. With decades of combined management and engineering experience across the teams careers, and a commitment
to low carbon personal mobility solutions, Damon Motors is seeking to introduce existing enthusiasts to high-performance electric products
while bringing new riders to the motorcycle community with first of its kind advances in zero emissions motorcycle performance, safety,
connectivity and artificial intelligence (AI).
Founded
in 2017, Damon Motors started reimagining the future of motorcycling by means of advanced safety design, electric vehicle powertrain
technology and user experience. In 2019, Damon Motors took its first alpha prototype motorcycles and safety systems into the field to
test the concept. In 2021, Damon Motors expanded its operations and R&D expertise to accelerate the engineering and development of
its HyperDrive platform drive unit and the HyperSport motorcycle. Through core technology advancements, Damon Motors electric motorcycles
are in prototype phase of product validation.
1
**Our
SAVES Distribution Business Through Grafiti Limited**
****
Damon,
through its wholly-owned subsidiary, Grafiti Limited, distributes in the United Kingdom and certain other European countries data analytics
and visualization software products referred to as SAVES primarily for scientists and engineers. Grafiti Limited products can be downloaded
to a users desktop. These products help scientific research in the health and life sciences domain in the discovery of new drugs,
in the study of the efficacy of established drugs and therapies, and in epidemic propagation research, among other applications. Engineers
use our products for a multitude of applications which include, but are not limited to, conducting surface modelling analysis and curve
fitting in order to design new engineering processes, studying signal attenuation and propagation in radio engineering. Potential automobile
and motorcycle applications could include surface panel design for aerodynamics, aesthetic symmetry, and calculated asymmetry among others.
We believe the Grafiti Limited regression analysis product could also be used for predicting vehicle sharing demand and pricing trends
in various markets based on a wide range of variables.
Grafiti
Limited was formed by the Parent on May 13, 2020 as a distribution arm for its SAVES products in the United Kingdom (the UK)
market and part of the European market.
**Our
Corporate Strategy**
Management continues to pursue a corporate strategy that is focused
on building and developing our business as a provider of end-to-end solutions ranging from personal mobility products to the collection
of data to delivering insights from that data to our customers with a focus on safety and data intelligence and engineering services.
In connection with such strategy and to facilitate our long-term growth, we continue to evaluate various strategic opportunities, including
partnerships with personal mobility products original equipment manufacturers (OEMs), and providers of complementary technologies
and intellectual property (IP) to further our goals by adding technology, differentiation, customers and/or revenue. We
are primarily looking for partnerships that have business value and operational synergies, but will be opportunistic for other strategic
and/or attractive transactions. We believe these complementary technologies will add value to the Company and allow us to provide a comprehensive
integrated personal mobility ecosystem to our customers. In addition, we may seek to expand our capabilities around safety, security,
AI, augmented reality and virtual reality or other high growth sectors. Candidates with proven technologies and personal mobility products
that complement our overall strategy may come from anywhere in the world, as long as there are strategic and financial reasons to establish
the partnership. We are also exploring opportunities that will supplement our revenue growth, which may include accretive acquisitions
that provide business value and operational synergies, as well as other opportunistic or strategic transactions that we believe may increase
overall shareholder value. These may include, but are not limited to, alternative investment opportunities, such as minority investments,
acquisitions or joint ventures. If we make any acquisitions in the future, we expect that we may pay for such acquisitions using our equity
securities and/or cash and debt financings in combinations appropriate for each acquisition.
**Our
Market**
****
**EV
Growth Worldwide**
****
According
to the International Energy Agencys April 2023 Global EV Outlook, global electric car markets are seeing rapid growth as sales
exceed 10 million units in 2022. A total of 16% of all new cars sold were electric in 2022, up from around 9% in 2021 and less than 5%
in 2020. Three geographic markets dominated global sales. China was the frontrunner, accounting for around 60% of global electric car
sales. More than half of the electric cars on roads worldwide are now in China and the country has already exceeded its 2025 target for
new energy vehicle sales. In Europe, the second largest market, electric car sales increased by over 15% in 2022, meaning that more than
one in every five cars sold was electric. Electric car sales in the United States the third largest market increased
55% in 2022, reaching a sales share of 8%. The rest of the world accounts for about 2%.
2
**EV
Growth in the North American and European Markets**
****
As
reported by Silas Smith of way.com, in North America, the percentage of electric cars hit a new high in early 2022. During the first
quarter of 2022, the number of EV registrations increased by 60% despite the generally slow performance of the overall market. During
the initial nine months of 2022, a total of 530,577 electric cars were sold in the US. These numbers are only for BEVs. The figures do
not include plug-in HEV and Hybrid Electric Vehicles. Almost 65% of these percentage of electric cars were Tesla. As early as 2026, S&P
Global Mobility expects the total of new EV models available to break 200 in the US market, as the ICE new model count continues a steady
decline. In late 2027/early 2028, the total model count should be at its apex with the number of options across all propulsion
system designs approaching 650. The situation is expected to be similar in Europe. S&P Global Mobility forecasts that the three propulsion
system designs EV, hybrid, and ICE will each account for between 29% and 36% of the market by the end of this decade.
After that, EV share is expected to continue to grow while hybrid plateaus and then joins ICE in a continuous, but slow, decline.
**Motorcycle
Market Today**
****
The global two wheel industry is a $127 billion industry, according
to data from Fortune Business Insight 2025. Global Industry Sales Report, and there are more than 180M motorcycles and scooters produced
per year, which exceeds the number of passenger cars and light trucks produced per year on a combined basis.
Damons
strategy is to provide premium and high-technology electric motorcycle offerings for each highway-capable motorcycle segment, priced
competitively with the other available options with the goal of becoming a leading motorcycle manufacturer with electric motorcycles
that outperform comparable gas bikes.
The
relevant electric vehicle markets for Damon includes:
|
| small
and large scooters |
|
|
| light,
medium and heavy motorcycle; and |
|
|
| small
and large three-wheelers. |
|
Damons current core capabilities are in the light, medium and
heavy motorcycle segments. Fortune Business Insights 2025 Report reported $127 billion in two wheel transportation, which skewed towards
the markets in Asia and Europe, while the sales of medium and heavy motorcycles totaled $11.2 billion, growing at a CAGR of 7.2% and concentrated
in North America and Europe, where customers more often choose heavier models.
The
North American market accounts for the majority of the markets profits, whereas the majority of volume is accounted for in Southeast
Asia, albeit with significantly lower margins than the North American market. That said, according to Motorcycles Data 2022 Global Industry
Sales Report, the average priced motorcycle purchased in Southeast Asia has risen above $2,400, with the fastest growing segment now
priced at $3,000. This increase in price is driven mainly by the increasing middle-class incomes across a younger population, where 1
out of every 2 people is now under the age of 40.
**Competitive
Landscape**
****
The
motorcycle market is highly competitive, and Damon expects it will become even more so in the future. Currently, Damons competition
for its vehicles comes principally from manufacturers of motorcycles with internal combustion engines powered by gasoline, including
in the premium and other segments of its business. Although Damon intends to strategically enter the premium electric vehicle segment,
it similarly expects this segment will become more competitive in the future as a result of new entrants, both from established brands
and start-up companies from various regions of the globe.
Many
of Damons current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other
resources than Damon and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion,
sale and support of their products. Based on publicly available information, a number of Damons competitors already have displayed
prototype electric motorcycles and have announced target availability and production timelines, while others have launched pilot programs
or full commercial offerings in certain markets.
3
Notably,
Damon expects competition in its industry to intensify in the future, considering increased demand and regulatory push for alternative
fuel vehicles, continuing globalization and consolidation in the worldwide motorcycle industry. Factors affecting competition include,
among others, product quality and features, innovation and development time, pricing, reliability, safety, fuel and energy economy, customer
service (including breadth of service network) and financing terms. Damons ability to successfully compete in the motorcycle industry
will be fundamental to its future success in existing and new markets and its market share. There can be no assurance that Damon will
be able to compete successfully in the markets in which it operates. If Damons competitors introduce new models or services that
successfully compete with or surpass the quality, price, performance or availability of Damons vehicles or services, it may be
unable to satisfy existing customers or attract new customers at the prices and levels that would allow it to generate attractive rates
of return on its investment. Increased competition could result in lower vehicle unit sales, price reductions and revenue shortfalls,
loss of customers and loss of market share, which may materially adversely affect Damons business, financial condition, operating
results and prospects.
Damons
expects competition from two primary segments:
|
| first, from leading traditional internal combustion engine-focused companies
including BMW, Honda, Ducati and Triumph. These companies have the ability to scale manufacturing and leverage global distribution capabilities,
but do not currently offer a premium electric motorcycle in market. However, some of these companies are beginning to explore entering
the electric motorcycle market, albeit typically they do so first with the lowest cost motorcycles and scooters, lower technological know-how
required and reduced cannibalization of their high-margin products necessary to enter the bottom segments of the market; and |
|
|
| second,
electric vehicle-focused companies, including LiveWire, Zero and Energica that have product in market today. Damons focus is to
provide higher performing motorcycles with enhanced safety features relative to these current products. Unlike LiveWire, which is majority
owned by Harley Davidson, Zero and Energica have motorcycles in the market today but lack the global manufacturing and distribution capabilities
of the major ICE players. |
|
While
Damon expects competition to grow as the market shifts to electric and more players begin to make serious investments, Damon believes
it is well- positioned with its combination of commitment, capabilities and advanced technology to lead the growing electric motorcycle
market.
**Damons
Competitive Strengths**
****
We are striving to grow and generate strong financial performance by
leveraging our distinct competitive strengths, each of which we believe provide competitive advantages. These include:
Highly
qualified and knowledgeable management team
Damon has assembled a top team of innovative electric vehicle and Advanced
Driver Assistance Systems (ADAS) engineers and management team members with backgrounds spanning design, development and manufacturing
who have developed a wide array of electric vehicles, from buses, to cars, motorcycles, vertical take-off and landing vehicles (VTOLs)
and transport trucks across world class companies such as Apple, BMW, Daimler, Uber Elevate, and others.
Best-in-class
strategic partners and suppliers
Damons world class strategic partners and suppliers, such as
Continental, Fukuta, Brembo, Ohlins, Pirelli, Auteco, Indika Energy, Engines Engineering and others, are among the leaders in their respective
fields, and Damon believes that such relationships will allow Damon to successfully pursue a competitive position in the global electric
motorcycle market. Strategic partners also allow for asset light assembly, instead of building our own factory. Our go-to-market manufacturing
strategy is designed to enable scalable production with limited upfront cost.
4
Head
start in the market
Damon believes it has a significant competitive advantage stemming
from the coordinated application of multiple new technologies. With more than $75 million invested to date, Damons product designs
offer advanced vehicle range and power at a reduced overall mass and are developed to solve fundamental problems that motorcyclists frequently
experience that have long been poorly addressed. These include noise, emissions, range, safety, comfort and digital connectivity.
Patents
and trade secrets
Damons patent portfolio of 33 national and international parents
awarded or filed and collection of trade secrets will further protect this new class of motorcycles. With more than 10 billion media impressions
and 1200 original earned articles in 2022, as measured by unique visitors and reach based on BPA audited publications using databases
such as Muckrack, Cision and Google Analytics, Damon believes its technological competitive advantage is well infused into its brand.
Planned direct to customer distribution
Damons business plan includes selling direct to consumers. Damon
believes that selling over the internet, shipping direct and owning and eventually operating its own Damon experience centers will provide
a key sales and distribution advantage over established players, allowing for high margin retention and a vital information feedback loop
from customers that will inform manufacturing and vehicle design, while also providing higher profit margins and lower customer acquisition
costs over time. The ability to sell motorcycles directly to consumers has shown to be viable in the electric car space; however, it is
uncommon in motorcycles. Damon believes its ability to generate vehicle reservations directly from consumers to date is a promising indicator
for its direct sales model. Damons expects to continue to generate an evangelistic brand and following, with a backlog currently
extending into 2026.
Vertical
Integration
Traditional OEMs are structured to produce mechanical machines, but
they generally move slowly when it comes to safety innovation, software, or deep platform machine learning integration between hardware
and software. Their business models can prevent the rapid expansion into emerging technologies and that is where Damon believes it will
have an advantage. Damon was built from the ground up to combine hardware, software, and AI into a single, future-ready system. Damons
comprehensive rider intelligence and connected services platform, Damon I/O, is designed to power advanced features, data intelligence,
andover-the-air updates, which can allow every vehicle we produce to become smarter over time. Damon controls both the hardware
and software stack, which Damon believes will allow for tighter product experience and stronger margins.
**Our
SAVES Market**
****
We
distribute SAVES products in the UK market and part of the European market. Grafiti Limiteds strategy is to build a broader, long
term customer base by increasing its sales of Grafiti Limiteds product offerings which will include cloud and Macintosh compatible
data analytics and statistical visualization software products. We believe this will enable the Grafiti Limited business to focus on
generating more recurring revenues in the future.
**Our
SAVES Customers**
****
Our
customers include academic institutions, engineers and scientists in a variety of industries including environmental sciences, behavioral
sciences, medical research, and engineering.
By
understanding our customers unique needs and considering the markets we target, we provide expert guidance, demonstrations, and ongoing
support to maximize the value our software brings. Over 60% of our customers are academic institutions or scientist associated with them.
Our channel partners account for approximately 25% of our revenue.
5
During the year ended June 30, 2025, the Company had 1 customer
that accounted for 10% of revenue of the Company. See Risk Factors - Our SAVES business relies on a limited number of key customers,
the importance of which may vary dramatically from year to year, and a loss of one or more of these key customers may adversely affect
our operating results.*
**Competition
Faced by Our SAVES Business**
****
We
operate in a market characterized by intense competition from competitive products and their distributors and/or resellers, based on
such factors as price, quality and depth of product lines and training, as well as service and support provided by the distributor to
the customer. We believe we are well equipped to compete effectively with other distributors in all of these areas.
Our
business is characterized by innovation and rapid change in the products we distribute. Originlab and Graphpad Prism are the main competitors
of the products that we sell. These competitive products are characterized by the complexity of their user interfaces and the pre-supposition
and in-depth understanding of statistics. Sigmaplot, on the other hand, has an interface that is as intuitive and simple to use and the
statistical analyses available in Sigmaplot can be accessed through an intuitive and guided interface that makes the adoption of it by
scientists and engineers less cumbersome and very time efficient. Sigmaplot is characterized by the richness of its graphs and their
almost infinite customizability relative to our competitors graphing solutions. We offer multiple pricing models and believe our
products are competitively priced.
**Our
Products and Services**
****
**Electric
Motorcycles**
****
Damons
electric vehicles are developed with a set of proprietary design principles that elevate the brand, deliver differentiated riding experiences
and bring emotion to electric propulsion. The initial product portfolio of motorcycle models will be built upon and utilize a single
powertrain platform called HyperDrive. As a patented, monocoque-constructed battery-chassis, HyperDrive houses a proprietary 150
kW 6-phase liquid cooled IPM motor-gearbox and proprietary electronics. This platform approach establishes a capital-efficient path to
grow the product line to meet a wide range of future segments and price points, while also supporting a wide range of future motorcycle
models and power sizes that share as much as 85 percent common parts. By using the frame of the battery as the motorcycles chassis,
HyperDrive also achieves valuable weight and cost reduction advantages. With 150 kW of power at its disposal, HyperDrive has been specifically
designed to compete with the performance of market leaders in the high-performance motorcycle market, whether internal combustion or
electric. Thanks to the energy modularity designed into it, HyperDrive-based motorcycles can be detuned in power, energy and thus cost
to support 500 1500cc power equivalent classes of motorcycles in both the North American and European markets, with price points
ranging from $20,000 - $80,000.
The
HyperDrive platform is contrasted by the smaller, less powerful and lower cost HyperLite platform, currently in its early design phase.
HyperLite will be developed using a very similar design architecture as HyperDrive, enabling the production of a range of light weight,
low to medium cost motorcycles and scooters with milder levels of horsepower that are more common in overseas and developing markets.
With these two platforms paired with Damons three patented cornerstone technologies, CoPilot, Shift and its AI-enabled
cloud platform. Damons long-term objective is to build a premium, high-tech, electric motorcycle company that rivals the largest
incumbents in both profit and annual volume, by providing a technologically enhanced riding experience that is not currently available
from any other manufacturer.
CoPilot
provides a novel rider assistance and warning system integrated into the motorcycle. Shift allows the handlebars and foot pegs to mechatronically
adjust on the fly, addressing issues of ergonomic comfort and allowing users to select different riding positions for changing conditions
such as a lower, more aerodynamic position for highway use or a more upright position for urban use. Its AI-enabled cloud collects environmental
and situational data that, paired with over-the-air software updates, drives a continual loop of collision warning improvements, with
an aim to further reduce accident probability over time.
****
6
****
The
commercial production of Damons motorcycles is expected to commence after passing various internal and external tests and undergoing
a self- certification process required for US-bound vehicle homologation. These tests include: the completion of Damons ride quality
and long-term durability testing, completion of FCC Title 47 certification for the onboard charger, completion of UN 38.3 battery testing,
completion of Damons internal battery testing, extreme temperature operation verification, brake testing per FMVSS, and an internal
and external review of FMVSS compliance with Damon engineering subcontractor TUV of Germany. The following is a further description on
the timing and stage of research and development:
|
| HyperDrive: The HyperDrive serves as a common powertrain platform
for both the HyperSport and HyperFighter models. Damon leverages a combination of in-house research and development alongside subcontracting
to external experts to advance this project. Currently, in the engineering & development stage, the power electronics are 90% complete,
with ongoing validation and the integration of new features. Similarly, the mechanical and cooling systems are 90% complete, with continued
testing, while the battery system is 70% complete, with efforts focused on the development of the cell interconnect system. This stage
is expected to be completed by Q4 FY 2026. Subsequently, the project will progress to the pre-production stage, which will emphasize design
validation and testing, with an anticipated completion by Q1 Q2 FY 2027. The budget allocated for the next 12 months is $1.6 million. |
|
|
| HyperSport: The Engineering & Development of the HyperSport
is mostly complete, with vehicle mechanics 90% finalized, pending the completion of the HyperDrive platform. The pre-production stage
is set to commence, with tooling release as a critical milestone, followed by validation and design confirmation, with an estimated completion
by Q4 FY 2026. The Production & Commercialization Stage is ongoing in parallel, focusing on the establishment of the final assembly
and test facility, along with the development of distribution and delivery infrastructure. This stage is expected to conclude between
Q4 FY 2026 and Q3 FY 2027. The estimated budget for this program for the next 24 months is $24 million. |
|
|
| HyperFighter:
The HyperFighter shares its powertrain platform with the HyperSport, along with other key components such as the chassis, braking system,
and dash display. Currently in the concept stage, the design and performance characteristics of the HyperFighter are being defined, leveraging
these shared components, with an estimated completion date in Q3 Q4 FY 2026. The engineering & development stage will follow
with an anticipated completion in Q1 FY 2027 Q2 FY 2028, and subsequently, the Pre-production Stage is expected to be completed
by Q4 FY2027 Q1 FY 2028. The Production & Commercialization Stage is projected to conclude by Q2 Q3 FY 2028. The
budget allocated for the next 24 months is $0.5 million for design and concept. |
|
|
| HyperLite:
The HyperLite is currently in the concept stage, where the design and performance characteristics are being meticulously defined. This
model is envisioned as a smaller and less powerful variant of the HyperSport, featuring a new powertrain platform, and is targeted at
the mass market. The concept stage, including simulation and 3D design programs, is expected to be completed by Q3 Q4 FY 2026.
The subsequent engineering & development stage is projected to conclude by Q1 FY 2028 Q2 FY 2029. Following this, the pre-production
stage is anticipated to be completed by Q4 FY2028 Q1 FY 2029. The estimated budget for the next 24 months is $0.2 million, allocated
for design and concept development. |
|
7
|
| Additional
Steps and Estimated Costs: As per the following table: |
|
|
|
|
Concept Stage |
|
Engineering & Development Stage |
|
Pre-production Stage |
|
Production & Commercialization Stage |
|
Budget Next 12 Mo. |
|
Months 13 to 24 Budget Est |
|
Image | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
HyperDrive Platform Drive Unit |
|
Complete |
|
PowerElectronics 90%complete with ongoing validation and new added features; Mechanical and cooling systems 90% complete with ongoing testing; Battery system 70%complete with ongoing development of the cell interconnect system Est. Completion: Q4 FY 2026 |
|
Design Validation & Testing Est completion: Q1 Q2 FY 2027 |
|
Refer to HyperSport & HyperFighter Program |
|
$1.6M for Pre- Production phase |
|
|
|
| |
|
HyperSport Race-Launch Product |
|
Complete |
|
3D Engineering 73% complete; Electric Motor and Control Unit 50%; Mechanical systems 35% Complete Est. Completion: Q2 FY 2026 |
|
Tooling Release Validation & Design Confirmation Est. Completion: Q2 - FY26 |
|
Final Assembly & Test Facility Distribution & Delivery Infrastructure Est. completion: Q4 FY 2026 |
|
$1.5M for completion of Pre-Production phase |
|
|
|
| |
|
HyperSport- Launch Product |
|
Complete |
|
Vehicle Mechanics 90% Complete - Pending HyperDrive Completion |
|
Tooling Release Validation & Design Confirmation Est. Completion: Q4 - FY26 |
|
Final Assembly & Test Facility Distribution & Delivery Infrastructure Est. completion: Q4 FY 2026 Q3 FY 2027 |
|
|
|
$24M Estimate to launch date |
|
| |
8
|
|
|
Concept
Stage |
|
Engineering
&
Development
Stage |
|
Pre-production
Stage |
|
Production
&
Commercialization
Stage |
|
Budget
Next
12 Mo. |
|
Months
13 to 24
BudgetEst |
|
Image | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
HyperFighter
Future
Model
Schedule
Estimate |
|
Design & Performance Characteristics Definition; Leverages shared components with HyperSport including powertrain, chassis, braking
system, and dash display
Est. Date: Q3 Q4 FY 2026 |
|
Engineering
Vehicle Development
Est. completion: Q FY 2027 Q2 FY 2028 |
|
Est. completion: Q4 2027 Q1 FY 2028 |
|
Est.
completion: Q4 2027 Q1 FY 2028 |
|
|
|
~$0.5M for design and concept |
|
| |
|
HyperLite
Future
Model
Schedule
Estimate |
|
Design & Performance Characteristics Definition; HyperLite is smaller and less powerful variant of the HyperSport, with and new
HyperDrive Platform, targeted at the mass market
Est. Date: Q3 Q4 FY 2026 |
|
Est. completion: Q1 FY 2028 Q2 FY 2029 |
|
Est. completion: Q4 FY2028 Q1 FY 2029 |
|
Est. completion: Q2 Q3 FY 2030 |
|
|
|
~$0.2M for design and concept |
|
| |
9
Damon is starting the product portfolio with the HyperSport, the launch
product which sets a premium and high technology nature of the brand, and which currently is responsible for more than half of Damons
3,097 reservations. Damon plans to launch additional models made possible by reusing the same HyperDrive powertrain platformcore vehicle
chassis and powertrain system to address various market segmentation opportunities while reducing new product and platform development
investments. Over time, Damon intends to launch additional, lower cost commuter motorcycles, offered with Damons advanced features
such as CoPilot, Shift, and connectivity to further expand global appeal.
Damons strategy is to commercialize and refine costly new technology
with a premium family of products in the Hyper family of motorcycles for the western market first. Damon believes this market
will allows Damon to establish the brand and command the highest margins while ramping up volume. For the large markets in India, Southeast
Asia, Asia, Mexico and South America, some of the key challenges include price sensitivity, brand appeal, customer credit and financing
options, import tax levies, trade tariffs and challenges related to manufacturing as a foreign entity.
Building
a successful western brand is the first step to addressing the brand awareness and reputation gap in emerging markets.
To address price sensitivities, Damon plans to introduce a scaled down,
smaller powertrain platform called HyperLite following the initial HyperDrive motorcycles. Using similar battery technology and a smaller
multi-variant battery design as the HyperDrive platform, it will support several models that meet the needs of the 125cc to 400cc market
segments in emerging markets such as India, SE Asia, Latin America and Mexico. These vehicles are planned to be final assembled, distributed
and sold by partners in market.
Damons HyperLite-based vehicles are intended to compete by offering
enhanced safety features, technology, and performance for its class. Coupled with cost competitive subscription plans proven in western
markets, Damon intends to capture market share by offering a low friction price model with exceptional safety, noise and emissions benefits.
One way to determine the size of an emerging market is by conducting
early market validation and testing through online pre-sales campaigns, similar to how Damon has built its order book to date. Damon plans
to achieve this by conducting early web-based marketing to establish appetite for the HyperLite platform. This web-based marketing plan
will include local language websites that link to sections of the main Damon website. In addition, Damon will look for strategic business-to-business
opportunities, such as sales to other motorcycle manufacturers, last mile and other delivery applications that would allow Damon to establish
a presence in new regions.
10
**Software
and Connectivity Associated with Our Motorcycles**
****
As
software-defined vehicles, all of Damons cloud backend and control for Damons vehicle electronic control unit is an internal
development. This approach helps Damon to ensure high compatibility and functionality, integrating critical electric vehicle systems
and vehicle functions into one vehicle-cloud-to-vehicle proprietary system. This allows Damon to be responsive to changing consumer
needs, to remotely update software and prioritize feature development identified through analysis of Damons data sets. This approach
will apply to both its HyperLite and HyperDrive line of vehicles.
Damons
cloud vision is to revolutionize the transportation landscape through its connected vehicle strategy, empowering end users with unrivaled
vehicle optimization and supervision capabilities, supporting increasingly better efficiency, safety, and performance.
Damons CoPilot system is designed to interface with the rider
via vibrating handlebars for forward collision warning, and via a proprietary 7 touchscreen display. The display includes integrated
GPS, Cellular Connectivity, Bluetooth, high-speed video processing and 500 GB of onboard data storage. With its 1080P resolution, the
display enables the following novel features to enhance rider awareness:
|
| LED
forward collision warning to complement the handlebar vibration-based warning; |
|
|
| LED
blind spot warning; |
|
|
| a
digital rearview of traffic behind the motorcyclist; |
|
|
| charging
status via the Dragon logo on the back side of the display; and |
|
|
| full
system control of the motorcycles features and functions. |
|
The Damon app is designed to allow riders to interact with the electric
motorcycle, providing location-based services, charging stations and vehicle control functions via an integrated user profile. Damons
app is designed to remotely bridge the rider to the bike using built-in cellular connectivity and GPS, providing status, notifications,
and alerts. In combination with the cloud system, the mobile app will enable an ecosystem of services provided to Damon riders.
In
parallel to our core capabilities, Damon has a Software-as-a-Solution (SaaS) base platform known as Damon I/O. Damon I/O is a turnkey
rider intelligence and connected services platform tailored for motorcycle and personal mobility OEMs and fleet operators. It is designed
to address the challenge of fragmented post-sale experiences by offering a seamless suite of tools: real-time diagnostics, over-the-air
software updates, predictive maintenance alerts, branded mobile apps, and fleet dashboards, which are deployable within months.
While
most IoT or telematics vendors offer generic solutions, Damon I/O is purpose-built for motorcycles and personal mobility, drawing on
years of domain-specific R&D. It is white-labeled, customizable, and can integrate deeply with other OEM brands and hardware. With
Damon I/O, users may gain a competitive edge in digital rider experiences, as well as the infrastructure to scale into the software-defined
era of motorcycling and personal mobility. We are in the process of commercializing Damon I/O as a potential service offering, and we
believe that as more Damon I/O powered vehicles are deployed, Damon I/O will grow smarter, creating a network effect that could expand
our offering over time.
**Our
SAVES Products and Services**
****
We
offer a comprehensive set of data analytics and statistical visualization software solutions for engineers and scientists. The suite
of data analytics and statistical visualization tools includes SigmaPlot, SigmaStat, SYSTAT, PeakFit, TableCurve 2D, TableCurve 3D,
SigmaScan and MYSTAT. In addition, over the last three years the next generation of the Sigmaplot Product called Sigmaplot NG was
successfully developed. Sigmaplot NG is platform independent/Macintosh compatible and is a technological refresh of the past
versions of Sigmaplot allowing it to leverage modern hardware architectures and computational capacity. In addition a cloud version
of the Sigmaplot NG product which allows our customers to leverage the full power of the cloud and distribute our software among its
users with low touch and/or no touch installation processes is anticipated to be released later this year.
11
**SigmaPlot**is the flagship product that goes beyond financially oriented spreadsheets and the bells and whistles of business graphing
software by making the technical features that scientists and engineers need the highest priority. SigmaPlot provides more than 100 different
2D and 3D graph types. Researchers can choose from a full range of graphing options: technical axis scales, multiple axes, multiple intersecting
3-D graphs and more. With SigmaPlot, users create clear, compelling graphs that cannot be generated with basic spreadsheet packages.
**Systat**is a powerful statistical and graphical software package that is easy to use and highly integrated. The software includes basic and
advanced statistics. The basic functions are usually the most commonly used statistics (e.g., user can do descriptive statistics, frequencies,
correlations and etc.). Systat can also be used for advanced statistics (e.g., regression, ANOVA, MANOVA, factor analysis, cluster analysis,
time series).
**SigmaStat**was sold as a separate product for decades and was recently integrated into SigmaPlot. SigmaStat is a user-friendly statistical software
package scientists turn to when they want to be expertly guided through the analysis of their data. It is an ideal solution for anyone
who needs to conduct statistical analysis but does not have the in-depth knowledge of the math behind the statistical procedures performed.
**SigmaScan
Pro Scientists**, engineers or technicians face problems that are difficult to measure but easy to photograph. SigmaScan provides a
complete image analysis package for studying the structure and size of the visual information everything from image collection
to data analysis. With powerful image analysis and data manipulation techniques, SigmaScan Pro transforms images into reliable statistics,
understandable graphs and valuable scientific conclusions.
**TableCurve
2D**is a linear and non-linear curve fitting package for scientists. TableCurve 2D is the first and only program that completely eliminates
endless trial and error by automating curve fitting.
**TableCurve
3D**performs linear and non-linear surface fitting. TableCurve 3D is the first and only program that combines a powerful surface fitter
with the ability to find the ideal equation to describe three-dimensional empirical data.
**PeakFit**performs automated nonlinear peak separation and analysis. It was designed for scientists performing spectroscopy, chromatography
and electrophoresis. PeakFits state-of-the-art nonlinear curve fitting is essential for accurate peak analysis and conclusive
findings.
**Our
Operations**
****
**Sources
and Availability of Raw Materials for Our Motorcycle Business**
****
As
a vehicle designer and manufacturer, Damon designs, develops and tests functional vehicle components such as the motor-gearbox, inverter,
electronic control unit, rider display interface, battery pack, cooling system and more. It has also designed and developed the bodywork
and chassis system. These components are manufactured by world class suppliers such as Fukuta, Sinbon, Inventec and Wistron. Other specialized
components such as brakes, suspension, ABS systems and tires are supplied by major brand names such as Brembo, Ohlins, Continental and
Dunlop. All final components and subassemblies and shipped for hand assembly by Damon staff. Damon does not procure any raw materials.
**Distribution Plan for Our Motorcycle Business**
****
Damon believes it is positioned to modernize the way electric motorcycles
are brought to market, combining online and in-person touchpoints to yield a superior customer experience with greater cost efficiency.
With a meaningful gap between the pace at which vehicle retailing has evolved over the past two decades relative to other sectors, Damon
believes there is a significant opportunity for a model that incorporates direct-to-consumer online practices with pull-based vehicle
assembly. Damon believes this will significantly lower on-hand inventory costs, create a continuous customer order backlog that generates
ongoing demand and eliminate the ability for end customers to negotiate on price.
12
Most of Damons prospective
customers begin their journey online, with many utilizing a mobile device interfacing with Damons website or through the Damon
app. Damon is investing in digital development to bring those prospective customers to a single front end to address the early stages
of their journey and to continue through to purchase.
In North America and Europe, Damon intends to offer interested customers
the opportunity for a test ride before making a purchase. In addition, Damon plans to open pop-up locations and brand installations to
provide customers the ability to interact with Damon products in key locations.
Beyond
North America and Europe, Damon has agreed to a partnership with Auteco Mobility (Auteco), for the final assembly, distribution,
and sales of Damons HyperLite, its lower-cost global electric motorcycle platform.
Damons agreement with Auteco is for the development of the Latin
American (LATAM) market, which also includes a provision for technology licensing. Damon intends to make a depopulated variant of its
CoPilot technology to provide safety on lower cost vehicles. In its discussion with Auteco, they proposed installing CoPilot on all their
bikes and providing the customers with the ability to unlock the safety features for an additional $10/month. The details of these and
other licensing opportunities are still to be finalized, but there appears to be strong demand for Damons safety technology. For
manufacturing, Damon intends to work with Auteco on the assembly, distribution, and sales of Damon branded motorcycles into the LATAM
countries where Auteco has an established network.
In addition to Auteco, Damon had, received a $5 million investment
as a convertible note from, and established a strategic partnership with, PT Ilectra Motor Group and PT Solusi Mobilitas Indonesia for
final assembly and distribution in Indonesia with the ability to expand that partnership to all of Southeast Asia. The convertible note
was then converted into common shares of the Compnay from the Business Combination. Damon had entered into a relationship agreement with
PT Ilectra Motor Group and PT Solusi Mobilitas Indonesia that establishes the strategic partnership and provided for the purchase of an
unsecured promissory note by PT Solusi Mobilitas Indonesia from Damon for $5,000,000, which was then converted into common shares of the
Company at the time of the Business Combination. In addition, Damon agreed to invest an aggregate amount of $1,000,000 in PT Ilectra Motor
Group.
**Sales
and Marketing for Our SAVES Business**
****
Grafiti
Limiteds sales channels include direct sales as well as indirect sales through channel partners including resellers and distributors.
Our five indirect sales partners distribute the products in the western Europe region and also provide a wide range of pre- and post-sales
services to customers including installation and support services. There has not been any revenue concentration with any single channel
distributor. The agreements with the channel distributions contain customary terms including a negotiated discount for the Manufacturers
Suggested Retail Price.
Direct
sales representatives are compensated with a base salary and, in certain circumstances, may participate in incentive plans such as commissions
or bonuses.
Our
products are marketed through industry-focused as well as account-based marketing strategies which utilize SEO, advertising, social media,
trade shows, conferences, webinars, and other media.
Grafiti
Limiteds products are sold as annual or perpetual licenses along with maintenance subscriptions.
**Our
Intellectual Property**
****
Damons
intellectual property is a core asset and an important tool to drive value and differentiation in its products and services. Damon protects,
uses, and defends its intellectual property in support of its business objectives to increase return on investment, enhance competitive
position, and create shareholder value. Through strategic and business assessments of its intellectual property, Damon relies on a combination
of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various
international jurisdictions to establish and protect intellectual property related to its current and future business and operations.
13
As of the date of this report, Damon holds thirty-three (33) utility
patents and owns an additional four (4) pending utility patent applications. Seventeen (19) of those issued patents are from the United
States and fourteen (14) are foreign counterparts to its U.S. patents. Damon does not view any individual patent as being material to
its business. Subject to required payments of annuities or maintenance fees, U.S. utility patents have a term of 20 years from the priority
application date. Accordingly, Damons U.S. patents that have already been issued will expire between 2037 and 2043. Damons
foreign patents generally have similar expiration dates, but may vary from country to country, the duration being set according to the
laws of the jurisdiction that issued the patent. Damons trademarks, logos, domain names, and service marks are used to establish
and maintain its reputation with its customers, and the goodwill associated with its business. Additionally, Damon has registered trademarks
including DAMON (word), HYPERSPORT (word), HYPERCROSS (word), HYPERFIGHTER (word),
and DAMON (design) and other pending trademark applications with U.S. and foreign trademark offices. The duration of trademark
registrations varies from country to country, but it is typically for ten years with unlimited ten-year renewal terms, subject to the
payment of maintenance and renewal fees and the laws of the jurisdiction in which the trademark is registered.
**License,
Distribution and Administrative Service Arrangements with Grafiti LLC for Our SAVES Business**
****
On
June 19, 2020, the Parent acquired an exclusive license to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite
of products (SAVES) pursuant to an Exclusive Software License and Distribution Agreement, among the Parent, Cranes Software International
Ltd. and Systat Software, Inc. (Systat), as amended on June 30, 2020 and February 22, 2021 (as amended, the License
Agreement). In connection with the License Agreement, the Parent received an exclusive, worldwide license to use, modify, develop,
market, sublicense and distribute the SAVES software, software source, user documentation and related Systat Intellectual Property (as
defined in License Agreement) (the License); and an option to acquire the assets underlying the License. The Parent contributed
the License, along with other assets and businesses, to Grafiti LLC, then a wholly-owned subsidiary of the Parent. As reported in the
current report on Form 8-K filed by the Parent on February 23, 2024, the Parent sold 100% of the equity interest in Grafiti LLC to an
entity controlled by Nadir Ali, our former Chief Executive Officer and sole director prior to the Business Combination.
Grafiti
Limited was incorporated by the Parent in May of 2020 to operate as a distributor of the SAVES products in the UK and western European
region. Grafiti Limited is responsible for maintaining all aspects of the relationship with the end customer. All customer interaction
from solicitation, pre-sale activities, sale and invoicing, delivery and customer support is the responsibility of Grafiti Limited.
On
July 19, 2024, Grafiti Limited entered into a Distributor Agreement with Grafiti LLC. Under the Distributor Agreement, Grafiti LLC granted
Grafiti Limited a non- exclusive, non-transferable right and license to market and distribute SAVES products in the UK and other agreed-upon
territories. Grafiti Limited will pay Grafiti LLC the then-current prices for the products, subject to a discount of up to 50% if certain
revenue targets are met or other arrangements agreed upon by the parties. The deemed effective date of the Distributor Agreement is January
1, 2024, and will remain in effect for one year from the effective date, automatically renewing for successive one-year periods unless
either party provides advance notice prior to the end of the current term to not extend. Either party may terminate the Agreement without
cause by providing at least 90 days prior written notice, or immediately for specified reasons, including an uncured breach or
bankruptcy.
Additionally,
on July 19, 2024, Grafiti Limited entered into an Administrative Support Service Agreement with Grafiti LLC. Under the Administrative
Support Service Agreement, Grafiti LLC agreed to provide accounting, tax and other administrative sales support services to Grafiti Limited
for $5,080 per month, with the amount subject to a 5% annual increase by Grafiti LLC. The Administrative Support Service Agreement is
deemed to have commenced on January 1, 2024, and remains in effect for one year from the effective date, automatically renewing for successive
one-year periods unless either party provides advance notice prior to the end of the current term to not extend. No such notice has been
delivered.
**Employees**
****
As
of the date of this report, the Company has a total of 13 employees and contractors. Of these, 11 are dedicated to our motorcycle business,
including 11 full-time employees. By location, 10 team members are based in Canada, one in the U.S. Additionally, two employees support
the SAVES business: one focuses on sales and marketing efforts while the other handles pre- and post-sale support.
None
of its employees are members of any unions.
14
**Regulatory
Overview**
****
**United
States**
****
NHTSA
Safety and Self-Certification Obligations
As
a manufacturer of electric vehicles, Damons electric vehicles are subject to, and must comply with, numerous regulatory requirements
established by National Highway Traffic Safety Administration (NHTSA), including all applicable United States Federal Motor
Vehicle Safety Standards (Safety Standards). As set forth by the National Traffic and Motor Vehicle Safety Act, Damon must
certify that its electric vehicles meet all applicable Safety Standards. At the time of production, Damon intends for its motorcycles
to be fully compliant with all such Safety Standards without the need for any exemptions.
Damon
is also required to comply with, or demonstrate exemptions from, other requirements of federal laws administered by NHTSA, including
the consumer information labeling and owners manual requirements and various reporting requirements, such as early warning
reports regarding warranty claims and field incidents, death and injury reports, foreign recall reports and safety defects reports. In
addition, Damons products are also subject to certain laws and regulations that have been enacted or proposed, e.g., Right
to Repair, laws, that could require Damon to provide third-party access to its network and/or vehicle systems.
EPA
Certificate of Conformity
The
Clean Air Act requires that Damon obtain an Environmental Protection Agency-issued Certificate of Conformity with respect to emissions
from its electric vehicles and include labeling providing consumer information such as miles per gallon of gas-equivalent ratings and
maximum range on a single charge. The Certificate of Conformity is required each model year for electric vehicles sold in states covered
by the Clean Air Acts standards and is also required each model year for vehicles sold in states that have sought and received
a waiver from the Environmental Protection Agency to utilize California standards.
Battery
Safety and Testing
Damons
battery packs are tested in accordance with industry safety standards, including selected tests specified in the SAE J2464 and J2929
standards as well as tests defined by other standards and regulatory bodies and Damons own internal safety and quality tests.
These tests evaluate battery function and performance as well as resilience to conditions including immersion, humidity, fire and other
potential hazards. Damon is still in the process of testing the vehicle battery pack. Testing has taken place at a battery cell and submodule
level with the next phase planned for battery module and full pack abuse testing.
**European
Union**
****
Europe
Type Approval
Damon
intends to export electric vehicles to Europe. Unlike the United States, once Damon starts operating in this market, it must obtain pre-approval
from regulators to import and sell its electric vehicles into the EU and countries that recognize EU certification or have regulatory
regimes aligned with the EU (collectively referred to as Europe). The process for certification in Europe is known as Type
Approval and requires Damon to demonstrate to a regulatory agency in the EU, referred to as a Competent Authority,
that its electric vehicles meet all EU safety and emission standards.
Type
Approval is accomplished through witness testing of vehicles as well as inspection of a representative vehicle intended for production
and sale. Once the vehicle type is approved, all vehicles manufactured based on the approved type of vehicle may be produced or imported
and sold in Europe.
15
Any
changes to an approved vehicle type, including substantial software changes, must go through updated Type Approval by the Competent Authority.
EU
Emissions Regulations
Damon
believes Europes regulatory environment is generally conducive to the development, production and sale of electric vehicles. Through
emission legislation, tax incentives and direct subsidies, EU and non-EU countries in Europe are taking a progressive stance in reducing
carbon emissions in the transport sector which may lead to increasing demand for electric vehicles.
This
is reflected in the EU-wide target of a 90% reduction in greenhouse gas emissions from the transport sector by 2050 (compared to 1990
levels), as part of an economy-wide carbon-neutral target. Moving forward, the European Commission has proposed legislation that would:
(i) introduce a cap and trade carbon pricing system that would apply to the transport sector from 2026; and (ii) require
increased levels of national greenhouse gas reduction commitments (which include the transport sector) pursuant to a revision of the
Effort Sharing Regulation, as part of efforts to reduce EU emissions by 55% by 2030 (compared to 1990 levels).
**Environmental,
Health and Safety Regulations**
****
Certain
of Damons operations, properties and products are subject to stringent and comprehensive international, federal, state and local
laws and regulations governing matters including environmental protection, occupational health and safety, and the release or discharge
of materials into the environment (including air emissions and wastewater discharges). Failure to comply with these laws and regulations
may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations,
and the issuance of orders enjoining some or all of Damons operations in affected areas.
Damon
is also subject to permitting, registration, and other government approval requirements under environmental, health and safety laws and
regulations applicable in the jurisdictions in which Damon operates. Those requirements obligate Damon to obtain permits, registrations,
and other government approvals from one or more governmental agencies to conduct its operations and sell its products. The requirements
vary depending on the location where Damons regulated activities are conducted.
The
following summarizes certain existing environmental, health and safety laws and regulations applicable to Damons operations.
**United
States**
****
Hazardous
Substances
Damon
is subject to regulations governing the proper handling, storage, transportation and disposal of products containing hazardous substances.
Transportation of its battery packs (and of equipment containing them) is governed by regulations that address risks posed during different
modes of transport (e.g. air, rail, ground, ocean). Governing transportation regulations in the U.S., issued by the Pipeline and
Hazardous Materials Safety Administration (PHMSA), are based on the United Nations (UN) Recommendations and
Model Regulations on the Transport of Dangerous Goods as well as related UN Manual Tests and Criteria. Damon plans to test our battery
pack against the applicable UN Manual tests for its production battery packs, and the test results demonstrate Damons compliance
with the PHMSA regulations in the following phases of industrialization.
Damon
currently uses transition metal oxide cells in its high-voltage battery packs. Damon battery packs include certain packaging materials
that contain trace amounts of hazardous chemicals whose use, storage and disposal is regulated under U.S. federal law. As a result, Damons
battery packs are subject to federal and state environmental laws and regulations that govern the handling and disposal of waste, including,
in some instances, the remanufacture, recycling and disposal of hazardous waste.
16
The
laws governing hazardous substances and hazardous waste also may impose strict, joint and several liability for the investigation and
remediation of areas where hazardous substances may have been released or disposed. In the course of ordinary operations, Damon, directly
and through third parties and contractors, may handle hazardous substances within the meaning of the Comprehensive Environmental Response,
Compensation, and Liability Act and similar U.S. federal and state statutes and, as a result, may be jointly and severally liable for
all or part of the costs required to clean up sites at which any such hazardous substances have been released into the environment.
**European
Union**
****
Hazardous
Substances
Should
Damon expand manufacturing into the EU, it would also be subject to regulations governing the proper handling, and disposal of products
containing hazardous substances in the EU, including the EU Waste Framework Directive. In relation to Damons batteries, disposal
would be governed by the Batteries Directive, which imposes, among other obligations, certain requirements in relation to the disposal
of batteries, such as that producers of batteries and producers of other products that incorporate a battery are responsible for the
waste management of batteries that they place on the market, in particular the financing of collection and recycling schemes.
In
December 2020, the EU proposed a new Batteries Regulation, which, if passed, would include obligations with respect to the amount of
recycled content required in batteries placed on the EU market and would introduce mandatory supply chain due diligence obligations with
respect to the materials used in its batteries.
**Manufacturer
and Dealer Regulation in the United States**
****
State
laws regulate the manufacture, distribution, sale, and service (including delivery) of motorcycles, and generally require vehicle manufacturers
and dealers to be licensed in order to sell vehicles directly to customers in the state. Some states, however, do not permit motorcycle
manufacturers to be licensed as dealers or to act in the capacity of a dealer. To sell vehicles directly to residents of these states,
Damon must conduct the sale out of state over the internet or telephonically.
In
addition, certain states and territories require service facilities to be available for vehicles sold in the state or territory, which
may be interpreted to require service facilities to be available for vehicles sold over the internet or telephonically to residents of
the state or territory. Puerto Rico, for example, is one such jurisdiction. Such laws could limit Damons ability to sell vehicles
in states where Damon either does not maintain service facilities or where Damon does not have retail partners licensed to act as dealers
who maintain service facilities within these states.
Damon
believes that, as a matter of interstate commerce, it may sell an electric vehicle to any consumer in any state in the United States
from a Damon retail partner that is duly licensed as a dealer by a state in the United States. That customer may contact a licensed Damon
retail partner through the internet, by telephone or visiting the location directly. However, states that prohibit direct sales also
restrict traditional sales activities. Accordingly, in order to test drive an electric vehicle or have an in-person discussion with a
Damon salesperson regarding issues such as price, financing, trade-ins, options or similar purchase-related topics, a consumer residing
in a direct sales-prohibited state would be required to either contact Damon through electronic means (e.g., Internet or telephone) or
by traveling out of their home state to visit a licensed Damon retail partner in another state. With respect to service, vehicle manufacturers
are prohibited from providing warranty service from an established location within several states. Service for customers residing in
those states may in the future be provided by a mobile unit dispatched from a licensed service location in a nearby state where warranty
service is allowed or by that customer driving their Damon vehicle (or having it towed) to a state which allows Damon or a licensed Damon
retail partner to have a physical service location and perform warranty service activities.
**Data
Privacy and Cybersecurity Laws and Regulations**
****
Damons
business collects, uses, handles, stores, receives, transmits and otherwise processes different types of information about a range of
individuals, including its customers, riders of its electric vehicles, website visitors, users of its mobile application, its employees
and job applicants, and employees of companies it does business with (such as vendors and suppliers). As a result, Damon is and may become
subject to existing and emerging federal, state, local and international laws and regulations related to the privacy, security and protection
of such information.
17
The
following is an overview of the legal and regulatory framework by jurisdiction that the Company may be subject to.
**United
States**
****
Within
the United States there are numerous data privacy and cybersecurity laws and regulations that the Company may be subject to. Example
of these laws and regulations include the Federal Trade Commission (FTC) Act, the Gramm-Leach-Bliley Act, the Telephone
Consumer Protection Act, the CAN-SPAM Act, California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA),
the Virginia Consumer Data Protection Act (VCDPA), the Colorado Privacy Act (CPA), the Connecticut Data Privacy
Rights Act (CTDPA) and the Utah Consumer Privacy Act (UCPA).
In
the United States, while there is not a single generally applicable federal law governing the processing of personal information, there
are federal laws that apply to the processing of certain types of information, or the processing of personal information by certain types
of entities, and the Federal Trade Commission and state attorneys general may bring enforcement actions against companies that engage
in processing of personal information in a manner that constitutes an unfair or deceptive trade practice.
In
addition, certain states have enacted laws relating to data privacy and the processing of information about residents in those states.
The CCPA, which went into effect on January 1, 2020, and applies to Damons business, imposes obligations and restrictions on businesses
that handle personal information of California residents and provides new and enhanced data privacy rights to California residents, including
the right to know, the right to delete and the right to opt out of the sale of personal information as well as additional protections
for minors. Certain requirements in the CCPA remain uncertain due to ambiguities in the drafting of or incomplete guidance. Adding to
the uncertainty, in November 2020, California voters also passed the CPRA, which amends and expands upon the CCPA, imposes additional
obligations and sets forth additional privacy rights for California residents. Additional states, Virginia, Colorado, Connecticut and
Utah, also recently enacted comprehensive data privacy laws. Virginia passed the VCDPA, Colorado passed the CCPA, Connecticut passed
the CTDPA and Utah passed the UCPA. The CPRA and VCDPA become effective on January 1, 2023, the CPA and CTDPA become effective on July
1, 2023, and the UCPA becomes effective on December 31, 2023. There are currently draft CPRA regulations and draft CPA rules that, when
passed, will supplement the CPRA and CCPA. Additionally, laws, regulations, and standards covering marketing and advertising activities
conducted by telephone, email, mobile devices, and the Internet, may be applicable to Damons business, such as the TCPA, the CAN-SPAM
Act and similar state and federal consumer protection laws. Damon is also subject to certain laws and regulations that have been enacted
or proposed, such as Right to Repair laws, that could require it to provide third-party access to its network and/or vehicle
systems.
**European
Union and the United Kingdom**
****
By
expanding into Europe and the UK, Damon will also become subject to laws, regulations and standards covering data protection and marketing
and advertising, including the EU General Data Protection Regulation (GDPR) and the United Kingdom data protection regime,
consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act (together referred to as the UK GDPR).
The GDPR and UK GDPR regulate the processing of data relating to an identifiable individual (personal data) and impose stringent data
protection requirements on organizations with significant penalties for noncompliance. The European Data Protection Board has also released
data guidelines for connected vehicles, and the upcoming ePrivacy Regulation is in its final stages.
**Rest
of World**
****
Regulators
and legislators in jurisdictions around the world continue to propose and enact more stringent data protection and privacy laws. New
laws as well as any significant changes to applicable laws, regulations, interpretations of laws or regulations, or market practices
regarding privacy and data protection or regarding the manner in which Damon seeks to comply with applicable laws and regulations could
require Damon to make modifications to its products, services, policies, procedures, notices and business practices. Many large geographies
which may become important to Damons future success, including Australia, Brazil, Canada, China and India, have passed or are
considering comparable data privacy legislation or regulations. Until prevailing compliance practices standardize, the impact of worldwide
privacy regulations on Damons business and, consequently, its revenue, could be negatively impacted.
18
Damon
prioritizes the trust of its customers and employees and places great emphasis on systems and product security, cybersecurity, and privacy.
To earn this trust and comply with the above legal and regulatory framework, Damon is adopting and implementing a variety of technical
and organizational security measures, procedures, and protocols designed to protect its systems, products and data, in accordance with
the National Institute of Standards and Technology (NIST) Cybersecurity Framework.
Utilizing
the NIST Cybersecurity Framework, Damon has instituted a cybersecurity program designed to address the evolving cyber-threat landscape.
This includes a company-wide risk management structure with capabilities to assess direct and indirect vendors and an enterprise Secure
Software Development Lifecycle to ensure that Damon reduces its attack surface by remediating vulnerabilities in the development process
itself. Additionally, Damons identity and access management procedures and controls are consistent with the NIST Cybersecurity
Framework, including measures to validate and authenticate the identity of its corporate users.
Damon
maintains a vulnerability management program that includes periodic scans designed to identify security vulnerabilities and implement
remediations for potential customer-impacting issues that are found. In addition, Damon conducts penetration tests, receives threat intelligence,
follows incident response procedures, and remediates vulnerabilities according to severity and risk. Further, seeking to implement effective
management, control, and protection, Damon has established a centralized, organization-wide view of information assets.
Damons
cloud security program seeks to enable secure cloud architecture deployments and extend security capabilities to the edge of Damons
network where it interacts with customers. Damon works to increase cybersecurity awareness throughout its organization through education.
Damons cloud-hosted website and mobile application software services are developed using industry-standard SecDevOps practices
and are rigorously tested before deployment. Damons product software plan to utilize a zero-trust approach that employs signed
certificates, encryption keys, authentication schemes, and cryptography algorithms, and Damon has deployed these measures as appropriate
as part of its efforts to secure products communications and data transfers, vehicles and their components, including firmware
over-the-air (FOTA) updates. Additionally, Damon utilizes pre-condition checks, sequence and dependency execution, failure
detection, and rollback and recovery when performing updates during the FOTA process.
Damon
has also commenced a corporate-wide data privacy program with dedicated cross-functional resources. The objective of Damons data
privacy program is to facilitate beneficial uses of data to improve its products and services while preserving its customers privacy
expectations and complying with applicable law. Global data privacy laws and practices are continually evolving, and will continue to
guide the operational design, controls, procedures, and policies for Damons program. Damons strategy accounts for increased
risk as its business scales by addressing appropriate security and access controls for customer and employee information. A core tenet
of Damons privacy program is to implement privacy-by-design principles in both software and hardware development throughout the
organization. Damons privacy program will continue to evolve and adapt, utilizing industry practices and tailored risk management
frameworks, to allow for close collaboration across the organization, particularly between Damons information technology and legal
functions.
****
19
****
**Corporate
History**
****
**Spin-Off**
****
We
were incorporated under the laws of British Columbia, Canada, on October 17, 2023. Through our wholly-owned subsidiary, Grafiti Limited,
which was transferred to us on December 26, 2023 by our former parent company, XTI Aerospace Inc., we operate a business in the UK providing
a comprehensive set of data analytics and statistical visualization solutions for engineers and scientists. On December 27, 2023, we
were spun off by the Parent, by means of a transfer of all of our then outstanding common shares held by the Parent, to the Grafiti Holding
Inc. Liquidating Trust, to be held for the benefit of holders of the Parents common stock, preferred stock and those outstanding
warrants that were contractually entitled to participate in the distribution (collectively, the participating securityholders),
on a pro rata basis as of the record date. As described in further detail in our registration statement on Form 10-12B filed in connection
with the spinoff and declared effective by the SEC on November 12, 2024 (the Form 10), for U.S. federal income tax purposes
we believe that the transfer by the Parent of the spinoff shares to the trust was treated as a taxable distribution by the Parent to
the participating securityholders of the spinoff shares on the record date and the subsequent transfer by the participating securityholders
of the spinoff shares to the trust on the same date. The trust held the spinoff shares until the effective date of the Form 10-12B registration
statement on November 12, 2024, promptly following which the trust delivered the spinoff shares to the participating securityholders,
as beneficiaries of the trust, pro rata in accordance with their ownership of shares or underlying shares of the Parents common
stock as of the record date.
**The
Business Combination and Related Transactions**
****
On
November 13, 2024, we completed a business combination transaction with Damon Motors Inc., a designer and developer in electric motorcycles
and other personal mobility products that empower the personal mobility sector through innovation, data intelligence and strategic partnerships,
resulting in Damon Motors becoming our wholly-owned subsidiary. Upon completion of the Business Combination with Damon Motors, we changed
our corporate name to Damon Inc. and our common shares were listed and began trading on the Nasdaq Global Market. For further
information about these transactions, please refer to the current report on Form 8-K filed by the us with the SEC on November 18, 2024.
Following
the determination by Nasdaq Stock Market LLC to delist our common shares and the suspension of trading beginning on May 20, 2025, our
common shares have been quoted on the OTCID Basic Market under the symbol DMNIF.
The
Business Combination was accounted for using the acquisition method (as a reverse acquisition), with goodwill and other identifiable
intangible assets recorded in accordance with accounting principles generally accepted in the United States, as applicable. Under this
method of accounting, Grafiti Holding is treated as the acquired company for financial reporting purposes. Damon Motors
was determined to be the accounting acquirer because, after the Business Combination, Damon Motors will control the Board of Directors
and management of the combined company, and the preexisting shareholders of Damon Motors have majority voting rights of the combined
company. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business
combination.
****
**Corporate
Information**
Our
principal executive offices are located at 4601 Canada Way, Suite #402, Burnaby, British Columbia, Canada, V5G 4X7. Our telephone number
is (236) 326-3619. Our website address is https://damon.com/. The information contained on, or that can be accessed through, our website
is not incorporated by reference in this report and should not be considered to be part of this report.
20
**ITEM
1A: RISK FACTORS**
**
*We
are subject to various risks and uncertainties that may materially harm our business, prospects, financial condition and results of operations.
An investment in our common shares is speculative and involves a high degree of risk. In evaluating an investment in shares of our common
shares, you should carefully consider the risks described below, together with the other information included in this report.*
**
*If
any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize,
that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial
condition could be materially adversely affected. In that event, the trading price of our common shares could decline, and investors
in our common shares may lose all or part of their investment in our shares. The risks discussed below include forward-looking statements,
and our actual results may differ substantially from those discussed in these forward-looking statements.*
**
**Summary
Risk Factors**
*The
following summarizes the risks and uncertainties that could materially adversely affect our business, financial condition, results of
operation and stock price. You should read this summary together with the more detailed description of each risk factor contained below.*
|
| the
Company is an early-stage company with a limited operating history and a history of losses and expects to incur significant expenses
and continuing losses for the foreseeable future; additionally, there is no assurance that we will be able to achieve profitability,
raise additional financing or continue as a going concern; |
|
|
| the
Companys success will depend on its ability to economically produce its vehicles at scale and to create additional revenue sources
such as through the commercialization of SaaS solutions, and its ability to produce vehicles of sufficient quality and appeal to customers
on schedule and at a scale, as well as to successfully commercialize SaaS solutions, remains unproven; |
|
|
| to
carry out its proposed business plan, the Company will require a significant amount of capital and it may be unable to reduce and adequately
control the costs associated with operating its business; |
|
|
| the
Company does not currently have arrangements in place that will allow it to fully execute its business plan and may experience significant
delays in the design, manufacture, finance, regulatory approval, launch, transportation and delivery of its motorcycles and other potential
personal mobility products; |
|
|
| the
Company may not be able to accurately estimate the supply and demand for its vehicles, which could result in a variety of inefficiencies
in its business and hinder its ability to generate revenue; |
|
|
| the
Company has received only a limited number of reservations for its vehicles, all of which may be cancelled and are fully refundable,
and there is no assurance that such reservations will be converted into sales; |
|
|
| the
Company may not succeed in continuing to establish, maintain and strengthen the Company brand, and its brand and reputation could be
harmed by negative publicity regarding its company or products; |
|
|
| the
motorcycle and personal mobility market is highly competitive, and the Company may not be successful in competing in this industry; |
|
|
| the
Company may be adversely affected by the complexity, uncertainties and changes in automotive or internet related Canadian regulations
or similar regulations of any countries it intends to sell motorcycles and other potential personal mobility products into; |
|
|
| the
Company is dependent on its suppliers, some of which are single or limited source suppliers, and the inability of these suppliers to
deliver necessary components of the Companys vehicles at prices and volumes acceptable to the Company would have a material adverse
effect on its business; |
|
|
| the
Company depends on certain key personnel, and its success will depend on its continued ability to retain and attract qualified management,
technical and vehicle engineering personnel; |
|
|
| the
Companys business plan is and will be dependent on developing one or more manufacturing facilities or partnering with third parties
to fulfill this function, and complex machinery; |
|
21
|
| dependence
on a single licensor for our SAVES products and potential adverse changes to terms could negatively impact our financial condition and
results of operations; |
|
|
| global
economic conditions, including inflation and any other financial or economic crisis, or perceived threat of such a crisis, including
a significant decrease in consumer confidence, may materially and adversely affect the Companys business, financial condition,
results of operations and prospects; |
|
|
| adverse
judgments or settlements in legal proceedings, including the claim brought by our former CEO Jay Giraud, the claim brought by Andy DeFrancesco,
or those that may arise relating to the Business Combination, could materially harm our business, financial condition, operating results,
and cash flows; |
|
|
| the
Companys patent applications may not result in issued patents, which may have a material adverse effect on its ability to prevent
others from interfering with the commercialization of the Companys products; |
|
|
| the
Company may need to defend itself against patent or trademark infringement claims, which may be time-consuming and would cause the Company
to incur substantial costs; |
|
|
| the
lack of availability, reduction or elimination of government and economic incentives or government policies which are favorable for electric
vehicles and Canadian produced vehicles could have a material adverse effect on the Companys business, financial condition, operating
results and prospects; |
|
|
| the
construction and operation of one or more assembly facilities that the Company may seek to establish in the future, are or will be subject
to regulatory approvals, and may be subject to delays, cost overruns or may not produce expected benefits; |
|
|
| the
Companys vehicles are subject to motor vehicle standards and the failure to satisfy such mandated safety standards would have
a material adverse effect on the Companys business, financial condition, operating results and prospects; |
|
|
| failure
of information security and privacy concerns could subject the Company to penalties, damage its reputation and brand, and harm its business,
financial condition, operating results and prospects; |
|
|
| the
growth of our SAVES distribution business is dependent on increasing sales to our existing customers and obtaining new customers; |
|
|
| defects,
errors, or vulnerabilities in our SAVES products or services that we sell or the failure of such products or services to prevent a security
breach, could harm our reputation and adversely affect our results of operations. |
|
|
| our
share price is volatile and there is a limited market for our common share; |
|
|
| we
are eligible to be treated as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012,
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less
attractive to investors; |
|
|
| as
a foreign private issuer, we are exempt from certain U.S. securities laws and regulations that apply to U.S. domestic issuers, which
may afford less protection to shareholders; |
|
|
| we
may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses; |
|
|
| we
do not intend to pay cash dividends to our shareholders; |
|
|
| reporting
company compliance may make it more difficult to attract and retain officers and directors; |
|
22
|
| our
common shares have recently been delisted from Nasdaq and are currently traded on the OTCID Basic Market, which may adversely affect
the market price and liquidity of our common shares and limit our ability to raise additional capital; |
|
|
| sales
of a substantial number of our securities in the public market by us and/or by our existing securityholders could cause the price of
our common shares to fall; |
|
|
|
|
our
stock price has been volatile, and the issuance of common shares upon the exercise of Series A warrants has resulted in significant
dilution. Additional issuances under our current financing arrangements with Streeterville or other new issuances could further depress
the market price of our common shares. | |
**Risks
Related to Our Business and Industry**
**We
have a history of operating losses and we will need to raise capital to fund our planned operations and, additionally, there is no assurance
that we will be able to achieve profitability, raise additional financing or continue as a going concern.**
Our
financial statements have been prepared on a going-concern basis under which an entity is considered to be able to realize its assets
and satisfy its liabilities in the ordinary course of business. However, the audited consolidated financial statements of the Company
for the years ended June 30, 2025 and 2024 include a going concern explanatory paragraph in the independent auditor reports.
We
have a history of operating losses and have accumulated a deficit of $145,958,256 as of June 30, 2025, and expect to incur additional
future losses. The ability of our Company to continue as a going concern is dependent upon our attaining and maintaining profitable operations
and raising additional capital as needed, but there can be no assurance that we will be able to raise sufficient financing.
Our
ability to generate positive cash flow from operations is dependent upon sustaining targeted cost reductions and generating sufficient
revenues. While we have implemented measures to reduce non-essential costs, these reductions alone are insufficient to offset our operating
losses. Our management is evaluating options and strategic transactions and continuing to market and promote our product and service
offerings to increase revenues, however, there is no guarantee that these efforts will be successful or that we will be able to achieve
or sustain profitability. We have funded our operations primarily with private offerings and debt financing. Our history of operating
losses and cash uses, our projections of the level of cash that will be required for our operations to reach profitability, may impair
our ability to raise capital on terms that we consider reasonable and at the levels that we will require over the coming months. We cannot
provide any assurance that we will be able to secure additional funding from public or private offerings or debt financings on terms
acceptable to us, if at all. If we are unable to obtain the requisite amount of financing needed to fund our planned operations, it would
have a material adverse effect on our business and ability to continue as a going concern, and we may have to curtail, or even to cease,
certain operations. If additional funds are raised through the issuance of equity securities or convertible debt securities, it will
be dilutive to our shareholders and could result in a decrease in our share price.
****
**The
Company has incurred significant costs associated with the Business Combination and will continue to incur significant costs associated
with operating as a public reporting company.**
The
Company has incurred substantial, non-recurring costs related to the consummation of the Business Combination and expects to continue
incurring significant expenses as it operates as a public reporting company. These costs include legal, financial advisory, accounting
and auditing, banking, and consulting fees, as well as expenses for regulatory filings, SEC fees, printing, and mailing. Additionally,
the Company may incur further costs to retain key employees and engage new employees to support its transition to operating as a public
reporting entity. These expenses are either the responsibility of the party incurring them during the Business Combination or will be
paid by the Company following the Closing.
23
**The
Company is an early-stage company with a history of losses and expects to incur significant expenses and continuing losses for the foreseeable
future. There is no guarantee that the Company will achieve or sustain profitability.**
The
Company has incurred losses since its inception and expects to continue to incur operating and net losses each quarter until such time
as it achieves sufficient sales and production capacity at an assembly facility, which is not expected until 2026. Even if the Company
is able to successfully develop, produce and sell its vehicles, there can be no assurance that they will be commercially successful.
The Companys potential profitability is dependent upon the successful development, production, commercialization and acceptance
of its vehicles, which has not yet occurred, and may never occur.
Prior
to the Business Combination, Grafiti Holding incurred a net loss of approximately US$1.3 million for the fiscal year ended June 30, 2024
and approximately US$1.6 million during the quarter ended September 30, 2024, and had an accumulated deficit of approximately US$3.3
million as of September 30, 2024. Damon Motors incurred a net loss of approximately US$34.0 million for the fiscal year ended June 30,
2024 and approximately $7.4 million during the quarter ended September 30, 2024, and had an accumulated deficit of approximately $148.0
million as of September 30, 2024. Following the Business Combination, we have continued to incur loss and anticipate generating a significant
loss in the foreseeable future, due to the factors discussed below. As of June 30, 2025, we have accumulated a deficit of $145,958,256.
The
Company expects to continue to incur significant expenditures in connection with the execution of its business strategy, including, without
limitation, as a result of: continuing to design and develop and beginning to manufacture its existing and planned vehicles; equipping
and expanding its pilot, support research and development and mass-production manufacturing facilities to produce its vehicles potentially
in the US and international locations, and subsequently ramping-up production capacity at such facilities; building up inventories of
parts and components for its vehicles; developing or securing personal mobility charging partnerships; expanding its design, research,
development, maintenance and repair capabilities; increasing its sales and marketing activities and developing its distribution infrastructure;
designing and implementing a show room network; expanding its general and administrative functions to support its growing operations.
The Company also expects to incur expenditures to support the commercialization of Damon I/O, its Software-as-a-Solution (SaaS) rider
intelligence and connected services platform, including continued product development, OEM integration, and scaling deployment infrastructure.
Because
it will incur the costs and expenses from these efforts before it receives any incremental revenues with respect thereto, the Companys
losses in future periods may be significant. In addition, the Company may find that these efforts are more expensive than currently anticipated,
including by reason of delays in product development and commercialization, or that these efforts may not result in revenues, which would
further increase its losses. The Companys ability to produce revenues will depend, in part, on its ability to finalize and begin
commercial start of production of its HyperSport vehicle, which is not expected to occur until 2027.
Management
does not expect its SAVES distribution business to greatly expand. The Companys ability to generate positive cash flow from operations
in this business is dependent upon sustaining certain cost reductions and generating sufficient revenues. Our ability to achieve profitability
with respect to the SAVES distribution business is more challenging when sales slow due to adverse economic conditions, notwithstanding
our cost reduction efforts, because our cost reduction efforts may not be sufficient to offset declining gross profit.
For
the reasons discussed above, there is no guarantee that the Company will reach profitability in the near term or at all, which could
materially and adversely affect its business, financial condition, and results of operations.
**The
Company has a limited operating history which makes it difficult to evaluate its future business prospects and may increase investment
risk.**
The
Companys limited operating history makes evaluating its business and future prospects difficult. Damon Motors began operations
in 2017 and has not yet begun mass production or the commercial delivery of its first motorcycle. If the Company does not successfully
address these risks, its business, financial condition, operating results and prospects will be materially and adversely harmed. The
Company has a very limited operating history and, as it attempts to transition from research and development activities to production
and sales, it is difficult, if not impossible, to forecast its future results, and management has limited insight into trends that may
emerge and affect its business. The Company intends to derive a substantial portion of its revenue from the sale of its electric motorcycles,
none of which have reached commercialization stage to date. If actual results differ materially from managements estimates in
future periods, the Companys business, financial condition, operating results and prospects may be materially adversely affected.
24
The
Company is currently in concept phase of second vehicle, the HyperFighter, which is scheduled for delivery in 2028. The Companys
motorcycles require significant investment prior to commercial introduction and may never be successfully developed, produced, commercialized
or accepted. There are no assurances that the Company will be able to successfully develop its models in a timely manner, or secure future
business from recreational customers.
The
Company has encountered, and expects to continue to encounter, risks and uncertainties frequently experienced by early-stage companies
in rapidly changing markets, including risks related to its ability to, among other things:
|
| design
and produce safe, reliable and quality vehicles on an ongoing basis; |
|
|
| build
a well-recognized and respected brand; |
|
|
| establish
and expand its customer base; |
|
|
| continue
to make significant investments in research, development, manufacturing, marketing and sales; |
|
|
| successfully
market its vehicles and its other services; |
|
|
| properly
price its services and successfully anticipate the take-rate and usage of such services by users; |
|
|
| improve
and maintain its operational efficiency; |
|
|
| maintain
a reliable, secure, high-performance and scalable technology infrastructure; |
|
|
| hire,
integrate, retain and motivate professional and technical talent, including key members of management; |
|
|
| anticipate
and adapt to changing market conditions, including technological developments and changes in competitive landscape; and |
|
|
| navigate
an evolving and complex regulatory environment. |
|
If
the Company fails to address any or all of these risks and challenges, its business, financial condition, operating results and prospects
may be materially adversely affected.
**The
Company expects to initially depend on revenue generated from a single model of vehicle and in the foreseeable future will be significantly
dependent on a limited number of models.**
The
Companys personal mobility business is expected to initially depend substantially on the sales and success of its HyperSport motorcycles,
which we expect will be our only volume manufactured vehicle in the market for an extended period of time, and in the foreseeable future
will be significantly dependent on a limited number of vehicles. The Company will rely on sales from the HyperSport motorcycles, among
other sources of financing, for the capital that will be required to develop and commercialize those subsequent models. To the extent
that (i) production of the Companys motorcycles is delayed, interrupted or reduced, (ii) the Companys product variety and
motorcycles do not meet customer expectations or do not align with projected timelines, cost and volume targets or (iii) any of the Companys
vehicles are not well- received by the market for any reason, the Companys revenue and cash flow would be adversely affected.
In any such case, the Company may need to seek additional financing earlier than it expects, which financing may not be available to
it in a timely manner and on commercially reasonable terms, or at all, and the Companys business, financial condition, operating
results and prospects may be materially adversely affected.
25
**The
Companys success will depend on its ability to economically produce its vehicles at scale and to create additional revenue sources
such as through the commercialization of SaaS solutions, and its ability to produce vehicles of sufficient quality and appeal to customers
on schedule and at a scale, as well as to successfully commercialize SaaS solutions, remains unproven.**
The
Companys business success will depend in large part on its ability to economically produce, market and sell its motorcycles at
sufficient capacity to meet the demands of its customers. The Company will need to scale its production capacity in order to successfully
implement its business strategy, and plans to do so in the future by, among other things, establishing development and ramp-up capacity
at one or more assembly facilities. The Company has no experience in mass-production of its motorcycles. The Company does not know whether
it will be able to develop efficient, automated, low-cost production capabilities and processes, or whether it will be able to secure
reliable sources of supply from suppliers and manufacturers, in each case that will enable it to meet the quality, price, engineering,
design and production standards, as well as the production volumes, required to successfully mass market its motorcycles and meet its
business objectives and customer needs.
Even
if the Company is successful in developing mass-production capability and processes and can reliably source supplies in sufficient volume,
it does not know whether it will be able to do so in a manner that avoids significant delays and cost overruns, including as a result
of factors beyond its control, such as problems with suppliers and manufacturers, or in time to meet the commercialization schedules
of future vehicles or to satisfy the requirements of its customers. The Companys ability to effectively reduce its cost structure
over time is limited by the fixed nature of many of its planned expenses in the near-term, and its ability to reduce long-term expenses
is constrained by its need to continue investment in its business strategy.
The
Company also faces risks in executing its business plan to diversify and create new revenue sources, including through the commercialization
of Damon I/O, its Software-as-a-Solution (SaaS) platform. Market adoption is unproven, and the Company may be unable to further develop,
scale, or integrate Damon I/O in a cost-effective manner, or to achieve sufficient OEM and fleet operator adoption to generate meaningful
revenue.
If
the Company fails to develop and scale such mass-production capability and processes within its projected costs and timelines, the Companys
business, financial condition, operating results and prospects may be materially adversely affected.
**The
Company may be unable to reduce and adequately control the costs associated with operating its business.**
The
Company will require significant capital to develop and grow its business and it expects to incur significant costs which will impact
its profitability, including research and development expenses as new models are rolled out and existing models improved, raw material
procurement costs, selling and distribution expenses as it builds its brand and markets its vehicles and solutions, and general and administrative
expenses as it scales its operations. In addition, the Company may incur significant costs in connection with its services and honoring
its commitments under its service and warranty packages. The Companys ability to become profitable in the future will not only
depend on its ability to successfully market its vehicles and other products and services, but also its ability to control its costs.
If the Company is unable to design, manufacture, market, sell and distribute and service its vehicles and services in a cost-efficient
manner, its business, financial condition, operating results and prospects may be materially adversely affected.
**To
carry out its proposed business plan to develop, manufacture, sell and service electric motorcycles and other potential personal mobility
products and services, the Company will require a significant amount of capital.**
The
Companys capital expenditures will continue to be significant in the foreseeable future as it expands its business and its level
of capital expenditures will be significantly affected by customer demand for its products and services. The fact that the Company has
a limited operating history means it has limited historical data on the demand for its products and services. As a result, its future
capital requirements are uncertain and actual capital requirements may be materially different from those it currently anticipates. The
Company expects that it will ultimately need to seek additional equity or debt financing to finance its capital expenditures, though
the timing or amount of any such capital expenditures cannot be predicted with certainty at this time. The sale of additional equity
or equity-linked securities would dilute the Companys shareholders, while the incurrence of indebtedness would result in increased
debt service obligations and covenants that potentially restrict its operations.
26
There
is no assurance that such additional financings will be available to the Company in a timely manner or on terms that are favorable, or
at all. The Companys ability to obtain the necessary financing to carry out its business plan is subject to a number of factors,
including general market conditions and investor acceptance of its business plan. These factors may cause the timing, amount, terms and
conditions of such financing to be unattractive or unavailable to the Company. If the Company is unable to secure sufficient financing
if and when needed or desired, it may have to significantly reduce its spending, delay or cancel its planned activities or substantially
change its current corporate structure and its business, financial condition, operating results and prospects may be materially adversely
affected.
**The
Company may experience significant delays in the design, manufacture, finance, regulatory approval, launch, transportation and delivery
of its motorcycles and other potential personal mobility products.**
The
Companys will depend in large part on its ability to execute on its plans to design, manufacture, finance, obtain regulatory approval
for, launch, transport and deliver its vehicles, and any delay associated therewith could materially adversely affect the Companys
business, financial condition, operating results and prospects, and could cause liquidity constraints and reputational damage.
Vehicle
manufacturers often experience delays in the design, manufacture and commercial launch of new products. The Company has no experience
to date in high volume manufacturing of its vehicles. Even if it is successful in developing high-volume manufacturing capability and
processes and in reliably sourcing its component supply, the Company cannot guarantee that it will be able to do so in a manner that
avoids significant delays and cost overruns or in time to meet its vehicle commercialization schedules or in satisfaction of customer
expectations or requirements. Further, the Company will also rely on third-party suppliers for the provision and development of the key
components and materials used in its vehicles. To the extent the Companys suppliers experience any delays in providing it with
or developing necessary components, it could experience delays in delivering on its timelines. Further, prior to mass production of its
vehicles, the Company will need such vehicles to be fully designed, engineered and approved for sale according to differing requirements,
including, but not limited to, regulatory requirements, in the different jurisdictions in which it intends to commercialize them.
**The
Company does not currently have arrangements in place that will allow it to fully execute its business plan.**
To
sell its motorcycles and other potential personal mobility products and services as envisioned, the Company will need to enter into agreements
and arrangements that are not currently in place. These include entering into manufacturing agreements for the Companys current
and future electric personal mobility products not yet in development and acquiring or developing additional manufacturing capability,
arranging for the transportation of HyperSport motorcycles, obtaining battery and other essential supplies in the quantities that the
Company requires. If the Company is unable to enter into such agreements or is only able to do so on terms that are unfavorable, the
Company may not be able to fully carry out its business plans as currently contemplated or at all.
**If
the Company is unable to design, develop, manufacture and sell new electric motorcycles and other potential personal mobility products
and services that address additional market opportunities, its business, financial condition, operating results and prospects may suffer.**
The
Company may not be able to successfully design, develop, manufacture and sell new electric motorcycles and other potential personal mobility
products and services, address new market segments or develop a significantly broader customer base. To date, the Company has focused
its business on the development and sale of the HyperSport HS motorcycles, which have targeted mainly affluent super sport motorcycle
market. The Company will need to address additional markets and expand its customer demographic to further grow its business. If the
Company fails to address additional market opportunities, its business, financial condition, operating results and prospects may be materially
adversely affected.
27
**The
Company may not be able to accurately estimate the supply and demand for its vehicles, which could result in a variety of inefficiencies
in its business and hinder its ability to generate revenue. If the Company fails to accurately predict its manufacturing requirements,
the Company could incur additional costs or experience delays.**
It
is difficult for management to predict the Companys future revenues and appropriately budget for its expenses, and management
has limited insight into trends that may emerge and affect the Companys business. The Company will be required to provide forecasts
of its demand to its suppliers several months prior to the scheduled delivery of vehicles to its prospective customers. Currently, there
is no historical basis for making judgments about the demand for the Companys vehicles or its ability to design, develop, manufacture
and sell vehicles, or its profitability in the future. If the Company overestimates its requirements, its suppliers may have excess inventory,
which indirectly would increase its costs. If the Company underestimates its requirements, its suppliers may have inadequate inventory,
which could interrupt manufacturing of its vehicles and result in delays in deliveries and revenues or negatively impact its ongoing
relationships with its suppliers. In addition, lead times for materials and components that its suppliers order may vary significantly
and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If the Company fails
to order sufficient quantities of product components in a timely manner, the delivery of vehicles to its customers could be delayed,
and its business, financial condition, operating results and prospects may be materially adversely affected.
**The
Company has received only a limited number of reservations for its vehicles, all of which may be cancelled and are fully refundable,
and there is no assurance that such reservations will be converted into sales.**
As of September 29, 2025, Damon had 3,097 reservations for HyperSport
and HyperFighter motorcycles, which were placed with fully refundable deposits. The Companys customers may cancel their reservations
without penalty and for any reason until they place an order for their motorcycle, at which point the deposit becomes non-refundable and
the customer is required to pay an additional non-refundable deposit. The Company has experienced cancellations in the past, and further
customers may cancel their reservations for many reasons outside of its control, including changes in government subsidies and economic
incentives. The potentially long wait from the time a reservation is made until the time the vehicle is delivered could also impact user
decisions on whether to ultimately make a purchase, due to potential changes in preferences, competitive developments and other factors.
In addition, any further delays in the expected start of production of the HyperSport line of motorcycles or other upcoming models could
result in significant reservation cancellations. No assurance can be given that reservations will not be cancelled and will ultimately
result in the final purchase, delivery and sale or lease of motorcycles. Accordingly, the number of reservations has significant limitations
as a measure of demand for the Companys products, including demand for particular body styles, models or trim levels, or for future
motorcycle sales.
**If
the Company fails to manage future growth effectively, it may not be able to produce, market, service and sell (or lease) its motorcycles
successfully.**
The
Company plans to expand its operations in the near future in connection with the planned production of its motorcycles, which will require
it to hire and train new personnel, accurately forecast production and revenue, control expenses and investments in anticipation of expanded
operations, establish new or expand current design, production and sales and service facilities, implement and enhance administrative
infrastructure, systems and processes, address new markets and establish international operations. If the Company fails to efficiently
manage its growth, its business, financial condition, operating results and prospects may be materially adversely affected.
The
Company expects to experience significant and rapid growth in the scope and complexity of its business, which may place a significant
strain on the Companys senior management team and its financial and other resources. Such growth, if experienced, may expose the
Company to greater costs and other risks associated with growth and expansion. The Company may be required to hire a broad range of additional
employees, including other support personnel, among others, in order to successfully advance its operations. The Company may be unsuccessful
in these efforts or may be unable to project accurately the rate or timing of these increases.
28
The
Companys ability to manage its growth effectively will require the Company to continue to improve its operations, to improve financial
and management information systems, and to train, motivate, and manage future employees. This growth may place a strain on the Companys
management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel
for the performance of all of the functions necessary to effectively service and manage the Companys business, or the failure
to manage growth effectively, could have a materially adverse effect on the Companys business, financial condition, and results
of operations. In addition, difficulties in effectively managing the budgeting, forecasting, and other process control issues presented
by such a rapid expansion could harm the Companys business, financial condition, and results of operations.
**The
Company has very limited experience servicing its motorcycles. If it is unable to address the service requirements of its future customers,
the Companys business may be materially and adversely affected.**
The
Company has limited experience in servicing its motorcycles, and it expects to be required to increase its servicing capabilities as
it scales its operations and continues to grow, including by building the Company experience centers in the U.S. and Canada. Servicing
electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high
voltage training and servicing techniques. Although the Company believes the experience it has gained developing and operating prototypes
of its motorcycles positions it well to service its motorcycles and future products, the Company has no after-sale experience of maintaining
and servicing motorcycles for its customers at scale, and there is no guarantee Damon will be able to do so. There can be no assurance
that the Companys service arrangements will adequately address the service requirements of the Companys customers to their
satisfaction, or that the Company and its partners will have sufficient resources to timely meet ongoing service requirements at scale.
In addition, the Company anticipates the level and quality of the services it plans to provide its customers will have a direct impact
on the success of its brand, reputation and ongoing sales. Failure to address the servicing requirements of its customers could harm
the Companys reputation or materially adversely affect its business, financial condition, operating results and prospects.
The
Companys customers will also depend on the Companys customer support team to resolve technical and operational issues relating
to the software integrated in its vehicles. The Companys ability to provide effective customer support is largely dependent on
its ability to attract, train and retain qualified personnel with experience in supporting customers on platforms such as the Companys
platform. As it continues to grow, additional pressure may be placed on the Companys customer support team, and the Company may
be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. The Company may also
be unable to modify the future scope and delivery of its technical support to compete with changes in the technical support provided
by its competitors. Increased customer demand for support, without corresponding revenue, could increase costs and negatively affect
the Companys results of operation. If the Company is unable to successfully address the servicing requirements of its customers
or establish a market perception that it maintains high-quality support, it may be subject to claims from its customers, including for
breach of warranties, loss of revenue or damages, and its business, financial condition, operating results and prospects may be materially
adversely affected.
**The
Companys motorcycles may not perform in line with customer expectations.**
The
Companys vehicles, including the HyperSport line of motorcycles, may not perform in line with customers expectations. For
example, the Companys vehicles may not have the durability or longevity of other vehicles in the market and may not be as easy
and convenient to repair as other vehicles in the market. Any product defects or any other failure of the Companys vehicles to
perform as expected could harm its reputation and result in adverse publicity, harm to the Damon brand and reputation, lost revenue,
delivery delays, product recalls, product liability claims, significant warranty and other expenses, and could have a material adverse
impact on the Companys business, financial condition, operating results and prospects. Additionally, problems and defects experienced
by other electric consumer vehicles could by association have a negative impact on perception and customer demand for the Companys
vehicles.
29
Further,
the Companys vehicles may contain defects in components, software, design and manufacture that may cause them not to perform as
expected or that may require repairs, recalls or design changes, any of which would require significant financial and other resources
to successfully navigate and resolve. The Company initially plans to deliver its vehicles without CoPilot ADAS, and thereafter to deliver
its vehicles with CoPilot ADAS with limited functionality, with the goal to activate additional features over time. There is no guarantee
that the CoPilot ADAS will ultimately perform in line with expectations. The Companys vehicles use a substantial amount of software
code to operate and software products are inherently complex and often contain defects and errors when first introduced. Efforts to remedy
any issues the Company observes in its products could significantly distract managements attention from other important business
objectives, may not be timely, may hamper production or may not be to the satisfaction of its customers. Further, while extensive internal
testing has been performed on the Companys vehicles software and hardware systems, the Companys limited operating
history and limited field data reduce its ability to evaluate and predict the long-term quality, reliability, durability and performance
characteristics of its vehicles. There can be no assurance that the Company will be able to detect and resolve any defects in its vehicles
prior to their sale to customers. If any of the Companys vehicles fail to perform as expected, deliveries may have to be delayed,
product recalls initiated and servicing or updates under warranty provided at the Companys expense, which could adversely affect
the Companys brand in its target markets and its business, financial condition, operating results and prospects may be materially
adversely affected.
**Sales
will depend in part on the Companys ability to establish and maintain confidence in its business prospects among customers, analysts
and others within its industry.**
Consumers
may be less likely to purchase the Companys products if they do not believe that its business will succeed or that its operations,
including service and customer support operations, will continue for many years. Similarly, suppliers and other third parties will be
less likely to invest time and resources in developing business relationships with the Company if they are not convinced that its business
will succeed. Accordingly, to build, maintain and grow its business, the Company must establish and maintain confidence among customers,
suppliers, analysts and other parties with respect to its liquidity and business prospects. Maintaining such confidence may be particularly
difficult as a result of many factors, including the Companys limited operating history, others unfamiliarity with its
products, uncertainty regarding the future of electric vehicles, any prior or future delays in scaling production, delivery and service
operations to meet demand, competition and the Companys production and sales performance compared with market expectations. Some
of these factors are outside of the Companys control, and any negative perceptions about the Companys business prospects,
even if exaggerated or unfounded, would likely harm its business and make it more difficult to raise additional capital in the future.
In addition, a significant number of new electric vehicle companies have recently entered the automotive industry, which is an industry
that has historically been associated with significant barriers to entry and a high rate of failure. If these new entrants or other manufacturers
of electric vehicles go out of business, produce vehicles that do not perform as expected or otherwise fail to meet expectations, such
failures may have the effect of increasing scrutiny of others in the industry, including the Company, and further challenging customer,
supplier and analyst confidence in the Companys business prospects.
**The
Companys business and prospects depend significantly on its ability to build its brand. The Company may not succeed in continuing
to establish, maintain and strengthen the Damon brand, and its brand and reputation could be harmed by negative publicity regarding its
company or products.**
The
Companys business and prospects are heavily dependent on its ability to develop, maintain and strengthen the Damon
brand. If the Company fails to establish, maintain and strengthen its brand, it may lose the opportunity to build a critical mass of
customers. Promoting and positioning the Damon brand will likely depend significantly on the Companys ability to
provide high quality vehicles and services and engage with its customers as intended and the Company has limited experience in these
areas. In addition, the Company expects that its ability to develop, maintain and strengthen the Damon brand will also
depend heavily on the success of its user development and branding efforts. Such efforts mainly include building a community of online
and offline users engaged with the Company through its mobile application and the Company stores as well as other branding initiatives
and events. Such efforts may be non-traditional and may not achieve the desired results. To promote the Damon brand, the
Company may be required to change its user development and branding practices, which could result in substantially increased expenses,
including the need to use traditional media such as television, radio and print. If the Company does not develop and maintain a strong
brand, its business, financial condition, operating results and prospects may be materially and adversely impacted.
30
In
addition, if incidents with the Companys business, vehicles or services occur or are perceived to have occurred, whether or not
such incidents are the Companys fault, the Company could be subject to adverse publicity. In particular, given the popularity
of social media, posts and opinions regarding Damon, whether true or not, could quickly proliferate and harm consumer perceptions and
confidence in the Damon brand. Further, there is the risk of potential adverse publicity related to the Companys
manufacturing or other partners, whether or not such publicity is related to their collaboration with the Company. The Companys
ability to successfully position its brand could also be adversely affected by perceptions about the quality of its partners vehicles.
In addition, from time-to-time, the Companys vehicles are evaluated and reviewed by third parties. Any negative reviews or reviews
which compare Damon unfavorably to competitors could adversely affect consumer perception about the Companys vehicles.
**The
motorcycle and personal mobility market is highly competitive, and the Company may not be successful in competing in this industry.**
The
motorcycle and personal mobility market is highly competitive, and the Company expects it will become even more so in the future. Currently,
the Companys principal competition for its vehicles comes principally from manufacturers of motorcycles with internal combustion
engines powered by gasoline, including in the premium and other segments of its business. The Company cannot assure that customers will
choose its vehicles over those of its competitors internal combustion-engine motorcycles. Although the Company intends to strategically
enter into the market in the premium electric vehicle segment, it similarly expects this segment will become more competitive in the
future as additional competitors enter into it, both from established brands and new entrants from various regions of the globe.
Many
of the Companys current and potential competitors have significantly greater financial, technical, manufacturing, marketing and
other resources than the Company and may be able to devote greater resources to the design, development, manufacturing, distribution,
promotion, sale and support of their products. Based on publicly available information, a number of the Companys competitors already
have displayed prototype electric motorcycles and have announced target availability and production timelines, while others have launched
pilot programs or full commercial offerings in certain markets.
Notably,
the Company expects competition in its industry to intensify in the future in light of increased demand and regulatory push for alternative
fuel vehicles, continuing globalization and consolidation in the worldwide motorcycle industry. Factors affecting competition include,
among others, product quality and features, innovation and development time, pricing, reliability, safety, fuel and energy economy, customer
service (including breadth of service network) and financing terms.
The
Companys ability to successfully compete in the motorcycle industry will be fundamental to its future success in existing and
new markets and its market share. There can be no assurance that the Company will be able to compete successfully in the markets in which
it operates. If the Companys competitors introduce new models or services that successfully compete with or surpass the quality,
price, performance or availability of the Companys vehicles or services, the Company may be unable to satisfy existing customers
or attract new customers at the prices and levels that would allow it to generate attractive rates of return on its investment. Increased
competition could result in lower vehicle unit sales, price reductions and revenue shortfalls, loss of customers and loss of market share,
which may materially adversely affect the Companys business, financial condition, operating results and prospects.
**There
may be unanticipated obstacles to the execution of the Companys business model.**
The
Companys business plans may change significantly. The Companys business model is capital intensive. The Company believes
that its chosen activities and strategies are achievable in light of current economic and legal conditions with the skills, background,
and knowledge of the Companys principals and advisors. The Companys management reserves the right to make significant modifications
to its stated strategies depending on future events.
The
Companys proposed plan of operation and prospects will depend largely upon its ability to successfully establish the Companys
presence in a timely fashion, retain and continue to hire skilled management, technical, marketing, and other personnel, and attract
and retain significant numbers of quality business partners and corporate clients. There can be no assurance that the Company will be
able to successfully implement its business plan or develop or maintain future business relationships, or that unanticipated expenses,
problems or technical difficulties which would result in material delays in implementation will not occur.
31
**Demand
in the motorcycle and personal mobility industry is highly volatile.**
Volatility
of demand in the motorcycle and personal mobility industry may materially and adversely affect the Companys business, financial
condition, operating results and prospects. The markets in which the Company will be competing have been subject to considerable volatility
in demand in recent periods. Demand for motorcycle and other potential personal mobility product sales depends to a large extent on general,
economic, political and social conditions in a given market and the introduction of new motorcycles and technologies. As an early state
company in the personal mobility industry, the Company has fewer financial resources than more established motorcycle and other personal
mobility product manufacturers to withstand changes in the market and disruptions in demand.
**The
Companys ability to generate meaningful product revenue will depend upon consumers willingness to adopt electric motorcycles
and other potential personal mobility products.**
The
Companys growth will greatly depend upon the adoption by consumers of, and the Company is subject to an elevated risk of any reduced
demand for, alternative fuel motorcycles in general and electric motorcycles and other potential personal mobility products in particular.
If the market for electric motorcycles and other personal mobility products does not develop as expected or develops more slowly than
expected, the Companys business, financial condition, operating results and prospects may be materially adversely affected. The
market for alternative fuel motorcycles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition,
additional competitors, evolving government regulation and industry standards, frequent new motorcycle announcements and changing consumer
demands and behaviors. Factors that may influence the adoption of alternative fuel motorcycles, and specifically electric motorcycles,
include:
|
| perceptions
about electric motorcycle and other personal mobility products quality, safety (in particular with respect to lithium-ion battery packs),
design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric motorcycles; |
|
|
| perceptions
about motorcycle and other personal mobility products safety in general, in particular safety issues that may be attributed to the use
of advanced technology, including motorcycle electronics and braking systems; |
|
|
| the
limited range over which electric motorcycles and personal mobility products may be driven on a single battery charge; |
|
|
| the
decline of an electric motorcycle and other personal mobility products range resulting from deterioration over time in the batterys
ability to hold a charge or short-term declines resulting from adverse weather conditions; |
|
|
| concerns
about electric grid capacity and reliability, which could derail the Companys efforts to promote electric motorcycles and other
potential personal mobility products as a practical solution to motorcycles which require gasoline; |
|
|
| the
availability of alternative fuel motorcycles, including plug-in hybrid electric motorcycles; |
|
|
| improvements
in the fuel economy of the internal combustion engine; |
|
|
| the
availability of service for electric motorcycles and other personal mobility products; |
|
|
| the
environmental consciousness of consumers; |
|
|
| volatility
in the cost of oil and gasoline; |
|
|
| government
regulations and economic incentives promoting fuel efficiency and alternate forms of energy; |
|
32
|
| access
to charging stations, standardization of electric motorcycle and other personal mobility products charging systems and consumers
perceptions about convenience and cost to charge an electric motorcycle or other personal mobility products; |
|
|
| the
availability of tax and other governmental incentives to purchase and operate electric motorcycles or future regulation requiring increased
use of nonpolluting motorcycles; |
|
|
| perceptions
about and the actual cost of alternative fuel; and |
|
|
| macroeconomic
factors. |
|
The
influence of any of the factors described above may cause potential customers not to purchase the Companys electric motorcycles
and other potential personal mobility products, which would materially adversely affect the Companys business, operating results,
financial condition and prospects.
**The
transportation industry has significant barriers to entry that the Company must overcome in order to manufacture and sell its electric
motorcycles and other personal mobility products at scale.**
The
transportation industry is characterized by significant barriers to entry, including large capital requirements, investment costs of
developing, designing, manufacturing and distributing vehicles, long lead times to bring vehicles to market from the concept and design
stage, the need for specialized design and development expertise, regulatory requirements, establishing a brand name and image and the
need to establish sales and service locations. Since the Company is focused on electric motorcycles and other potential personal mobility
products, it faces a variety of added challenges to entry that a traditional motorcycle manufacturer would not encounter, including additional
costs of developing and producing an electric powertrain that has comparable performance to a traditional internal combustion engine
in terms of range and power, inexperience with servicing electric vehicles, regulations associated with the transport of batteries, the
need to establish or provide access to sufficient charging locations and unproven high-volume customer demand for fully electric motorcycles.
If the Company is not able to overcome these barriers, its business, financial condition, operating results and prospects may be materially
adversely affected, and its ability to grow its business may be harmed.
**The
Companys planned distribution model is different from the predominant current distribution model for motorcycle manufacturers,
which makes evaluating its business, financial condition, operating results and prospects difficult.**
The
Companys planned distribution model is not common in the automotive industry today, particularly in North America. The Company
plans to conduct vehicle sales directly to customers rather than through dealerships, primarily through the Companys website,
subject to obtaining applicable dealer licenses and equivalent permits in such jurisdictions. Further, generally all of the Companys
vehicles will be made to order. This model of vehicle distribution is relatively new and unproven, and subjects the Company to substantial
risk as it requires, in the aggregate, significant expenditures and provides for slower expansion of distribution and sales systems than
may be possible by utilizing the traditional dealer franchise system. For example, the Company may not be able to utilize long established
sales channels developed through a franchise system to increase its sales volume. Moreover, the Company will be competing with companies
with well established distribution channels. The Companys success will depend in large part on the Companys ability to
effectively develop its own sales channels and marketing strategies.
Implementing
such distribution model is subject to numerous significant challenges, including obtaining licenses or equivalent permits and approvals
from government authorities, and there is no assurance that the Company will be able to obtain such licenses, permits and approvals.
Further, there are substantial automotive franchise laws in place in many jurisdictions around the world and the Company may be exposed
to significant franchise dealer litigation risks.
If
the Companys direct sales and leasing model does not develop as expected or develops more slowly than expected, it may be required
to modify or abandon its sales and leasing model, which could materially and adversely affect its business, financial condition, operating
results and prospects.
33
**The
Companys marketing programs may not be successful.**
The
Company believes its brand is critical to its business. The Company will incur costs and expend other resources in its marketing efforts
to raise brand awareness and attract and retain customers. These initiatives may not be successful, resulting in expenses incurred without
the benefit of revenues or growth. Additionally, most, if not all, of the Companys competitors have greater financial resources,
which enable them to spend significantly more than the Company is able to on marketing and advertising. Should the Companys competitors
increase spending on marketing and advertising or the Companys marketing funds decrease for any reason, or should its advertising
and promotions be less effective than its competitors, there could be a material adverse effect on Companys results of operations
and financial condition.
**The
Company is dependent on its suppliers, some of which are single or limited source suppliers, and the inability of these suppliers to
deliver necessary components of the Companys vehicles at prices and volumes acceptable to the Company would have a material adverse
effect on its business, financial condition, operating results and prospects.**
The
Company is dependent on third-party suppliers and manufacturers to supply and manufacture parts and components, sub-assemblies and assemblies
included in its vehicles, and it expects to continue to rely on third parties to supply and manufacture such parts and components, sub-assemblies
and assemblies in the future. While the Company obtains parts and components, sub-assemblies and assemblies from multiple sources whenever
possible, some of the parts and components, sub- assemblies and assemblies used in its vehicles are purchased from a single source.
The
Company intends to mitigate supply chain risk by entering into long-term supply agreements with key manufacturers and suppliers where
appropriate, including where there is a single source supplier, but has not secured such long-term supply agreements to date, and there
can be no assurance that it will be able to do so on terms that are acceptable to the Company, or at all. Further, the supplier agreements
the Company may enter into with key suppliers in the future may contain provisions where such agreements can be terminated in various
circumstances, including potentially without cause. While the Company believes that it may be able to establish alternate supply relationships
and can obtain or potentially engineer replacement components for some of its single source components, it may be unable to do so in
the short-term or at all, or at prices, volumes or quality levels that are acceptable to it. Changes in business conditions, pandemics,
governmental changes, political conflict and other factors beyond the Companys control, or that it does not presently anticipate,
could affect its ability to receive components from its suppliers.
Any
disruption in the supply of parts and components, sub-assemblies and assemblies, whether or not from a single source supplier, could
temporarily disrupt manufacturing of the Companys vehicles until an alternative supplier is able to supply the required material.
Changes in business conditions, unforeseen circumstances, governmental changes, and other factors beyond the Companys control
or which it does not presently anticipate, could also affect Damons suppliers ability to deliver components to the Company
on a timely basis and ultimately, the Companys ability to economically produce and distribute its vehicles.
In
particular, the Companys vehicles contain electronics, microprocessors control modules, and other computer chips.
The
Company is dependent on its suppliers to deliver many components that contain these microchips, and a shortage of microchips could disrupt
the Companys operations and its ability to timely deliver vehicles to customers. Damon is closely monitoring the availability
of these components, assessing the supply chain and production impacts and seeking potential alternatives.
Also,
if any of the Companys suppliers become economically distressed or go bankrupt, the Company may be required to provide substantial
financial support or take other measures to ensure supplies of components or materials, which could increase its costs, affect its liquidity
or cause production disruptions.
34
The
inability of any of the Companys suppliers to deliver necessary parts and components, sub-assemblies and assemblies according
to the Companys schedule and at prices, volumes or quality levels acceptable to the Company, the Companys inability to
efficiently manage these parts and components, sub-assemblies and assemblies, or the termination or interruption of any material supply
arrangement could materially adversely affect the Companys business, financial condition, operating results or prospects. Further,
as the scale of the Companys vehicle production increases, the Company will need to accurately forecast, purchase, warehouse and
transport components to its manufacturing facilities and servicing locations internationally and at much higher volumes. If it is unable
to accurately match the timing and quantities of component purchases to its actual needs or successfully implement automation, inventory
management and other systems to accommodate the increased complexity in its supply chain, the Company may incur unexpected production
disruption, storage, transportation and write-off costs.
Any
of the foregoing may materially adversely affect the Companys business, financial condition, operating results or prospects.
**If
the Companys suppliers fail to use ethical business practices and comply with applicable laws and regulations, the Companys
brand image could be harmed due to negative publicity.**
The
Companys core values, which include developing high quality electric motorcycles and other personal mobility products while operating
with integrity, are an important component of the Damon brand image, which makes the Companys reputation sensitive to allegations
of unethical business practices. The Company does not control its suppliers or their business practices. Accordingly, there is no assurance
of compliance on the part of the Companys suppliers with ethical business practices, such as environmental responsibilities, fair
wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead the Company to seek
alternative suppliers, which could increase its costs and results in delayed delivery of its products, product shortages or other disruptions
of its operations.
Violation
of labor or other laws by the Companys suppliers or the divergence of a suppliers labor or other practices from those generally
accepted as ethical in the markets in which the Company operates could also attract negative publicity for Damon and its brand. If Damon,
or other manufacturers in the industry in which the Company operates, encounters similar problems in the future, the Damon brand and
the Companys business, financial condition, operating results and prospects may be materially adversely affected.
**The
Company could experience cost increases or disruptions in supply of raw materials or other components used in its vehicles.**
The
Company incurs significant costs related to procuring raw materials required to manufacture and assembling its vehicles. The Company
uses various raw materials in its vehicles including aluminum, steel, carbon fiber, non-ferrous metals such as copper, lithium, nickel,
and cobalt. The prices for these raw materials fluctuate depending on factors beyond the Companys control including market conditions
and global demand for these materials and could adversely affect the Companys business, financial condition, operating results
and prospects. The Companys business will also depend on the continued supply of battery cells for its vehicles. Battery cell
manufacturers may refuse to supply electric vehicle manufacturers to the extent they determine that their vehicles are not sufficiently
safe. The Company is exposed to multiple risks related to availability and pricing of quality lithium-ion battery cells. These risks
include:
|
| the
inability or unwillingness of current battery cell manufacturers to build or operate battery cell manufacturing plants to supply the
numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells
increases; |
|
|
| disruption
in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and |
|
|
| an
increase in the cost or decrease in the availability of raw materials used in battery cells, such as lithium, nickel, cobalt, used in
lithium-ion cells. |
|
35
Further,
currency fluctuations, tariffs or shortages in petroleum and other economic or political conditions may result in significant increases
in freight charges and raw material costs. Substantial increases in the prices for the Companys raw materials or components would
increase its operating costs and could reduce its margins. In addition, a growth in popularity of electric vehicles without a significant
expansion in battery cell production capacity could result in shortages which would result in increased materials costs to the Company,
and its business, financial condition, operating results and prospects may be materially adversely affected.
**Increased
freight and shipping costs or disruptions in transportation and shipping infrastructure could materially adversely affect the Companys
business, financial condition, operating results and prospects.**
The
Company intends to utilize air, sea and ground freight via third-party freight services for the transportation of supplies to its facilities
and assembled vehicles to its customers. Adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other
disruptions in the transportation and shipping infrastructure at important shipping and delivery points for the Companys products,
as well as for parts and components, sub-assemblies and assemblies used in the Companys vehicles could materially adversely affect
the Companys business, financial condition, operating results and prospects. For example, delivery delays or increases in transportation
costs (including through increased energy costs, increased carrier rates or driver wages as a result of driver shortages, a decrease
in transportation capacity, or work stoppages or slowdowns) could significantly decrease the Companys ability to make vehicle
sales and earn revenues. Labor shortages or work stoppages in the transportation industry or long-term disruptions to the national and
international transportation infrastructure that lead to delays or interruptions of deliveries or which would necessitate the Company
securing alternative shipping suppliers could also increase the Companys costs or otherwise materially adversely affect its business,
financial condition, operating results and prospects.
**The
Company depends on certain key personnel, and its success will depend on its continued ability to retain and attract qualified management,
technical and vehicle engineering and sales personnel.**
The
Companys success will depend on the efforts, abilities, continued service and performance of the Companys senior management
team and key management, technical, vehicle engineering and sales personnel, and in particular from Dom Kwong, Chief Executive Officer
and Bal Bhullar, Chief Financial Officer. A number of these key employees have significant experience in the motorcycle and electric
vehicle manufacturing industry. If any key personnel were to terminate their employment with, or cease providing services to, the Company,
the risks described in this section may be heightened and the Company may have difficulty or may not be able to locate and hire a suitable
replacement. The Company has not obtained any key person insurance on certain key personnel at this time.
**The
Companys directors and executive officers may have other business interests and obligations to other entities.**
None
of the Companys directors or officers will be required to manage the Company as their sole and exclusive function and they may
have other business interests and may engage in other activities in addition to those relating to the Company, provided that such activities
do not compete with the business of Damon or otherwise breach their agreements with the Company. The Company is dependent on its directors
and officers to successfully operate Damon. Their other business interests and activities could divert time and attention from operating
Damons business.
Potential
conflicts of interest may arise in the course of the Companys operations involving any member of managements interest,
or an affiliate companys interest, as well as their respective interests in other potential unrelated activities. While the Company
does have processes and procedures in place to identify, analyze or monitor conflicts of interest, there is no assurance that such processes
and procedures will identify or disclose every conflict of interest that may arise.
**The
Companys business may be adversely affected by labor and union activities.**
Although
none of the Companys employees are currently represented by a labor union, it is common throughout the motorcycle industry generally
for many employees at motorcycle companies to belong to a union, which can result in higher employee costs and increased risk of work
stoppages. The Company also directly and indirectly depends upon other companies with unionized work forces, such as parts suppliers
and trucking and freight companies. If a work stoppage occurs within the Companys business or that of the Companys key
suppliers, it could delay the manufacture and sale of Damons electric motorcycles and may have a material adverse effect on the
Companys business, financial condition, operating results and prospects. Additionally, if the Company expands its business to
include full in-house manufacturing of motorcycles or other potential personal mobility products, the Companys employees might
join or form a labor union and the Company may be required to become a union signatory.
36
The
Company has undergone recent reductions in force and may undergo additional reductions in force in the future. However, any headcount
reduction may not result in anticipated cost savings and could have negative or unanticipated impacts on the Companys business.
To
reduce operating expenses, the Company reduced its headcount, approximately 50% in early 2024 to 2025, and the Company may seek to undergo
additional workforce restructurings in the future. The Company may not realize the anticipated benefits, savings and improvements in
its cost structure from such restructurings because of unforeseen difficulties, delays or unexpected costs. In particular, headcount
reductions could lead to disruptions to operations, material delays in research and development, attrition beyond planned layoffs and
increased challenges to hire and retain qualified personnel. If the Company is unable to realize the expected operational efficiencies
and cost savings from past or future restructurings, the Companys operating results and financial condition would be adversely
affected.
**The
Company is or may be subject to risks associated with strategic alliances and acquisitions.**
The
Company has entered into and may in the future enter into strategic alliances, including joint ventures or minority equity investments,
with various third parties to further the Companys business purpose from time-to-time. These alliances could subject the Company
to a number of risks, including risks associated with sharing proprietary information, non-performance by the third party and increased
expenses in establishing new strategic alliances, any of which may materially and adversely affect its business. The Company may have
limited ability to monitor or control the actions of these third parties and, to the extent any of these strategic third parties suffer
negative publicity or harm to their reputation from events relating to their business, the Company may also suffer negative publicity
or harm to its reputation by virtue of its association with any such third party.
In
addition, although the Company does not have any current acquisition plans, if appropriate opportunities arise, the Company may acquire
additional assets, products, technologies or businesses that are complementary to its existing business. In addition to a potential requirement
for shareholder approval, the Company may also have to obtain approvals and licenses from relevant government authorities for the acquisitions
and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may derail its business
strategy if the Company fails to do so. Further, past and future acquisitions and the subsequent integration of new assets and businesses
into the Company (including the Business Combination) may require significant attention from the Companys management and could
result in a diversion of resources from its existing business, which in turn could have an adverse effect on the Companys business
operations. Acquired assets or businesses may not generate the expected financial results. Acquisitions could result in the use of substantial
amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization
expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying
and consummating acquisitions may be significant.
**We
may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future
into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions,
or may disrupt our current operations, which could have a material adverse effect on our business, financial position and results of
operations.**
Integrating
the technology and operations acquired in connection with the Business Combination and any potential future acquisitions involves complex
operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business
operations. Furthermore, integration involves a number of risks, including, but not limited to:
|
| difficulties
or complications in combining the companies operations; |
|
|
| differences
in controls, procedures and policies, regulatory standards and business cultures among the combined companies; |
|
|
| the
diversion of managements attention from our ongoing core business operations; |
|
37
|
| increased
exposure to certain governmental regulations and compliance requirements; |
|
|
| the
potential increase in operating costs; |
|
|
| the
potential loss of key personnel; |
|
|
| the
potential loss of key customers or suppliers who choose not to do business with the combined business; |
|
|
| difficulties
or delays in consolidating the acquired companies technology platforms, including implementing systems designed to maintain effective
disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue
to comply with U.S. GAAP and applicable U.S. securities laws and regulations; |
|
|
| unanticipated
costs to successfully integrate operations, technologies, personnel of acquired businesses and other assumed contingent liabilities; |
|
|
| difficulty
comparing financial reports due to differing financial or internal reporting systems; |
|
|
| making
any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated thereunder; or |
|
|
| possible
tax costs or inefficiencies associated with integrating the operations of the combined company. |
|
These
factors could cause us to not fully realize the anticipated financial or strategic benefits of future acquisitions which could have a
material adverse effect on our business, financial condition and results of operations.
Even
if we are able to successfully operate the acquired businesses, we may not be able to realize the revenue and other synergies and growth
that we anticipate from these acquisitions in the time frame that we currently expect, and the costs of achieving these benefits may
be higher than what we currently expect, because of certain risks:
|
| the
possibility that the acquisition may not further our business strategy as we expected; |
|
|
| the
possibility that we may not be able to expand the reach and customer base for the acquired companies current and future products
as expected; |
|
|
| the
possibility that we may have entered a market with no prior experience and may not succeed in the manner expected; and |
|
|
| the
possibility that the carrying amounts of goodwill and other purchased intangible assets may not be recoverable. |
|
As
a result of these risks, the acquisitions and integration may not contribute to our earnings as expected, we may not achieve expected
revenue synergies or return on invested capital when expected, or at all, and we may not achieve the other anticipated strategic and
financial benefits of such acquisitions.
38
**Manufacturing
in collaboration with partners is subject to risks.**
The
Company has agreed to a partnership with Auteco, for the manufacture of a lower-cost global electric motorcycle (HyperLite) in the future.
The Company intends to be paid by Auteco for each vehicle it assembles and sells on a per-vehicle basis monthly for the first five years
of production. In addition, the Company has established a strategic partnership with Indika Energy for manufacturing, licensing and distribution
in Indonesia, with the ability to expand that partnership to all of Southeast Asia. The Company may enter into similar with third party
manufacturers in the future for its vehicles. Collaboration with third parties for the manufacturing of vehicles is subject to risks
with respect to operations that are outside the Companys control. The Company could experience delays to the extent its partners
do not meet agreed upon timelines or experience capacity constraints. There is a risk of potential disputes with manufacturing partners,
and the Company could be affected by adverse publicity related to its partners whether or not such publicity is related to their collaboration
with the Company. The Companys ability to successfully build a premium brand could also be adversely affected by perceptions about
the quality of its manufacturing partners vehicles. In addition, although the Company is involved in each step of the supply chain
and manufacturing process, given the Companys reliance on its partners to meet the Companys quality standards, there can
be no assurance that the Company will be able to successfully maintain such quality standards if outsourced manufacturing is adopted.
The
Company may be unable to enter into new agreements or extend existing agreements with third-party manufacturing partners on terms and
conditions acceptable to the Company and therefore may need to contract with other third parties or significantly add to its own production
capacity. There can be no assurance that in such an event the Company would be able to partner with other third parties or establish
or expand its own production capacity to meet its needs on acceptable terms or at all. The expense and time required to complete any
transition, and to assure that vehicles manufactured at facilities of new third-party partners comply with the Companys quality
standards and regulatory requirements, may be greater than anticipated. The occurrence of any of the foregoing may materially adversely
affect the Companys business, financial condition, operating results and prospects.
**Manufacturing
Capacity, if and when established by the Company, will present inherent risks.**
While the Company expects to be ready for initial production in
2026 of the Hypersport Race, there can be no assurance that the Company will be able to commence initial production on schedule and within
budget, and more generally that the Company will be able to establish and expand production capacity to satisfy current reservations or
future anticipated demand. This risk extends to supply chain and manufacturing quality risk, which could lead to lower volumes or lower
quality than expected by customers. Further, if the Company is able to scale its manufacturing capacity to meet demand, the Company may
need to incur greater facility costs, and there is no guarantee that the Company will be able to do so.
The delivery of HyperSport Race and subsequent motorcycles and
other potential personal mobility products to the Companys future customers and the revenue derived therefrom depends on the Companys
ability to source and fulfill the required vehicle manufacturing capacity, and it will depend on the ability of a future lessor to build
and outfit future manufacturing facility. A future lessors ability to fulfill its obligations is outside of the Companys
control and depends on a variety of factors including the lessors operations, financial condition and geopolitical and economic
risks. If a future lessor is unable to fulfill its obligations or is only able to partially fulfill its obligations, the Company will
not be able to manufacture and sell its HyperSport Race and other motorcycles in the volumes anticipated within the timeframe that the
Company anticipates, if at all.
**The
Company is and will be dependent on its manufacturing facilities. If one or more of its current or future manufacturing facilities become
inoperable, capacity constrained or if operations are disrupted, its business, financial condition, operating results and prospects may
be materially adversely affected.**
The
Companys future revenue will be dependent on its manufacturing facilities. To the extent that the Company experiences any operational
risk including, among other things, natural or man-made disasters, including earthquakes, flooding, fire and power outages, or by health
epidemics or pandemics, and labor work force and work stoppages, resulting in any of its current or future manufacturing facilities becoming
inoperable or capacity constrained, the Company will be required to make capital expenditures even though it may not have available resources
at such time. Additionally, there is no guarantee that the proceeds available from the Companys insurance policies would be sufficient
to cover such capital expenditures. As a result, the Companys insurance coverage and available resources may prove to be inadequate
for events that may cause any of its current or future manufacturing facilities to become inoperable or capacity constrained, or any
significant disruption to its operations. Any disruption in the Companys manufacturing processes could result in delivery delays,
scheduling problems, increased costs, or production interruption, which, in turn, may result in its customers deciding to purchase products
from its competitors. Damon is and will be dependent on its current and future manufacturing facilities which will in the future require
a high degree of capital expenditures. If the Companys current or future assembly facilities becomes inoperative, capacity constrained
or if operations are disrupted, its business, financial condition, operating results and prospects may be materially adversely affected.
39
**The
Company relies on complex machinery for its operations, and production of its vehicles involves a significant degree of risk and uncertainty
in terms of operational performance, safety, security and costs.**
The
Company relies heavily on complex machinery for its operations and its production will involve a significant degree of uncertainty and
risk in terms of operational performance, safety, security, and costs. The Companys contemplated and its partners manufacturing
facilities make use of large-scale machinery combining many components. The manufacturing plant components are likely to suffer unexpected
malfunctions from time-to-time and will depend on repairs and spare parts to resume operations, which may not be available when needed.
Unexpected malfunctions of the manufacturing facility components may significantly affect operational efficiency. Operational performance
and costs can be difficult to predict and are often influenced by factors outside of the Companys control, including, but not
limited to, scarcity of natural resources, environmental hazards and remediation, costs associated with decommissioning of machines,
labor disputes and strikes, difficulty or delays in obtaining governmental permits, damages or defects in electronic systems, industrial
accidents, pandemics, fire, seismic activity, and natural disasters. There is no guarantee that adverse events will not occur in the
future, or that Damon will be able to contain such events without damage or delay. Should operational risks materialize, it may result
in the personal injury to or death of workers, the loss of production equipment, damage to manufacturing facilities, vehicles, supplies,
tools and materials, monetary losses, delays and unanticipated fluctuations in production, environmental damage, administrative fines,
increased insurance costs, and potential legal liabilities, all which could have a material adverse effect on the Companys business,
financial condition, operating results or prospects. Although the Company generally carries insurance to cover such operational risks,
there is no assurance that such insurance coverage will be sufficient to cover potential costs and liabilities arising therefrom. A loss
that is uninsured or exceeds policy limits may require the Company to pay substantial amounts, which could adversely affect the Companys
business, financial condition, operating results and prospects.
**The
Companys business may be negatively impacted by depreciation of equipment.**
The
Company expects to continue to invest significantly in what it believes is state of the art tooling, machinery and other manufacturing
equipment for the product lines where the HyperSport and subsequent HyperDrive powertrain platforms-based vehicles are manufactured/assembled,
and Damon will depreciate the cost of such equipment over its expected useful life. Additionally, the Company expects manufacturing partners
will be investing in their production lines in support of the Companys vehicle delivery goals. However, manufacturing technology
may evolve rapidly, and the Company or its partners may decide to update its manufacturing process with cutting-edge equipment more quickly
than expected. Moreover, as the Company ramps the commercial production of its vehicles, The Companys experience may cause it
to discontinue the use of already installed equipment in favor of different or additional equipment. The useful life of any equipment
that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and to the
extent such equipment is owned by us, the Companys results of operations could be negatively impacted.
**Misconduct
by employees of the Company or third-party service providers could cause significant losses to the Company.**
Misconduct
by employees of the Company or third-party service providers could cause significant losses to the Company. Losses could also result
from actions by third party service providers, including, without limitation, failing to recognize trades and misappropriating assets.
In addition, employees and third-party service providers may improperly use or disclose confidential information, which could result
in litigation or serious financial harm, including limiting the Companys business prospects or future marketing activities. No
assurances can be given that the due diligence performed by the Company will identify or prevent any such misconduct.
40
**Dependence
on a single licensor for our SAVES products and potential adverse changes to terms could negatively impact our financial condition and
results of operations.**
All
of our revenues from the SAVES distribution business have been derived from the sale of product licenses we purchase from the licensor.
The Parent acquired an exclusive license to use, market, distribute and develop the SAVES products pursuant to an exclusive software
license and distribution agreement, by and among the Parent, Cranes Software International Ltd. and Systat Software, Inc., as amended
on June 30, 2020 and February 22, 2021, and has licensed the SAVES products to us. In connection with the spin out and as reported in
the current report on Form 8-K filed by the Parent on February 23, 2024, the Parent sold 100% of the equity interest in Grafiti LLC,
then a wholly-owned subsidiary of the Parent which holds the exclusive license to develop and sell the SAVES products, along with other
assets and businesses, to an entity controlled by Nadir Ali, the former Chief Executive Officer and former sole director of the Company
prior to the consummation of the Business Combination.
As
the licensor, Grafiti LLC has and its successors will have significant negotiating power over us and rapid, significant or adverse changes
in sales terms and conditions, such as competitive pricing as well as reducing the level of purchase discounts and rebates this or any
new vendor makes available to us, may reduce the profit we can earn on these vendors products and result in loss of revenue and
profitability. Our gross profit could be negatively impacted if we are unable to pass through the impact of these changes to our distributors,
resellers and customers. Additionally, significant changes in vendor payment terms or payment arrangements could negatively impact our
liquidity and financial condition.
**Our
competitors in the technology distribution industry can take more market share by reducing prices on our most profitable vendor products,
causing us to reduce prices on such products.**
The
technology distribution industry is characterized by intense competition, based primarily on product availability, credit terms and availability,
price, effectiveness of information systems and e-commerce tools, speed of delivery, ability to tailor specific solutions to customer
needs, quality and depth of product lines and training, service and support. Our customers are not required to purchase any specific
volume of products from us and may move business if pricing is reduced by competitors, resulting in lower sales. As a result, we must
be extremely flexible in determining when to reduce prices to maintain market share and sales volumes and when to allow our sales volumes
to decline to maintain our desired level of profitability for our products. We compete with a variety of regional, national and international
distributors and resellers, some of which may have greater financial resources than us. Many of our competitors compete principally on
the basis of price and may have lower costs or accept lower selling prices than we do and, therefore, we may need to reduce our prices.
In addition, vendors may choose to market their products directly to end-users, rather than through distributors such as us, and this
could adversely affect our business, financial condition and results of operations.
**Our
competitiveness in the technology distribution industry depends significantly on our ability to keep pace with the rapid changes in our
industry. Failure by us to anticipate and meet our customers technological needs could adversely affect our competitiveness and
growth prospects.**
We
operate and compete in the technology distribution industry which is characterized by rapid technological innovation, changing customer
needs, evolving industry standards and frequent introductions of new products, product enhancements, services and distribution methods.
Our success depends on our ability to develop expertise with these new products, product enhancements, services and distribution methods
and to implement solutions that anticipate and respond to rapid changes in technology, the industry, and customer needs. The introduction
of new products, product enhancements and distribution methods could decrease demand for current products or render them obsolete. Sales
of products and services can be dependent on demand for specific product categories, and any change in demand for or supply of such products
could have a material adverse effect on our net sales if we fail to adapt to such changes in a timely manner.
We
offer one vendors product offerings and are dependent on our customers demand for this vendors products. There can be no
assurances that consumer or commercial demand for our future products will meet, or even approach, our expectations. In addition, our
pricing and marketing strategies may not be successful. Lack of customer demand, a change in marketing strategy and changes to our pricing
models could dramatically alter our financial results. Unless we are able to release location-based products that meet a significant
market demand, we will not be able to improve our financial condition or the results of our future operations.
41
**The
growth of our SAVES distribution business is dependent on increasing sales to our existing customers and obtaining new customers, which,
if unsuccessful, could limit our financial performance.**
Our
ability to increase revenues from existing customers by identifying additional opportunities to sell more of our products and services
and our ability to obtain new customers depends on a number of factors, including our ability to offer high quality products and services
at competitive prices, meeting customers needs and expectations, the strength of our competitors and the capabilities of our sales
and marketing departments. If we are not able to continue to increase sales of our products and services to existing customers or to
obtain new customers in the future, we may not be able to increase our revenues and could suffer a decrease in revenues as well.
**If
our SAVES products fail to satisfy customer demands or to achieve increased market acceptance, our results of operations, financial condition
and growth prospects could be materially adversely affected.**
The
market acceptance of our products is critical to our continued success. Demand for our SAVES products is affected by a number of factors
beyond our control, including continued market acceptance, the timing of development and release of new products by competitors, technological
change, and growth or decline in the statistical analytics and visualization market. If we are unable to continue to meet customer demands
or to achieve more widespread market acceptance of our products, our business operations, financial results and growth prospects will
be materially and adversely affected.
**Defects,
errors, or vulnerabilities in our SAVES products or services that we sell or the failure of such products or services to prevent a security
breach, could harm our reputation and adversely affect our results of operations.**
Because
the SAVES products we sell are complex, they have contained and may contain software design errors or software bugs that are not detected
until after their commercial release and deployment by customers. Defects may cause such products to be vulnerable to security attacks,
cause them to fail to help secure information or temporarily interrupt customers networking traffic. Because the techniques used
by hackers to access sensitive information change frequently and generally are not recognized until launched against a target, we may
be unable to anticipate these techniques and provide a solution in time to protect customers data. In addition, defects or errors
in our subscription updates or products could result in a failure to effectively update customers products and thereby leave customers
vulnerable to advanced persistent threats (APTs) or security attacks.
Any
defects, errors or vulnerabilities in the products we sell could result in:
|
| expenditure
of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defects
or to address and eliminate vulnerabilities; |
|
|
| delayed
or lost revenue; |
|
|
| loss
of existing or potential customers or partners; |
|
|
| increased
warranty claims compared with historical experience, or increased cost of servicing warranty claims, either of which would adversely
affect gross margins; and |
|
|
| litigation,
regulatory inquiries, or investigations that may be costly and harm our reputation. |
|
**Our
SAVES business relies on a limited number of key customers, the importance of which may vary dramatically from year to year, and a loss
of one or more of these key customers may adversely affect our operating results.**
During
the year ended June 30, 2025, the Company had 1 customer that accounted for 10% of its overall revenue. Our customers may or may not
continue to be a significant contributor to revenue from our SAVES business in fiscal year 2026 and beyond. The loss of a significant
amount of business from one of our major customers could materially and adversely affect our results of operations until such time, if
ever, as we are able to replace the lost business. Significant customers or projects in any one period may not continue to be significant
customers or projects in other periods. To the extent that we are dependent on any single customer, we are subject to the risks faced
by that customer to the extent that such risks impede the customers ability to stay in business and make timely payments to us.
42
**A
delay in the completion of our customers budget processes could delay purchases of our SAVES products and services and have an
adverse effect on our business, operating results and financial condition.**
We
rely on our customers to purchase products and services from us to maintain and increase our earnings, however, customer purchases are
frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. If sales expected
from a specific customer are not realized when anticipated or at all, our results could fall short of public expectations and our business,
operating results and financial condition could be materially adversely affected.
**If
we cannot collect our receivables or if payment is delayed, our SAVES distribution business may be adversely affected by our inability
to generate cash flow, provide working capital or continue our business operations.**
Our
SAVES distribution business depends on our ability to successfully obtain payment from our customers of the amounts they owe us for products
received from us and any work performed by us. The timely collection of our receivables allows us to generate cash flow, provide working
capital and continue our business operations. Our customers may fail to pay or delay the payment of invoices for a number of reasons,
including financial difficulties resulting from macroeconomic conditions or lack of an approved budget. An extended delay or default
in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts
receivable. If we are unable to timely collect our receivables from our customers for any reason, our business and financial condition
could be adversely affected.
**If
our SAVES products fail to satisfy customer demands or to achieve increased market acceptance, our results of operations, financial condition
and growth prospects could be materially adversely affected.**
The
market acceptance of our SAVES products are critical to our continued success. Demand for our products is affected by a number of factors
beyond our control, including continued market acceptance, the timing of development and release of new products by competitors, technological
change, and growth or decline in the statistical analytics and visualization market. If we are unable to continue to meet customer demands
or to achieve more widespread market acceptance of our products, our business operations, financial results and growth prospects will
be materially and adversely affected.
**Insurance
and contractual protections related to our SAVES distribution business may not always cover lost revenue, increased expenses or liquidated
damages payments, which could adversely affect our financial results.**
Although
we maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels and
attempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance or the warranties, performance
guarantees or risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments
that may be required in the future.
**Risks
Related to Economic Conditions**
****
**Global
economic conditions, including inflation, could materially adversely impact demand for the Companys products and services.**
Damons
operations and performance depend significantly on economic conditions. Motorcycles are generally considered discretionary items for
consumers. Many factors impact discretionary spending, including general economic conditions, inflation, unemployment, credit markets
and consumer confidence in future economic conditions. Global economic conditions continue to be uncertain, particularly in light of
high inflation and U.S. growing international trade tensions. Consumer purchases of discretionary items tend to be suppressed during
recessionary periods when disposable income is lower, or during periods of economic instability or uncertainty when consumer confidence
is low, which may make potential customers more likely to forgo or to postpone purchasing Damons vehicles, or to purchase less
expensive product offerings, which may be less profitable to Damon.
43
**Any
financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially
and adversely affect the Companys business, financial condition, results of operations and prospects.**
The
global financial markets experienced significant disruptions in 2008 and the Canadian, United States, European and other economies went
into recession. The recovery from the lows of 2008 and 2009 was uneven and the global financial markets are facing new challenges, including
and supply chain shortages or disruptions, and future potential economic slowdowns. It is unclear whether these challenges will be contained
and what effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal
policies that have been adopted by the central banks and financial authorities of some of the worlds leading economies. Economic
conditions in China are sensitive to global economic conditions. Recently there have been signs that the rate of Chinas economic
growth is declining. Any prolonged slowdown in Chinas economic development might lead to tighter credit markets, increased market
volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors.
Sales
of high-end and luxury consumer products, such as the Companys performance electric motorcycles or other personal mobility products,
depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. In response
to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of the Companys electric
vehicles and the Companys business, financial condition, operating results and prospects may be materially adversely affected.
**The
Company faces risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt its operations.**
The
Companys business could be adversely affected by the effects of local or global outbreaks, and epidemics or pandemics. The Companys
business operations could be disrupted if any of its employees are suspected of having contracted any contagious and virulent viruses
or other diseases, since it could require its employees to be quarantined or its offices to be disinfected. In addition, to the extent
that any such outbreak, epidemic or pandemic would have detrimental effects on general economic conditions the Companys business,
financial condition, operating results or prospects may be materially adversely affected.
The
Companys headquarters and the Company operated locations, as well as certain of the Companys vendors and customers, are
located in areas which have been and could be subject to natural disasters such as floods, hurricanes, tornadoes, fires or earthquakes.
Adverse weather conditions or other extreme changes in the weather, including resulting electrical and technological failures, may disrupt
the Companys business and may adversely affect the Companys ability to continue its operations. These events also could
have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable
damage. Any of these factors, or any combination thereof, could adversely affect the Companys operations.
Although
the Company has data hosted in offsite locations, the Companys backup system does not capture data on a real-time basis and the
Company may be unable to recover certain data if a server fails. the Company cannot assure that any backup systems will be adequate to
protect it 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 the Companys ability to provide services on its platform.
**The
Companys risk management efforts may not be effective which could result in unforeseen losses.**
The
Company could incur substantial losses and its business operations could be disrupted if the Company is unable to effectively identify,
manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related
risks, as well as operational risks related to its business, assets and liabilities. Damons risk management policies, procedures,
and techniques, including its scoring methodology, may not be sufficient to identify all of the risks the Company is exposed to, mitigate
the risks the Company has identified or identify additional risks to which the Company may become subject in the future.
44
**The
Company is subject to risks related to customer credit.**
The
Company has partnered to offer leasing and financing of its vehicles to potential customers within the U.S. and is working to establish
partnerships outside the U.S. through other third-party financing partners, the Company currently has no agreements in place with any
potential financing partners. The Company cannot provide any assurance that such third-party financing partners would be able or willing
to provide such services on terms acceptable to the Company or its customers, or to provide such services at all. Further, because the
Company has not yet sold any vehicles and no secondary market for its vehicles exists, the future resale value of its vehicles is difficult
to predict, and the possibility that resale values could be lower than expected increases the difficulty of providing leasing terms that
appeal to potential customers through such third-party financing partners. The Company believes that the ability to offer attractive
leasing and financing options is particularly relevant to customers in the luxury motorsport vehicle segments in which the Company will
compete, and if the Company is unable to offer its customers an attractive option to finance the purchase of or lease HyperSport motorcycles
or planned future models, such failure could substantially reduce the pool of potential customers and decrease demand for the Companys
vehicles.
Further,
offering leasing and financing alternatives to customers could expose the Company to risks commonly associated with the extension of
consumer credit. Competitive pressure and challenging markets could increase credit risk through leases and loans to financially weak
customers, extended payment terms, and leases and loans into new and immature markets, and any such credit risk could be further heightened
in light of the economic uncertainty and any economic recession or other downturn, including by reason of a disease outbreak. If the
Company is unable to provide leasing and financing arrangements that appeal to potential customers, or if the provision of such arrangements
exposes it to excessive consumer credit risk, the Companys business, financial condition, operating results and prospects may
be materially adversely affected.
**Motorcycle
retail sales depend heavily on affordable interest rates and availability of credit for financing and a substantial increase in interest
rates could materially and adversely affect the Companys business, financial condition, operating results and prospects.**
In
certain regions, including North America and Europe, financing for new vehicle sales was available at relatively low interest rates in
recent years due to, among other things, expansive government monetary policies. Interest rates began to rise sharply in early 2022,
and market rates for new vehicle financing have increased as well. Higher interest rates make the Companys vehicles less affordable
to customers and could steer customers to less expensive vehicles that would be less profitable for the Company compared to premium vehicles.
Additionally, if consumer interest rates remain high or increase further, or if financial service providers further tighten lending standards
or restrict their lending to certain classes of credit, customers may not desire or be able to obtain financing to purchase or lease
the Companys vehicles.
**Fluctuations
in exchange rates could have a material and adverse effect on the Companys results of operations.**
The
Company reports its financial results in U.S. dollars and anticipates that a material portion of its sales and operating costs will be
realized in currencies other than the U.S. dollar. If the value of any of said currencies depreciates relative to the U.S. dollar, the
Companys foreign currency revenue will decrease when translated to U.S. dollar for reporting purposes. Alternatively, if the value
of any of these currencies appreciates relative to the U.S. dollar, the Companys operating costs will increase when translated
to U.S. dollar for reporting purposes. Although these risks may sometimes be naturally hedged by a match in the Companys sales
and operating costs denominated in the same currency, fluctuations in foreign currency exchange rates could create discrepancies between
the Companys sales and its operating costs in a given currency which may have a material adverse effect on the Companys
business, financial condition, operating results and prospects.
45
Fluctuations
in foreign currency exchange rates could also have a material adverse effect on the relative competitive position of the Companys
products in markets where they face competition from manufacturers who are less affected by such fluctuations in exchange rates. The
value of the U.S. dollar against the Canadian dollar and other currencies is affected by changes in various political and economic conditions.
It is difficult to predict how market forces or government policy may impact the exchange rate between U.S. dollars and other currencies
in the future. Changes in currency exchange rates can have impacts on the costs of imported goods for motorcycle or other personal mobility
products assembly, and it can change the relative value or demand for motorcycles or such other personal mobility products abroad.
**The
Companys sales and operating results may fluctuate from quarter-to-quarter and from year-to-year as they are affected, among other
things, by the seasonal nature of the Companys products, fluctuation in the Companys operating costs and prevailing market
conditions.**
The
Companys future sales and operating results may experience substantial fluctuations from quarter-to-quarter and year-to-year.
It is anticipated that sales for motorcycles in the principal markets in which the Company operates will be highest in spring and summer.
In addition, the Companys revenues and operating costs will fluctuate from period-to-period with the pace at which it increases
its production capacity and designs, develops and produces new vehicles. As a result of these fluctuations in revenues and expenses,
along with other factors that are beyond the Companys control, including general economic conditions, changes in consumer preferences,
weather conditions, vehicle sales mix, changes in the cost or availability of raw materials or labor, discretionary spending habits and
currency exchange rate fluctuations, the Company may not be able to accurately predict its quarterly and annual sales and operating results,
which are likely to fluctuate significantly from period- to-period. Sales and operating results in any period should not be considered
indicative of the results to be expected for any future period.
**Risks
Related to Technology**
****
**The
Companys motorcycles rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities,
or if the Company is unsuccessful in addressing or mitigating technical limitations in its systems, its business, financial condition,
operating results and prospects could be materially adversely affected.**
The
Companys vehicles rely on software and hardware, including software and hardware developed or maintained by third parties, that
is highly technical and complex and will require modification and updates over the life of the vehicles. In addition, the performance
of the software solutions included in the Companys vehicles depends on the ability of such software and hardware to store, retrieve,
process and manage immense amounts of data. The Companys software and hardware may contain errors, bugs or vulnerabilities, and
its systems are subject to certain technical limitations that may compromise the Companys ability to meet its objectives. Some
errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for
external or internal use. Errors, bugs, vulnerabilities, design defects or technical limitations may be found within the Companys
software and hardware. Although the Company attempts to remedy any issues it observes in its vehicles and software as effectively and
rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of the Companys customers.
Additionally, if the Company is able to deploy updates to the software addressing any issues, but such updates cannot or are not installed
by its customers, such customers software will be subject to these vulnerabilities until they install such updates. If the Company
is unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in its software and hardware, the Company may suffer
damage to its reputation, loss of customers, loss of revenue or liability for damages, any of which may materially adversely affect the
Companys business, financial condition, operating results and prospects.
****
**There
are complex software and technology systems that need to be developed by the Company and in coordination with vendors and suppliers to
reach production for its vehicles, and there can be no assurance such systems will be successfully developed or integrated.**
The
Companys vehicles and operations will use a substantial amount of complex third-party and in-house software and hardware. The
development and integration of such advanced technologies are inherently complex, and the Company will need to coordinate with its vendors
and suppliers to reach production for its vehicles. Defects and errors may be revealed over time and the Companys control over
the performance of third-party services and systems may be limited. Thus, the Companys potential inability to develop and integrate
the necessary software and technology systems may harm its competitive position.
46
The
Company relies on third-party suppliers to develop a number of emerging technologies for use in its products, including battery technology
and the use of different battery cell chemistries. Certain of these technologies and chemistries are not today, and may not ever be,
commercially viable. There can be no assurances that the Companys suppliers will be able to meet the technological requirements,
production timing, and volume requirements to support the Companys business plan. In addition, the technology may not comply with
the cost, performance useful life and warranty characteristics that are anticipated. As a result, the Companys business plan could
be significantly impacted, and the Company may incur significant liabilities under warranty claims which may materially adversely affect
the Companys business, financial condition, operating results and prospects.
**The
Companys industry and its technology are rapidly evolving and may be subject to unforeseen changes. Developments in alternative
technologies or improvements in the internal combustion engine may materially and adversely affect the demand for its electric vehicles.**
The
Company will operate in the electric vehicle industry, which is rapidly evolving and may not develop as anticipated. The regulatory framework
governing the industry is currently uncertain and may remain uncertain for the foreseeable future. As the industry in which the Company
operates and the Companys business develop, the Company may need to modify its business model or change its vehicles and services.
These changes may be costly and may not achieve expected results, which could have a material adverse effect on the Companys business,
financial condition, operating results and prospects.
Further,
the Company may be unable to keep up with changes in electric vehicle technology or alternatives to electricity as a fuel source and,
as a result, its competitiveness may suffer. The Companys research and development efforts may not be sufficient to adapt to changes
in electric vehicle technology. As technologies change, the Company plans to upgrade or adapt its vehicles and introduce new models in
order to continue to provide vehicles with the latest technology, in particular safety technology and battery technology, which could
involve substantial costs and lower its return on investment for existing vehicles. There can be no assurance that the Company will be
able to compete effectively with alternative vehicles or source and integrate the latest technology into its vehicles, against the backdrop
of the Companys rapidly evolving industry. Even if the Company is able to keep pace with changes in technology and develop new
models, the Company is subject to the risk that its prior models will become obsolete more quickly than expected, potentially reducing
its return on investment.
Developments
in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy
of the internal combustion engine, may materially and adversely affect the Companys business, financial condition, operating results
and prospects in ways not currently anticipated. For example, relatively inexpensive fuel, such as compressed natural gas, may emerge
as consumers preferred alternative to petroleum-based propulsion.
**The
Company may face challenges providing charging solutions.**
Demand
for the Companys vehicles will depend in part on the availability of charging infrastructure. While the prevalence of charging
stations has been increasing, charging station locations are significantly less widespread than gas stations. Some potential customers
may choose not to purchase an electric vehicle because of the lack of a more widespread service network or charging infrastructure at
the time of sale. Although the Company intends to offer the ability to use alternative current and direct current charging infrastructure,
allowing customers to use existing charging infrastructure and standards to charge their motorcycles, the Company has very limited experience
in the actual provision of charging solutions to customers and providing these services is subject to challenges, which include dependence
on existing charging networks and installation providers in appropriate areas. The Companys ability to generate customer loyalty
and grow its business could be impaired by a lack of satisfactory access to charging infrastructure. To the extent the Company is unable
to meet customer expectations or experiences difficulties in providing charging solutions, demand for its vehicles may suffer, and the
Companys business, financial condition, operating results and prospects may be materially and adversely affected.
47
If
the Company were to pursue development of a proprietary charging solution, the Company would face significant challenges and barriers,
including successfully navigating the complex logistics of rolling out a network and teams in appropriate areas, resolving issues related
to inadequate capacity or overcapacity in certain areas, addressing security risks and risks of damage to vehicles, securing agreements
with third-party providers to roll out and support a network of charging solutions in appropriate areas, obtaining any required permits
and land use rights and filings, and providing sufficient financial resources to successfully roll out the proprietary charging solution,
which could require diverting such resources from the Companys other important business initiatives. In addition, the Companys
limited experience in providing charging solutions could contribute to additional unanticipated challenges that would hinder its ability
to provide such solutions or make the provision of such solutions costlier than anticipated.
**The
range of the Companys electric motorcycles on a single charge decline over time, which may negatively influence potential customers
decisions whether to purchase its motorcycles.**
The
battery life and range of the Companys motorcycles may vary or decline over time, like other vehicles that use current battery
technology, including due to factors outside of the Companys control. Factors such as rider behaviour, usage, speed, terrain,
time and stress patterns may also impact the batterys ability to hold a charge, which may decrease the Companys motorcycles
range before needing to recharge or could require the Company to limit vehicles battery charging capacity, including via over-the-air
or other software updates, for safety reasons or to protect battery capacity, which could further decrease the Companys vehicles
range between charges. Such decreases in or limitations of battery capacity and therefore range, whether imposed by deterioration, software
limitations or otherwise, could also lead to customer complaints or warranty claims, including claims that prior knowledge of such decreases
or limitations would have affected customers purchasing decisions. In addition, the Company cannot guarantee that battery life
and range deterioration will not be greater than what is currently anticipated, nor that the Company will be able to improve the performance
of its battery packs, or increase its vehicles range, in the future. Any deterioration above the expected level could affect the
Companys reputation or could materially adversely affect its business, financial condition, operating results and prospects.
**The
Companys vehicles make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame.**
The
battery packs that the Company produces make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy
they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery
pack has been designed to passively contain any single cells release of energy without spreading to neighboring cells, a field
or testing failure of the Companys vehicles or other battery packs that it produces could occur, which could result in bodily
injury or death and could subject the Company to lawsuits, product recalls, or redesign efforts, all of which would be time consuming
and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future
incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve the Companys vehicles,
could materially adversely affect the Companys business, financial condition, operating results and prospects.
****
In
addition, once the Company begins mass manufacturing of its vehicles, it will be required to store a significant number of lithium-ion
cells at its facilities. While safety procedures related to the handling of the cells have been implemented, any mishandling of battery
cells, or safety issue or fire related to cells, may cause damage, injury and disruption to the operation of its facilities. Such damage
or injury could lead to adverse publicity and potentially a safety recall.
**The
Company may be subject to risks associated with assisted driving technology.**
The
Companys vehicles are being designed to offer some assisted driving functionality through the Companys CoPilot ADAS, including
forward crash warning functionalities. Through research and development, the Company plans to continue to update and improve its assisted
driving technology. Assisted driving technologies are subject to risks and there have been accidents and fatalities associated with such
technologies. The safety of such technologies depends in part on driver interactions, and drivers may not be accustomed to using or adapting
to such technologies. To the extent accidents associated with the Companys assisted driving systems occur, the Company could be
subject to liability, negative publicity, government scrutiny, and further regulation. Moreover, any incidents related to assisted driving
systems of the Companys competitors could adversely affect the perceived safety and adoption of the Companys vehicles and
assisted driving technology more broadly. Any of the foregoing could materially and adversely affect the Companys business, financial
condition, operating results and prospects.
48
**Risks
Related to Intellectual Property**
****
**The
Companys patent applications may not result in issued patents, which may have a material adverse effect on its ability to prevent
others from interfering with the commercialization of the Companys products.**
The
registration and enforcement of patents involves complex legal and factual questions, and the breadth and effectiveness of patented claims
is uncertain. The Company cannot be certain that it is the first to file patent applications on the inventions it wishes to protect,
nor can it be certain that its pending patent applications will result in issued patents or that any of its issued patents will afford
sufficient protection against someone creating competing products, or as a defensive portfolio against a competitor who claims that the
Company is infringing such competitors patents. In addition, patent applications filed in foreign countries are subject to laws,
rules and procedures that may differ from those of applicable in Canada or the U.S., and thus there is no certainty that foreign patent
applications, if any, will result in issued patents in those foreign jurisdictions or that such patents can be effectively enforced,
even if they relate to patents issued in Canada or the U.S.
**The
Company may need to defend itself against patent or trademark infringement claims, which may be time-consuming and would cause the Company
to incur substantial costs.**
Companies,
organizations or individuals, including the Companys competitors, may hold or obtain patents, trademarks or other proprietary
rights that would prevent, limit or interfere with the Companys ability to make, use, develop, sell or market its motorcycles
or components, which could make it more difficult for Damon to operate its business. From time-to-time, the Company may receive communications
from third parties that allege its products are covered by their patents or trademarks or other intellectual property rights. Companies
holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their
rights.
In
addition, various non-practicing entities that own patents and other intellectual property rights often attempt to aggressively
assert their rights in order to extract value from technology companies. Furthermore, from time-to-time the Company may introduce or
acquire new products and services, including in areas where Damon historically has not competed, which could increase the Companys
exposure to patent and other intellectual property claims from competitors and non-practicing entities.
The
Company may receive notice letters from patent holders alleging that certain of its products and services infringe their patent rights.
Defending patent and other intellectual property litigation is costly and can impose a significant burden on management and employees,
and there can be no assurances that favorable final outcomes will be obtained in all cases. In addition, plaintiffs may seek, and the
Company may become subject to, preliminary or provisional rulings in the course of any such litigation, including potential preliminary
injunctions requiring the Company to cease some or all of its operations. The Company may decide to settle such lawsuits and disputes
on terms that are unfavorable to it. Similarly, if any litigation to which the Company is a party is resolved adversely, the Company
may be subject to an unfavorable judgment that may not be reversed upon appeal. The terms of such a settlement or judgment may require
the Company to cease some or all of its operations or pay substantial amounts to the other party. In addition, the Company may have to
seek a license to continue practices found to be in violation of a third partys rights, which may not be available on reasonable
terms, or at all, and may significantly increase the Companys operating costs and expenses. As a result, the Company may also
be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative
non-infringing technology or practices could require significant effort and expense or may not be feasible. The Companys business,
financial condition, and results of operations could be adversely affected as a result of an unfavorable resolution of the disputes and
litigation referred to above.
49
If
the Company is determined to have infringed upon a third partys intellectual property rights, the Company may be required to do
things that include one or more of the following:
|
| cease
making, using, selling or offering to sell processes, goods or services that incorporate or use the third-party intellectual property; |
|
|
| pay
substantial damages; |
|
|
| seek
a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at
all; |
|
|
| redesign
its motorcycles or other goods or services to avoid infringing the third-party intellectual property; or |
|
|
| establish
and maintain alternative branding for its products and services. |
|
In
the event of a successful claim of infringement against the Company and its failure or inability to obtain a license to the infringed
technology or other intellectual property right, its business, financial condition, operating results and prospects may be materially
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.
**Risks
Related to Regulation and Taxation**
****
**Our
international business exposes us to geo-political and economic factors, legal and regulatory requirements, public health and other risks
associated with doing business in foreign countries.**
We
currently provide, and plan to continue providing, our products and services to customers internationally. These risks differ from and
potentially may be greater than those associated with our domestic business.
Our
international business is sensitive to changes in the priorities and budgets of international customers and geo-political uncertainties,
which may be driven by changes in threat environments and potentially volatile worldwide economic conditions, various regional and local
economic and political factors, risks and uncertainties, as well as Canadian, U.S., and UK foreign policy.
****
Our
international sales are also subject to local government laws, regulations and procurement policies and practices, which may differ from
the UK Government regulations, including regulations relating to import-export control, investments, foreign exchange controls and repatriation
of earnings, as well as to varying currency, geo-political and economic risks. Our international contracts may include industrial cooperation
agreements requiring specific in- country purchases, manufacturing agreements or financial support obligations, known as offset obligations,
and provide for penalties if we fail to meet such requirements. Our international contracts may also be subject to termination at the
customers convenience or for default based on performance, and may be subject to funding risks. We also are exposed to risks associated
with using foreign representatives and consultants for international sales and operations and teaming with international subcontractors,
partners and suppliers in connection with international programs. As a result of these factors, we could experience award and funding
delays on international programs and could incur losses on such programs, which could negatively affect our results of operations and
financial condition.
We
are also subject to a number of other risks including:
|
| the
absence in some jurisdictions of effective laws to protect our intellectual property rights; |
|
|
| multiple
and possibly overlapping and conflicting tax laws; |
|
|
| restrictions
on movement of cash; |
|
50
|
| the
burdens of complying with a variety of national and local laws; |
|
|
| political
instability; |
|
|
| currency
fluctuations; |
|
|
| longer
payment cycles; |
|
|
| restrictions
on the import and export of certain technologies; |
|
|
| price
controls or restrictions on exchange of foreign currencies; and |
|
|
| trade
barriers. |
|
In
addition, our international operations (or those of our business partners) could be subject to natural disasters such as earthquakes,
tsunamis, flooding, typhoons and volcanic eruptions that disrupt manufacturing or other operations. There may be conflict or uncertainty
in the countries in which we operate, including public health issues (for example, an outbreak of a contagious disease such as 2019-Novel
Coronavirus (2019-nCoV), avian influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities,
nuclear power plant accidents or general economic or political factors. For example, as a result of the Coronavirus outbreak, our ability
to source internal connection cables for certain of our sensors has been delayed, which will require us to source these components from
other vendors at a higher price that may result in an increase in our costs to produce our products In the event our customers are materially
impacted by these events, it may impact anticipated orders and planned shipments for our products. With respect to political factors,
the United Kingdoms 2016 referendum, commonly referred to as Brexit, has created economic and political uncertainty
in the European Union. Also, the European Unions General Data Protection Regulation imposes significant new requirements on how
we collect, process and transfer personal data, as well as significant fines for non-compliance. Any of the above risks, should they
occur, could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties
in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes,
restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately
have a material adverse effect on our business.
**The
lack of availability, reduction or elimination of government and economic incentives or government policies which are favorable for electric
vehicles and Canadian produced vehicles could have a material adverse effect on the Companys business, financial condition, operating
results and prospects.**
Any
reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced
need for such subsidies and incentives due to the perceived success of electric motorcycles, fiscal tightening or other reasons may result
in the diminished competitiveness of the alternative fuel motorcycle industry generally or the Companys electric motorcycles or
other personal mobility products in particular. This could materially adversely affect the growth of the alternative fuel motorcycle
markets and the Companys business, financial condition, operating results and prospects.
****
The
Companys vehicles also benefit from government policies including tariffs on imported motorcycles to both Europe and the U.S.
However, trade dynamics can change quickly between regions, and this advantage could become a disadvantage with new regulations or duties.
Additionally, the amount of subsidies provided for purchasers of certain new energy motorcycles in various regions (both at national
and local levels) could be reduced in the future, increasing the net cost experienced by customers. These policies are subject to change
and are beyond the Companys control. There is no assurance that any changes would be favorable to the Companys business.
Any of the foregoing could materially adversely affect the Companys business, financial condition, operating results and prospects.
**The
Companys business could be adversely affected by trade tariffs or other trade barriers.**
The
Company initially plans to potentially build Damon motorcycles in the US and/or Europe and will be shipping those motorcycles globally.
It is not clear what impact changes to tariffs may have or what actions other governments may take in the future. In the future, tariffs
could potentially impact the Companys raw material prices. In addition, changes in tariffs could have a material adverse effect
on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect
on the Companys business, financial condition, operating results and prospects.
51
**The
construction and operation of one or more potential assembly facilities that the Company may seek to establish in the future, are or
will be subject to regulatory approvals, and may be subject to delays, cost overruns or may not produce expected benefits.**
The
Companys establishment of one or more potential manufacturing facilities could be subject to broad and strict government supervision
and approval procedures, including, but not limited to, the project approvals and filings, construction land and project planning approval,
environment protection approval, pollution discharge permits, work safety approvals, fire protection approvals, and the completion of
inspection and acceptance by relevant authorities. As a result, the Company may be subject to administrative uncertainty regarding the
construction within a specified time frame, fines or the suspension of work. The Company may face similar challenges with respect to
any additional facilities it seeks to establish in the future to scale manufacturing capacity or otherwise. Any of the foregoing may
have a material adverse impact on the Companys business, financial condition, operating results or prospects.
**The
Companys vehicles are subject to motor vehicle standards and the failure to satisfy such mandated safety standards would have
a material adverse effect on the Companys business, financial condition, operating results and prospects.**
All
vehicles sold must comply with various standards of the market where the vehicles were sold. Rigorous testing and the use of approved
materials and equipment are among the requirements for achieving such standards. Vehicles must pass various tests and undergo a certification
process, before receiving delivery from the factory, being sold, or being used in any commercial activity, and such certification is
also subject to periodic renewal. The Company expects to begin the process of obtaining certifications for the HyperSport in 2027. If
the Companys certification efforts fail, or a certified vehicle has a defect resulting in quality or safety accidents, or consistent
failure of compliance with certification requirements is discovered, the approval can be withheld, suspended or even revoked. With effect
from the date of revocation or during suspension of certification, any vehicle that fails to satisfy the requirements for certification
may not continue to be delivered, sold, exported or used in any commercial activity. Failure by the Company to have the HyperSport or
any future model electric vehicle satisfy motor vehicle standards would have a material adverse effect on the Companys business,
financial condition, operating results and prospects.
****
**The
Company is subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance
with such laws can subject the Company to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures
and legal expenses, all of which could materially adversely affect the Companys business, results of operations, financial condition
and reputation.**
The
Company is subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations
in various jurisdictions in which the Company conducts activities, including the United States Foreign Corrupt Practices Act (FCPA),
the Corruption of Foreign Public Officials Act (Canada) (CFPOA), the UK Bribery Act 2010 and other similar anti-corruption,
anti-bribery, anti-money laundering, financial and economic sanctions, laws and regulations. The FCPA, the CFPOA and the UK Bribery Act
2010 prohibit the Company and its officers, directors, employees and business partners acting on the Companys 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 FCPA 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. The UK Bribery Act also prohibits non-governmental commercial bribery
and soliciting or accepting bribes. A violation of these laws or regulations could harm the Damon brand and adversely affect the Companys
business, financial condition, operating results and prospects.
52
The
Company has direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in
the ordinary course of business. These interactions subject the Company to an increased level of compliance-related concerns. The Company
is in the process of implementing policies and procedures designed to ensure compliance by it and its directors, officers, employees,
representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial
and economic sanctions and similar laws and regulations. However, the Companys policies and procedures may not be sufficient,
and its directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct
for which the Company may be held responsible.
Non-compliance
with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws and regulations could subject the
Company 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 harm the Damon brand and materially adversely affect
the Companys business, financial condition, operating results and prospects. In addition, changes in economic sanctions laws in
the future could adversely impact the Companys business and investments in the Company s securities.
**The
Company is subject to numerous environmental, health and safety laws and any breach of such laws may have a material adverse effect on
the Companys business, financial condition, operating results and prospects.**
The
Company is subject to numerous environmental, health and safety laws, including statutes, regulations, bylaws and other legal requirements.
These laws relate to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous
substances (such as batteries), dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors
(which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These legal
requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws, regulations,
directives or requirements would have a material adverse effect on the Companys business, financial condition, operating results
and prospects.
**The
Company may be adversely affected by the complexity, uncertainties and changes in automotive or internet related Canadian regulations
or similar regulations of any countries it intends to sell motorcycles into.**
The
Company operates in the motorcycle and internet industry, both of which are extensively regulated by various governments. Regulations
on vehicle homologation requirements may change over time, and potentially diverge in various regions, driving the need for increased
vehicle variants, or discontinuation (temporary or permanent) of existing vehicle models.
****
In
addition, the Companys mobile applications are also regulated by various regulations, for example there are regulations related
to the collection and sharing of data. If the Companys mobile applications were found to be violating the regulations, the Company
may be subject to administrative penalties, including warning, service suspension or removal of the Companys mobile applications
from the relevant mobile application store, which may materially adversely affect the Companys business, financial condition,
operating results and prospects.
**Risks
Related to Cybersecurity and Privacy**
****
**The
Companys inability to leverage vehicle and customer data could impact the servicing of its products, its software algorithms and
impact research and development.**
The
Company will rely on data collected from the use of its vehicles, including vehicle data and data related to battery usage statistics.
The Company will use this data in connection with the servicing and normal course software updates of its products, its software algorithms
and the research, development and analysis of its motorcycles. The Companys inability to obtain this data or the necessary rights
to use this data or the Companys inability to properly analyze or use this data could result in the Companys inability
to adequately service its vehicles or delay or otherwise negatively impact its research and development efforts. Any of the foregoing
could materially adversely affect the Companys business, financial condition, operating results and prospects.
53
**Failure
of information security and privacy concerns could subject the Company to penalties, damage its reputation and brand, and harm its business,
financial condition, operating results and prospects.**
The
Company faces significant challenges with respect to information security and privacy, including the storage, transmission and sharing
of confidential information. The Company collects, transmits and stores confidential and private information of its customers, such as
personal information, including names, accounts, user IDs and passwords, and payment or transaction related information. In certain jurisdictions,
the Company is also subject to certain laws and regulations, such as Right to Repair laws, which require the Company to
provide third-party access to its network or vehicle systems.
The
Company is required by the laws of its various operating regions to ensure the confidentiality, integrity, availability and authenticity
of the information of its customers and suppliers, which is also essential to maintaining their confidence in its vehicles and services.
The Company intends to implement 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 and diversity of
the Companys vehicles and 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 are used by the Company. If the Company is unable to protect its
systems, and hence the information stored in its systems, from unauthorized access, use, disclosure, disruption, modification or destruction,
such problems or security breaches could cause a loss, give rise to the Companys liabilities to the owners of confidential information
or even subject the Company to fines and penalties. In addition, complying with various laws and regulations could cause Company to incur
substantial costs or require Company to change its business practices, including its data practices, in a manner adverse to its business.
**Any
unauthorized control or manipulation of the Companys vehicles systems could result in loss of confidence in the Company
and its vehicles and harm its business.**
The
Companys vehicles contain complex information technology systems and built-in data connectivity to accept and install periodic
remote updates to improve or update functionality. The Company has designed, implemented and tested security measures intended to prevent
unauthorized access to its information technology networks and its vehicles and related systems. However, hackers may attempt to gain
unauthorized access to modify, alter and use such networks, vehicles and systems to gain control of or to change Companys solutions
functionality, user interface and performance characteristics, or to gain access to data stored in or generated by the vehicles. Future
vulnerabilities could be identified and Companys efforts to remediate such vulnerabilities may not be successful. Any unauthorized
access to or control of Companys vehicles, or any loss of customer data, could result in legal claims or proceedings and remediation
of such problems could result in significant, unplanned capital expenditures. In addition, regardless of their veracity, reports of unauthorized
access to its technology systems or data, as well as other factors that may result in the perception that Companys vehicles, technology
systems or data are capable of being hacked, could materially adversely affect Companys brand and its business,
financial conditions, operating results and prospects.
**The
Company is subject to information technology and cybersecurity risks to operational systems, security systems, infrastructure, integrated
software in its motorcycles and customer data processed by it, and any material failure, weakness, interruption, cyber event, incident
or breach of security could prevent the Company from effectively operating its business, harm its reputation or materially adversely
affect its business, financial condition, operating results and prospects.**
The
Company is at risk for interruptions, outages and breaches of: (i) operational systems, including business, financial, accounting, product
development, data processing or production processes, owned by it or its third-party vendors or suppliers; (ii) facility security systems,
owned by it or its third-party vendors or suppliers; (iii) transmission control modules or other in-product technology, owned by it or
its third-party vendors or suppliers; (iv) the integrated software in Companys vehicles; or (v) customer or driver data that Company
processes or Companys third-party vendors or suppliers process on its behalf. Such cyber incidents could materially disrupt operational
systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise
certain information of customers, employees, suppliers or others; jeopardize the security of the Companys facilities; or affect
the performance of transmission control modules or other in-product technology and the integrated software in the Companys vehicles.
A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including
nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security
defenses, including hacking, fraud, trickery, social engineering or other forms of deception. The techniques used by cyber attackers
change frequently and may be difficult to detect for long periods of time.
54
Although
the Company maintains information technology measures designed to protect it against intellectual property theft, data breaches and other
cyber incidents, such measures will require updates and improvements, and there is no guarantee that such measures will be adequate to
detect, prevent or mitigate cyber incidents. Any implementation, maintenance, segregation and improvement of the Companys systems
may require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving,
expanding and updating current systems, including the disruption of the Companys data management, procurement, production execution,
finance, supply chain and sales and service processes. These risks may affect the Companys ability to manage its data and inventory,
procure parts or supplies or produce, sell, deliver and service its vehicles, adequately protect its intellectual property or achieve
and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. The Company cannot be
sure that these systems upon which it relies, including those of its third-party vendors or suppliers, will be effectively implemented,
maintained or expanded as planned. If the Company does not successfully implement, maintain or expand these systems as planned, its operations
may be disrupted, the Companys ability to accurately and timely report its financial results could be impaired, and deficiencies
may arise in the Companys internal control over financial reporting, which may impact the Companys ability to certify its
financial results. Moreover, the Companys proprietary information or intellectual property could be compromised or misappropriated,
and its reputation may be adversely affected. If these systems do not operate as expected, Damon may be required to expend significant
resources to make corrections or find alternative sources for performing these functions.
A
significant cyber incident could impact the Companys manufacturing capacity or production capability, harm its reputation, cause
the Company to breach its contractual arrangements with other parties or subject Damon to regulatory actions or litigation, any of which
could materially adversely affect its business, financial condition, operating results or prospects. In addition, the Companys
insurance coverage for cyberattacks may not be sufficient to cover all the losses it may experience as a result of a cyber incident.
****
The
Company also collects, uses, discloses, stores, transmits and otherwise processes customer and employee and others data as part
of its business and operations, which may include personal data or confidential or proprietary information. The Company uses its vehicles
electronic systems to log information about each vehicles use, such as charge time, battery usage, mileage and rider behavior,
in order to aid it in vehicle diagnostics, repair and maintenance, as well as to help it customize and optimize the riding experience.
The Companys users may object to the use of this data, which may harm the Companys business. The Company also works with
partners and third-party service providers or vendors that may in the course of their business relationship with the Company collect,
store and process such data on the Companys behalf and in connection with Damons vehicles and services. There can be no
assurance that any security measures that Damon or its third-party service providers, vendors, or suppliers have implemented will be
effective against current or future security threats. While the Company has developed systems and processes designed to protect the availability,
integrity, confidentiality and security of the Companys, the Companys customers, and employees and others
data, such security measures or those of its third-party service providers, vendors or suppliers could fail and result in unauthorized
access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise of such data. If a compromise
of such data were to occur, the Company may become liable under its contracts with other parties and under applicable law for damages
and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in all 50 states of the U.S., in Canada
and in Europe require the Company to provide notice to individuals, customers, regulators, credit reporting agencies and others when
certain sensitive information has been compromised as a result of a security breach or where a security breach creates a real risk of
significant harm to an individual. Such laws are inconsistent and compliance if there is a widespread data breach could be costly. Depending
on the facts and circumstances of such an incident, these damages, penalties, fines and costs could be significant. Any such event could
harm the Companys reputation and result in litigation against it, or otherwise materially adversely affect its business, financial
condition, operating results and prospects.
55
**Risks
Related to Litigation, Product Warranty and Recalls**
****
**Adverse
judgments or settlements in legal proceedings, including the claim brought by Jay Giraud or those that may arise relating to the Business
Combination, could materially harm our business, financial condition, operating results, and cash flows.**
We
may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for
example, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer
bankruptcies, employment of our workforce and immigration requirements, or compliance with any of a wide array of state and federal statutes,
rules, and regulations that pertain to different aspects of our business. In addition, we may deem it advisable to initiate expensive
litigation to protect our business interests. We also face litigation risk related to the Business Combination. Business combinations
often give rise to claims and legal proceedings, including shareholder lawsuits. Any shareholder claims or lawsuits alleging inadequate
disclosure, breach of fiduciary duty, adequacy of consideration or other claims in connection with the Business Combination could lead
to costly litigation and diversion of managements time and attention from our business.
On
March 7, 2025, we were served with a civil claim in the Supreme Court of British Columbia by a former director and CEO, alleging, among
other things, that the Company and its Board of Directors failed to honor agreed-upon settlement terms related to his resignation. Please
refer to the disclosure under Item 3*. Legal Proceedings* for details regarding this proceeding. While we deny the
allegations, there is no guarantee that we will prevail in this matter, that additional claims will not arise, or that this or other
litigation will not result in substantial costs, penalties, or other liabilities that could have a material adverse effect on our business,
financial condition, or results of operations.
Furthermore,
while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities
and is subject to various exclusions as well as deductibles and caps on amounts of coverage. Even if we believe a claim is covered by
insurance, insurers may dispute our entitlement to coverage for a variety of potential reasons, which may affect the timing and, if the
insurers prevail, the amount of our available insurance coverage for a particular claim.
There
is a risk that we will not be successful or otherwise be able to satisfactorily resolve any such claims or litigation. In addition, litigation
and other legal claims are subject to inherent uncertainties. Those uncertainties include, but are not limited to, litigation costs and
attorneys fees, unpredictable judicial or jury decisions, and the differing laws and judicial proclivities regarding damage awards
among the jurisdictions in which we operate. Unexpected outcomes in such legal proceedings, or changes in managements evaluation
or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a material
adverse effect on our business, financial condition, results of operations, and cash flows.
****
**The
Company may become subject to product liability claims, which could harm the Companys financial condition and liquidity if it
is not able to successfully defend or insure against such claims.**
The
Company may become subject to product liability claims, which could harm the Companys business, financial condition, operating
results and prospects. The motorcycle industry experiences significant product liability claims and the Company faces inherent risk of
exposure to claims if its motorcycles do not perform as expected or malfunction resulting in personal injury or death. The Companys
risks in this area are particularly pronounced given the limited field experience of its motorcycles. A successful product liability
claim against the Company could require it to pay a substantial monetary award. Moreover, a product liability claim could generate substantial
negative publicity about the Companys motorcycles, other personal mobility products and its business in general and inhibit or
prevent commercialization of other future motorcycle candidates which could harm the Damon brand and have a material and adverse effect
the Companys business, financial condition, operating results and prospects. The Company plans to seek adequate product liability
insurance for all its motorcycles, but any such insurance might not be sufficient to cover all potential product liability claims and
may not be available on terms satisfactory to the Company. Any lawsuit seeking significant monetary damages either in excess of such
liability coverage, or outside of such liability coverage, may harm the Damon brand and have a material adverse effect on the Companys
business, financial condition, operating results and prospects. The Company may not be able to secure additional product liability insurance
coverage on commercially acceptable terms or at reasonable costs when needed, particularly if it faces liability for its products and
is forced to make a claim under its product liability insurance policy(ies).
56
**The
Companys warranty reserves may be insufficient to cover future warranty claims which could adversely affect its business, financial
condition, operating results and prospects.**
As
the Companys vehicles enter production, the Company will need to maintain warranty reserves to cover warranty-related claims.
If the Companys warranty reserves are inadequate to cover future warranty claims on its vehicles, the Companys business,
financial condition, operating results and prospects could be materially and adversely affected. The Company expects to record and adjust
warranty reserves based on changes in estimated costs and actual warranty costs. However, the Company has limited operating experience
with its vehicles, and therefore no experience with warranty claims for these vehicles or with estimating warranty reserves, which renders
necessary reserves hard to predict. In the future, the Company may become subject to significant and unexpected warranty expenses. There
can be no assurances that then-existing warranty reserves will be sufficient to cover all claims.
**The
Company may be compelled to undertake product recalls or take other actions, which could adversely affect its brand image and financial
performance.**
If
the Companys vehicles are subject to recalls in the future, the Company may be subject to adverse publicity, damage to its brand
and liability for costs. In the future, the Company may at various times, voluntarily or involuntarily, initiate a recall if any of its
vehicles, including any systems or parts sourced from its suppliers, prove to be defective or noncompliant with applicable laws and regulations.
Such recalls, whether voluntary or involuntary or caused by systems or components engineered or manufactured by the Company or its suppliers,
could involve significant expense and could materially adversely affect the Damon brand image in the target markets of the Company, as
well as the Companys business, financial condition, operating results and prospects.
**Damon
Motors was previously involved in a dispute with the lessor of Damon Motors former manufacturing facility in Surrey, British Columbia,
which has since been settled.**
In
April 2023, Damon Motors received a notice of default from a property management company related to Damon Motors lease of a facility
in Surrey, British Columbia. The notice of default asserts a breach of the lease and seeks approximately CAD$4.1 million in damages,
in addition to accruing interest and other costs. Damon Motors executed a settlement agreement effective on June 30, 2023, whereby it
subsequently settled the amount owing with an issuance of convertible notes and instalments of cash payments. Should Damon Motors default
under the terms of the settlement agreement, Damon Motors could be forced to pay a substantial monetary sum to the property management
company and may also suffer reputational or other harm.
Damon
Motors was in compliance with the settlement and has agreed with the lessor to extend the terms of the agreement on any further payments
as follows: (a) 1/3 of the remaining settlement amount on or before the date that is 30 days following completion of the Business Combination;
(b) 1/3 of the remaining settlement amount on or before the date that is 60 days following completion of the Business Combination; and
(c) 1/3 of the remaining settlement amount on or before the date that is 90 days following completion of the Business Combination. Damon
Motors has not yet made any of the three scheduled payments under the agreement. The parties are negotiating ways to mitigate damages
to the lessor and reduce Damon Motors liability; however, there is no guarantee that a resolution will be reached soon or at all.
57
**Risks
Related to Our Securities**
**Our
stock price is volatile and there is a limited market for our shares.**
Our
common shares have only recently become publicly traded. The market price of our common shares has been volatile and could continue to
fluctuate widely in price in response to various factors, many of which are beyond our control. In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of publicly traded
companies. While these fluctuations have often been unrelated to the operating results of such companies and in recent times have been
exacerbated by investors concerns stemming from geopolitical issues and changes in macroeconomic conditions, factors that may
affect the volatility of our stock price include the following:
|
| our
ability to execute our business plan; |
|
|
| changes
in our industry, including the announcement of new products, services, or technological innovations by us or our competitors; |
|
|
| competitive
pricing pressures; |
|
|
| our
ability to obtain working capital financing; |
|
|
| additions
or departures of key personnel, including members of our executive leadership; |
|
|
| sales
of our common shares; |
|
|
| operating
results that fall below expectations; |
|
|
| regulatory
developments; |
|
|
| economic
and other external factors, including changes in macroeconomic conditions, including inflationary pressures; |
|
|
| period-to-period
fluctuations in our financial results; |
|
|
| our
inability to develop or acquire new or needed technologies or successfully integrate acquired businesses; |
|
|
| the
publics response to press releases or other public announcements by us or third parties, including filings with the SEC; |
|
|
| changes
in financial estimates or ratings by any securities analysts who follow our common shares, our failure to meet these estimates or failure
of those analysts to initiate or maintain coverage of our common shares; |
|
|
| the
development and sustainability of an active trading market for our common shares; |
|
|
| any
future sales of our common shares by our officers, directors and significant shareholders, or the sale or attempted sale of a large amount
of our common shares, or the appearance of such sales; |
|
|
| terrorist
attacks, natural disasters and the effects of climate change, regional and global conflicts, sanctions, laws and regulations that prohibit
or limit operations in certain jurisdictions, public health crises or other such events impacting countries where we have operations;
and |
|
|
| actual
or purported short squeeze trading activity. |
|
Our
common shares were recently delisted from Nasdaq and began trading on the OTC Pink Current Market (now the OTCID Basic Market) on May
20, 2025, where trading volumes has historically been limited. See further discussion under the risk factors *Our common shares
have recently been delisted from Nasdaq and are currently traded on the OTCID Basic Market, which may adversely affect the market price
and liquidity of our shares and limit our ability to raise additional*capital below. The public trading market for our common
shares depends on a marketplace of willing buyers and sellers at any given time, which in turn depends on factors outside of the Companys
control, including general economic and market conditions and the decisions of individual investors. As such, a holder of our common
shares who wishes to sell his or her shares may not be able to do so immediately or at a price acceptable to them.
58
**If
securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business,
our share price and trading volume could decline.**
The
trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts or the content that they publish about us. At present, there may be
few or no securities or industry analysts providing coverage of our common shares. If our financial performance fails to meet any available
analyst estimates, or one or if any analysts who cover us downgrade our common shares or change their opinion of our common shares, our
share price would likely decline.
**We
are eligible to be treated as an emerging growth company as defined in the JOBS Act, and we cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.**
We are an emerging growth company, as defined in
the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to
comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging
growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value
of our common shares held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have total annual gross revenue
of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of
the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time,
we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still
qualify as a smaller reporting company which would allow us to take advantage of many of the same exemptions from disclosure
requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
not being required to provide selected financial data in the registration statements and periodic reports that we file with the SEC, and
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors
will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive
as a result, and if our common shares become publicly traded, such trading market may be less active than it otherwise could be if we
were not to take advantage of such exemptions, and our share price may be more volatile.
Our
independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over
financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following
the date we are no longer an emerging growth company as defined in the JOBS Act. We cannot assure you that there will not
be material weaknesses or significant deficiencies in our internal controls in the future.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected to take advantage of this extended transition period, and therefore, our financial
statements may not be comparable to those of companies that comply with such new or revised accounting standards.
59
**As
a foreign private issuer, we are exempt from certain U.S. securities laws and regulations that apply to U.S. domestic issuers, which
may afford less protection to shareholders.**
Although
we have voluntarily chosen to file periodic reports, current reports, and registration statements using U.S. domestic issuer forms, we
will maintain our status as a foreign private issuer under U.S. securities laws. As a result, we are exempt from certain requirements
applicable to U.S. domestic issuers, including:
|
| The
proxy rules set forth in Section 14 of the Exchange Act and Regulations 14A and 14C thereunder, meaning we are not required to solicit
proxies or provide proxy statements in compliance with these U.S. rules. Instead, we will follow applicable Canadian proxy solicitation
rules and practices; |
|
|
| Regulation
FD, which prohibits selective disclosure of material nonpublic information to certain market participants; and |
|
|
| The
reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act, which require officers, directors, and certain
significant shareholders of U.S. domestic issuers to report transactions in the companys equity securities and to disgorge any
profits realized from short-swing trading transactions. |
|
As
a result of these exemptions, shareholders may not have the same rights, access to information, and protections as they would if were
subject to all of the obligations of a U.S. domestic issuer.
**We
may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.**
The
determination of foreign private issuer status is made annually on the last business day of an issuers most recently completed
second fiscal quarter, and, accordingly, the next determination will be made with respect to the Company on the last business day of
December 2025. If the Company loses its foreign private issuer status on this determination date, then, beginning on the first day of
the fiscal year following the determination date, it would have to comply with U.S. federal proxy rules and Regulation FD, and its officers,
directors and principal shareholders would become subject to the reporting and short-swing profit disclosure and recovery provisions
of Section 16 of the Exchange Act. As a U.S. listed public company that is not a foreign private issuer, the Company may incur significant
additional legal, accounting and other expenses that it would not incur as a foreign private issuer.
**We
have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these weaknesses,
or otherwise fail to maintain proper and effective internal controls, our ability to produce timely and accurate financial statements
could be impaired, which could adversely affect our operating results, our ability to operate our business, our share price and access
to the capital markets.**
We have identified material weaknesses in our internal control
over financial reporting, leading to the conclusion that our internal control over financial reporting and disclosure controls and procedures
were not effective as of June 30, 2025. We previously amended and restated our quarterly financial statements for the three and six months
ended December 31, 2024, due to an accounting error in which transaction costs incurred in connection with the Business Combination were
understated by $2,300,000. Upon re-evaluation, management concluded that the error arose from material weaknesses in our internal control
over financial reporting, including ineffective controls over period-end financial disclosure, inadequate monitoring activities to assess
the operation of internal controls, insufficient controls for financial information processing and reporting, and a lack of resources
with the requisite skills for financial reporting under U.S. GAAP. In addition, during fiscal 2025, we identified a material weakness
over our IT change management controls. Our inability to remediate these material weaknesses, the discovery of additional weaknesses,
or failure to establish and maintain effective disclosure controls and internal control over financial reporting could adversely affect
our results of operations, share price, and investor confidence in our company.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on the effectiveness of their internal control over
financial reporting. As previously disclosed in more detail, we have identified material weaknesses as of June 30, 2025. Due to the material
weaknesses in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective
as of June 30, 2025.
Failure
to have effective internal control over financial reporting and disclosure controls and procedures can impair our ability to produce
accurate financial statements on a timely basis and has led and could again lead to a restatement of our financial statements. If, as
a result of the ineffectiveness of our internal control over financial reporting and disclosure controls and procedures, we cannot provide
reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could
be harmed, investors could lose confidence in our reported financial information and our ability to obtain additional financing, or additional
financing on favorable terms, could be adversely affected.
60
Our
management has taken action to begin remediating the material weaknesses; however, certain remedial actions have not started or have
only recently been undertaken, and while we have continued to implement our remediation plans throughout the fiscal year ending June
30, 2025, we cannot be certain as to when remediation will be fully completed. In addition, we could in the future identify additional
internal control deficiencies that could rise to the level of a material weakness or uncover other errors in financial reporting. During
the course of our evaluation, we may identify areas requiring improvement and may be required to design additional enhanced processes
and controls to address issues identified through this review. In addition, there can be no assurance that such remediation efforts will
be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future
deficiencies identified may not be material weaknesses that would be required to be reported in future periods.
If
we fail to remediate these material weaknesses and maintain effective disclosure controls and procedures or internal control over financial
reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or additional late
reporting of our financial results, as well as delays or the inability to meet our future reporting obligations or to comply with SEC
rules and regulations. This could result in claims or proceedings against us, including by shareholders or the SEC. The defense of any
such claims could cause the diversion of the Companys attention and resources and could cause us to incur significant legal and
other expenses even if the matters are resolved in our favor.
**We
do not intend to pay cash dividends to our shareholders.**
We
do not intend to pay cash dividends to our shareholders. We currently intend to retain any future earnings for funding growth and, therefore,
do not expect to pay any cash dividends in the foreseeable future.
**Indemnification
of our officers and directors may cause us to use corporate resources to the detriment of our shareholders.**
Our
Articles eliminate the personal liability of our directors for monetary damages arising from a breach of their fiduciary duty as directors
to the fullest extent permitted by British Columbia law. This limitation does not affect the availability of equitable remedies, such
as injunctive relief or rescission. Until October 17, 2028, our Articles require us to indemnify our directors and officers to the fullest
extent permitted by British Columbia law, including in circumstances in which indemnification is otherwise discretionary under British
Columbia law.
Under
British Columbia law, we may indemnify our directors or officers or other persons who were, are or are threatened to be made a named
defendant or respondent in a proceeding because the person is or was our director, officer, employee or agent, if we determine that the
person:
|
| conducted
himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity as our director or officer,
that his or her conduct was in our best interests, and, in all other cases, that his or her conduct was at least not opposed to our best
interests; and |
|
|
| in
the case of any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. |
|
These
persons may be indemnified against expenses, including attorneys fees, judgments, fines, excise taxes and amounts paid in settlement,
actually and reasonably incurred by the person in connection with the proceeding. If the person is found liable to the corporation, no
indemnification will be made unless the court in which the action was brought determines that the person is fairly and reasonably entitled
to indemnity in an amount that the court will establish.
61
**Reporting
company compliance may make it more difficult to attract and retain officers and directors.**
The
Sarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As a
reporting company, these rules and regulations will increase our compliance costs and make certain activities more time consuming and
costly. As a reporting company, these rules and regulations may make it more difficult and expensive for us to maintain our director
and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve
on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.
**Our
common shares have recently been delisted from Nasdaq and are currently traded on the OTCID Basic Market, which may adversely affect
the market price and liquidity of our shares and limit our ability to raise additional capital.**
On
May 20, 2025, our common shares were delisted from the Nasdaq Global Market and began trading on the OTC Pink Current Market maintained
by OTC Markets Group Inc., where trading volume has historically been limited and may remain so. The OTC Pink Current Market became the
OTCID Basic Market effective as of July 1, 2025. We are also seeking to have our shares posted for trading on the OTCQB Venture Market
(OTCQB), though no assurance can be provided that we will be able to satisfy the criteria for trading on the OTCQB or that
the staff of OTC Markets will approve the posting of the our shares for trading on the OTCQB.
The
delisting from Nasdaq has made trading in our common shares more difficult for investors, which may result in reduced liquidity and increased
price volatility. Without a Nasdaq listing, investors may have difficulty obtaining current price quotations, and trading may be limited,
sporadic, and occur at depressed prices. Additionally, the loss of a national exchange listing has negatively impacted our visibility
and reputation in the capital markets, making it more challenging to attract investor interest and raise additional capital. The absence
of an exchange listing may also adversely affect the valuation and acceptance of our common shares in connection with potential business
combinations, strategic transactions, or future financing activities.
Additionally,
following the delisting and given our current stock price, our common shares are deemed penny stock under Rule 15g-9 of
the Exchange Act. This designation imposes additional sales practice requirements on broker-dealers, which could further limit the liquidity
and marketability of our shares and restrict the ability of investors to resell their shares in the secondary market. We are also subject
to increased compliance burdens under state securities laws in connection with any sales of our securities, further limiting our access
to capital markets and increasing compliance costs.
While
our common shares are currently quoted on the OTCID Basic Market, there can be no assurance that an active and liquid trading market
will develop or be sustained. Although we are in the process of applying to upgrade to the OTCQB, there is no guarantee that we will
meet the eligibility requirements or that our application will be approved. If we are unable to establish and maintain a robust trading
market on a market operated by OTC Markets, our ability to raise capital, continue as a going concern, and maintain investor confidence
could be materially and adversely affected. In addition, failure to maintain a trading market for our common shares may trigger events
of default or acceleration under our existing financing arrangements, including those with Streeterville Capital, LLC (Streeterville).
Such defaults could result in immediate cash payment obligations, placing further strain on our liquidity and potentially jeopardizing
our ability to continue operations.
**Our
stock price has been volatile, and the issuance of shares upon the exercise of Series A warrants has resulted in significant dilution.
Additional issuances under our current financing arrangements with Streeterville or other new issuances could further depress the market
price of our common shares.**
Following the closing of the underwritten public offering conducted
in March 2025 (the March Offering), investors began exercising their Series A warrants on an alternate cashless basis, resulting
in the issuance of 18,347,300 (pre-reverse split - 2,293,412,544) common shares by the Company. As of September 29, 2025, 19 Series A
warrants (pre-reverse split 2,352 Series A warrants) remain outstanding, which may result in the issuance of up to 19 additional
common shares (pre-reverse split 2,352 additional common shares) having an exercise price of $24.38 per Common Share (pre-reverse
split - $0.195).
62
In connection with the March Offering, the floor price under the promissory
note issued by the Company to Streeterville in June 2024 (the June 2024 Note) was adjusted to $0.0251, however, as a result
of the reverse stock split on July 3, 2025, the adjusted floor price is $3.1375. The floor price has been further adjusted to $0.10 as
a result of securities issued under our ongoing Tier II Regulation A offering (the Regulation A Offering). As of September
29, 2025, the outstanding principal amount was partially repaid and reduced to $4,491,700, with an additional $769,832 in accrued unpaid
interest, which may result in an issuance of 52,615,320 common shares, assuming a conversion price equal to $0.10 upon the first closing
of any common shares sold under the Regulation A Offering.
Additionally, as of September 29, 2025, the outstanding principal balance
under the Companys securities purchase agreement dated December 20, 2024 with Streeterville (the December 2024 SPA)
was $3,158,000, with an additional $199,183 in accrued unpaid interest. Streeterville may make purchases of common shares in satisfaction
of outstanding pre-paid purchases pursuant to the pricing formula set forth in the December 2024 SPA. If the Company receives additional
funding under the total $10,000,000 commitment or if Streeterville elects to purchase common shares in satisfaction of the outstanding
balance under the December 2024 SPA, further issuances of common shares may occur.
In
addition to these financing arrangements, the Company may issue additional common shares to settle outstanding obligations, raise capital
or compensate employees and service providers. The Company is generally not restricted from issuing additional common shares or securities
convertible into or exchangeable for common shares. Under our Articles and the Business Corporations Act (British Columbia) (BCBCA)
we are authorized to issue an unlimited number of common shares. Any actual or anticipated future issuances, particularly those at prices
below the current market price, could significantly dilute existing shareholders, depress our share price, and impair our ability to
raise capital.
**Our
Articles designate the Supreme Court of British Columbia, Canada and the appellate Courts therefrom as the exclusive forum for certain
types of actions and proceedings that may be initiated by our shareholders, which would limit such shareholders ability to choose the
judicial forum for disputes with us or our directors, officers or other employees.**
Our
Articles provide that unless the Company consents in writing to the selection of an alternative forum, the Supreme Court of British Columbia,
Canada and the appellate Courts therefrom, shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any
derivative action or proceeding brought on behalf of the Company; (ii) any action or proceeding asserting a claim of breach of fiduciary
duty owed by any director, officer, or other employee of the Company to the Company; (iii) any action or proceeding asserting a claim
arising pursuant to any provision of the *Business Corporations Act* or the Articles (as either may be amended from time to time);
or (iv) any action or proceeding asserting a claim otherwise related to the relationships among the Company, its affiliates and their
respective shareholders, directors and/or officers, but this clause (iv) does not include claims related to the business carried on by
the Company or such affiliates. The forum selection provision also provides that the Companys securityholders are deemed to have
consented to personal jurisdiction in the Province of British Columbia and to service of process on their counsel in any foreign action
initiated in violation of the Articles.
However,
since the Company is a registrant under the Exchange Act, the above provision of our Articles shall not apply to any causes of action
arising under the Securities Act or the Exchange Act. Unless the Company consents in writing to the selection of an alternative forum,
the United States District Court of the Southern District of New York (or, if the United States District Court for the Southern District
of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) shall be the
sole and exclusive forum for resolving any complaint filed in the United States asserting a cause of action arising under the Securities
Act and the Exchange Act.
Any
person or entity purchasing or otherwise acquiring any interest in our Common Shares is deemed to have received notice of and consented
to the foregoing provisions. Although we believe this choice of forum provision benefits us by providing increased consistency in the
application of British Columbia law in the types of lawsuits to which it applies, and U.S. federal securities law as interpreted by the
United States District Court of the Southern District of New York or the state courts in New York County, New York with respect to any
complaint filed in the United States asserting a cause of action arising under the Securities Act and the Exchange Act, the provision
of which may have the effect of discouraging lawsuits against us and our directors and officers, including but not limited to increased
costs to bring a claim and that these provisions can discourage claims or limit investors ability to bring a claim in a judicial
forum that they may find favorable. The enforceability of similar choice of forum provisions in other companies' Articles or similar
governing documents has been challenged in legal proceedings and it is possible that in connection with any action a court could find
the choice of forum provisions contained in our Articles to be inapplicable or unenforceable in such action. If a court were to find
this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings,
we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business,
financial condition and results of operations.
63
**ITEM
1B: UNRESOLVED STAFF COMMENTS**
****
As
a smaller reporting company, we are not required to provide this information.
****
**ITEM
1C: CYBERSECURITY AND RISK MANAGEMENT**
**Risk
Management and Strategy**
Damon
maintains a cyber risk management program integrated into its overall enterprise risk management framework. The program is designed to
identify, assess, manage, mitigate, and respond to cybersecurity threats and applies to the Companys systems, hardware, software,
data, people, and processes.
Our
program is based on recognized standards and best practices, including the National Institute of Standards and Technology (NIST)
Cybersecurity Framework (CSF) and processes supporting EU General Data Protection Regulation (GDPR) requirements.
*Annual
Third-Party Assessments*: Damon engages an independent cybersecurity specialist each year to assess its cyber risk management program
against the NIST CSF. The annual assessment identifies, quantifies, and prioritizes material risks. In conjunction with third-party advisors,
Damon develops and executes mitigation and remediation plans to address identified vulnerabilities.
*Internal
Policies and Procedures*: Damon maintains policies governing information security, acceptable use, access and identity management,
change management, data backup and recovery, and incident response.
*External
Partnerships*: Damon leverages industry-recognized cybersecurity providers and consultants to support ongoing activities such as vulnerability
testing, monitoring, identity access management, data protection, encryption, user awareness training, and incident response advisory.
****
*Third-Party
Risk Management*: Damon has implemented a structured program to manage risks associated with vendors, service providers, and other
third parties. Key elements include: risk assessments during vendor onboarding and selection; annual review of SOC 1 reports for critical
service providers; and regular review of vendor contracts and compliance with service level agreements. These processes are designed
to reduce the likelihood of service disruptions or cybersecurity incidents arising from reliance on third parties.
**Governance
and Managements Role**
Oversight
of Damons cybersecurity risk management program rests with the Vice President of IT Operations, who has more than 25 years of
experience in information technology and information security. The VP, supported by third-party specialists, is responsible for: a. Program
administration. b. Reporting to senior management and stakeholders on prevention, detection, mitigation, and remediation activities.
c. Integrating intelligence from governmental, public, and private sources into strategic decision-making.
**Board
Oversight**
The
Audit Committee of the Board of Directors oversees Damons cybersecurity risk exposures and monitors managements risk mitigation
efforts. Cybersecurity stakeholders, including management and external consultants, provide regular briefings to the Audit Committee
on vulnerabilities, incident response readiness, program effectiveness, and the evolving threat landscape. The full Board reviews cybersecurity
risks at least annually as part of the Companys corporate risk oversight processes.
**Material
Risks and Impact**
Damon
acknowledges that cybersecurity threats represent a potential material risk to its business operations, financial condition, and reputation.
Damon has experienced cybersecurity incidents in the past; however, none have had a material adverse effect on the Companys results
of operations, financial condition, or cash flows.
64
However,
given the evolving threat landscape, Damon recognizes that a future incident could have a material impact despite existing safeguards.
To mitigate such risks, Damon has implemented a formal incident response plan, established processes for prevention, detection, and remediation
of cyber threats, and committed to continuous enhancement of cybersecurity controls and monitoring capabilities.
Additionally,
Damon acknowledges that regulatory requirements regarding cybersecurity, including mandatory incident reporting and disclosure obligations,
are increasing. Compliance with these regulations may subject the Company to additional costs, liabilities, or reputational impact. Damon
monitors developments in cybersecurity regulation and adjusts its policies and controls accordingly.
**ITEM
2: PROPERTIES**
****
Damon
Motors principal executive offices are currently located at 4601 Canada Way, Suite #402, Burnaby, British Columbia, Canada, under
a 3-year lease from May 2025.
****
**ITEM
3: LEGAL PROCEEDINGS**
****
As
of the date of this report, we are not party to, nor is any of our property the subject of, any material pending legal proceedings reportable
under Item 103 of Regulation S-K, except as disclosed below.
On
March 7, 2025, the Company was served with a notice of civil claim (the Notice), which was filed on February 28, 2025,
in the Supreme Court of British Columbia, by Damon Jay Mercredi Giraud, former director and CEO of the Company (the Plaintiff),
against the Company and all of the directors of the Company. The Notice alleges, among other things, that in connection with the Plaintiffs
resignation: (i) the Board agreed to certain settlement terms which included provisions related to the payment of a listing bonus contingent
on the Companys successful listing on a recognized stock exchange (the Listing Bonus) and backpay for unpaid wages;
and (ii) after the effective date of the Plaintiffs resignation, the Company provided the Plaintiff with a written settlement
agreement which fundamentally altered the terms of the previously agreed settlement terms, including the payment date for the Listing
Bonus and backpay for unpaid wages; and (iii) that the Company has not discharged its obligations pursuant to the alleged settlement
terms; and (iv) that the Plaintiff received a letter from major shareholders containing unfounded accusations against the Plaintiff and
threatening him with legal action, and that such letter was sent by or at the direction of the Company. The Company was required to respond
within 21 days after the date a copy of the Notice was served. As of the date of this the filing the Company and its directors have responded
to the Notice and the Company denies the allegations of wrongdoing described in the Notice. The relief sought by the Plaintiff includes,
among others, specific performance of the allegedly original verbal settlement terms, an order assigning any debts in the Plaintiffs
name owed by the Company to the Company, and special costs, or, in the alternative, breach of an employment contract, and damages for
wrongful dismissal.
On
April 11, 2025, Andy DeFrancesco (DeFrancesco) filed a notice of civil claim (the Claim) against the Company
in the Supreme Court of British Columbia. In the Claim, DeFrancesco alleges that, in or around October 2023, the Companys executives
verbally agreed to issue $3.2 million worth of the Companys common shares to DeFrancesco in exchange for past and future services
provided to Damon, including advising and working with the Company on financings and other operational aspects. DeFrancesco further alleges
the common shares were to be provided as soon as possible and that he delivered an irrevocable direction regarding delivery of the common
shares in November 2023, however the Company has refused to issue the common shares. The relief sought by DeFrancesco includes specific
performance of the alleged verbal agreement and damages for loss of opportunities caused by the alleged breach of contract or, alternatively,
unjust enrichment on a quantum meruit basis for the services allegedly provided by DeFrancesco. The Company filed a response to the Civil
Claim (defense) on May 9, 2025, denying all allegations.
On
September 9, 2025, the Damon Motors Inc. was served with a notice of civil claim (the Notice), which was filed on September
4, 2025, in the Supreme Court of British Columbia, by Moz Holdings Canada Inc. (Moz), landlord of 704 and 714 Alexander
Street, Vancouver, BC, whereby Damon Motors Inc. had previously occupied space. The alleges that the Damon Motors Inc. has unpaid rent
of $376,527 for unpaid rent up to and including September 2025. Damon Motors does not agree with the claim made by Moz and will be filing
a response denying the allegation.
**ITEM
4: MINE SAFETY DISCLOSURES**
****
Not
applicable.
65
**PART
II**
****
**ITEM
5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**
****
**Market
Information**
****
Our
common shares are currently quoted on the OTCID Basic Market under the symbol DMNIF.
****
**Holders
of Record**
****
According to our transfer agent, as of the date of this report, we
had approximately 442 holders of record of our common shares. This number does not include an indeterminate number of shareholders whose
shares are held by brokers in street name. Our stock transfer agent is Odyssey Transfer & Trust Company.
**Dividends**
****
We
have not declared or paid any cash dividends on our common shares, and we currently intend to retain future earnings, if any, to finance
the expansion of our business, therefore, we do not expect to pay any cash dividends in the foreseeable future. The decision whether
to pay cash dividends on our common shares will be made by our Board, in their discretion, and will depend on our financial condition,
results of operations, capital requirements and other factors that our Board considers significant.
****
**Securities
Authorized for Issuance under Equity Compensation Plans**
****
For
information required by this item with respect to our equity compensation plans, please see Item 11 of this report.
**Recent
Sales of Unregistered Securities and Use of Proceeds**
During the period covered by this Annual Report on Form 10-K,
we have not sold any equity securities that were not registered under the Securities Act that were not previously reported in a quarterly
report on Form 10-Q or in a current report on Form 8-K.
**Purchases
of Equity Securities by the Issuer and Affiliated Purchasers**
We had no share repurchase activity for the year ended June 30,
2025.
**ITEM
6: [RESERVED]**
66
**ITEM
7: MANAGEMENT****S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
*The
following discussion and analysis of the financial condition and results of operations of Damon should be read in conjunction with the
accompanying audited consolidated financial statements of Damon as of June 30, 2025 and 2024, and the years then ended related notes
included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere, including
information with respect to its plans and strategy for our business and related financing, includes forward-looking statements that involve
risks, uncertainties and assumptions. You should read the Special Note Regarding Forward-Looking Statements and Other Information
Contained in this Report and Risk Factors for a discussion of important factors that could cause actual results
to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.*
**
*Unless
otherwise noted, all historical information prior to the quarter ended December 31, 2024, in which the Business Combination occurred,
as discussed in this section reflects the operations of Damon Motors, which is deemed the accounting acquirer in the Business Combination.*
**Our
Personal Mobility Products Development Business Through Damon Motors**
****
Damon
Inc., through its wholly-owned subsidiary, Damon Motors, is developing electric motorcycles and other personal mobility products and
services that seek to empower the personal mobility industry through innovation, data intelligence and strategic partnerships. Damon
Motors is developing technology and investing in the capabilities to lead an integrated personal mobility ecosystem from individual travels
to last mile delivery. With decades of combined management and engineering experience across the teams careers, and a commitment
to low carbon personal mobility solutions, Damon Motors is seeking to introduce existing enthusiasts to high-performance electric products
while bringing new riders to the motorcycle community with first of its kind advances in zero emissions motorcycle performance, safety,
connectivity and AI.
Founded
in 2017, Damon Motors started reimagining the future of motorcycling by means of advanced safety design, electric vehicle powertrain
technology and user experience. In 2019, Damon Motors took its first alpha prototype motorcycles and safety systems into the field to
test the concept. In 2021, Damon Motors expanded its operations and research and development expertise to accelerate the engineering
and development of its HyperDrive platform drive unit and the HyperSport motorcycle. Through core technology advancements, Damon Motors
electric motorcycles are in prototype phase of product validation.
Damon
Motors electric vehicles are developed with a set of proprietary design principles that elevate the brand, deliver differentiated
riding experiences and bring emotion to electric propulsion. The initial product portfolio of motorcycle models will be built upon and
utilize a single powertrain platform called HyperDrive. As a patented, monocoque-constructed battery-chassis, HyperDrive houses
a proprietary 150 kW 6-phase liquid cooled IPM motor-gearbox and proprietary electronics. This platform approach establishes a capital-efficient
path to grow the product line to meet a wide range of future segments and price points, while also supporting a wide range of future
motorcycle models and power sizes that share as much as 85 percent common parts. By using the frame of the battery as the motorcycles
chassis, HyperDrive also achieves valuable weight and cost reduction advantages. With 150 kW of power at its disposal, HyperDrive has
been specifically designed to compete with the performance of market leaders in the high-performance motorcycle market, whether internal
combustion or electric. Thanks to the energy modularity designed into it, HyperDrive-based motorcycles can be detuned in power, energy
and thus cost to support 500 1500cc power equivalent classes of motorcycles in both the North American and European markets,
with price points ranging from $20,000 - $80,000.
67
The HyperDrive platform is contrasted by the smaller, less powerful
and lower cost HyperLite platform, currently in its early design phase. Damon plans to develop the HyperLite using a very similar design
architecture as HyperDrive, enabling the production of a range of light weight, low to medium cost motorcycles and scooters with milder
levels of horsepower that are more common in overseas and developing markets. With these two platforms paired with Damon Motors
three patented cornerstone technologies, CoPilot, Shift and its AI-enabled cloud platform. Damon Motors long-term
objective is to build a premium, high-tech, electric motorcycle company that rivals the largest incumbents in both profit and annual volume,
by providing a technologically enhanced riding experience that is not currently available from other manufacturers.
CoPilot provides a novel rider assistance and warning system integrated
into the motorcycle. Shift allows the handlebars and foot pegs to mechatronically adjust on the fly, addressing issues of ergonomic comfort
and allowing users to select different riding positions for changing conditions such as a lower, more aerodynamic position for highway
use or a more upright position for urban use. Its AI-enabled cloud is designed to collect environmental and situational data that, paired
with over-the-air software updates, can drive a continual loop of collision warning improvements, with an aim to further reduce accident
probability over time.
The
commercial production of Damon Motors motorcycles is expected to commence after passing various internal and external tests and
undergoing a self-certification process required for US-bound vehicle homologation. These tests include: the completion of Damon Motors
ride quality and long-term durability testing, completion of FCC Title 47 certification for the onboard charger, completion of UN 38.3
battery testing, completion of Damon Motors internal battery testing, extreme temperature operation verification, brake testing
per FMVSS, and an internal and external review of FMVSS compliance with Damon Motors engineering subcontractor TUV of Germany.
In
parallel to our core capabilities, Damon has a Software-as-a-Solution (SaaS) base platform known as Damon I/O. Damon I/O is a turnkey
rider intelligence and connected services platform tailored for motorcycle and personal mobility OEMs and fleet operators. It is designed
to address the challenge of fragmented post-sale experiences by offering a seamless suite of tools: real-time diagnostics, over-the-air
software updates, predictive maintenance alerts, branded mobile apps, and fleet dashboards, which are deployable within months. While
most IoT or telematics vendors offer generic solutions, Damon I/O is purpose-built for motorcycles and personal mobility, drawing on
years of domain-specific R&D. It is white-labeled, customizable, and can integrate deeply with other OEM brands and hardware. With
Damon I/O, users may gain a competitive edge in digital rider experiences, as well as the infrastructure to scale into the software-defined
era of motorcycling and personal mobility. We are in the process of commercializing Damon I/O as a potential service offering, and we
believe that as more Damon I/O powered vehicles are deployed, Damon I/O will grow smarter, creating a network effect that could expand
our offering over time.
**Our
SAVES Distribution Business Through Grafiti Limited**
****
Damon,
through its wholly-owned subsidiary, Grafiti Limited, distributes in the UK and certain other European countries data analytics and visualization
software products referred to as SAVES primarily for scientists and engineers. Grafiti Limited products can be downloaded to a users
desktop. These products help scientific research in the health and life sciences domain in the discovery of new drugs, in the study of
the efficacy of established drugs and therapies, and in epidemic propagation research, among other applications. Engineers use our products
for a multitude of applications which include, but are not limited to, conducting surface modelling analysis and curve fitting in order
to design new engineering processes, studying signal attenuation and propagation in radio engineering. Potential automobile and motorcycle
applications could include surface panel design for aerodynamics, aesthetic symmetry, and calculated asymmetry among others. We believe
the Grafiti Limited regression analysis product could also be used for predicting vehicle sharing demand and pricing trends in various
markets based on a wide range of variables.
Grafiti
Limiteds strategy is to build a broader, long term customer base by increasing its sales of Grafiti Limiteds product offerings
which will include cloud and Macintosh compatible data analytics and statistical visualization software products. We believe this will
enable the Grafiti Limited business to focus on generating more recurring revenues in the future.
68
Grafiti
Limited was formed by the Parent on May 13, 2020, as a distribution arm for its SAVES products in the UK market and part of the European
market.
**Our
Corporate Strategy**
****
Management continues to pursue a corporate strategy that is focused
on building and developing our business as a provider of end-to-end solutions ranging from personal mobility products to the collection
of data to delivering insights from that data to our customers with a focus on safety and data intelligence and engineering services.
In connection with such strategy and to facilitate our long-term growth, we continue to evaluate various strategic opportunities, including
partnerships with OEMs of personal mobility products, providers of complementary technologies and intellectual property (IP)
to further our goals by adding technology, differentiation, customers and/or revenue. We are primarily looking for partnerships that have
business value and operational synergies, but will be opportunistic for other strategic and/or attractive transactions. We believe these
complementary technologies will add value to the Company and allow us to provide a comprehensive integrated personal mobility ecosystem
to our customers. In addition, we may seek to expand our capabilities around safety, security, AI, augmented reality and virtual reality
or other high growth sectors. Candidates with proven technologies and personal mobility products that complement our overall strategy
may come from anywhere in the world, as long as there are strategic and financial reasons to establish the partnership. We are also exploring
opportunities to supplement our revenue growth, which may include accretive acquisitions that provide business value and operational synergies,
as well as other opportunistic or strategic transactions that we believe may increase overall shareholder value. These may include, but
are not limited to, alternative investment opportunities, such as minority investments, acquisitions or joint ventures. If we make any
acquisitions in the future, we expect that we may pay for such acquisitions using our equity securities and/or cash and debt financings
in combinations appropriate for each acquisition.
**Recent
Transactions**
**Technical
Design Agreement**
****
On April 4, 2025, the Company entered into a Technical Design Agreement
with Engines Engineering S.p.a. (EE), an Italian company specializing in vehicle engineering, design and development, to
provide such services for development of the Companys HyperSport Race electric motorcycle (the Project).
Under
the agreement, EE will be responsible for delivering services in multiple areas including technical compliance, component selection,
development and validation testing, and prototyping. The Project is structured into nine development phases continuing through March
2026, with specific milestones and deliverables required at each phase.
The total contract value of the agreement is $1,864,265(1,581,670),
with half of the amount invoiced on the date of the agreement, and the remaining half tied to milestone-based deliverables for each phase
of the Project, to be invoiced in installments following the Companys acceptance of the corresponding phase. As of June 30, 2025,
half of the contract amount was paid, and the remaining half of $931,731 (790,833) will be paid within one year.
Pursuant
to the agreement, all work product developed under the agreement will be owned by the Company upon full payment for the applicable phase,
while EE retains ownership of its pre-existing intellectual property and grants the Company an irrevocable, perpetual, nonexclusive,
worldwide and paid-up license to use such intellectual property and create derivative works from it when used as part of or in support
of the work product developed under the agreement.
**Reverse
Stock Split**
On
July 3, 2025, the Company effected a reverse split of its outstanding common shares at a ratio of 1-for-125, as approved by the Companys
Board of Directors pursuant to its articles (the Reverse Split). Following the Reverse Split, the new CUSIP number for
the Companys common shares is 235750205, and the new ISIN is CA2357502053.
69
No
fractional shares have been issued. Any fractional share that is less than one-half (1/2) of a share has been cancelled, and any fractional
share equal to or greater than one-half (1/2) of a share has been rounded up to one whole share. The exercise or conversion prices and
the number of shares issuable under the Companys outstanding exercisable or convertible securities have been proportionately adjusted
to reflect the Reverse Split.
All
share and per share amounts have been retroactively adjusted to reflect the reverse stock split for all periods presented.
**Tier
II Regulation A Offering**
As
of September 29, 2025, we have not issued shares under the Tier II Regulation A Offering.
****
**Critical
Accounting Estimates**
The
consolidated financial statements and the related notes thereto included elsewhere in this filing are prepared in accordance with generally
accepted accounting principles in the United States (U.S. GAAP). The preparation of our consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts and related disclosures in our financial statements and
accompanying notes. We base our estimates on historical experience and on various other factors that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions due
to the inherent uncertainty involved in making those estimates and any such differences may be material.
We
believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies
we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our
operations. For more information about our accounting policies, see Note 2 Summary of Significant Accounting Policies to
the consolidated financial statements included elsewhere in this filing.
**Impairment
of goodwill and intangible assets**
The
Company tests for impairment of goodwill and intangible assets at the reporting unit level. The Company has two reporting units: electric
personal mobility products unit and scientific software products and services reporting unit. The goodwill and intangible assets belong
to the scientific software products and services reporting unit.
During
the year ended June 30, 2025, we identified indicators that the goodwill and intangible assets were impaired due to underperformance
for revenue growth and estimated future operating cash flow from the scientific software products and services reporting unit. A quantitative
impairment test on goodwill and intangible assets determined that the fair value was below the carrying value. The Company estimated
fair value using a combination of discounted cash flows and market comparisons. As a result, the Company recorded impairment of goodwill
in the amount of approximately $14 million and impairment of intangible assets in the amount of $74,000, reducing the carrying value
of goodwill and intangible assets to $nil. The impairment charge was reflected in the consolidated statements of operations.
**Warrant
Liabilities**
****
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants
specific terms and applicable authoritative guidance in the FASB Accounting Standards Codification (ASC) 480, Distinguishing
Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers
whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480,
and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed
to the Companys own ordinary shares, among other conditions for equity classification. This assessment, which requires the use
of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the
warrants are outstanding.
70
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification,
the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
****
**Results
of Operations**
****
**Year
Ended June 30, 2025 compared to the Year Ended June 30, 2024**
|
| |
Electric motorcycles segment | | |
Scientific software products and services segment | | |
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
June 30, 2025 | | |
June 30, 2024 | | |
|
Revenue | |
$ | - | | |
$ | - | | |
$ | 222,736 | | |
$ | - | | |
|
Cost of revenue | |
| - | | |
| - | | |
| 107,394 | | |
| - | | |
|
Gross profit | |
| - | | |
| - | | |
| 115,342 | | |
| - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
|
Research and development, net | |
| 3,045,949 | | |
| 4,550,229 | | |
| - | | |
| - | | |
|
General and administrative | |
| 8,432,272 | | |
| 4,296,231 | | |
| 119,512 | | |
| - | | |
|
Sales and marketing | |
| 559,190 | | |
| 986,137 | | |
| 108,110 | | |
| - | | |
|
Transaction costs | |
| 4,945,436 | | |
| 1,626,519 | | |
| - | | |
| - | | |
|
Depreciation | |
| 210,828 | | |
| 303,424 | | |
| 6,615 | | |
| - | | |
|
Impairment | |
| - | | |
| - | | |
| 14,119,955 | | |
| - | | |
|
Gain from release of lease obligation | |
| - | | |
| (42,297 | ) | |
| - | | |
| - | | |
|
Foreign currency transaction loss/(gain) | |
| 43,605 | | |
| (235,871 | ) | |
| (1,213 | ) | |
| - | | |
|
Total operating expenses | |
| 17,237,280 | | |
| 11,484,372 | | |
| 14,352,979 | | |
| - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Operating loss | |
| (17,237,280 | ) | |
| (11,484,372 | ) | |
| (14,237,637 | ) | |
| - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Other non-operating income / (loss) | |
| 26,125,050 | | |
| (22,483,876 | ) | |
| - | | |
| - | | |
|
Current income tax expense | |
| (800 | ) | |
| - | | |
| 5 | | |
| - | | |
|
Net loss | |
$ | 8,886,970 | | |
$ | (33,968,248 | ) | |
$ | (14,237,632 | ) | |
$ | - | | |
**Revenue**
The
Company derives revenue from the sale of software and software as a service. Revenue for the year ended June 30, 2025 was $222,736, compared
to $nil for the corresponding period in 2024. The increase of revenue was due to the Company having consolidated the newly acquired subsidiary,
Grafiti Limited. Grafiti Limited generates revenue from providing scientific software products and services. All the revenue post to
the acquisition date has been consolidated by the Company.
**Cost
of revenue and gross profit**
In
Fiscal Year 2025, cost of revenues amounted to $107,394, compared to $nil for
the year ended June 30, 2024, resulting in a gross profit margin of 52% for the year ended June
30, 2025.
71
**Research
and development expenses**
Research
and development expenses were $3,045,949 for the year ended June 30, 2025, compared to $4,550,229 for the year ended June 30, 2024. The
decrease of $1,504,280 was primarily a result of the following:
|
| salaries
decreased by approximately $2.3 million by creating economical efficiencies in providing an asset light manufacturing model that has
led to over a 50% in reduction in headcount; |
|
|
|
|
lab
supplies and materials decreased by approximately $498,000; | |
|
|
|
rent
expense decreased by approximately $432,000; | |
|
|
|
other
expenses decreased by approximately $152,000; partially offset by | |
|
|
|
| |
|
|
|
Canadian
Scientific Research & Development tax credits received decreased by approximately $1,099,000; | |
|
|
|
| |
|
|
|
engineering
contract expense increased by approximately $746,000, mainly due to the engineering expenses recognized under the Technical Design
Agreement entered with EE. The Company has paid half of the contract amount of $932,133 and recognized expense of $507,407 during
the year ended June 30, 2025. | |
The
Company anticipates research and development expenses will increase as the Company entered into a Technical Design Agreement for the
development of the Companys HyperSport Race electric motorcycle.
**General
and administrative expenses**
For the year ended June 30, 2025, general and administrative expenses
were $8,551,784, compared to $4,296,231 for the year ended June 30, 2024. The increase of $4,255,553 was primarily a result of the following:
|
|
|
professional
fee increased by approximately $1,299,000; | |
|
|
|
| |
|
|
|
legal
fee increased by approximately $1,114,000; | |
|
|
|
| |
|
|
|
investor
relation expense increased by approximately $771,000; | |
|
|
|
| |
|
|
|
salaries
increased by approximately $669,000; | |
|
|
|
| |
|
|
|
insurance
expense increased by approximately $262,000; | |
|
|
|
| |
|
|
|
loss from disposal of equipment increased by approximately $103,000; | |
|
|
|
| |
|
|
|
other expense increased by approximately $38,000. | |
The
Company anticipates the general and administrative expenses for the next fiscal year will be similar to this past 2025 fiscal year end,
but outside of our normal activities, there will be an increase in the Reg A+ offering marketing services specific to that financing.
****
**Sales
and marketing expenses**
Sales
and marketing expenses were $667,300 for the year ended June 30, 2025, compared to $986,137 for the year ended June 30, 2024. The decrease
in sales and marketing expenses was primarily attributable to the decreased sales and marketing activities.
The
Company anticipates sales and marketing expenses will increase in the coming months as we launch our HyperSport Race marketing campaigns.
72
**Transaction
costs**
Transaction
costs were $4,945,436 for the year ended June 30, 2025, compared to $1,626,519 for the year ended June 30, 2024. Transaction costs were
legal, professional and consulting fees related to the business combination transaction completed in November 2024.
**Impairment**
For
the year ended June 30, 2025, the Company recorded a non-recurring impairment of goodwill in the amount of $14,045,955 and an impairment
of intangible assets in the amount of $74,000, reducing the carrying value of goodwill and intangible assets to $nil.
**Other
non-operating income / (loss)**
For the year ended June 30, 2025, other non-operating income were
$26,125,050, compared to other non-operating loss of $22,483,876 for the corresponding period in 2024.
For
the year ended June 30, 2025, the Company recorded income from change in fair value of financial liabilities of approximately $34,334,000.
Upon the completion of Business Combination, the convertible notes were mandatorily converted into 16,496,750 Damon Motors common
shares. Upon conversion, the carrying value of the convertible debt approximates fair value of the shares issued. Also, the Company recognized
finance expense for warrants issuance of approximately $4,739,000.
For
the year ended June 30, 2024, the Company recorded loss from change in fair value of financial liabilities of approximately $18,425,000
with respect to financial instruments categorized as Level 3. Also, the Company recognized loss on extinguishment of debt of approximately
$785,000.
**Net
Loss**
During
the year ended June 30, 2025, the Company incurred a net loss of $5,350,662, compared to a net loss of $33,968,248 for the year ended
June 30, 2024. The decrease in net loss is mainly due to the income from change in fair value of financial liabilities of $34,333,573
for the year ended June 30, 2025, compared to the loss from change in fair value of financial liabilities of $18,424,992 for the corresponding
period in 2024. Upon the completion of Business Combination, the convertible notes were mandatorily converted into 131,974 Damon Motors
common shares. Upon conversion, the carrying value of the convertible debt approximates fair value of the shares issued.
**Liquidity
and Capital Resources as of June 30, 2025**
****
As of June 30, 2025, the
Company had cash of $2,479,283, and a working capital deficiency of approximately $10.4 million.
The Companys expected future losses cast substantial doubt upon its ability to continue as a going concern for the next twelve
months from the issuance of this Form 10-K. Furthermore, the Company had negative cash flows from operating activities of approximately
$19.6 million for the year ended June 30, 2025. These operating losses and negative cash flows were mainly the result of on-going operating
costs, transaction costs incurred due to the Business Combination and the public listing exercise and financing cost to sustain its operation.
Based on the foregoing and its growth strategy, the Company expects to continue to make significant expenditures to expand its business
and develop operations in the future. As a result, the Company may continue to incur operating losses and have negative cash flows in
the short term, as it continues to execute on its growth strategy and develop operations to produce the motorcycles to meet delivery of
the motorcycles in our order book and explore other revenue sources.
The
Companys primary sources of liquidity used in the funding of its operations and the execution of its growth comes from on-going
fund raised in the form of issuance of share capital. The Company cannot provide assurance that the Company will secure financing in
a timely manner. As such, the substantial doubt of the Companys ability to continue as a going concern has not been alleviated
by managements plans.
73
*Summary
of Cash Flows*
|
| |
Years Ended | | |
|
| |
June 30,
2025 | | |
June 30,
2024 | | |
|
Cash Flows: | |
| | |
| | |
|
Cash flows used in operating activities | |
$ | (19,634,512 | ) | |
$ | (12,869,374 | ) | |
|
Cash flows provided by investing activities | |
| 77,270 | | |
| - | | |
|
Cash flows provided by financing activities | |
| 21,692,469 | | |
| 11,195,898 | | |
|
Increase / (decrease) in cash and restricted cash | |
$ | 2,135,227 | | |
$ | (1,673,476 | ) | |
**Cash
Flows Used in Operating Activities as of June 30, 2025 and 2024**
During
the year ended June 30, 2025, cash used in operating activities was $19,634,512, compared with $12,869,374 for the year ended June 30,
2024. Cash used in operating activities increased by $6,765,138 principally as a result of an increase of operating expenses by approximately
$20,003,000, partially offset by the non-cash impairment loss of approximately $14,120,000, non-cash transaction cost of approximately
$6,087,000, an increase of other non-cash items of $688,000, an increase of interest payment of $3,765,000, and changes in working capital
of approximately $3,892,000.
**Cash
Flows from Investing Activities as of June 30, 2025 and 2024**
During
the year ended June 30, 2025, cash provided by investing activities were $77,270, representing cash acquired through the Business Combination,
compared to $nil cash provided by investing activities during the year ended June 30, 2024.
**Cash
Flows from Financing Activities as of June 30, 2025 and 2024**
During
the year ended June 30, 2025, cash provided by financing activities were $21,692,469 compared with $11,195,898 for the year ended June
30, 2024.
During
the year ended June 30, 2025:
|
|
|
the
Company received approximately $14,767,000 from the recent financing completed in March 2025; | |
|
|
|
| |
|
|
|
the
Company received approximately $4,400,000 from pre-paid purchase; | |
|
|
|
| |
|
|
|
the
Company received approximately $3,150,000 from Streeterville notes; | |
|
|
|
| |
|
|
|
the
Company received approximately $1,525,000 from promissory notes; | |
|
|
|
| |
|
|
|
the
Company received approximately $1,105,000 from convertible notes issuances; | |
|
|
|
| |
|
|
|
the
Company made payments of debt approximately $3,255,000; | |
|
|
|
| |
74
During
the year ended June 30, 2024:
|
|
|
the
Company received approximately $11,549,945 from convertible notes issuances; | |
|
|
|
the
Company received approximately $550,000 from promissory notes; | |
|
|
|
| |
|
|
|
the
Company made payments of debt approximately $965,000 | |
**Off-Balance
Sheet Arrangements**
The
Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
****
**Recently Accounting Pronouncements**
Refer to Note 2 Significant Accounting Policies to our
consolidated financial statements included in Item 8 of this Form 10-K for recently adopted accounting pronouncements and recently issued
accounting pronouncements not yet adopted as of this date of this Form 10-K.
****
**ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
As
a smaller reporting company, we are not required to provide this information.
**ITEM
8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
This
information appears following Item 15 of this annual report and is included herein by reference.
75
**ITEM
9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**
****
On
November 1, 2024, CBIZ CPAs P.C. (CBIZ CPAs) acquired the attest business of Marcum LLP (Marcum). Accordingly,
on June 17, 2025, solely as a result of the acquisition, Marcum resigned as the independent registered public accounting firm of Damon
Inc. and, with the approval of the audit committee of the Companys board of directors, CBIZ CPAs was engaged as the Companys
independent registered public accounting firm on the same date.
The
audit report of Marcum on the Companys consolidated financial statements as of and for the fiscal year ended June 30, 2024 did
not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting
principles, except for the inclusion of an explanatory paragraph as to the Companys ability to continue as a going concern. The
audit of the Companys consolidated financial statements as of June 30, 2023 and for the fiscal year then ended was performed by
another independent registered accounting firm.
During
the period of Marcums 2024 engagement, and the subsequent interim period through June 17, 2025, the date of Marcums resignation,
there were (a) no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) with
Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements,
if not resolved to the satisfaction of Marcum, would have caused Marcum to make reference to such disagreement in its report and (b)
no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K), except for the previously disclosed identification
of material weaknesses in the Companys internal control over financial reporting relating to ineffective controls over period
end financial disclosure and reporting processes, including ineffective monitoring activities to assess the operation of internal controls
over financial reporting and lack of sufficient controls designed and implemented for financial information processing and reporting
and lacked personnel with requisite skills for financial reporting under U.S. GAAP.
During the period of Marcums 2024 engagement, and the subsequent
interim period through June 17, 2025, neither the Company nor anyone on the Companys behalf consulted with CBIZ CPAs regarding
either (i) the application of accounting principles to a specified transaction, either completed or proposed, or regarding the type of
audit opinion that might be rendered by CBIZ CPAs on the Companys financial statements, or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable
event (as defined in Item 304(a)(1)(v) of Regulation S-K).
**ITEM
9A: CONTROLS AND PROCEDURES**
****
Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management,
including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
**Evaluation
of Disclosure Controls and Procedures**
We
carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer
(our principal executive officer) and our chief financial officer (our principal financial and accounting officer), of the effectiveness
of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. The evaluation
was undertaken in consultation with our accounting personnel. Based on that evaluation, our chief executive officer and our chief financial
officer concluded that as of June 30, 2025, our disclosure controls and procedures were not effective to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms.
76
**Report
on Internal Control over Financial Reporting**
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding
the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting
principles. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance
that the objectives of the internal control system are met. We have performed an evaluation of the effectiveness of our internal control
over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in its 2013 Internal Control-Integrated Framework. Based on that evaluation, our management, including our chief executive officer and
chief financial officer, concluded that our internal control over financial reporting was not effective as of June 30, 2025 due to material
weaknesses described below. A material weakness is a control deficiency or combination of deficiencies in internal control, such that
there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented or detected
and corrected on a timely basis.
|
a. | Management
determined the lack of adequate controls with respect to identifying and accounting for material
contracts / agreements. This was evidenced by management's failure to properly identify and
account for previously settled fees owed to a former advisor that became due upon closing
of the business combination, which resulted in a restatement of the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 2024, to correct understatement
of expenses and accounts payable and accrued expense. Accordingly, management has determined
that this control deficiency constituted a material weakness. | |
|
b. | Management
identified information technology deficiencies below in the design, implementation and, operation
of controls over program change management, and vendor management controls, which constituted
a material weakness: | |
|
i. | IT
program and data changes affecting the Companys financial IT applications and underlying
accounting records, are identified, tested, authorized and implemented appropriately to validate
that data produced by its relevant IT system(s) were complete and accurate. Automated process-level
and manual controls that are dependent upon the information derived from such financially
relevant systems were also determined to be ineffective as a result of such deficiency. | |
|
ii. | key
third party service provider SOC reports were obtained and reviewed. | |
**Remediation
Completed and Remediation Plan for the Material Weakness**
To
remediate the material weaknesses identified above, we have remediated and initiated controls and procedures as follows:
|
| educated
control owners concerning the principles and requirements of each control, with a focus on
those related to user access to our financial reporting systems impacting financial reporting; | |
|
| developed
and maintain documentation to promote knowledge transfer upon personnel and function changes; | |
|
| developed
enhanced controls and reviews related to our financial reporting systems; | |
|
| performed
an in-depth analysis of who should have access to perform key functions within our financial
reporting system that impact financial reporting and redesigned aspects of the system to
better allow the access rights to be implemented; | |
|
| cross
referencing analysis to be completed on a quarterly basis; and | |
|
| implemented
additional levels of internal review of financial statements and any adjustments made thereto. | |
The
material weaknesses identified above will not be considered remediated until our remediation efforts have been fully concluded that these
controls are operating effectively.
Management
does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of
internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, have been or will be detected.
**Changes in Internal Control over Financial
Reporting**
Other than as described above
under - *The Remediation of Material Weakness*, there have been no changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the last fiscal year that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
**ITEM
9B: OTHER INFORMATION**
None
of the Companys directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading
arrangement during the Companys fiscal quarter ended June 30, 2025, as such terms are defined under Item 408(a) of Regulation
S-K.
****
**ITEM
9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**
Not
applicable.
77
**PART
III**
**ITEM
10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
The
following sets forth certain information, as of the date of this filing, concerning the persons who serve as our directors and executive
officers.
|
Name |
|
Age |
|
|
Position | |
|
Dominique
Kwong |
|
50 |
|
|
Chief
Executive Officer and Director | |
|
Baljinder
Kaur Bhullar |
|
56 |
|
|
Chief
Financial Officer and Director | |
|
Karan
Sodhi |
|
33 |
|
|
Director | |
|
Shashi
Tripathi |
|
48 |
|
|
Chairman
of the Board | |
|
Melanie
Figueroa |
|
43 |
|
|
Director | |
Karan
Sodhi, Shashi Tripathi and Melanie Figueroa serve on the Companys Audit Committee, its Compensation Committee and its Nominating
and Corporate Governance Committee.
**Biographies**
****
The
following are brief profiles of the executive officers and directors of the Company, including a description of each individuals
principal occupation within the past five years:
*Dominique
(Dom) Kwong, Chief Executive Officer and Director*
**
Mr.
Kwong was appointed to serve as the interim CEO and Director of the Company effective as of December 4, 2024 and was subsequently appointed
CEO. He served as the Chief Technology Officer and Chief Operating Officer of Damon Motors Inc. from June 2017 to January 2023. Between
January 2023 and December 2024, Mr. Kwong served as a consultant in the role of as Head of Electronics for Alpinestars, a globally recognized
motorcycle apparel manufacturer. In this capacity, he contributed to strategic initiatives, R&D, and operational improvements for
their Tech-Air airbag systems and other electronic products. Mr. Kwongs in-depth knowledge and experience with the Companys
business in electric motorcycle development and manufacturing and extensive executive leadership background led us to conclude that he
should serve as a director.
*Baljinder
(Bal) Bhullar, Chief Financial Officer and Director*
**
Bal
Bhullar was appointed to serve as CFO and Director of the Company with effect upon the closing of the Business Combination. She was appointed
to serve as CFO of the Companys wholly owned subsidiaries Damon Motors, Inc. and Damon Motors Corp. effective January 1, 2024.
Ms. Bhullar brings over 20 years of experience in diversified business, investor relations, investment banking, financial & risk
management serving as an executive and board member in both public and private companies across various sectors, including automotive,
technology, manufacturing, e-commerce, transport, energy, resource and health/wellness. She previously served as CFO and Corporate Secretary
of Foremost Lithium Resource and Technology (NASDAQ: FMST) from September 2023 to February 2024; CFO of ReCar (ReBuild Manufacturing)
from January 2023 to March 2023; and Chief Compliance Officer, CFO and board member of ElectraMeccanica Vehicles Corp. (NASDAQ: SOLO)
from October 2018 to December 2022. She has also served as President of the BC Risk Management Association and has held positions as
a board member and executive of several private and public companies. Currently Ms. Bhullar is CFO and Board Member of the Company, Independent
Board Member of Lexaria BioScience (NASDAQ: LEXX) and a member of the Board and CEO/Founder/board member of BKB Management Ltd. Ms. Bhullar
is a Chartered Professional Accountant, Certified General Accountant, a CRM designation from Simon Fraser University and a diploma in
Financial Management from British Columbia Institute of Technology. Ms. Bhullar has proven expertise with increasing market capitalization,
raising capital, overseeing corporate governance, SOX, ESG, diversity and regulatory compliance, financial & strategic planning,
as well as successfully completing initial public offerings, reverse mergers, business expansions, start-up operations, program development
and product development which led us to the conclusion that she should serve as a director.
78
*Melanie
Figueroa, Director*
**
Melanie
Figueroa was appointed to serve as a member of the Board effective upon the closing of the Business Combination. Since May 2023, she
has served as Co-Managing Partner of Next Move Partners LLC, an advisory firm that supports emerging growth companies navigating the
complexities of the U.S. public markets in their capital raising and M&A growth initiatives. Since March 2024, Ms. Figueroa has also
served as General Counsel to Grafiti LLC, a data analytics and statistical visualization software solution for engineers and scientists.
From January 2020 until the closing of its business combination with XTI Aircraft Company in March 2024, Ms. Figueroa served as General
Counsel to Inpixon, a Nasdaq listed global software technology company where she assisted the executive management team & board in
defining and successfully executing its financing and M&A strategy, including domestic, cross-border and M&A transactions. Prior
to her role as General Counsel, she was the Managing Partner of the NY office of a national law firm where she advised and assisted high
growth companies in structuring& executing debt & equity financing transactions & a multitude of domestic & cross border
M&A transactions, on both the buy side & sell side. Ms. Figueroa has over 15 years of experience advising executive management
teams and board of directors of emerging growth companies seeking access to the U.S. public markets to raise capital and executing go
public transactions through traditional IPOs and other alternative structures, including reverse mergers, spin-offs, and SPACs
which led us to the conclusion that she should serve as a member of the Board.
*Karan
Sodhi, Director*
**
Karan
Sodhi was appointed to serve as a member of the Board effective upon the closing of the Business Combination. He was appointed as a director
of Damon in August 2024. He is a practicing lawyer, and the managing partner at Rockford Legal & Advisory LP, a regional law firm
in Delta, British Columbia. Prior to his service with Damon, Karan was an Associate Lawyer at DuMoulin Black LLP from September 2022
to September 2023; General Counsel at SOL Global Investments from September 2021 to September 2022; and Associate Legal Counsel at Pan
American Silver Corp from November 2019 to September 2021. Karan brings a breadth of knowledge and experience in corporate commercial
transactions, securities, capital markets and estate planning. With nearly a decade of experience, Karan has become a trusted advisor
to public companies and high-net-worth individuals, managing complex transactions and regulatory challenges which led us to the conclusion
that he should serve as a member of the Board.
*Shashi
Tripathi, Chairman of the Board*
**
Shashi
Tripathi was appointed to serve as a member of the Board effective upon the closing of the Business Combination. He was appointed as
a director of Damon in August 2024. Mr. Tripathi is a seasoned entrepreneur, investor, and advisor with extensive experience in technology,
operations, supply chain, and manufacturing. He has served on the boards of several companies and has a proven track record in regulated
industries, having received accolades such as the Best Patient Engagement Strategy and Medical Design Excellence awards. Mr. Tripathi
has successfully led three companies to exits and since October 2019 has served as the founder and Managing Partner of Nurture Growth
Fund, which invests in a diverse range of sectors including artificial intelligence, SaaS, digital health, and FinTech. Prior to his
service with Damon, he has served as Chief Operating Officer and Chief Technology Officer of ImpediMed from July 2018 to June 2024. Additionally,
he is currently the CEO of Sleepiz USA. Mr. Tripathi holds a masters degree in industrial engineering and a bachelors degree
in mechanical engineering. His valuable experience as an investor and advisor to early stage, pre-IPO companies across a variety of sectors
led us to conclude that he should serve as a member of the Board.
**Family
Relationships**
There
are no family relationships between any of our directors and executive officers.
79
**Involvement
in Certain Legal Proceedings**
****
To
the best of our knowledge, none of our directors or executive officers were involved in any legal proceedings described inItem
401(f) ofRegulation S-Kin the past ten years.
**The
Board Composition and Election of Directors**
****
The
Board is comprised of five members made up of a single class of directors. Each director is subject to re-election on an annual basis
at each annual meeting of shareholders. The Board of Directors may establish the authorized number of directors from time to time by
ordinary resolution. If, at any meeting of shareholders at which there should be an election of directors, the places of any of retiring
directors are not filled by that election, those retiring directors who are not re-elected and who are asked by the newly elected directors
to continue in office will, if willing to do so, continue in office to complete the number of directors until further new directors are
elected at a meeting of shareholders convened for that purpose. If any such election or continuance of directors does not result in the
election or continuance of the then-current number of directors, the number of directors of the Company shall be deemed to be set at
the number of directors actually elected or continued in office. Our directors hold office until the earlier of their death, resignation,
retirement, disqualification or removal or until their successors have been duly elected and qualified. In the event of a casual vacancy
in our Board, the remaining directors may fill such vacancy until the next annual meeting of shareholders.
****
**Director
Independence**
****
We
have determined that Mr. Karan Sodhi and Mr. Shashi Tripathi are independent directors in accordance with the listing requirements of
Nasdaq. The Nasdaq independence definition includes a series of objective tests, including that the director is not, and has not been
for at least three years, one of the Companys employees and that neither the director nor any of his, her or their family members
has engaged in various types of business dealings with the Company.
**Director
Compensation**
For
a discussion of our director compensation arrangements, see Item 11. *Executive Compensation*.
**Committees
of the Board of Directors**
Our
Board has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which
operate pursuant to a charter adopted by our Board of Directors. The Board of Directors may also establish other committees from time
to time to assist our company and the Board. Our committees charters are available on our website at *https://damon.com/*.
The reference to our website address does not constitute incorporation by reference of the information contained at or available through
our website, and you should not consider it to be part of this report.
**Audit
Committee**
Our
audit committee consists of Melanie Figueroa, Shashi Tripathi and Karan Sodhi. Mr. Tripathi and Mr. Sodhi have been determined by the
Board to satisfy the independence requirements under Nasdaq listing standards and Rule 10A-3(b)(1) of the Exchange Act. The chair of
our audit committee is Karan Sodhi, who the Board has determined is an audit committee financial expert within the meaning
of SEC regulations. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable
requirements. In arriving at these determinations, the Board has examined each audit committee members scope of experience and
the nature of their employment in the corporate finance sector.
The
principal duties and responsibilities of our audit committee include, among other things:
|
|
|
reviewing
and recommending for approval to the Board the annual financial statements (individually and collectively, the annual Financial
Statements), accounting policies that affect the Financial Statements, annual Management Discussion and Analysis (MD&A)
and associated press release; | |
80
|
|
|
reviewing
and approving, or recommending for approval to the Board, the quarterly financial statements (individually and collectively, the
quarterly Financial Statements, collectively with the annual Financial Statements, the Financial Statements),
quarterly MD&A and associated press release; | |
|
|
|
reviewing
the annual report for consistency with the financial disclosure referenced in the annual Financial Statements; | |
|
|
|
assessing
the adequacy of procedures in place for the review of our public disclosure of financial information extracted or derived from annual
or quarterly Financial Statements and periodically assess the adequacy of such procedures; | |
|
|
|
reviewing
any significant issues affecting financial reports; | |
|
|
|
reviewing
any developments in the International Financial Reporting Standards as issued by the IFRS Foundation and the International Accounting
Standards Board (IASB) or U.S. Generally Accepted Accounting Principles as issued by the Financial Accounting Standards Board (FASB)
that could affect the Company; | |
|
|
|
reviewing
and approving any earnings guidance to be provided by the Corporation; | |
|
|
|
coordinating
the oversight and reviewing the adequacy of our internal control over financial reporting; | |
|
|
|
establishing
policies and procedures for the receipt and retention of accounting-related complaints and concerns; | |
|
|
|
reviewing
with management, external auditors and legal counsel any material litigation claims or other contingencies, including tax assessments,
and adequacy of financial provisions, that could materially affect financial reporting; | |
|
|
|
reviewing
with our Chief Executive Officer and the Chief Financial Officer our disclosure controls and procedures, including any significant
deficiencies in, or material non-compliance with, such controls and procedures; | |
|
|
|
discussing
with our Chief Executive Officer and the Chief Financial Officer all elements of certification required pursuant to National Instrument
52-109 and the Sarbanes-Oxley Act of 2002, as applicable; | |
|
|
|
reviewing
all related person transactions for potential conflict of interest situations and approving all such transactions; | |
|
|
|
appointing,
approving the compensation of, and assessing the independence of our independent registered public accounting firm; | |
|
|
|
pre-approving
auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public
accounting firm; | |
|
|
|
reviewing
the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing
our financial statements; | |
|
|
|
reviewing
and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements
and related disclosures as well as critical accounting policies and practices used by us; | |
|
|
|
reviewing
and monitoring the processes in place to identify and manage the principal risks that could impact our financial reporting; | |
81
|
|
|
reviewing
and approving corporate investment policies; and | |
|
|
|
assessing
the effectiveness of the overall process for identifying principal business risks and report thereon to the Board. | |
**Compensation
Committee**
Our
compensation committee consists of Melanie Figueroa, Shashi Tripathi and Karan Sodhi. Each of Mr. Tripathi and Mr. Sodhi has been determined
has been determined by the Board to satisfy the independence requirements under Nasdaq listing standards and is a non-employee
director as defined in Rule 16b-3 promulgated under the Exchange Act. The chair of our compensation committee is Shashi Tripathi.
The
principal duties and responsibilities of our compensation committee include, among other things:
|
|
|
overseeing
and administering our incentive compensation and other equity-based plans and recommending any changes to the Board as needed, as
well as exercising the authority of the Board with respect to the administration of such plans; | |
|
|
|
reviewing
and approving the corporate goals and objectives with respect to compensation for our Chief Executive Officer; | |
|
|
|
reviewing
and recommending to the board of directors the evaluation process and compensation structure of our other executive officers; | |
|
|
|
periodically
reviewing and making recommendations to the Board regarding the compensation of non-management directors, including Board and Committee
retainers, meeting fees, equity-based compensation and such other forms of compensation and benefits as the Committee may consider
appropriate; | |
|
|
|
overseeing
the appointment and removal of executive officers, and reviewing and approving for executive officers, including the Chief Executive
Officer, any employment, severance or change in control agreements; and | |
|
|
|
approving
any loans to employees as allowed by law. | |
**Nominating
and Corporate Governance Committee**
Our
nominating and corporate governance committee consists of Melanie Figueroa, Shashi Tripathi and Karan Sodhi. Mr. Tripathi and Mr. Sodhi
have been determined by the Board to satisfy the independence requirements under Nasdaq listing standards. The chair of our nominating
and corporate governance committee is Shashi Tripathi.
The
nominating and corporate governance committees responsibilities include, among other things:
|
|
|
identifying
and recommending to the Board individuals qualified to be nominated for election to the Board of Directors; | |
|
|
|
recommending
to the Board the members and Chair for each Board committee; | |
|
|
|
reviewing
and assessing our corporate governance principles and make recommendations for changes thereto to the Board; and | |
|
|
|
establishing
and overseeing appropriate director orientation and continuing education programs. | |
82
**Board
Leadership Structure**
The
Board and management believe that the choice of whether the Chair of the Board should be an executive of our company, or a non-executive
or independent director, depends upon a number of factors, taking into account the candidates for the position and the best interests
of our company and our shareholders. Shashi Tripathi serves as the Board Chair and is an independent director. However, the Board may
decide in the future to unite the roles of Chairman and Chief Executive Officers if it determines that such structure provides better
and more effective oversight and management of the Company. In such case, the Board may also consider appointing a lead independent director,
if the circumstances warrant it. When the Board convenes for a meeting, it is expected that the non-management directors will meet in
one or more executive sessions, if the circumstances warrant it.
**Role
of Board in Risk Oversight Process**
The
Board is responsible for the oversight of the Companys risk management processes and, either as a whole or through its committees,
regularly discusses with management the Companys major risk exposures, their potential impact on the Companys business
and the steps the Company takes to manage them. The risk oversight process includes receiving regular reports from board committees and
members of senior management to enable the Board to understand the Companys risk identification, risk management and risk mitigation
strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational
risk.
The
audit committee reviews and monitors the processes in place to identify and manage the principal risks that could impact our financial
reporting. It also reviews and approves corporate investment policies and assesses the effectiveness of our overall process for identifying
principal business risks. Oversight by the audit committee includes direct communication with the Companys external auditors,
and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control
such exposures. The compensation committee is responsible for assessing whether any of the Companys compensation policies or programs
has the potential to encourage excessive risk-taking. The nominating and corporate governance committee manages risks associated with
the independence of the Board and corporate practices. While each committee is responsible for evaluating certain risks and overseeing
the management of such risks, the entire Board is regularly informed through committee reports about such risks. Matters of significant
strategic risk is considered by the Board as a whole.
**Compensation
Committee Interlocks and Insider Participation**
No
member of the compensation committee serves or served during the fiscal year ended June 30, 2025, as a member of the Board or compensation
committee of a company that has one or more executive officers serving as a member of the board of directors or compensation committee.
**Director
Qualifications**
The
nominating and corporate governance committee is responsible for reviewing with the Board, on an annual basis, the appropriate characteristics,
skills and experience required for the Board as a whole and its individual members. There is no difference in the manner in which the
nominating and corporate governance committee and evaluates nominees for director based on whether the nominee is recommended by a shareholder.
**Arrangements
between Officers and Directors**
To
our knowledge, there is no arrangement or understanding between any of our officers or directors and any other person, including directors,
pursuant to which the officer was selected to serve as an officer or director.
**Code
of Business Conduct and Ethics**
The
Company adopted a written code of business conduct and ethics that applies to its directors, officers and employees, including its principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
A copy of the code is posted on the corporate website at *https://damon.com/*. In addition, the Company intends to post on its website
all disclosures that are required by law concerning any amendments to, or waivers from, any provision of the code. The reference to the
Companys website address does not constitute incorporation by reference of the information contained at or available through its
website, and you should not consider it to be a part of this report.
83
**Foreign
Private Issuer Status**
****
The Company has determined that it qualifies as a foreign
private issuer, as such term is defined in Rule3b-4under theExchange Act, based on the applicable criteria as
of the last business day of the Companys most recently completed second fiscal quarter, ended December 31, 2024. Notwithstanding
the Companys qualification as a foreign private issuer, the Company has voluntarily chosen to file with the SEC periodic and current
reports and registration statements on forms prescribed for U.S. domestic issuers, including annual reports on Form 10-K, quarterly reports
on Form 10-Q, including current reports on Form 8-K, and registration statements on Form S-1, instead of filing on the reporting and registration
forms available to foreign private issuers. The SEC Forms prescribed for U.S. domestic issuers are more detailed and extensive in certain
respects, and must be filed more promptly, than the forms currently available to foreign private issuers.
Although
the Company has chosen to file periodic and current reports on U.S. domestic issuer forms, the Company will maintain its status as a
foreign private issuer as long as it meets the qualifications for a foreign private issuer under the Exchange Act. Accordingly, the Company
intends to avail itself of exemptions from certain provisions of the Exchange Act and the rules thereunder that are applicable to U.S.
domestic public companies.
As
a foreign private issuer, the Company will avail itself of the following exemptions from the provisions of the Exchange Act and the rules
thereunder that are applicable to U.S. domestic issuers, including:
|
|
|
sections
of the Exchange Act that regulate the solicitation of proxies, consents or authorizations in respect of any securities registered
under the Exchange Act; and | |
|
|
|
| |
|
|
|
sections
of the Exchange Act that require insiders to file public reports of their share ownership and trading activities and that impose
liability on insiders who profit from trades made in a short period of time. | |
Accordingly,
the Companys officers, directors and principal shareholders are exempt from the requirements to report transactions in the Companys
equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private
issuer, the Company is also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
**Insider
Trading Policy**
We
have an insider trading policy that governs the purchase, sale, and/or other dispositions of our securities by our directors, officers
and employees. We believe that our insider trading policy is reasonably designed to promote compliance with insider trading laws, rules
and regulations. Our insider trading policy, among other things, prohibits directors and executive officers from holding our securities
in a margin account, pledging our securities as collateral for a loan, or engaging in short selling or similar hedging activities involving
our securities. A copy of our insider trading policy is filed as an exhibit to this report.
****
**ITEM
11: EXECUTIVE COMPENSATION**
****
**Executive
Compensation**
The
table below sets forth, for the last two fiscal years, the compensation earned by (i) each individual who served as our principal executive
officer during the last fiscal year, (ii) our two other most highly compensated executive officers, other than our principal executive
officer, who were serving as an executive officer at the end of the last fiscal year and (iii) up to two additional individuals for whom
disclosure would have been required but for the fact that the individual was not serving as an executive officer at the end of the last
fiscal year. Together, these individuals are sometimes referred to as the named executive officers (NEOs).
84
Any
compensation amounts to Nadir Ali prior to the Business Combination reflect amounts paid by Grafiti Holding. Any compensation amounts
to the other NEOs prior to the Business Combination reflect amounts paid by Damon Motors.
|
| |
| |
| | |
| | |
Stock | | |
Option | | |
All Other | | |
| | |
|
| |
| |
Salary | | |
Bonus | | |
Awards | | |
Awards | | |
Compensation | | |
Total | | |
|
Name and Principal Position | |
Year | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
|
Dominique Kwong | |
2025 | |
| 107,159 | | |
| - | | |
- | | |
| - | | |
| - | | |
| 107,159 | | |
|
Chief Executive Officer(1) | |
2024 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Baljinder Bhullar | |
2025 | |
| 312,948 | | |
| 1,000,000 | | |
| - | | |
| - | | |
| - | | |
| 1,312,948 | | |
|
Chief Financial Officer(2) | |
2024 | |
| 121,473 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 121,473 | | |
|
Former Executives | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Nadir Ali | |
2025 | |
| 325,000 | (8) | |
| - | | |
| - | | |
| - | | |
| 400,000 | (9) | |
| 725,000 | | |
|
Former Chief Executive Officer(3) | |
2024 | |
| - | | |
| - | | |
| - | | |
| 219,627 | (7) | |
| 45,000 | (6) | |
| 264,627 | | |
|
Damon Jay Giraud | |
2025 | |
| 140,739 | | |
| - | | |
| - | | |
| - | | |
| 137,454 | (10) | |
| 278,193 | | |
|
Former Chief Executive Officer(4) | |
2024 | |
| 270,188 | | |
| - | | |
| - | | |
| - | | |
| 7 | | |
| 270,195 | | |
|
Derek Dorresteyn | |
2025 | |
| 162,500 | | |
| - | | |
| - | | |
| - | | |
| 144,231 | (10) | |
| 306,731 | | |
|
Former Chief Technology Officer(5) | |
2024 | |
| 234,163 | | |
| - | | |
| - | | |
| - | | |
| 7 | | |
| 234,170 | | |
|
(1) | Mr.
Kwong was appointed Interim CEO of Damon effective December 4, 2024, and was appointed CEO on July 16, 2025. |
|
|
(2) | Ms.
Bhullar was appointed CFO of Damon Motors effective January 1, 2024, and became CFO of Damon upon the closing of the Business Combination
on November 13, 2024. |
|
|
(3) | Mr.
Ali served as the sole director and officer of Grafiti Holding prior to the Business Combination and resigned from all director and officer
positions upon the closing of the Business Combination on November 13, 2024.. |
|
|
(4) | Mr.
Giraud served as the CEO of Damon Motors prior to the Business Combination and became CEO of Damon upon the closing of the Business Combination
on November 13, 2024.Mr. Giraud resigned from all director and officer positions with Damon effective December 4, 2024. |
|
|
(5) | Mr.
Dorresteyn served as the CTO of Damon Motors prior to the Business Combination and became CTO of Damon upon the closing of the Business
Combination on November 13, 2024.Mr. Dorresteyn separated from the Company on January 15, 2025. |
|
|
(6) | Includes
service fees paid by Grafiti Holding to Mr. Ali for the period from April 1, 2024 through June 30, 2024. |
|
|
(7) | The
fair value of employee option grants were estimated on the date of grant using the Black-Scholes option valuation model with probability
weighted scenarios of the company As-Is on a standalone basis and on a Merger basis assuming the completion
of the Business Combination. |
|
|
(8) | Includes
fee paid by Grafiti Holding to Mr. Ali upon closing the Business Combination. |
|
|
(9) | Includes
service fees paid by Grafiti Holding to Mr. Ali for the period from July 1, 2024 through June 30, 2025. |
|
|
(10) | Includes
severance amount to Mr. Giraud and Mr. Dorresteyn. |
|
85
**Outstanding
Equity Awards at Fiscal Year-End**
Other
than as set forth below, there were no outstanding unexercised options, unvested stock, and/or equity incentive plan awards issued to
our NEOs as of June 30, 2025.
|
|
Option
Awards | | |
Stock
Awards | | |
|
Name | |
Grant
Date | | |
Number
of
securities
underlying
unexercised
options (#)
exercisable | | |
Equity
incentive
plan
awards:
number of
securities
underlying
unexercised
unearned
options
(#) | | |
Option
exercise
prices
($) | | |
Option
expiration
date | | |
Numberof
shares of
restricted
stock
# | | |
Market
value of
shares of
restricted
stock
($) | | |
|
Dominique
Kwong | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Baljinder
Bhullar | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Nadir
Ali | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Damon
Jay Giraud | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Derek
Dorresteyn | |
| 05/25/2020 | | |
| 4,606 | (1) | |
| | | |
| 77.32 | | |
| 07/14/2025 | | |
| | | |
| | | |
|
(1) | This
option is 100% vested. |
|
****
**Employment
Agreements and Other Arrangements**
Executive
Employment Services Agreement with Dominque Kwong
On
July 16, 2025, following the approval of the Board, the Company entered into a new executive employment services agreement with Dominique
Kwong, our Chief Executive Officer and a director, with an initial term commencing on July 16, 2025 and expiring on July 16, 2028 (the
Kwong Agreement). The Kwong Agreement supersedes the Companys prior Interim Executive Employment Agreement, dated
December 4, 2024, and its Amendment to Interim Executive Agreement, dated May 4, 2025, as between the Company and Mr. Kwong.
The
initial term of the Kwong Agreement is subject to automatic renewal for successive 90-day periods unless either the Company or Mr. Kwong
provides written notice of non-renewal at least 90 days prior to the end of the then current or renewal term.
86
Pursuant to the terms and provisions of the Kwong Agreement: (i) Mr.
Kwong provides various employment services to the Company which are inclusive of his duties and responsibilities commensurate with his
position as our CEO; and (ii) Mr. Kwong is entitled to: (a) a gross monthly salary of CAD$39,947 (the Monthly Salary); (b)
a yearly cash bonus (each, a Bonus) of up to 100% of his then aggregate annual Monthly Salary based upon certain performance
goals to be determined by the Board or the compensation committee of the Board (the Compensation Committee) from year to
year; (c) a short-term incentive payment (each, a STIP Bonus) from 0% to up to 100% of his then aggregate annual Monthly
Salary based upon certain factors to be determined by the Board or the Compensation Committee from time to time; (d) a time-based vesting
incentive stock option, which has yet to be granted, to purchase up to an aggregate of 1,000,000 common shares of the Company, vesting
as to not less than one-quarter of the option shares on each of the following dates: the date of grant, and the dates that are six, 12,
and 18 months thereafter; (e) a restricted stock unit award (the RSU) to acquire up to an aggregate of 1,000,000 common
shares of the Company, which has yet to be granted, vesting as to not less than one-half of the RSU shares on each of the dates that are
12 and 24 months, respectively, from the date of grant; (f) participation in any long-term incentive program introduced by the Company
from time to time; (g) participation in all Company employee benefit and health insurance plans (each, a Benefit); and (h)
four weeks of accrued vacation per calendar year (the Vacation). Additionally, the Company will pay Mr. Kwong a one-time
signing bonus of CAD$126,110 as soon as reasonably practicable, and no later than five business days after it has raised at least US$2.5
million, in recognition of the execution of the Kwong Agreement and the retroactive salary adjustment.
If
the Company elects to not renew the Kwong Agreement, and provided that Mr. Kwong is in compliance with the relevant terms and conditions
of the Kwong Agreement, the Company shall be obligated to provide a termination package to Mr. Kwong as follows: (i) a cash payment equating
to any outstanding Monthly Salary, Vacation pay and annual performance Bonus and STIP Bonus entitlements (if any and calculated pro rata
up to the date of termination) earned by Mr. Kwong to the date of termination (collectively, the Outstanding Amounts);
(ii) a cash payment equal to six months of Monthly Salary for each year of employment commencing on December 4, 2024 and ending
on the date of termination, up to a total maximum of 18 months (the Severance Period) of Monthly Salary (the Termination
Amount), with the Termination Amount being payable in equal monthly installments over the Severance Period; (iii) confirmation
that all of Mr. Kwongs then Benefits coverage would be extended for a period of 12 months from the date of termination (the Benefits
Extension); and (iv) subject to the applicable provisions of the Kwong Agreement and the Companys then Stock Incentive
Plan, Mr. Kwong shall be entitled to exercise any unexercised and fully vested portion of any stock options for a period of 12 months
from the date of termination (the Options Extension).
If
the Company elects to terminate the Kwong Agreement without Just Cause (as defined therein), or if Mr. Kwong terminates the Kwong Agreement
for Good reason as a result of a Change of Control (each as also defined therein), and provided that Mr. Kwong is in compliance with
the relevant terms and conditions of the same, the Company shall be obligated to provide a termination package to Mr. Kwong as follows:
(i) a cash payment equal to all Outstanding Amounts to the date of termination; (ii) a cash payment equal to the Termination Amount,
payable in equal monthly installments during the Severance Period; (iii) confirmation of the Benefits Extension; and (iv) subject to
the applicable provisions of the Kwong Agreement and the Companys then Stock Incentive Plan, confirmation of the Options Extension.
If
Mr. Kwong elects to terminate the Kwong Agreement, except for Good Reason, and provided that Mr. Kwong is in compliance with the relevant
terms and conditions of the Kwong Agreement, or if the Company elects to terminate the Kwong Agreement for Just Cause, then the Company
shall only be obligated to provide Mr. Kwong a cash payment equal to all Outstanding Amounts as of the date of termination.
The
Kwong Agreement will be deemed terminated on the 30th calendar day following the death or disability of Mr. Kwong, in which case the
Company shall be obligated to provide a termination package to Mr. Kwong, or Mr. Kwongs estate as the case may be, as follows,
provided that Mr. Kwong is or was in compliance with the relevant terms and conditions of the Kwong Agreement: (i) a cash payment equal
to all Outstanding Amounts to the date of termination; (ii) if disabled only, confirmation of the Benefits Extension; and (iii) subject
to the applicable provisions of the Kwong Agreement and the Companys Stock Incentive Plan, Mr. Kwong, or Mr. Kwongs estate
as the case may be, confirmation of the Options Extension.
87
Executive
Employment Services Agreement with Baljinder (Bal) Bhullar
On
July 16, 2025, following the approval of the Board, we entered into a new executive employment services agreement with Baljinder (Bal)
Bhullar, our Chief Financial Officer and a director, with an initial term commencing on July 16, 2025 and expiring on July 16, 2028 (the
Bhullar Agreement). The Bhullar Agreement supersedes the prior Executive Employment Agreement, dated December 24, 2023,
as amended by a certain Employment Side Letter Agreement dated January 1, 2024, as between Damon Motors Inc. and Ms. Bhullar.
The
initial term of the Bhullar Agreement is subject to automatic renewal for successive 90-day periods unless either the Company or Ms.
Bhullar provides written notice of non-renewal at least 90 days prior to the end of the then current or renewal term.
Pursuant to the terms and provisions of the Bhullar Agreement: (i)
Ms. Bhullar provides various employment services to the Company which are inclusive of her duties and responsibilities commensurate with
her position as our CFO; and (ii) Ms. Bhullar is entitled to: (a) a gross monthly salary of CAD$37,035.75 (the Monthly Salary);
(b) a yearly cash bonus (each, a Bonus) of up to 100% of her then aggregate annual Monthly Salary based upon certain performance
goals to be determined by the Board or the Compensation Committee from year to year; (c) a short-term incentive payment (each, a STIP
Bonus) from 0% to up to 100% of her then aggregate annual Monthly Salary based upon certain factors to be determined by the Board
or the Compensation Committee from time to time; (d) a time-based vesting incentive stock option, which has yet to be granted, to purchase
up to an aggregate of 750,000 common shares of the Company, vesting as to not less than one-quarter of the option shares on each of the
following dates: the date of grant, and the dates that are six, 12, and 18 months thereafter; (e) an RSU award to acquire up to an aggregate
of 750,000 common shares of the Company, which has yet to be granted, vesting as to not less than one-half of the RSU shares on each of
the dates that are 12 and 24 months, respectively, from the date of grant; (f) participation in any long-term incentive program introduced
by the Company from time to time; (g) participation in all Company employee benefit and health insurance plans (each, a Benefit);
and (h) four weeks of accrued vacation per calendar year (the Vacation).
If
the Company elects to not renew the Bhullar Agreement, and provided that Ms. Bhullar is in compliance with the relevant terms and conditions
of the Bhullar Agreement, the Company shall be obligated to provide a termination package to Ms. Bhullar as follows: (i) a cash payment
equating to any outstanding Monthly Salary, Vacation pay and annual performance Bonus and STIP Bonus entitlements (if any and calculated
pro rata up to the date of termination) earned by Ms. Bhullar to the date of termination (collectively, the Outstanding Amounts);
(ii) a cash payment equal to six months of Monthly Salary for each year of employment commencing on January 1, 2024 and ending
on the date of termination, up to a total maximum of 18 months (the Severance Period) of Monthly Salary (the Termination
Amount), with the Termination Amount being payable in equal monthly installments over the Severance Period; (iii) confirmation
that all of Ms. Bhullars then Benefits coverage would be extended for a period of 12 months from the date of termination (the
Benefits Extension); and (iv) subject to the applicable provisions of the Bhullar Agreement and the Companys then
Stock Incentive Plan, Ms. Bhullar shall be entitled to exercise any unexercised and fully vested portion of any stock options for a period
of 12 months from the date of termination (the Options Extension).
If
the Company elects to terminate the Bhullar Agreement without Just Cause (as defined therein), or if Ms. Bhullar terminates the Bhullar
Agreement for Good Reason as a result of a Change of Control (each as also defined therein), and provided that Ms. Bhullar is in compliance
with the relevant terms and conditions of the same, the Company shall be obligated to provide a termination package to Ms. Bhullar as
follows: (i) a cash payment equal to all Outstanding Amounts to the date of termination; (ii) a cash payment equal to the Termination
Amount, payable in equal monthly installments during the Severance Period; (iii) confirmation of the Benefits Extension; and (iv) subject
to the applicable provisions of the Bhullar Agreement and the Companys then Stock Incentive Plan, confirmation of the Options
Extension.
If
Ms. Bhullar elects to terminate the Bhullar Agreement, except for Good Reason, and provided that Mr. Bhullar is in compliance with the
relevant terms and conditions of the Bhullar Agreement, or if the Company elects to termination the Bhullar Agreement for Just Cause,
then the Company shall only be obligated to provide Ms. Bhullar a cash payment equal to all Outstanding Amounts to the date of termination.
88
The
Bhullar Agreement will be deemed terminated on the 30thcalendar day following the death or disability of Ms. Bhullar,
in which case the Company shall be obligated to provide a termination package to Ms. Bhullar, or Ms. Bhullars estate as the case
may be, as follows, provided that Ms. Bhullar is or was in compliance with the relevant terms and conditions of the Bhullar Agreement:
(i) a cash payment equal to all Outstanding Amounts to the date of termination; (ii) if disabled only, confirmation of the Benefits Extension;
and (iii) subject to the applicable provisions of the Bhullar Agreement and the Companys Stock Incentive Plan, Ms. Bhullar, or
Ms. Bhullars estate as the case may be, confirmation of the Options Extension.
Advisory
Services and Consulting Agreement with Nadir Ali
****
The
Company paid Mr. Ali a fee of $15,000 per month for services rendered to the Company since April 1, 2024 and until the closing of the
Business Combination. Grafiti Holding has entered into a Consulting Agreement with Mr. Ali on September 25, 2024 (the Ali Consulting
Agreement), pursuant to which Mr. Ali will advise on public company reporting and compliance matters, business development, growth
strategies and other operational matters as requested.
Pursuant
to the terms of the Ali Consulting Agreement, the Company agreed to pay Mr. Ali, through a wholly owned affiliated entity, 3AM Investments
LLC, a fee of $15,000 per month for services rendered to the Company since April 1, 2024 until the end of the month of the closing of
the Business Combination. In connection with the terms of the Ali Consulting Agreement, Mr. Ali will advise on public company reporting
and compliance matters, strategic business development and growth strategies and other operational matters as requested.
As
compensation under the Ali Consulting Agreement, Mr. Ali is entitled to a fee of $325,000 upon closing the Business Combination and his
monthly fee will increase to $54,167 per month beginning on the first of each month following the closing of the Business Combination
through the remainder of the term of the agreement.
Unless
otherwise terminated earlier pursuant to the Ali Consulting Agreement, the agreement will continue for a period of six months following
the closing of the Business Combination. The Company has the right to terminate the Ali Consulting Agreement with 30 days notice;
however, if it is terminated by the Company prior to the six month anniversary of the closing of the Business Combination (the Ali
Guaranteed Period) for any reason other than the gross negligence, recklessness or willful misconduct of Mr. Ali, the monthly
fee will continue to be paid for the remainder of the Ali Guaranteed Period. Mr. Ali has the right to terminate the Ali Consulting Agreement
with 30 days notice for specified reasons, including the Companys failure to make timely payments, gross negligence, recklessness,
willful misconduct, or the filing of bankruptcy by the Company. In such cases, the monthly fee for the remainder of the Ali Guaranteed
Period will continue to be paid.
Employment
Agreement with Jay Giraud
On
March 23, 2022, Damon entered into an employment agreement with Jay Giraud (the Giraud Employment Agreement) for the employment
of Mr. Giraud as the CEO of Damon. Under the Giraud Employment Agreement, Damon agreed to pay Mr. Giraud an annual base salary of $350,000
(CAD$450,000) and a bonus in the range of $195,000 to $450,000, subject to the approval of the board of directors of Damon. Pursuant
to an employment side letter agreement dated October 17, 2024, Mr. Giraud is entitled to receive a $1 million listing bonus subject to
the continued service with the Company for a period of 375 days following the date of public listing (Service Period).
The listing bonus shall be paid out as soon as practicable at the time when the board determines that it is in the best interests of
the Company to do so, having due regard to the Companys financial situation. Notwithstanding the preceding sentence the listing
bonus shall be paid promptly following the completion of the Service Period.
Mr.
Giraud may terminate the Giraud Employment Agreement and Mr. Girauds employment with Damon at any time by providing Damon with
eight weeks prior written working notice. Damon may waive all or any part of the notice given by Mr. Giraud and direct Mr. Giraud
not to report for work for any part of the notice period. In these circumstances, Mr. Giraud would then be paid all outstanding wages
(including accrued but unpaid vacation pay) owing up to and including the effective resignation date. In no event will Damon be required
to pay Mr. Giraud more than twelve weeks pay (plus accrued but unused vacation pay) based on Mr. Girauds base salary at
the time of resignation.
89
Damon
may terminate the Giraud Employment Agreement and the Mr. Girauds employment at any time, without cause, upon Damon providing
Mr. Giraud with notice of termination or pay in lieu of notice (which shall be calculated based exclusively on Mr. Girauds base
salary at the time of termination), or some combination of the two, equal to (i) three months notice during his/her first year
of service; plus (ii) an additional four weeks notice for every completed year of service thereafter, subject to an overall maximum
entitlement of 42 weeks (the Notice Period).
Damon
will continue to pay the premiums required to maintain Mr. Girauds participation in whatever extended health and/or dental group
benefit plans Mr. Giraud is covered by at the time Mr. Giraud receives the notice of termination, until the earlier of the end of the
applicable Notice Period or the date on which Mr. Giraud becomes eligible to participate in similar benefits through alternate or self-employment,
whichever occurs first and provided that in no event will Mr. Girauds benefit coverage be terminated prior to the expiration of
the applicable statutory notice period. All other benefits or benefit coverage in place at the time shall be discontinued at the end
the applicable statutory notice period.
Damon
may terminate the Giraud Employment Agreement and Mr. Girauds employment without notice of termination or pay in lieu of notice
at any time for Cause. For the purposes of the Giraud Employment Agreement, the term Cause includes: (a) the existence
of cause for termination of employment at common law, including situations involving fraud, dishonesty, illegality, breach of statute
or regulation, conflict of interest, gross negligence in the performance of Mr. Girauds duties, or gross incompetence; (b) any
material breach of the provisions of this Agreement; (c) wilful disobedience of a reasonable direction from Damon; (d) neglect of duty;
(e) misconduct that undermines Damons confidence in Mr. Girauds ability to effectively carry out the duties and responsibilities
of his/her position; or (f) any material violation of Damons policies and procedures, as determined by Damon in its sole and absolute
discretion. In the event of a termination for Cause, Mr. Giraud will receive payment of any salary and vacation pay earned up to and
including the date of termination. All other entitlements that Mr. Giraud may have as of the date of termination will be automatically
extinguished, except for such minimum mandated entitlements, if any, as may be required by the*Employment Standards Act*(British
Columbia).
Upon
termination of employment for any reason, Mr. Giraud will cease to be and shall immediately resign as an officer or director of Damon.
This
provision regarding termination of employment will apply regardless of any changes to the terms and conditions of Mr. Girauds
employment subsequent to Mr. Girauds signing of the Giraud Employment Agreement including, but not limited to, promotions and
transfers, unless the parties expressly agree otherwise in writing.
There
is a non-solicit and other post-employment restrictions present in the Giraud Employment Agreement.
There
are no provisions with respect to change of control in the Giraud Employment Agreement.
Employment
Agreement with Derek Dorresteyn
On
July 12, 2021, Damon entered into an employment agreement with Derek Dorresteyn (the Dorresteyn Employment Agreement) for
the provision of CTO services. Under the Dorresteyn Employment Agreement, Damon agreed to pay Mr. Dorresteyn an annual base salary of
$300,000 (CAD$390,000) and a bonus subject to and conditioned upon the terms and conditions of the applicable plan, as well as the Mr.
Dorresteyns continued employment by Damon in good standing through the bonus payment date and neither party having delivered notice
of an intent to terminate. Mr. Dorresteyns employment through the bonus payment date as permitted by applicable law. Pursuant
to an employment side letter agreement dated October 17, 2024, Mr. Dorresteyn is entitled to receive a $1 million bonus subject to the
continued service with the Company for a period of 375 days following the date of public listing (Service Period). The
listing bonus shall be paid out as soon as practicable at the time when the board of directors of Damon determines that it is in the
best interests of the Company to do so, having due regard to the Companys financial situation. Notwithstanding the preceding sentence
the listing bonus shall be paid promptly following the completion of the Service Period.
90
Upon
Mr. Dorresteyns termination for any reason, Mr. Dorresteyn will be entitled to: (i) all earned but unpaid base salary through
Mr. Dorresteyns separation date; (ii) any unpaid or unreimbursed business expenses incurred; (iii) any accrued but unused vacation
through the separation date; and (iv) any benefits provided under Damons employee benefit plans, if any, following a termination
of employment, in accordance with the terms contained in said plans (the Accrued Obligations). The Accrued Obligations
will be payable to Mr. Dorresteyn as required by applicable law.
Mr.
Dorresteyn may terminate the Dorresteyn Employment Agreement and Mr. Dorresteyns employment with Damon at any time by providing
Damon with 12 weeks prior written notice. Damon may waive all or any part of the notice period given by Mr. Dorresteyn and direct
Mr. Dorresteyn not to report for work for any part of the notice period. In these circumstances, where Damon elects to shorten the notice
period, Mr. Dorresteyn would then be paid all Accrued Obligations owing up to and including the separation date.
Damon
may terminate the Dorresteyn Employment Agreement and Mr. Dorresteyns employment at any time, without Cause. If Mr. Dorresteyns
employment is terminated by Damon without Cause, in addition to the Accrued Obligations, Mr. Dorresteyn will be entitled to receive the
Severance Benefits (defined below), subject to and contingent upon Mr. Dorresteyn executing a general release of claims satisfactory
to Damon, which must be executed and effective (taking into account any applicable revocation period) on or before the sixtieth (60th)
day following the separation date (the Release Requirements).
Damon
will pay Mr. Dorresteyn any Severance Benefits, if payable, in a lump sumonthe 60th day following the Separation
Date, provided the Release Requirements have been satisfied. If the release has not been executed or is not effective (taking into account
any applicable revocation period)bythe 60th day following the Separation Date, Mr. Dorresteyn will not be entitled
to any (and shall forfeit all) payments (other than the Accrued Obligations). For the avoidance of doubt, if Mr. Dorresteyns termination
occurs other than by Damon without Cause, Mr. Dorresteyn will not be entitled to Severance Benefits. Other than as expressly provided
herein, Mr. Dorresteyn shall not be entitled to receive any payments or benefits under the Dorresteyn Employment Agreement for periods
after Mr. Dorresteyns Separation Date, and Damon will have no obligation to make any additional payments or provide any other
benefits for periods after the Separation Date (except as may otherwise be required under the applicable law).
Severance
Benefits means an amount equal to (i) three months of Mr. Dorresteyns base salary on the Separation Date; plus, if the
Separation Date occurs after the first anniversary of the start date (ii) an additional four weeks of base salary for every full completed
year of service thereafter, subject to an overall maximum entitlement of forty-two weeks.
Damon
may terminate the Dorresteyn Employment Agreement and his employment immediately at any time for Cause. For the purposes of the Dorresteyn
Employment Agreement, the term Cause includes: a) the existence of cause for termination of employment at common law, including
situations involving fraud, dishonesty, illegality, breach of statute or regulation, conflict of interest, gross negligence in the performance
of Mr. Dorresteyns duties, or gross incompetence; b) any material breach of the provisions of the Dorresteyn Employment Agreement;
c) wilful disobedience of a reasonable direction from Damon; d) neglect of duty; e) misconduct that undermines Damons confidence
in Mr. Dorresteyns ability to effectively carry out the duties and responsibilities of his/her position; f) material unauthorized
use or disclosure of any Confidential Information of Damon or any other party to whom they owe an obligation of nondisclosure as a result
of their relationship with Damon; g) Mr. Dorresteyn indictment, conviction, admission or plea of*nolo contendere*to
any felony, or to any other crime that involves theft, fraud or moral turpitude; or h) any material violation of Damons policies
and procedures, as determined by Damon in its sole and absolute discretion. In the event of a termination for Cause, Mr. Dorresteyn will
receive payment of the Accrued Obligations.
Mr.
Dorresteyns employment with Damon may be terminated immediately due to Mr. Dorresteyns death or Disability. In the event
of a termination due to Executives death or Disability, Mr. Dorresteyn will receive payment of the Accrued Obligations. Disability
will have the same meaning as such phrase is given under the long term disability plan sponsored by Damon as may be offered from time
to time or, in the absence of such policy, if Mr. Dorresteyn becomes physically or mentally incapacitated or impaired and is therefore
unable for a period of twelve (12) consecutive weeks in any six (6)-consecutive month period, or such longer period as may be required
by applicable law, to perform Mr. Dorresteyns duties. Any question as to the existence of the disability of Mr. Dorresteyn shall
be determined in writing by a qualified independent physician selected by Damon.
Upon
termination of employment for any reason, Mr. Dorresteyn will cease to be and shall immediately resign as an officer or director of Damon,
if applicable.
There
is a non-solicit and other post-employment restrictions present in the Dorresteyn Employment Agreement.
There
are no provisions with respect to change of control in the Dorresteyn Employment Agreement.
91
Employee
Stock Incentive Plans
**
On
June 11, 2024, the Companys Board adopted a Stock Incentive Plan (the Stock Incentive Plan), which was approved
by the Companys the sole shareholder on June 11, 2024. Below is a summary of the Stock Incentive Plan.
*Overview
and Purpose*
****
The
Stock Incentive Plan provides flexibility to the Company to grant equity-based incentive awards (each, an Award) in the
form of Options, RSUs, Restricted Shares, PSUs and DSUs, as described in further detail below.
The
purpose of the Stock Incentive Plan is to, among other things, provide the Company with a share-related mechanism to attract, retain
and motivate qualified directors, employees and consultants of the Company and its subsidiaries, to reward such of those directors, employees
and consultants as may be granted awards under the Stock Incentive Plan by the Board from time to time for their contributions toward
the long-term goals and success of the Company, and to enable and encourage such directors, employees and consultants to acquire Shares
as long-term investments and proprietary interests in the Company.
**
*Material
Terms of the Stock Incentive Plan*
****
Shares
Subject to the Stock Incentive Plan
The
maximum aggregate number of common shares that may be issued pursuant to Awards granted under the Plan (the Share Reserve)
shall initially be 10,000,000, and the Share Reserve shall automatically increase on the first day of each calendar year beginning January
1, 2025, by a number of shares equal to the greatest of: (i) 3,000,000 Common Shares; (ii) twenty percent (20%) of the outstanding Common
shares on the last day of the immediately preceding calendar quarter; or (iii) such number of Common Shares determined by the Plan Administrator.
The Company shall at all times while the Stock Incentive Plan is in effect reserve such number of Common Shares as will be sufficient
to satisfy the requirements of outstanding Awards granted under the Stock Incentive Plan. The Common Shares subject to the Stock Incentive
Plan shall be either authorized and unissued or treasury common shares. Notwithstanding the foregoing, the aggregate number of Common
Shares that may be issued during the term of the Stock Incentive Plan may not exceed 40,000,000. For clarity, the Share Reserve is a
limitation on the number of Common Shares that may be issued pursuant to the Stock Incentive Plan. As a single Common Share may be subject
to grant more than once (e.g., if a Common Share subject to an Award is forfeited, it may be made subject to grant again under the Stock
Incentive Plan), the Share Reserve is not a limit on the number of Awards that can be granted. Up to 10,000,000 Common Shares may (but
need not be) issued pursuant to the exercise of incentive stock options (within the meaning of Section 422 of the United
States Internal Revenue Code of 1986, as amended (the Code)) granted under the Stock Incentive Plan.
Any
Common Shares issued by the Company through the assumption or substitution of outstanding stock options or other equity-based awards
from an acquired company will not reduce the number of Common Shares available for issuance pursuant to the exercise of Awards granted
under the Stock Incentive Plan.
Administration
of the Stock Incentive Plan
The
Stock Incentive Plan designates the Board as the initial Plan Administrator (as defined in the Stock Incentive Plan), subject to the
ability of the Board to delegate from time to time all or any of the powers conferred on the Plan Administrator to a committee of the
Board. The Board has resolved to delegate all powers of administration of the Stock Incentive Plan to the Compensation Committee.
The
Plan Administrator determines which directors, officers, consultants and employees are eligible to receive Awards under the Stock Incentive
Plan, the time or times at which Awards may be granted, the conditions under which awards may be granted or forfeited to the Company,
the number of Common Shares to be covered by any Award, the exercise price of any Award, whether restrictions or limitations are to be
imposed on the Common Shares issuable pursuant to grants of any Award, and the nature of any such restrictions or limitations, any acceleration
of exercisability or vesting, or waiver of termination regarding any Award, based on such factors as the Plan Administrator may determine.
92
In
addition, the Plan Administrator interprets the Stock Incentive Plan and may adopt guidelines and other rules and regulations relating
to the Stock Incentive Plan and make all other determinations and take all other actions necessary or advisable for the implementation
and administration of the Stock Incentive Plan.
Eligibility
All
directors, employees and consultants are eligible to participate in the Stock Incentive Plan. The extent to which any such individual
is entitled to receive a grant of an Award pursuant to the Stock Incentive Plan will be determined in the sole and absolute discretion
of the Plan Administrator.
Types
of Awards
Awards
of Options, RSUs, Restricted Shares, PSUs and DSUs may be made under the Stock Incentive Plan. All of the Awards described below are
subject to the conditions, limitations, restrictions, exercise price, vesting, settlement and forfeiture provisions determined by the
Plan Administrator, in its sole discretion, subject to such limitations provided in the Stock Incentive Plan and will generally be evidenced
by an Award agreement. In addition, subject to the limitations provided in the Stock Incentive Plan and in accordance with applicable
law, the Plan Administrator may accelerate or defer the vesting or payment of Awards, cancel or modify outstanding Awards and waive any
condition imposed with respect to Awards or common shares issued pursuant to Awards.
**
Options
An
Option entitles a holder thereof to purchase a prescribed number of Common Shares at an exercise price set at the time of the grant.
The Plan Administrator will establish the exercise price at the time each Option is granted. Except as otherwise determined by the Plan
Administrator and specified in an Award agreement, exercise price of an Option granted under the Stock Incentive Plan will not be less
than the greater of the closing market price of the Common Shares on (i) the trading day prior to the date of grant of the Option or
(ii) the date of grant of the Option. Subject to any accelerated termination as set forth in the Stock Incentive Plan, each Option expires
on its respective expiry date. The Plan Administrator will have the authority to determine the vesting terms applicable to grants of
Options. Once an Option becomes vested, it shall remain vested and shall be exercisable until expiration or termination of the Option,
unless otherwise specified by the Plan Administrator, or as otherwise set forth in any written employment agreement, Award agreement
or other written agreement between the Company or a subsidiary of the Company and the participant. The Plan Administrator has the right
to accelerate the date upon which any Option becomes exercisable. The Plan Administrator may provide at the time of granting an Option
that the exercise of that Option is subject to restrictions, in addition to those specified in the Stock Incentive Plan, such as vesting
conditions relating to the attainment of specified performance goals.
Unless
otherwise specified by the Plan Administrator at the time of granting an Option and set forth in the particular Award agreement, an exercise
notice must be accompanied by payment of the exercise price. A participant may, in lieu of exercising an Option pursuant to an exercise
notice, elect to surrender such Option to the Company (a Cashless Exercise) in consideration for an amount from the Company
equal to (i) the closing market price of the Common Shares issuable on the exercise of such Option (or portion thereof) as of the date
such Option (or portion thereof) is exercised, less (ii) the aggregate exercise price of the Option (or portion thereof) surrendered
relating to such Common Shares (the In-the-Money Amount), by written notice to the Company indicating the number of Options
such participant wishes to exercise using the Cashless Exercise, and such other information that the Company may require. Subject to
the provisions of the Stock Incentive Plan, the Company will satisfy payment of the In-the-Money Amount by delivering to the participant
such number of Common Shares having a fair market value equal to the In-the-Money Amount.
93
Restricted
Share Units
A
RSU is a unit equivalent in value to a Common Shares credited by means of a bookkeeping entry in the books of the Company which entitles
the holder to receive one Common Shares (or the value thereof) for each RSU after a specified vesting period. The Plan Administrator
may, from time to time, subject to the provisions of the Stock Incentive Plan and such other terms and conditions as the Plan Administrator
may prescribe, grant RSUs to any participant in respect of a bonus or similar payment in respect of services rendered by the applicable
participant in a taxation year.
The
number of RSUs (including fractional RSUs) granted at any particular time under the Stock Incentive Plan will be calculated by dividing:
(a) the amount that is to be paid in RSUs, as determined by the Plan Administrator; by (b) the greater of (i) the market price of a Common
Shares on the date of grant and (ii) such amount as determined by the Plan Administrator in its sole discretion.
The
Plan Administrator shall have the authority to determine the settlement and any vesting terms applicable to the grant of RSUs, provided
that the terms applicable to RSUs granted to U.S. taxpayers comply with Section 409A of the Code, to the extent applicable.
Upon
settlement, holders will redeem each vested RSU for one fully paid and non-assessable Common Shares in respect of each vested RSU.
Restricted
Shares
The
Plan Administrator may, from time to time, subject to the provisions of the Stock Incentive Plan and such other terms and conditions
as the Plan Administrator may prescribe, grant Restricted Shares to any participant. Restricted Shares shall be subject to such restrictions
on transferability, risk of forfeiture and other restrictions, if any, as the Plan Administrator may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future
service requirements), in such installments or otherwise, as the Plan Administrator may determine at the date of grant or thereafter.
During the restricted period applicable to a Restricted Share, the Restricted Share may not be sold, transferred, pledged, hypothecated,
margined or otherwise encumbered by the participant.
**
As
a condition to the grant of an Award of Restricted Shares, the Plan Administrator may allow a participant to elect, or may require, that
any cash dividends paid on a Restricted Share be automatically reinvested in additional Restricted Shares, applied to the purchase of
additional Awards under this Plan or deferred without interest to the date of vesting of the associated Award of Restricted Shares; provided,
that, to the extent applicable, any such election is intended to comply with Section 409A. Unless otherwise determined by the Plan Administrator
and specified in the applicable Award Agreement, Common Shares distributed in connection with a share split or share dividend, and other
property (other than cash) distributed as a dividend, will be subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Share with respect to which such share or other property has been distributed.
Performance
Share Units
A
PSU is a unit equivalent in value to a Common Shares credited by means of a bookkeeping entry in the books of the Company which entitles
the holder to receive one Common Shares for each PSU after specific performance-based vesting criteria determined by the Plan Administrator,
in its sole discretion, have been satisfied. The Plan Administrator may, from time to time, subject to the provisions of the Stock Incentive
Plan and such other terms and conditions as the Plan Administrator may prescribe, grant PSUs to any participant in respect of services
rendered by the applicable participant in a tax year. The performance goals to be achieved during any performance period, the length
of any performance period, the amount of any PSUs granted, the effect of termination of a participants service and the settlement
terms pursuant to any PSU will be determined by the Plan Administrator and by the other terms and conditions of any PSU, all as set forth
in the applicable Award agreement.
The
Plan Administrator shall have the authority to determine the settlement and any vesting terms applicable to the grant of PSUs, provided
that the terms applicable to PSUs granted to U.S. taxpayers comply with Section 409A of the Code, to the extent applicable. Upon settlement,
holders will redeem each vested PSU for one fully paid and non-assessable Common Share in respect of each vested PSU.
94
Deferred
Share Units
A
DSU is a unit equivalent in value to a Common Shares credited by means of a bookkeeping entry in the books of the Company which entitles
the holder to receive one Common Share (or, at the election of the holder and subject to the approval of the Plan Administrator, the
cash value thereof) for each DSU on a future date. The Board may fix from time to time a portion of the total compensation (including
annual retainer) paid by the Company to a director in a calendar year for service on the Board (the Director Fees) that
are to be payable in the form of DSUs. In addition, each director is given, subject to the provisions of the Stock Incentive Plan, the
right to elect to receive a portion of the cash Director Fees owing to them in the form of DSUs.
Except
as otherwise determined by the Plan Administrator or as set forth in the particular Award agreement, DSUs shall vest immediately upon
grant. The number of DSUs (including fractional DSUs) granted at any particular time will be calculated by dividing: (a) the amount of
Director Fees that are to be paid in DSUs, as determined by the Plan Administrator; by (b) the market price of a Common Share on the
date of grant. Upon settlement, holders will redeem each vested DSU for: (a) one fully paid and non-assessable Common Share in respect
of each vested DSU, or (b) at the election of the holder and subject to the approval of the Plan Administrator, a cash payment on the
date of settlement. Any cash payments made under the Stock Incentive Plan by the Company to a participant in respect of DSUs to be redeemed
for cash shall be calculated by multiplying the number of DSUs to be redeemed for cash by the market price per Common Share as at the
settlement date.
Dividend
Equivalents
Except
as otherwise determined by the Plan Administrator or as set forth in the particular Award agreement, RSUs, PSUs and DSUs shall be credited
with dividend equivalents in the form of additional RSUs, PSUs and DSUs, as applicable, as of each dividend payment date in respect of
which normal cash dividends are paid on Common Shares. Dividend equivalents shall vest in proportion to, and settle in the same manner
as, the Awards to which they relate. Such dividend equivalents shall be computed by dividing: (a) the amount obtained by multiplying
the amount of the dividend declared and paid per Common Share by the number of RSUs, PSUs and DSUs, as applicable, held by the participant
on the record date for the payment of such dividend; by (b) the market price at the close of the first business day immediately following
the dividend record date, with fractions computed to three decimal places.
**
Black-out
Periods
In
the event an Award expires, at a time when a scheduled blackout is in place or an undisclosed material change or material fact in the
affairs of the Company exists, the expiry of such Award will be the date that is ten business days after which such scheduled blackout
terminates or there is no longer such undisclosed material change or material fact.
Term
No
Awards may be granted under the Stock Incentive Plan on or after the tenth anniversary of the Stock Incentive Plan.
While
the Stock Incentive Plan does not stipulate a specific term for Awards granted thereunder, as discussed below, Awards may not expire
beyond 10 years from its date of grant, except where shareholder approval is received or where an expiry date would have fallen within
a blackout period of the Company. All Awards must vest and settle in accordance with the provisions of the Stock Incentive Plan and any
applicable Award agreement, and which Award agreement may include an expiry date for a specific Award.
95
Termination
of Employment or Services
The
following describes the impact of certain events upon the participants under the Stock Incentive Plan, including termination for cause,
resignation, termination without cause, disability, death or retirement, subject, in each case, to the terms of a participants
applicable employment agreement, Award agreement or other written agreement:
|
(a) | Termination
for Cause or upon Termination: Any Option or other Award held by the participant that has not been exercised, surrendered or settled
as of the termination date (as defined in the Stock Incentive Plan) shall be immediately forfeited and cancelled as of the termination
date; |
|
|
(b) | Termination
without Cause: A portion of any unvested Options or other Awards shall immediately vest, such portion to be equal to the number of
unvested Options or other Awards held by the participant as of the termination date multiplied by a fraction the numerator of which is
the number of days between the date of grant and the termination date and the denominator of which is the number of days between the
date of grant and the date any unvested Options or other Awards were originally scheduled to vest. Any vested Options may be exercised
by the participant at any time during the period that terminates on the earlier of: (a) the expiry date of such Option; and (b) the date
that is 90 days after the termination date. If an Option remains unexercised upon the earlier of (a) or (b), the Option shall be immediately
forfeited and cancelled for no consideration upon the termination of such period. In the case of a vested Award other than an Option,
such Award will be settled within 90 days after the termination date; |
|
|
(c) | Disability:
A portion of any unvested Options or other Awards shall immediately vest, such portion to be equal to the number of unvested Options
or other Awards held by the participant as of the termination date multiplied by a fraction the numerator of which is the number of days
between the date of grant and the termination date and the denominator of which is the number of days between the date of grant and the
date any unvested Options or other Awards were originally scheduled to vest. Any vested Option may be exercised by the participant at
any time until the expiry date of such Option. Any vested Option may be exercised by the participant at any time until the expiry date
of such Option. Any vested Award other than an Option will be settled within 90 days after the termination date; |
|
|
(d) | Death:
A portion of any unvested Options or other Awards shall immediately vest, such portion to be equal to the number of unvested Options
or other Awards held by the participant as of the termination date multiplied by a fraction the numerator of which is the number of days
between the date of grant and the termination date and the denominator of which is the number of days between the date of grant and the
date any unvested Options or other Awards were originally scheduled to vest. Any vested Option may be exercised by the participants
beneficiary or legal representative (as applicable) at any time during the period that terminates on the earlier of: (a) the expiry date
of such Option; and (b) the first anniversary of the date of the death of such participant. If an Option remains unexercised upon the
earlier of (a) or (b), the Option shall be immediately forfeited and cancelled for no consideration upon the termination of such period.
In the case of a vested Award other than an Option, such Award will be settled with the participants beneficiary or legal representative
(as applicable) within 90 days after the date of the Participants death; and |
|
**
|
(e) | Retirement:
A portion of any unvested Options or other Awards shall immediately vest, such portion to be equal to the number of unvested Options
or other Awards held by the participant as of the termination date multiplied by a fraction the numerator of which is the number of days
between the date of grant and the termination date and the denominator of which is the number of days between the date of grant and the
date any unvested Options or other Awards were originally scheduled to vest. Any vested Option may be exercised by the participant at
any time during the period that terminates on the earlier of: (a) the expiry date of such Option; and (b) the third anniversary of the
participants date of retirement. If an Option remains unexercised upon the earlier of (a) or (b), the Option shall be immediately
forfeited and cancelled for no consideration upon the termination of such period. In the case of a vested Award other than an Option,
such Award will be settled within 90 days after the participants retirement. Notwithstanding the foregoing, if, following his
or her retirement, the participant commences on the Commencement Date (as defined in the Stock Incentive Plan) employment, consulting
or acting as a director of the Company or any of its subsidiaries (or in an analogous capacity) or otherwise as a service provider to
any person that carries on or proposes to carry on a business competitive with the Company or any of its subsidiaries, any Option or
other Award held by the participant that has not been exercised or settled as of the commencement date shall be immediately forfeited
and cancelled as of the Commencement Date. |
|
96
Change
in Control
Under
the Stock Incentive Plan, except as may be set forth in an employment agreement, Award agreement or other written agreement between the
Company or a subsidiary of the Company and a participant:
|
(a) | the
Plan Administrator may, without the consent of any participant, take such steps as it deems necessary or desirable, including to cause:
(i) the conversion or exchange of any outstanding Awards into or for rights or other securities of substantially equivalent value, as
determined by the Plan Administrator in its discretion, in any entity participating in or resulting from a Change in Control (as defined
below); (ii) outstanding Awards to vest and become exercisable, realizable or payable, or restrictions applicable to an Award to lapse,
in whole or in part prior to or upon consummation of a Change in Control, and, to the extent the Plan Administrator determines, terminate
upon or immediately prior to the effectiveness of such Change in Control; (iii) the termination of an Award in exchange for an amount
of cash and/or property, if any, equal to the amount that would have been attained upon the exercise or settlement of such Award or realization
of the participants rights as of the date of the occurrence of the transaction; (iv) the replacement of such Award with other
rights or property selected by the Board in its sole discretion where such replacement would not adversely affect the holder; or (v)
any combination of the foregoing; provided that: (A) in taking any of the foregoing actions, the Plan Administrator will not be required
to treat all Awards similarly in the transaction; and (B) in the case of Options, RSUs and PSUs held by a Canadian taxpayer, the Plan
Administrator may not cause the Canadian taxpayer to receive any property in connection with a Change in Control other than rights to
acquire shares of a corporation or units of a mutual fund trust (as defined in the Income Tax Act (Canada) (the Tax
Act)) of the Company or a qualifying person (as defined in the Tax Act) that does not deal at arms length
(for purposes of the Tax Act) with the Company, as applicable, at the time such rights are issued or granted; |
|
**
|
(b) | if
within 12 months following the completion of a transaction resulting in a Change in Control (as defined below), a participants
employment, consultancy or directorship is terminated by the Company or a subsidiary of the Company without Cause (as defined in the
Stock Incentive Plan), without any action by the Plan Administrator: |
|
|
(i) | any
unvested Awards held by the participant at the termination date shall immediately vest; and |
|
|
(ii) | any
vested Awards may be exercised, surrendered to the Company, or settled by the participant at any time during the period that terminates
on the earlier of: (i) the expiry date of such Award; and (ii) the date that is 90 days after the termination date. Any Award that has
not been exercised, surrendered or settled at the end of such period being immediately forfeited and cancelled; and |
|
|
(c) | unless
otherwise determined by the Plan Administrator, if, as a result of a Change in Control, the common shares will cease trading on Nasdaq,
the Company may terminate all of the Awards (other than an Option, RSU or PSU held by a participant that is a resident of Canada for
the purposes of the TaxAct) at the time of and subject to the completion of the Change in Control transaction by paying to each holder
at or within a reasonable period of time following completion of such Change in Control transaction an amount for each Award equal to
the fair market value of the Award held by such participant as determined by the Plan Administrator, acting reasonably, provided that
any vested Awards granted to U.S. taxpayers will be settled within 90 days of the Change in Control. |
|
Subject
to certain exceptions, a Change in Control includes: (i) any transaction pursuant to which a person or group acquires more
than 50% of the outstanding common shares (assuming conversion of the other shares); (ii) the sale of all or substantially all of the
Companys assets; (iii) the dissolution or liquidation of the Company; (iv) the acquisition of the Company via consolidation, merger,
exchange of securities, purchase of assets, amalgamation, statutory arrangement or otherwise; (v) individuals who comprise the Board
at the last annual meeting of shareholders (the Incumbent Board) cease to constitute at least a majority of the Board,
unless the election, or nomination for election by the shareholders, of any new director was approved by a vote of at least a majority
of the Incumbent Board, in which case such new director shall be considered as a member of the Incumbent Board; or (vi) any other event
which the Board determines to constitute a change in control of the Company.
97
Non-Transferability
of Awards
Except
as permitted by the Plan Administrator and to the extent that certain rights may pass to a beneficiary or legal representative upon death
of a participant, by will or as required by law, no assignment or transfer of Awards, whether voluntary, involuntary, by operation of
law or otherwise, vests any interest or right in such Awards whatsoever in any assignee or transferee and immediately upon any assignment
or transfer, or any attempt to make the same, such Awards will terminate and be of no further force or effect. To the extent that certain
rights to exercise any portion of an outstanding Award pass to a beneficiary or legal representative upon the death of a participant,
the period in which such Award can be exercised by such beneficiary or legal representative shall not exceed one year from the participants
death.
Amendments
to the Stock Incentive Plan
The
Plan Administrator may also from time to time, without notice and without approval of the holders of Common Shares, amend, modify, change,
suspend or terminate the Stock Incentive Plan or any Awards granted pursuant thereto as it, in its discretion, determines appropriate,
provided that: (a) no such amendment, modification, change, suspension or termination of the Stock Incentive Plan or any Award granted
pursuant thereto may materially impair any rights of a participant or materially increase any obligations of a participant under the
Stock Incentive Plan without the consent of such participant, unless the Plan Administrator determines such adjustment is required or
desirable in order to comply with any applicable securities laws or stock exchange requirements; and (b) any amendment that would cause
an Award held by a U.S. Taxpayer to be subject to the income inclusion under Section 409A of the Code shall be null and void ab initio.
**
Notwithstanding
the above, the approval of shareholders is required to effect any of the following amendments to the Stock Incentive Plan:
|
(a) | increasing
the number of Common Shares reserved for issuance under the Stock Incentive Plan, except pursuant to the provisions in the Stock Incentive
Plan which permit the Plan Administrator to make equitable adjustments in the event of transactions affecting the Company or its capital; |
|
|
(b) | extending
the term of an Option award beyond the original expiry date (except where an expiry date would have fallen within a blackout period applicable
to the participant or within ten business days following the expiry of such a blackout period); |
|
|
(c) | extending
the term of an Option award beyond the original expiry date (except where an expiry date would have fallen within a blackout period applicable
to the participant or within ten business days following the expiry of such a blackout period); |
|
|
(d) | permitting
an Option award to be exercisable beyond ten years from its date of grant (except where an expiry date would have fallen within a blackout
period); |
|
|
(e) | increasing
or removing the limits on the participation of directors; |
|
|
(f) | permitting
Awards to be transferred to a person; |
|
|
(g) | changing
the eligible participants; and |
|
|
(h) | deleting
or reducing the range of amendments which require approval of the shareholders. |
|
Except
for the items listed above, amendments to the Stock Incentive Plan will not require shareholder approval. Such amendments include (but
are not limited to): (a) amending the general vesting provisions of an Award; (b) amending the provisions for early termination of Awards
in connection with a termination of employment or service; (c) adding covenants of the Company for the protection of the participants;
(d) amendments that are desirable as a result of changes in law in any jurisdiction where a participant resides; and (e) curing or correcting
any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error. Further, the Plan Administrator
retains discretion under the Stock Incentive Plan to reprice out-of-the-money Options without obtaining shareholder approve.
98
Anti-Hedging
Policy
Participants
are restricted from purchasing financial instruments such as prepaid variable forward contracts, equity swaps, collars, or units of exchange
funds that are designed to hedge or offset a decrease in market value of Awards granted to them.
**Policies
and Practices for Granting Option Awards**
****
The
Company has not granted any new Option awards since becoming a reporting company, other than the replacement options issued to option
holders of Damon Motors pursuant to the plan of arrangement between the Company and Damon Motors. The Compensation Committee does not
plan to take material non-public information into account when determining the timing and terms of option Awards, and the Company does
not plan to time the disclosure of such material non-public information for purposes of affecting the exercise price of the Options or
the value of executive compensation. In addition, the Company does not plan to grant Options during the four business days prior to or
the one business day following the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a Form 8-K that
discloses material non-public information.
**
**Securities
Authorized for Issuance under Equity Compensation Plans**
The
following table provides information as of June 30, 2025 regarding the common shares to be issued upon exercise of outstanding options
or available for issuance under equity compensation plans and other compensation arrangements that were (i) adopted by our security holders
and (ii) were not approved by our security holders.
|
Plan Category | |
Number of securities to be issued upon exercise of outstanding options (a) | | |
Weighted- average exercise price of outstanding options (b) | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) | | |
|
Equity compensation plans approved by security holders | |
| 5,781 | (1) | |
$ | 186.74 | | |
| 13,282,097 | (2) | |
|
Equity compensation plans not approved by security holders | |
| - | | |
$ | - | | |
| - | | |
|
Total | |
| 5,781 | | |
$ | 186.74 | | |
| 13,282,097 | | |
|
(1) | Represents
5,781 common shares that may be issued pursuant to outstanding stock options granted under the Stock Incentive Plan. |
|
|
(2) | Represents
13,282,097 common shares available for future issuance in connection with equity award grants under the Stock Incentive Plan. |
|
****
99
**Director
Compensation**
The
following table provides summary information regarding the compensation awarded to, earned by, or paid to our directors for the year
ended June 30, 2025, excluding our current CEO, Dominique Kwong, and our former CEOs, Nadir Ali and Jay Giraud, whose aggregate compensation
information is disclosed above.
|
| |
Fees
Earned or paid in cash | | |
Stock awards | | |
Option awards | | |
Non-equity Incentive plan compensation | | |
Nonqualified
deferred compensation earnings | | |
All other compensation | | |
Total | | |
|
Name | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
|
Current Non-Executive Directors: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Karan Sodhi(1) | |
| 39,796 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 39,796 | | |
|
Shashi Tripathi(1) | |
| 52,500 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 52,500 | | |
|
Melanie Figueroa(1) (2) | |
| 227,500 | | |
| - | | |
| - | | |
| 175,000 | | |
| - | | |
| - | | |
| 402,500 | | |
|
(1) | Serving
as directors since the closing of the Business Combination on November 13, 2024. |
|
|
(2) | Includes
consulting services fee of $190,000 pursuant to the Figueroa Consulting Agreement and $175,000 fee upon closing the Business Combination. |
|
Subsequent
to the closing of the Business Combination, the Board and the Compensation Committee approved the payment of the following compensation
to its non-executive directors:
|
| $60,000
annual base retainer per director; |
|
|
| $25,000
additional annual retainer payable to the director serving as lead director; |
|
|
| $20,000
additional annual retainer payable to each director serving as chair of a committee of the Board |
|
**Consulting
Agreement**
****
The
following summarizes the terms of the consulting agreements the Company has entered into with its director Melanie Figueroa.
Melanie
Figueroa Consulting Agreement
Pursuant
to the terms of a consulting agreement, dated September 25, 2024 (the Figueroa Consulting Agreement), the Company agreed
to pay Ms. Figueroa, a fee of $15,000 per month for services rendered to the Company since April 1, 2024 until the end of the month of
the closing of the Business Combination. In connection with the terms of the Figueroa Consulting Agreement, Ms. Figueroa will advise
on public company reporting and compliance matters, business development, growth strategies and other operational matters as requested.
As compensation under the Figueroa Consulting Agreement, Ms. Figueroa is entitled to a fee of $175,000 upon closing the Business Combination
and her monthly fee will increase to $29,167 per month beginning on the first of each month following the closing of the Business Combination
through the remainder of the term of the agreement.
Unless
otherwise terminated earlier pursuant to the Figueroa Consulting Agreement, the agreement will continue for a period of six months following
the closing of the Business Combination which may be extended for additional terms, upon mutual consent. The Company has the right to
terminate the Figueroa Consulting Agreement with 30 days notice; however, if it is terminated by the Company prior to the Figueroa
Guaranteed Period for any reason other than the gross negligence, recklessness or willful misconduct of Ms. Figueroa, the monthly fee
will continue to be paid for the remainder of the Figueroa Guaranteed Period. Ms. Figueroa has the right to terminate the Figueroa Consulting
Agreement with 30 days notice for specified reasons, including the Companys failure to make timely payments, gross negligence,
recklessness, willful misconduct, or the filing of bankruptcy by the Company. In such cases, the monthly fee for the remainder of the
Figueroa Guaranteed Period will continue to be paid.
100
**ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**
The following table sets forth certain information as of September
29, 2025, regarding the beneficial ownership of our common shares by the following persons:
|
| our
Named Executive Officers; |
|
|
| each
director; |
|
|
| all
of our current executive officers and directors as a group; and |
|
|
| each
person or entity who, to our knowledge, owns more than 5% of our common shares. |
|
Except as indicated in the footnotes to the following table, subject
to applicable community property laws, each shareholder named in the table has sole voting and investment power. Unless otherwise indicated,
the address for each shareholder listed is c/o Damon Inc., 4601 Canada Way, Suite #402, Burnaby, British Columbia, V5G 4X3. Common shares
subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of September 29, 2025, are deemed to
be beneficially owned and outstanding for computing the share ownership and percentage of the shareholder holding the options, warrants
or other rights, but are not deemed outstanding for computing the percentage of any other shareholder. The information provided in the
following table is based on our records, information filed with the SEC, and information furnished by our shareholders.
|
| |
Amount and | | |
| | |
|
| |
nature of | | |
| | |
|
| |
beneficial | | |
Percent | | |
|
Name of Beneficial Owner | |
ownership | | |
of Class(1) | | |
|
Named Executive Officers (Also Current Officers) and Directors | |
| | |
| | |
|
Dominique Kwong | |
| 5,991 | | |
| * | | |
|
Baljinder Bhullar | |
| - | | |
| - | | |
|
Karan Sodhi | |
| - | | |
| - | | |
|
Shahsi Tripathi(2) | |
| 529 | | |
| * | | |
|
Melanie Figueroa(3) | |
| 2,538 | | |
| * | | |
|
All current executive officers and directors as a group (5 persons) | |
| 9,058 | | |
| * | | |
|
Nadir Ali - former chief executive officer | |
| 1,138 | | |
| * | | |
|
Jay Giraud - former chief executive officer | |
| 11,129 | | |
| * | | |
|
Derek Dorresteyn former chief technology officer | |
| - | | |
| - | | |
|
More than 5% shareholders | |
| | | |
| | | |
|
Streeterville Capital LLC(4) | |
| 1,958,421 | | |
| 9.99 | % | |
|
Maxim Partners LLC | |
| 985,876 | | |
| 5.03 | % | |
|
* | Represents
beneficial ownership of less than 1%. |
|
|
(1) | Based
on 19,603,815 shares outstanding as of September 29, 2025. |
|
|
(2) | According
to the Form 4 filed with the SEC on November 15, 2024, this represents (i) 234 common shares held by Nurture Growth Fund, LP, (ii) 256
common shares of Damon underlying private warrants, which were distributed to Nurture Growth Fund, LP in connection with the closing
of the Business Combination, (iii) 19 common shares held by Nurture Group Ventures LLC, and (iv) 20 common shares of Damon underlying
private warrants, which were distributed to Nurture Group ventures LLC in connection with the closing of the Business Combination. Mr.
Tripathi is the managing partner/member of Nurture Growth Fund, LP and Nurture Group Ventures LLC and may be deemed to control and have
voting and investment power over these securities. |
|
|
(3) | Includes
506 common shares that are held by the Grafiti Holding Inc. Liquidating Trust, resulting from the rounding down of fractional shares
pursuant to the spin-off distribution. Ms. Figueroa is the sole trustee of the trust and maintains limited voting and dispositive power
over the shares held by the trust pursuant to the Liquidating Trust Agreement dated December 27, 2023, and may be deemed to control and
have voting and investment power over these shares. |
|
|
(4) | Streeterville has rights under pre-paid purchases pursuant to
the December 2024 SPA to own an aggregate number of the Companys common shares which, except for a contractual cap on the amount
of outstanding shares that Streeterville may own, would exceed such a cap. Additionally, Streeterville has rights to convert the Streeterville
June 2024 Note to up to approximately 52,615,320 common shares, subject to a contractual cap on the amount of outstanding shares Streeterville
may own. Streetervilles current ownership cap under these agreements is 9.99%. Thus, the number of Common Shares beneficially owned
by Streeterville as of the September 29, 2025 was 1,958,421 shares, which is 9.99% of the 19,603,815 shares outstanding as of September
29, 2025. John M Fife has voting and dispositive power over securities held by Streeterville. The business address of Streeterville is
297 Auto Mall Drive #4, St. George, Utah 84770. |
|
101
**ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**
****
In
addition to the compensation arrangements with directors and executive officers described under Item 11. *Executive Compensation*
in this report, the following is a description of each transaction since our incorporation, and each currently proposed transaction in
which:
|
| we
have been or are to be a participant; |
|
|
| the
amount involved exceeds or will exceed the lesser of $120,000 and 1% of the average of the Companys total assets at year-end for
the last two completed fiscal years; and |
|
|
| any
of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or
person sharing the household with, any of these individuals (other than tenants or employees), had or will have a direct or indirect
material interest. |
|
The
Company has policies and procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its
affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from
time to time. Specifically, pursuant to its audit committee charter, the audit committee has the responsibility to review related party
transactions.
**Certain
Relationships and Related Party Transactions**
****
**Agreements
Entered into by Grafiti Limited or Grafiti Holdings in connection with the SAVES Business**
****
Grafiti
Limited is a primary distributor in the UK and Western European region of the SAVES products. Historically, Grafiti UK relied on advances
from the Parent, as its parent to satisfy expenses. The expenses incurred that were settled by the Parent consisted of salaries and benefits
to certain employees of the Parent that provided services for the company. In addition, Grafiti Limited recorded cost of sales for the
purchase of the SAVES software from the Parent at market value based on the price that the Parent would charge third parties for the
purchase of its software with industry consistent margins.
In
connection with the Solutions Divestiture, the Parent contributed the License, along with other assets and businesses, to Grafiti LLC,
then a wholly-owned subsidiary of the Parent. As reported in the current report on Form 8-K filed by the Parent on February 23, 2024,
the Parent sold 100% of the equity interest in Grafiti LLC to an entity controlled by Nadir Ali, our former Chief Executive Officer and
sole director prior to the closing of the Business Combination, who also owned more than 5% of Grafiti Holding common shares immediately
prior to the closing of the Business Combination. The Company has entered into a Distributor Agreement and an Administrative Support
Service Agreement with Grafiti LLC. See the description of the terms of these agreements in Item 1. *Business* under License,
Distribution and Administrative Service Arrangements with Grafiti LLC.
**Agreement
Entered into by Grafiti Holding in connection with the Spinoff**
****
*Separation
and Distribution Agreement*
On
October 23, 2023, the Parent and the Company entered into a Separation and Distribution Agreement, pursuant to which all of the outstanding
shares of Grafiti Limited, were transferred to the Company, such that on December 26, 2023, Grafiti Limited became a wholly-owned subsidiary
of Grafiti (the reorganization). Following the reorganization, and in connection with the spin-off of the Company from
Parent, on December 27, 2023 (the record date), all of the outstanding common shares of the Company held by the Parent
(the Trust Shares) were transferred to the Grafiti Holding Inc. Liquidating Trust (the Trust), to be held
for the benefit of holders of the Parents common stock, preferred stock and those outstanding warrants that are contractually
entitled to participate in the distribution of the Trust Shares, on a pro rata basis as of the record date (collectively, the participating
Parent securityholders). On November 12, 2024 (the distribution date), the Trust Shares were delivered to the participating
Parent securityholders, on a pro rata basis at a ratio of 1 Trust Share for every 50 shares of common stock the Parent held by the participating
Parent securityholders, with all fractional shares being rounded up, resulting in the distribution of an aggregate of 3,536,746 Trust
Shares to participating Parent securityholders.
****
102
****
*Liquidating
Trust Agreement*
On
December 27, 2023, Grafiti Holding, the Parent and the initial trustee of the trust have entered into a Liquidating Trust Agreement (the
Liquidating Trust Agreement), pursuant to which the Parent distributed the Grafiti Holding common shares owned by the Parent
to the trust as of the record date and the trust will deliver the Grafiti Holding common shares to the beneficiaries promptly following
the effective date. If the distribution is not consummated prior to the second anniversary of the date of the Liquidating Trust Agreement,
the trustee(s) of the trust will be empowered to liquidate the Grafiti Holding common shares held by the trust and distribute the proceeds
thereof to the participating securityholders as beneficiaries.
**Agreements
Entered into by Grafiti Holding in connection with Consulting Services**
****
Prior
to the closing of the Business Combination, the Company paid Melanie Figueroa US$15,000 a month for advisory services with respect to
her knowledge and expertise related to Companys public company reporting and compliance matters and corporate business development
and growth strategies. Ms. Figueroa is the trustee of the Grafiti Holding Inc. Liquidating Trust and also individually owned more than
5% of the outstanding common shares immediately prior to the closing of the Business Combination. Grafiti Holding has entered into a
consulting agreement on September 25, 2024 with Ms. Figueroa. See the description of the terms of the agreement in Item 11. *Executive
Compensation* under Melanie Figueroa Consulting Agreement.
Additionally,
Grafiti Holding has entered into a consulting agreement on September 25, 2024 with Ms. Wendy Loundermon, who owned more than 5% of the
outstanding common shares immediately prior to the closing of the Business Combination. Pursuant to this agreement, Grafiti Holding has
agreed to pay a fee of $10,000 per month for services rendered to the Company since April 1, 2024 until the closing of the Business Combination
pursuant to which Ms. Loundermon is providing advisory services in connection with the transition of the Companys financial reporting
function to ensure continuity of business operations following the Closing.
As
compensation under the Consulting Agreement, Grafiti Holding will pay Ms. Loundermon a fee of $150,000 upon closing the Business Combination
and her monthly fee will increase to $25,000 per month beginning on the first of each month following the closing of the Business Combination
through the remainder of the term of the agreement.
Unless
otherwise terminated earlier pursuant to the Consulting Agreement, the agreement will continue for a period of six months following the
closing of the Business Combination. Grafiti Holding will have the right to terminate the Consulting Agreement with 30 days notice;
however, if it is terminated by Grafiti Holding prior to the six month anniversary of the closing of the Business Combination (the Loundermon
Guaranteed Period) for any reason other than the gross negligence, recklessness or willful misconduct of Ms. Loundermon, the monthly
fee will continue to be paid for the remainder of the Loundermon Guaranteed Period. Mrs. Loundermon will have the right to terminate
the Consulting Agreement with 30 days notice for specified reasons, including Grafiti Holdings failure to make timely payments,
gross negligence, recklessness, willful misconduct, or the filing of bankruptcy by Grafiti Holding. In such cases, the monthly fee for
the remainder of the Loundermon Guaranteed Period will continue to be paid.
**Agreements
Entered by Damon with Former CEO and Chairman of Board**
****
Upon
the closing of the Business Combination, Damon Jay Giraud was appointed as CEO, President and Executive Chairman of the Board. Pursuant
to the Plan of Arrangement and the BCBCA, as contemplated in the Business Combination Agreement, Mr. Giraud received 1,391,181 multiple
voting shares of the Company (the Multiple Voting Shares), which were the only multiple voting shares issued by the Company.
On December 4, 2024, Mr. Giraud resigned from all positions as a director and officer of the Company and its subsidiaries. In accordance
with the terms of the Founder Agreement between Mr. Giraud and the Company, all 1,391,181 Multiple Voting Shares held by Mr. Giraud and
his controlled entity were converted into common shares on a one-for-one basis. Summarized below are the Coattail Agreement and the Founder
Agreement Damon entered into with Mr. Giraud upon the Closing.
****
103
****
*Coattail
Agreement and Founder Agreement*
In
connection with the issuance of 1,391,181 Multiple Voting Shares to Mr. Giraud on the closing of the Business Combination, the Company
and Mr. Giraud entered into a coattail agreement among Mr. Giraud, the Company and a trustee (the Coattail Agreement),
and a founder agreement between Mr. Giraud and the Company (the Founder Agreement).
Under
the Coattail Agreement, any sale of Multiple Voting Shares (other than a transfer to a pledgee as security) by a holder of Multiple Voting
Shares party to the Coattail Agreement will be conditional upon the transferee becoming a party to the Coattail Agreement, to the extent
such transferred Multiple Voting Shares are not automatically converted into common shares in accordance with the Articles.
The
Coattail Agreement contains provisions for authorizing action by the trustee to enforce the rights under the Coattail Agreement on behalf
of the holders of the common shares. The obligation of the trustee to take such action will be conditional on the combined company or
holders of the common shares providing such funds and indemnity as the trustee may reasonably require. No holder of common shares will
have the right, other than through the trustee, to institute any action or proceeding or to exercise any other remedy to enforce any
rights arising under the Coattail Agreement unless the trustee fails to act on a request authorized by holders of not less than 10% of
the outstanding common shares and reasonable funds and indemnity have been provided to the trustee.
Other
than in respect of non-material amendments and waivers that do not adversely affect the interests of holders of common shares, the Coattail
Agreement provides that, among other things, it may not be amended, and no provision thereof may be waived, unless, prior to giving effect
to such amendment or waiver, the following have been obtained: (a) the consent of any applicable securities regulatory authority in Canada
or the United States; and (b) the approval of at least two-thirds of the votes cast by holders of common shares represented at a meeting
duly called for the purpose of considering such amendment or waiver, excluding votes attached to common shares held by the holder of
Multiple Voting Shares or their affiliates and related parties and any persons who have an agreement to purchase Multiple Voting Shares
on terms which would constitute a sale or disposition for purposes of the Coattail Agreement, other than as permitted thereby. Non-material
amendments and waivers that do not adversely affect the interests of holders of common shares shall be subject to the approval of any
applicable exchange on which the common shares trade but shall not require approval of holders of common shares.
The
Coattail Agreement provides that, in the event that a lender transfers or takes beneficial ownership of Multiple Voting Shares pursuant
to an enforcement by a lender of a pledge of, or other security interest in, such Multiple Voting Shares, the applicable Multiple Voting
Shares will automatically be converted into common shares pursuant to the Articles such that, as a result of such enforcement, the applicable
lender does not hold Multiple Voting Shares. Any
Multiple
Voting Share held by a lender pursuant to a pledge or other grant of a security interest shall be deemed to continue to be held by Jay
Giraud so long as the lender has not transferred or taken beneficial ownership of such Multiple Voting Share pursuant to an enforcement
by the lender of a pledge of, or other security interest in, such Multiple Voting Shares. A lender will have no rights as a shareholder
until the occurrence of an event of default under the loan agreement.
No
provision of the Coattail Agreement will limit the rights of any holders of common shares under applicable law.
Under
the Founder Agreement, Mr. Giraud shall not be entitled to transfer any of the Multiple Voting Shares to permitted transferees. Jay Giraud
also agreed to convert his Multiple Voting Shares into common shares upon:
|
| The
shipment of 1,000 motorcycles to customers by the combined company; and |
|
|
| Jay
Giraud ceasing to be an executive officer of the Company due to his voluntary resignation as both a director and an officer of the combined
company, or his termination as an executive officer for cause (which termination has been confirmed by a court of competent jurisdiction,
or in respect of which a claim is not brought within 90 days following such termination). |
|
****
In
addition, under the Founder Agreement, Mr. Giraud agreed that he will not vote or cause to be voted more than one-seventh of the number
of Multiple Voting Shares that he owns, or over which he has voting control, in favor, against or withheld on a vote for the election
or removal directors, except in the case of a vote for the election of directors proposed in any management information circular of the
Company, in which case Mr. Giraud will be entitled to vote all Multiple Voting Shares held by him in favor of the slate of directors
proposed in such management information circular.
Mr.
Giraud resigned as an executive officer and director of the Company on December 4, 2024; accordingly, the Multiple Voting Shares that
owned by him are deemed converted into an equivalent number of Common Shares as of such date.
104
*Lock-Up
Agreement*
In
connection with the execution of the Business Combination Agreement, Mr. Giraud executed a lock-up agreement to be subject to lock-up
restrictions for the period from the closing of the Business Combination to 180 days after the closing, unless released earlier by the
Company.
**Indemnification
Agreements Entered by Damon with Directors and Officers**
****
The
Companys Articles contain provisions limiting the liability of directors and provide that the Company will indemnify each of its
directors and officers to the fullest extent permitted under law. In addition, we have entered into an indemnification agreement with
each of our directors, which requires us to indemnify them.
**ITEM
14: PRINCIPAL ACCOUNTANT FEES AND SERVICES**
The Company incurred the following fees for services rendered by CBIZ
CPAs P.C. and Marcum LLP (collectively, Auditors), which have been the Companys independent registered public accounting
firms, for the fiscal years ended June 30, 2025 and 2024, respectively. On November 1, 2024, CBIZ CPAs P.C. acquired the attest business
of Marcum LLP.
|
| |
2025 | | |
2024 | | |
|
Audit Fees(1) | |
$ | 691,798 | | |
$ | 297,670 | | |
|
Audit Related Fees | |
$ | - | | |
$ | - | | |
|
Tax Fees | |
$ | - | | |
$ | - | | |
|
All Other Fees | |
$ | - | | |
$ | - | | |
|
(1) | Audit
fees represent fees for professional services provided in connection with the audit of our Companys annual consolidated financial
statements included in this Annual Report on Form 10-K and review of our quarterly financial statements included in the Companys
Quarterly Reports on Form 10-Q and audit services provided in connection with other statutory or regulatory filings. Audit fees also
include fees for professional services provided in connection with the audits of fiscal year 2024 financial statements. |
|
|
| | |
|
(2) | For the year ended June 30, 2025, in addition to the above audit fees,
Marcum LLP also billed audit fees of $77,569. For the year ended June 30, 2024, the above audit fees were all billed by Marcum LLP. | |
****
**Audit
Fees**. The Audit Fees are the aggregate fees of Auditors attributable to professional services rendered for the audit
of our annual financial statements in our annual reports on Form 10-K, for review of financial statements included in our quarterly reports
on Form 10-Q or for services that are normally provided by Auditors in connection with statutory and regulatory filings or engagements
for that fiscal year. These fees include fees billed for professional services rendered by Auditors for the review of registration statements
or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.
****
**Audit-Related
Fees**. Auditors did not perform any audit-related services in fiscal years 2025 and 2024.
****
**Tax
Fees**. Auditors did not perform any tax advice or planning services in fiscal years 2025 and 2024.
**All
Other Fees**. Auditors did not perform any services for us or charge any fees other than the services described above in fiscal years
2025 and 2024.
**Pre-approval
Policies and Procedures**
The
Audit Committee is required to review and approve in advance the retention of the independent auditors for the performance of all audit
and lawfully permitted non-audit services and the fees for such services. The Audit Committee may delegate to one or more of its members
the authority to grant pre-approvals for the performance of certain non-audit services, and any such Audit Committee member who pre-approves
a non-audit service must report the pre-approval to the full Audit Committee at its next scheduled meeting. The Audit Committee is required
to periodically notify the Board of their approvals. The required pre-approval policies and procedures were complied with during fiscal
year 2025.
105
**PART
IV**
****
**Item
15. Exhibits, Financial Statement Schedules**
****
**15(a)(1)
Financial Statements**
The
financial statements filed as part of this report are listed and indexed in the table of contents. Financial statement schedules have
been omitted because they are not applicable or the required information has been included elsewhere in this report.
****
**15(a)(2)
Financial Statement Schedules**
Not
applicable.
****
**15(a)(3)
Exhibits**
The
exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the exhibits. The Company
has identified in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form
10-K in response to Item 15(a)(3) of Form 10-K.
****
**ITEM
16. FORM 10-K SUMMARY.**
Not
applicable.
106
**EXHIBIT
INDEX**
|
Exhibit
Number |
|
Exhibit Description | |
|
|
|
| |
|
1.1 |
|
Underwriting Agreement, dated as of March 20, 2025, by and between Damon Inc. and Maxim Group LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Damon Inc. on March 25, 2025) | |
|
|
|
| |
|
2.1+ |
|
Separation Agreement, dated as of October 23, 2023, between Grafiti Holding Inc. and Inpixon (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Inpixon on October 23, 2023) | |
|
|
|
| |
|
2.2+ |
|
Business Combination Agreement among Inpixon, Grafiti Holding Inc., 1444842 B.C. Ltd and Damon Motors, Inc., dated as of October 23, 2023 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Inpixon on October 23, 2023) | |
|
|
|
| |
|
2.3 |
|
Amendment to Business Combination Agreement, dated as of June 18, 2024, among XTI Aerospace, Inc., Grafiti Holding Inc., 1444842 B.C. Ltd. and Damon Motors Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by XTI Aerospace, Inc. on June 24, 2024) | |
|
|
|
| |
|
2.4 |
|
Second Amendment to Business Combination Agreement, dated as of September 26, 2024, among XTI Aerospace, Inc., Grafiti Holding Inc., 1444842 B.C. Ltd. and Damon Motors Inc. (incorporated by reference to Exhibit 2.4 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on September 26, 2024) | |
|
|
|
| |
|
3.1 |
|
Certificate of Incorporation, and Notice of Articles (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed by the Registrant on December 18, 2024) | |
|
|
|
| |
|
3.2 |
|
Articles (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
4.1* |
|
Description of Registrants Securities | |
|
|
|
| |
|
4.2 |
|
Form of Warrant issued to former warrant holders of Damon Motors, Inc. (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
4.3 |
|
Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on March 25, 2025) | |
|
|
|
| |
|
4.4 |
|
Form of Warrant Agency Agreement for the Regulation A Offering (incorporated by reference to Exhibit 3.3 to the Offering Statement on Form 1-A filed by the Registrant on August 26, 2025) | |
|
|
|
| |
|
4.5 |
|
Form of Warrant for the Regulation A Offering (incorporated by reference to Exhibit 3.4 to the Offering Statement on Form 1-A filed by the Registrant on August 26, 2025) | |
|
|
|
| |
|
10.1 |
|
Liquidating Trust Agreement among Inpixon, Grafiti Holding Inc. and Melanie Figueroa, as initial trustee, dated as of December 27, 2023 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.2# |
|
Grafiti Holding Inc. 2024 Stock Incentive Plan. (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
107
|
10.3# |
|
Form of Stock Option Agreement under Grafiti Holding Inc. 2024 Stock Incentive Plan. (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.4 |
|
Distributor Agreement, dated as of July 19, 2024, between Grafiti LLC and Grafiti Limited. (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.5 |
|
Administrative Support Service Agreement, dated as of July 19, 2024, between Grafiti LLC and Grafiti Limited. (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.6 |
|
Note Purchase Agreement, dated as of June 26, 2024, between Grafiti Holding Inc. and Streeterville Capital LLC. (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.7 |
|
Secured Promissory Note, dated as of June 26, 2024, issued to Streeterville Capital LLC. (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.8 |
|
Security Agreement, dated as of June 26, 2024, between Grafiti Holding Inc. and Streeterville Capital LLC. (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.9 |
|
Guaranty, dated as of June 26, 2024, by Damon Motors, Inc. in favor of Streeterville Capital LLC. (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.10 |
|
Guaranty, dated as of June 26, 2024, by Damon Motors Corporation in favor of Streeterville Capital LLC. (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed by the Registrant on July 25, 2024) | |
|
|
|
| |
|
10.11 |
|
Amendment No. 1, dated as of October 31, 2024, between Grafiti Holding Inc. and Streeterville Capital LLC. (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1/A filed by the Registrant on November 1, 2024) | |
|
|
|
| |
|
10.12 |
|
Amendment to Security Agreement, dated as of November 13, 2024, between the Company and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.13# |
|
Executive Employment Agreement, dated September 12, 2023, between Damon Motors Inc. and Jay Giraud(incorporated by reference to Exhibit 10.21 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.14# |
|
Employment Side Letter Agreement, dated October 17, 2024, between Damon Motors Inc. and Jay Giraud(incorporated by reference to Exhibit 10.22 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.15# |
|
Executive Employment Agreement, dated January 12, 2024, between Damon Motors Inc. and Bal Bhullar (incorporated by reference to Exhibit 10.23 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.16# |
|
Employment Side Letter Agreement, dated August 26, 2024, between Damon Motors Inc. and Bal Bhullar (incorporated by reference to Exhibit 10.24 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
108
|
10.17# |
|
Executive Employment Agreement, dated June 13, 2024, between Damon Motors Inc. and Derek Dorresteyn (incorporated by reference to Exhibit 10.25 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.18# |
|
Employment Side Letter Agreement, dated October 17, 2024, between Damon Motors Inc. and Derek Dorresteyn (incorporated by reference to Exhibit 10.26 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.19# |
|
Executive Employment Agreement, dated July 11, 2022, between Damon Motors Inc. and Amber Spencer (incorporated by reference to Exhibit 10.27 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.20# |
|
Interim Executive Employment Agreement, dated December 4, 2024, between Damon Motors Inc. and Dominique Kwong (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on December 10, 2024) | |
|
|
|
| |
|
10.21# |
|
Amendment to Interim Executive Employment Agreement, dated May 4, 2025, between Damon Inc. and Dominique Kwong (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed by the Registrant on May 19, 2025) | |
|
|
|
| |
|
10.22# |
|
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on December 10, 2024) | |
|
|
|
| |
|
10.23+ |
|
Securities Purchase Agreement, dated December 20, 2024, between Damon Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on December 23, 2024) | |
|
|
|
| |
|
10.24 |
|
Registration Rights Agreement, dated December 20, 2024, between Damon Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on December 23, 2024) | |
|
|
|
| |
|
10.25 |
|
Consulting Agreement, dated as of September 25, 2024, between Grafiti Holding Inc. and Nadir Ali. (incorporated by reference to Exhibit 10.24 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on September 26, 2024) | |
|
|
|
| |
|
10.26 |
|
Consulting Agreement, dated as of September 25, 2024, between Grafiti Holding Inc. and Melanie Figueroa. (incorporated by reference to Exhibit 10.25 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on September 26, 2024) | |
|
|
|
| |
|
10.27 |
|
Consulting Agreement, dated as of September 25, 2024, between Grafiti Holding Inc. and Wendy Loundermon. (incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on September 26, 2024) | |
|
|
|
| |
|
10.28 |
|
Coattail Agreement, dated as of November 13, 2024, by and among Grafiti Holding Inc., Jay Giraud and Odyssey Trust Company (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.29 |
|
Founder Agreement, dated as of November 13, 2024, by and between Grafiti Holding Inc. and Jay Giraud (incorporated by reference to Exhibit 10.19 to the Current Report on Form 8-K filed by the Registrant on November 18, 2024) | |
|
|
|
| |
|
10.30 |
|
Amendment No. 2 to Secured Promissory Note, dated February 27, 2025 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on February 27, 2025) | |
109
|
10.31 |
|
Amendment No. 1 to Securities Purchase Agreement, dated February 27, 2025 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on February 27, 2025) | |
|
|
|
| |
|
10.32 |
|
Technical Design Agreement, dated as of April 4, 2025, by and between Damon Inc. and Engines Engineering S.p.a. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on April 7, 2025) | |
|
|
|
| |
|
10.33# |
|
Executive Employment Services Agreement, dated July 16, 2025, by and between Damon Inc. and Dominque Kwong (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 17, 2025) | |
|
|
|
| |
|
10.34# |
|
Executive Employment Services Agreement, dated July 16, 2025, by and between Damon Inc. and Baljinder Bhullar (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on July 17, 2025) | |
|
|
|
| |
|
10.35 |
|
Form of Subscription Agreement (incorporated by reference to Exhibit 4.1 to the Offering Statement on Form 1-A/A filed by the Registrant on August 26, 2025) | |
|
|
|
| |
|
16.1 |
|
Letter from Marcum LLP to the Securities and Exchange Commission, dated June 18, 2025 (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed by the Registrant on June 18, 2025) | |
|
|
|
| |
|
19.1* |
|
Insider Trading Policy | |
|
|
|
| |
|
21.1 |
|
List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on September 26, 2024) | |
|
|
|
| |
|
23.1* |
|
Consent of CBIZ CPAs P.C. | |
|
|
|
| |
|
23.2* |
|
Consent of Marcum LLP | |
|
|
|
| |
|
24.1* |
|
Power of Attorney (included on the signature page) | |
|
|
|
| |
|
31.1* |
|
Certification of the Companys Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
| |
|
31.2* |
|
Certification of the Companys Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
| |
|
32.1* |
|
Certification of the Companys Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
| |
|
99.1 |
|
Agreement between Damon Inc. and DealMaker Securities LLC, dated June 27, 2025 (incorporated by reference to Exhibit 6.33 to the Offering Statement on Form 1-A filed by the Registrant on July 22, 2025) | |
|
|
|
| |
|
99.2 |
|
Form of Tri-Party Escrow Agreement between Damon Inc., DealMaker Securities LLC and Enterprise Bank & Trust (incorporated by reference to Exhibit 8.1 to the Offering Statement on Form 1-A/A filed by the Registrant on August 26, 2025) | |
|
|
|
| |
|
101.INS* |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
|
|
|
| |
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document | |
|
|
|
| |
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
|
|
|
| |
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document | |
|
|
|
| |
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document | |
|
|
|
| |
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
|
|
|
| |
|
104* |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
|
* | Filed
herewith. |
|
|
+ | Schedules
and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the SEC upon request. |
|
|
# | Indicates
a management contract or compensatory plan. |
|
110
****
**SIGNATURES**
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
|
DAMON
INC. | |
|
|
|
| |
|
Date: September 29, 2025 |
By: |
/s/
Dominique Kwong | |
|
|
|
Dominique
Kwong
Chief
Executive Officer | |
Each
person whose signature appears below constitutes and appoints Dominique Kwong and Baljinder Bhullar, and each of them, as his or her
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
|
Signature |
|
Title |
|
Date | |
|
|
|
|
|
| |
|
/s/
Dominique Kwong |
|
Chief
Executive Officer and Director |
|
September 29, 2025 | |
|
Dominique
Kwong |
|
(Principal
Executive Officer) |
|
| |
|
|
|
|
|
| |
|
/s/
Baljinder Bhullar |
|
Chief
Financial Officer |
|
September 29, 2025 | |
|
Baljinder
Bhullar |
|
(Principal
Financial and Accounting Officer) |
|
| |
|
|
|
|
|
| |
|
/s/
Karan Sodhi |
|
Director |
|
September 29, 2025 | |
|
Karan
Sodhi |
|
|
|
| |
|
|
|
|
|
| |
|
/s/
Shashi Tripathi |
|
Chairman
of the Board |
|
September 29, 2025 | |
|
Shashi
Tripathi |
|
|
|
| |
|
|
|
|
|
| |
|
/s/
Melanie Figueroa |
|
Director |
|
September 29, 2025 | |
|
Melanie
Figueroa |
|
|
|
| |
111
**DAMON INC.**
**INDEX TO FINANCIAL STATEMENTS**
****
| | Page No. | |
| ANNUAL FINANCIAL INFORMATION | | |
| | | |
| Report of Independent Registered Public Accounting Firm - CBIZ CPAs P.C. (PCAOB Number 199) | F-2 | |
| Report of Independent Registered Public Accounting Firm - Marcum LLP (PCAOB Number 688) | F-3 | |
| Consolidated Balance Sheets as of June 30, 2025 and 2024 | F-4 | |
| Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2025 and 2024 | F-5 | |
| Consolidated Statements of Changes in Stockholders Deficit for the years ended June 30, 2025 and 2024 | F-6 | |
| Consolidated Statements of Cash Flows for the years ended June 30, 2025 and 2024 | F-7 | |
| Notes to Consolidated Financial Statements | F-8 | |
F-1
**Report
of Independent Registered Public Accounting Firm**
****
To the Stockholders and Board of Directors of
Damon Inc.
**Opinion on the Financial Statements**
****
We have audited the accompanying consolidated
balance sheet of Damon Inc. (the Company) as of June 30, 2025, the related consolidated statements of operations and comprehensive
loss, changes in stockholders deficit and cash flows for the year ended June 30, 2025, and the related notes (collectively referred
to as the financial statements). In our opinion, based on our audit, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2025, and the results of its operations and its cash flows for the year
ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America.
**Explanatory Paragraph Going Concern**
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant
working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
**Segment Information Retrospective Adjustment**
As discussed in Note 2 and Note 16 to the consolidated
financial statements, the Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,
for the year ended June 30, 2025 applying it retrospectively to all periods. The financial statements of the Company for the year ended
June 30, 2024, before the effects of the retrospective adjustment discussed in Note 2 and Note 16 to the consolidated financial statements
was audited by other auditors whose report, dated September 26, 2024, except the effect of the recapitalization and reverse stock split
disclosed in Note 21 as to which the date is August 26, 2025, expressed an unqualified opinion on those statements and included an explanatory
paragraph regarding the Companys ability to continue as a going concern. We have also audited the adoption of ASU 2023-07 for the
year ended June 30, 2025 and the retrospective application to the year ended June 30, 2024. Except for our audit of the retrospective
application of the adoption of ASU 2023-07 to the year ended June 30, 2024, we were not engaged to audit, review, or apply any procedures
to the financial position of the Company as of June 30, 2024 and the results of its operations and its cash flows for the year then ended
other than stated above and, accordingly, we do not express an opinion or any other form of assurance on the 2024 financial statements
taken as a whole.
**Basis for Opinion**
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
We have served as the Companys auditor
since 2024, such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1,
2024.
New York, NY
September 29, 2025
F-2
**Report of Independent Registered
Public Accounting Firm**
To the Shareholders and Board of Directors of
Damon Motors Inc.
**Opinion on the Financial Statements**
****
We have audited the accompanying consolidated
balance sheet of Damon Motors Inc. (the Company) as of June 30, 2024, the related consolidated statements of operations,
changes in shareholders deficit and cash flows for the year then ended, and the related notes (collectively referred to as the
financial statements), before the effects of the retrospective adjustment for the adoption of ASU 2023-07, Segment Reporting:
Improvements to Reportable Segment Disclosures, discussed in Note 2 and Note 16. In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2024, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 21 to the financial statements,
the 2024 financial statements have been revised to adjust the information in relation to the recapitalization and the reverse stock split.
We have also audited the recapitalization and the reverse stock split adjustments described in Note 21 that were applied to revise the
2024 financial statements to adjust the information in relation to the recapitalization and the reverse stock split. In our opinion, such
adjustments are appropriate and have been properly applied.
We were not engaged to audit, review, or apply
any procedures to the retrospective adjustment for the adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures, discussed in Note 2 and Note 16 to the consolidated financial statements, and accordingly, we do not express an opinion
or any other form of assurance whether such retrospective adjustment is appropriate and have been appropriately applied. The retrospective
adjustment was audited by other auditors.
**Explanatory Paragraph Going Concern**
****
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant
working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
**Basis for Opinion**
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Companys auditor from 2024 to 2025.
****
New York, NY
September 26, 2024, except as to the effect of the recapitalization
and the reverse stock split disclosed in Note 21 as to which the date is August 26, 2025
****
F-3
**DAMON INC.**
****
**CONSOLIDATED BALANCE SHEETS**
|
| |
June 30,
2025 | | |
June 30,
2024 | | |
|
ASSETS | |
| | |
| | |
|
| |
| | |
| | |
|
Current assets | |
| | |
| | |
|
Cash | |
$ | 2,479,283 | | |
$ | 395,580 | | |
|
Accounts receivable, net of allowance | |
| 22,131 | | |
| - | | |
|
Other current assets | |
| 846,748 | | |
| 90,921 | | |
|
Current assets | |
| 3,348,162 | | |
| 486,501 | | |
|
Non-current assets | |
| | | |
| | | |
|
Restricted cash | |
| 43,373 | | |
| - | | |
|
Premises lease deposits | |
| 133,532 | | |
| 126,431 | | |
|
Property and equipment, net | |
| 81,892 | | |
| 449,255 | | |
|
Operating lease right-of-use assets, net | |
| 475,739 | | |
| 689,165 | | |
|
Non-current assets | |
| 734,536 | | |
| 1,264,851 | | |
|
Total assets | |
$ | 4,082,698 | | |
$ | 1,751,352 | | |
|
| |
| | | |
| | | |
|
LIABILITIES | |
| | | |
| | | |
|
| |
| | | |
| | | |
|
Current liabilities | |
| | | |
| | | |
|
Accounts payable and accrued liabilities | |
$ | 4,691,080 | | |
$ | 5,924,121 | | |
|
Customer deposits | |
| 444,759 | | |
| 482,575 | | |
|
Deferred revenue | |
| 204,231 | | |
| - | | |
|
Current portion of operating lease liabilities | |
| 294,475 | | |
| 443,519 | | |
|
Current portion of finance lease liabilities | |
| 178,447 | | |
| 7,141 | | |
|
Short-term debt | |
| 504,685 | | |
| 1,099,489 | | |
|
Pre-paid security purchase, net of debt discount | |
| 2,962,518 | | |
| - | | |
|
Convertible promissory note, net of debt discount | |
| 4,553,934 | | |
| - | | |
|
Convertible notes | |
| - | | |
| 40,630,756 | | |
|
Financial liability convertible to equity | |
| - | | |
| 3,200,000 | | |
|
Current liabilities | |
| 13,834,129 | | |
| 51,787,601 | | |
|
Non-current liabilities | |
| | | |
| | | |
|
Non-current portion of operating lease liabilities | |
| 136,654 | | |
| 235,492 | | |
|
Non-current portion of finance lease liabilities | |
| - | | |
| 177,403 | | |
|
Non-current liabilities | |
| 136,654 | | |
| 412,895 | | |
|
Total liabilities | |
| 13,970,783 | | |
| 52,200,496 | | |
|
Commitment and contingencies (Note 20) | |
| | | |
| | | |
|
| |
| | | |
| | | |
|
STOCKHOLDERS DEFICIT | |
| | | |
| | | |
|
Common shares without par value, unlimited shares authorized, 19,603,815 shares issued and outstanding as of June 30, 2025 (June 30, 2024 20,758) | |
| 118,513,491 | | |
| 1,938,751 | | |
|
Preferred shares without par value, unlimited shares authorized,
nil shares issued and outstanding as of June 30, 2025 (June 30, 2024 3,528,408) | |
| - | | |
| 71,590,087 | | |
|
Additional paid in capital | |
| 17,568,278 | | |
| 16,629,612 | | |
|
Accumulated other comprehensive loss | |
| (11,598 | ) | |
| - | | |
|
Accumulated deficit | |
| (145,958,256 | ) | |
| (140,607,594 | ) | |
|
Total stockholders deficit | |
| (9,888,085 | ) | |
| (50,449,144 | ) | |
|
Total liabilities and stockholders deficit | |
$ | 4,082,698 | | |
$ | 1,751,352 | | |
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
**DAMON INC.**
****
**CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS**
|
| |
Years ended June 30, | | |
|
| |
2025 | | |
2024 | | |
|
| |
| | |
| | |
|
Revenue | |
$ | 222,736 | | |
$ | - | | |
|
Cost of revenue | |
| 107,394 | | |
| - | | |
|
Gross profit | |
| 115,342 | | |
| - | | |
|
| |
| | | |
| | | |
|
Operating expenses | |
| | | |
| | | |
|
Research and development, net | |
| 3,045,949 | | |
| 4,550,229 | | |
|
General and administrative | |
| 8,551,784 | | |
| 4,296,231 | | |
|
Sales and marketing | |
| 667,300 | | |
| 986,137 | | |
|
Transaction costs | |
| 4,945,436 | | |
| 1,626,519 | | |
|
Depreciation | |
| 217,443 | | |
| 303,424 | | |
|
Impairment | |
| 14,119,955 | | |
| - | | |
|
Gain from release of lease obligation | |
| - | | |
| (42,297 | ) | |
|
Foreign currency transaction loss / (gain) | |
| 42,392 | | |
| (235,871 | ) | |
|
| |
| 31,590,259 | | |
| 11,484,372 | | |
|
| |
| | | |
| | | |
|
Loss from operations | |
| (31,474,917 | ) | |
| (11,484,372 | ) | |
|
| |
| | | |
| | | |
|
Other income / (expenses) | |
| | | |
| | | |
|
Changes in fair value of financial liabilities | |
| 34,333,573 | | |
| (18,424,992 | ) | |
|
Loss on debt settlement | |
| - | | |
| (785,377 | ) | |
|
Finance expense | |
| (8,208,523 | ) | |
| (3,273,507 | ) | |
|
| |
| 26,125,050 | | |
| (22,483,876 | ) | |
|
| |
| | | |
| | | |
|
Loss before income taxes | |
| (5,349,867 | ) | |
| (33,968,248 | ) | |
|
Current income tax expense | |
| (795 | ) | |
| - | | |
|
Net loss | |
$ | (5,350,662 | ) | |
$ | (33,968,248 | ) | |
|
| |
| | | |
| | | |
|
COMPREHENSIVE LOSS | |
| | | |
| | | |
|
Net loss | |
$ | (5,350,662 | ) | |
$ | (33,968,248 | ) | |
|
Other comprehensive loss | |
| | | |
| | | |
|
Foreign currency translation adjustments | |
| (11,598 | ) | |
| - | | |
|
Comprehensive loss | |
$ | (5,362,260 | ) | |
$ | (33,968,248 | ) | |
|
| |
| | | |
| | | |
|
Loss per common share basic and diluted | |
$ | (1.15 | ) | |
$ | (1,656 | ) | |
|
Weighted average number of common shares outstanding basic and diluted | |
| 4,645,505 | | |
| 20,516 | | |
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
**DAMON INC.**
****
**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIT**
|
| |
Common
shares | | |
Preferred
shares | | |
Additional
paid in capital | | |
Accumulated
other comprehensive income (loss) | | |
Accumulated
Deficit | | |
Stockholders
deficit | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
As of July 1, 2023 | |
| 19,924 | | |
$ | 1,285,788 | | |
| 3,528,408 | | |
$ | 71,590,087 | | |
$ | 9,294,030 | | |
$ | - | | |
$ | (106,639,346 | ) | |
$ | (24,469,441 | ) | |
|
Issuance of common shares, net of
issuance costs | |
| 160 | | |
| 260,999 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 260,999 | | |
|
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 146,842 | | |
| - | | |
| - | | |
| 146,842 | | |
|
Stock options exercised | |
| 674 | | |
| 391,964 | | |
| - | | |
| - | | |
| (330,809 | ) | |
| - | | |
| - | | |
| 61,155 | | |
|
Common share purchase warrants issued | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,090,797 | | |
| - | | |
| - | | |
| 1,090,797 | | |
|
Reclassification of liability-classified
warrants to equity | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,428,752 | | |
| - | | |
| - | | |
| 6,428,752 | | |
|
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (33,968,248 | ) | |
| (33,968,248 | ) | |
|
As of June 30, 2024 | |
| 20,758 | | |
$ | 1,938,751 | | |
| 3,528,408 | | |
$ | 71,590,087 | | |
$ | 16,629,612 | | |
$ | - | | |
$ | (140,607,594 | ) | |
$ | (50,449,144 | ) | |
|
Conversion of Simple Agreements for
Future Equity (SAFEs) at maturity | |
| 2,420 | | |
| 3,200,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,200,000 | | |
|
Issuance of common shares, net of
issuance costs | |
| 1,015,200 | | |
| 699,151 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 699,151 | | |
|
Conversion of convertible notes | |
| 27,786 | | |
| 8,370,546 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,370,546 | | |
|
Issuance of shares for Business Combination | |
| 36,923 | | |
| 11,123,075 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,123,075 | | |
|
Conversion of preferred shares | |
| 78,085 | | |
| 71,590,087 | | |
| (3,528,408 | ) | |
$ | (71,590,087 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Issuance of shares for pre-paid security
purchase agreement | |
| 2,744 | | |
| 188,679 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 188,679 | | |
|
Issuance of shares for pre-paid security
purchase | |
| 65,068 | | |
| 1,550,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,550,000 | | |
|
Issuance of shares for warrants exercised | |
| 18,347,303 | | |
| 18,807,262 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 18,807,262 | | |
|
Issuance of shares for services | |
| 7,528 | | |
| 1,045,940 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,045,940 | | |
|
Common share purchase warrants issued
in connection with convertible promissory notes | |
| - | | |
| - | | |
| - | | |
| - | | |
| 875,127 | | |
| - | | |
| - | | |
| 875,127 | | |
|
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 63,539 | | |
| - | | |
| - | | |
| 63,539 | | |
|
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (11,598 | ) | |
| - | | |
| (11,598 | ) | |
|
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,350,662 | ) | |
| (5,350,662 | ) | |
|
As of June 30, 2025 | |
| 19,603,815 | | |
$ | 118,513,491 | | |
| - | | |
$ | - | | |
$ | 17,568,278 | | |
$ | (11,598 | ) | |
$ | (145,958,256 | ) | |
$ | (9,888,085 | ) | |
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
**DAMON INC.**
****
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
|
| |
Year ended June 30, 2025 | | |
Year ended June 30, 2024 | | |
|
| |
| | |
| | |
|
Operating activities | |
| | |
| | |
|
Net loss: | |
$ | (5,350,662 | ) | |
$ | (33,968,248 | ) | |
|
Adjustment to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
|
Depreciation and amortization | |
| 217,443 | | |
| 303,424 | | |
|
Stock-based compensation | |
| 63,539 | | |
| 146,842 | | |
|
Shares issued for services | |
| 473,413 | | |
| - | | |
|
Non-cash interest | |
| 2,966,853 | | |
| 1,694,149 | | |
|
Non-cash transaction cost | |
| 6,086,870 | | |
| - | | |
|
Loss on debt settlement | |
| - | | |
| 785,377 | | |
|
Changes in fair value of financial liabilities | |
| (34,333,573 | ) | |
| 18,424,992 | | |
|
Impairment | |
| 14,119,955 | | |
| - | | |
|
Plant and equipment disposal loss | |
| 158,093 | | |
| - | | |
|
Gain from release of lease obligation | |
| - | | |
| (42,297 | ) | |
|
Foreign exchange gain | |
| (621 | ) | |
| (184,514 | ) | |
|
| |
| | | |
| | | |
|
Changes in operating assets and liabilities: | |
| | | |
| | | |
|
Other current assets and premises lease deposits | |
| (684,310 | ) | |
| 159,010 | | |
|
Accounts receivable | |
| 34,861 | | |
| - | | |
|
Accounts payable and accrued liabilities | |
| (3,353,505 | ) | |
| (136,934 | ) | |
|
Deferred revenue | |
| 43,722 | | |
| - | | |
|
Operating lease | |
| (38,774 | ) | |
| (45,181 | ) | |
|
Customer deposits | |
| (37,816 | ) | |
| (5,994 | ) | |
|
Cash used in operating activities | |
| (19,634,512 | ) | |
| (12,869,374 | ) | |
|
| |
| | | |
| | | |
|
Investing activities | |
| | | |
| | | |
|
Net cash acquired from business combination | |
| 77,270 | | |
| - | | |
|
Cash provided by investing activities | |
| 77,270 | | |
| - | | |
|
| |
| | | |
| | | |
|
Financing activities | |
| | | |
| | | |
|
Payments on finance leases | |
| (7,008 | ) | |
| (12,081 | ) | |
|
Cash settlement for release of lease obligation | |
| - | | |
| (36,582 | ) | |
|
Proceeds from share issuances | |
| 14,767,360 | | |
| - | | |
|
Proceeds from senior secured promissory notes | |
| 596,000 | | |
| 550,000 | | |
|
Proceeds from promissory notes | |
| 929,299 | | |
| - | | |
|
Repayment of promissory notes | |
| (305,000 | ) | |
| - | | |
|
Repayment of SR&ED loan | |
| (727,014 | ) | |
| (916,539 | ) | |
|
Proceeds from pre-paid purchase | |
| 4,400,000 | | |
| - | | |
|
Proceeds from convertible notes | |
| 1,105,000 | | |
| 11,549,945 | | |
|
Proceeds from convertible promissory note | |
| 3,150,000 | | |
| - | | |
|
Repayment of convertible promissory note | |
| (2,216,168 | ) | |
| - | | |
|
Proceeds from exercise of stock options | |
| - | | |
| 61,155 | | |
|
Cash provided by financing activities | |
| 21,692,469 | | |
| 11,195,898 | | |
|
| |
| | | |
| | | |
|
Effect of exchange rates on cash holdings in foreign currencies | |
| (8,151 | ) | |
| - | | |
|
Net change in cash and restricted cash during the year | |
| 2,135,227 | | |
| (1,673,476 | ) | |
|
Cash and restricted cash at beginning of year | |
| 395,580 | | |
| 2,069,056 | | |
|
Cash and restricted cash at end of year | |
$ | 2,522,656 | | |
$ | 395,580 | | |
|
| |
Year ended
June 30,
2025 | | |
Year ended
June 30,
2024 | | |
|
| |
| | |
| | |
|
Supplemental disclosure of cash flow information: | |
| | |
| | |
|
Interest on finance lease paid | |
$ | 8,615 | | |
$ | 9,499 | | |
|
Interest paid on debt | |
| 422,364 | | |
| 782,623 | | |
|
Supplemental disclosure of non-cash investing and financing activity: | |
| | | |
| | | |
|
SAFEs converted to preferred shares | |
| 3,200,000 | | |
| - | | |
|
Convertible notes converted to common shares | |
| 8,370,546 | | |
| - | | |
|
Common shares issued as part of transaction costs | |
| 1,045,940 | | |
| - | | |
|
Convertible notes issued for services | |
| 750,000 | | |
| - | | |
|
Common shares issued for pre-paid security agreement | |
| 1,738,679 | | |
| - | | |
|
Common shares issued for Business Combination | |
| 11,123,075 | | |
| - | | |
|
Operating lease capitalized | |
| 192,011 | | |
| - | | |
|
Common shares issued for warrants conversion | |
| 18,807,262 | | |
| - | | |
|
Common shares issued for settlement of amount owing for severance payment | |
| - | | |
| 260,999 | | |
|
Convertible notes issued for settlement of promissory notes | |
| - | | |
| 775,208 | | |
|
Convertible notes issued for settlement of debt | |
| - | | |
| 164,619 | | |
|
Promissory notes issued in settlement of debt | |
| - | | |
| 542,753 | | |
|
Reclassification of liability-classified warrants to equity | |
| - | | |
| 6,428,752 | | |
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
**DAMON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2025**
**1. Nature and continuance of operation**
Damon Inc. (Damon or the Company,
formerly Grafiti Holding Inc. or Grafiti) was originally incorporated in British Columbia, Canada on October 17, 2023. Grafitis
wholly owned subsidiary, Grafiti Limited (formerly known as Inpixon Limited) was incorporated in England and Wales on May
13, 2020. Grafiti Limited provides specialized scientific software products and services for the environmental sciences, life sciences,
behavioral sciences, medical research and engineering domains.
On October 23, 2023, Grafiti and XTI Aerospace, Inc.
(then parent company of Grafiti) entered into a Business Combination Agreement with Damon Motors, Inc. (Damon Motors), in
which Damon Motors would amalgamate with a newly formed wholly-owned subsidiary of Grafiti (Amalco Sub), with Damon Motors
continuing as the surviving entity (Business Combination). Damon Motors is developing motorcycles and other personal mobility
solutions, integrating proprietary electric powertrain, shifting, and predictive awareness technologies to drive innovation through data
intelligence and strategic partnerships.
On November 13, 2024, Damon Motors and Amalco Sub
amalgamated to continue as a wholly-owned subsidiary of Grafiti (the Amalgamation). Following the Amalgamation, Damon Motors
became a wholly-owned subsidiary of Grafiti and Grafiti was immediately renamed to Damon Inc. (also referred to herein as
the Pubco, or the combined company). Throughout the notes to the consolidated financial statements, unless
otherwise noted, the Company, we, us or our and similar terms refer to Damon Motors
and its subsidiary prior to the consummation of the Business Combination, and Damon and its subsidiaries after the consummation of the
Business Combination.
In accordance with ASC 805- Business Combinations
(ASC 805), the Business Combination between Damon (formerly Grafiti) and Damon Motors was accounted for as a reverse acquisition
for financial reporting purposes, with Damon (formerly Grafiti) as the legal acquirer and Damon Motors treated as the accounting acquirer.
Damon (formerly Grafiti) remains the continuing registrant and reporting company. Accordingly, the historical financial and operating
data of the Company, which covers periods prior to the closing date of the Business Combination, reflects the assets, liabilities, and
results of operations for Damon Motors and does not reflect the assets, liabilities and results of operations of Damon (formerly Grafiti)
for the periods prior to November 12, 2024 (Note 3 Business Combinations).
The common shares of the combined company were listed
on the Nasdaq Global Market under the ticker symbol DMN. Following a delisting determination by Nasdaq, trading of the Companys
common shares was halted on April 29, 2025. To enable the Companys common shares to trade on an alternative market, the Company
determined to forego its right to appeal Nasdaqs delisting determination. The Nasdaq staff informed the Company that its common
shares would resume trading on Nasdaq for one trading day, on May 19, 2025, prior to suspending the common shares as of the following
trading day. The Companys shares began trading on the OTC Pink Current Market (now the OTCID Basic Market) on May 20, 2025.
On July 3, 2025, the Companys Board of Directors
approved a reverse stock split of its issued and outstanding common shares, without par value, at a ratio of 1-for-125.After the
reverse stock split, every 125 issued and outstanding common shares were converted automatically into one common share.The total
number of issued and outstanding common shares was reduced by a corresponding proportion from2,450,477,042 to19,603,815. All
share and per share amounts have been retroactively adjusted to reflect the reverse stock split for all periods presented.
The Companys common shares are currently traded
on the OTCID Basic Market under the symbol DMNIF. These financial statements are presented in United States dollars, unless
otherwise noted, which is the reporting and functional currency of the Company.
**Going concern**
****
The accompanying consolidated financial statements
of the Company have been prepared assuming the Company will continue as a going concern in accordance with accounting principles generally
accepted in the United States (U.S. GAAP). The going concern basis of presentation assumes that the Company will continue
in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities
and commitments in the normal course of business.
F-8
The Company is subject to a number of risks, including,
but not limited to, the need for successful development and commercialization of products and services, the need for additional capital
(or financing) to fund operating losses (see below), competition from substitute products and services from larger companies, protection
of proprietary technology, litigation, dependence on key individuals, and risks associated with changes in electric automotive technology.
The Companys ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to fund the
commercialization of its electrical motorcycles and other personal mobility products and services, and meet its obligations and repay
its liabilities arising from normal business operations when they come due.
The Company has utilized $19,634,512 of cash in operations
for the year ended June 30, 2025 and expects to incur future additional losses. These conditions indicate material uncertainties that
cast substantial doubt upon the Companys ability to continue as a going concern within one year after the financial statement issuance
date.
When substantial doubt exists, management evaluates
whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Companys ability to continue as
a going concern. The mitigating effect of managements plans, however, is only considered if both (1) it is probable that the plans
will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the
plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entitys ability
to continue as a going concern within one year after the date that the financial statements are issued.
Managements plans to address the uncertainty
that the Company will continue as a going concern include obtaining sufficient debt and equity financing for the Companys operations
and development plans. There is no assurance that the Company will obtain sufficient financing in a timely manner. As such, the substantial
doubt of the Companys ability to continue as a going concern has not been alleviated by managements plans.
**2. Summary of significant accounting policies**
****
**Basis of presentation and consolidation**
The consolidated financial statements of the Company
have been prepared in accordance with U.S. GAAP for all periods presented.
The consolidated financial statements incorporate
the financial statements of the Company and its wholly owned subsidiaries, Grafiti Limited (formerly known as Inpixon Limited),
Damon Motors Inc. and Damon Motors Corporation, over which the Company has control. Control occurs when the Company has power over the
investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power
over the investee to affect its returns. All intercompany transactions and balances between the Company and the subsidiary are eliminated
upon consolidation.
**Basis of measurement**
These financial statements have been prepared on a
historical cost basis except for certain financial instruments which are measured at their fair value as explained in the accounting policies
set out below. In addition, these financial statements have been prepared using the accrual basis of accounting.
**Significant accounting estimates and judgements**
****
The preparation of the consolidated financial statements
in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from the estimates made by management.
Estimates are based on managements best knowledge
of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
F-9
Significant estimates include the following:
|
| Estimating
the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business |
|
|
|
|
Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill and intangible assets | |
|
|
|
| |
|
|
|
Estimating the fair value of the Companys common shares | |
|
|
|
| |
|
|
|
Valuation of allowance for deferred tax assets | |
|
|
|
| |
|
|
|
Classification and measurement of financial instruments | |
**Business combinations**
****
The Company accounts for business acquisitions under
ASC 805, Business Combinations. The total purchase consideration for an acquisition is measured as the fair value of the assets acquired,
equity instruments issued and liabilities assumed at the acquisition date. Costs that are directly attributable to the acquisition are
expensed as incurred. Identifiable assets (including intangible assets), liabilities assumed (including contingent liabilities) and noncontrolling
interests in an acquisition are measured initially at their fair values at the acquisition date. Goodwill is recognized if the fair value
of the total purchase consideration and any noncontrolling interests is in excess of the net fair value of the identifiable assets acquired
and the liabilities assumed. A bargain purchase gain is recognized within other income (expense), net, on the consolidated statement of
operations if the net fair value of the identifiable assets acquired and the liabilities assumed is in excess of the fair value of the
total purchase consideration and any noncontrolling interests. The results of operations of the acquired business are included in the
consolidated financial statements beginning on the acquisition date.
**Cash and cash
equivalents and restricted cash**
****
Cash and cash equivalents include cash on hand and
deposits with banks with original maturities of three months or less at the date of purchase. Restricted cash consists of certificates
of deposits on a leased premise and certificates of deposits related to the Companys corporate credit card program. As of June
30, 2025 and 2024, the Company did not have any cash equivalents.
**Accounts receivable, net of allowance for credit
losses**
Accounts receivable are stated at the amount the Company
expects to collect. The Company recognizes an allowance for credit losses to ensure accounts receivables are not overstated due to un-collectability.
Credit losses are determined based on a variety of factors, including the length of time the receivables are past due, significant one-time
events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customers
inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customers operating
results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would be
further adjusted. After reviewing the collectability of the receivables the Companys allowance for credit losses was not material
as of June30, 2025 and 2024.
**Property and
equipment**
****
Property and equipment are stated at cost, net of
accumulated depreciation and accumulated impairment losses, if any. Depreciation is generally computed using the straight-line method
over the estimated useful lives of the respective assets, as follows:
|
Equipment: Computer equipment |
3.33 years | |
|
Equipment: Tools |
5 years | |
|
Equipment: Office equipment |
5 years | |
|
Leasehold Improvements |
shorter of the lease term or the estimated useful lives of the assets | |
|
Right-of-use assets |
over term of lease | |
Upon the retirement or sale of our property, plant
and equipment, the cost and associated accumulated depreciation are removed from the consolidated balance sheet, and the resulting gain
or loss is reflected in the consolidated statement of operations.
**Goodwill**
Goodwill represents the excess of the consideration
transferred for business combinations over the fair value of the identifiable net assets acquired. Goodwill is assessed for impairment
annually on June 30 or more frequently if events or changes in circumstances indicate that the asset might be impaired.
**Intangible assets**
****
Intangible assets with definite lives are amortized
on a straight-line basis over their estimated useful lives.
F-10
**
**Impairment of goodwill and intangible assets**
The Company tests for impairment of goodwill and intangible
assets at the reporting unit level. The Company has two reporting units electric personal mobility products unit and scientific
software products and services reporting unit. The goodwill and intangible assets belong to the scientific software products and services
reporting unit.
During the year ended June 30, 2025, the Company identified
indicators that the goodwill and intangible assets were impaired due to underperformance for revenue growth and estimated future operating
cash flow from the scientific software products and services reporting unit. A quantitative impairment test on goodwill and intangible
assets determined that the fair value was below the carrying value. The Company estimated fair value using a combination of discounted
cash flows and market comparisons. As a result, the Company recorded impairment of goodwill in the amount of $14,045,955 and impairment
of intangible assets in the amount of $74,000, reducing the carrying value of goodwill and intangible assets to $nil. The impairment charge
was reflected in the consolidated statements of operations.
**Revenue recognition**
****
The Company recognizes revenue when control is transferred
of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled
to in exchange for those products or services. The Company derives revenue from the sale of software and software as a service.
**
*License Revenue Recognition*
The Company enters into contracts with its customers
whereby it grants a non-exclusive license for the use of its proprietary software. The contracts provide for either (i) a one year stated
term with a one-year renewal option, (ii) a perpetual term or (iii) a two-year term with the option to upgrade to a perpetual license
at the end of the term. The contracts may also provide for yearly on-going maintenance services for a specified price, which includes
maintenance services, designated support, and enhancements, upgrades and improvements to the software (the Maintenance Services),
depending on the contract. Licenses for on-premises software provide the customer with a right to use the software as it exists when made
available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the
customer benefits from the software.
The timing of the Companys revenue recognition
related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a good or service.
Software that relies on an entitys IP and is delivered only through a hosting arrangement, where the customer cannot take possession
of the software, is a service. A software arrangement that is provided through an access code or key represents the transfer of a good.
Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available
to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality
and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized
at a point in time when the software is made available to the customer.
Renewals or extensions of licenses are evaluated as
distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until
(1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and
benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is
evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the
customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. Therefore,
the Company recognizes revenue resulting from renewal of licensed software starting at the beginning of the license renewal period.
The Company recognizes revenue related to software
as a service evenly over the service period using a time-based measure because the Company is providing continuous service and the customer
simultaneously receives and consumes the benefits provided by the Companys performance as the services are performed.
*Disaggregation of revenue*
The Company recognizes revenue when control of the promised products or
services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange
for those products or services. The Company derives revenue from software sales. The Companys revenue from contracts with customers
are mainly sourced from the United Kingdom, Switzerland, France, and Italy.
Revenues consisted of the following:
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
Recurring revenue/ revenue recognized over time (1) | |
$ | 148,635 | | |
$ | - | | |
|
Non-recurring revenue / revenue recognized at a point in time (2) | |
| 74,101 | | |
| - | | |
|
Total revenue | |
$ | 222,736 | | |
$ | - | | |
|
(1) | Performance obligation from right to access software sales
is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service
and service is recognized over time. |
|
|
(2) | Softwares performance obligation is satisfied at a
point in time when access to the software is provided to the customer. |
|
F-11
*Contract balances*
**
The timing of the Companys revenue recognition
may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and
the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company
records deferred revenue until the performance obligations are satisfied. The Company had deferred revenue of $204,231 and $nil as of
June 30, 2025 and 2024, respectively, related to cash received in advance for product license and maintenance services to be performed
in future periods. The Company expects to satisfy its remaining performance obligations for these license and maintenance services, and
recognize the deferred revenue and related contract costs over the next twelve months.
*Costs to obtain a contract*
**
The Company does not have a history of incurring incremental
costs to obtain a contract with a customer, but if the Company incurs these costs in the future, the Company will recognize these costs
as an asset that will be amortized over the expected contract term.
*Cost to fulfill a contract*
**
The Company incurs costs to fulfill their obligations
under a contract once it has obtained, but before transferring goods or services to the customer. The Company has determined that these
costs are immaterial. Therefore, the Company expenses the costs as they are incurred.
*Multiple performance obligations*
**
The Company enters into contracts with customers for
its technology licenses that may include multiple performance obligations. Each distinct performance obligation was determined by whether
the customer could benefit from the good or service on its own or together with readily available resources. The Company allocates revenue
to each performance obligation based on its standalone selling price. The Companys contracts with its customers outline the terms
of the number of software licenses to be issued and any Maintenance Services, along with the agreed-upon prices. The price for both the
licenses and any related Maintenance Fees are fixed and stated in the contract.
*Sales and use taxes*
**
The Company presents transactional taxes such as sales
and use tax collected from customers and remitted to government authorities on a net basis.
**Customer deposits**
****
The Company accepts reservation of the motorcycles
that include cash deposit placed by a potential customer. The deposits serve to prioritize orders when the motorcycles become available
for delivery. Customers making deposits are not obligated to purchase motorcycle and may request return of their deposit any time up.
The Company records such advance deposits as a liability and defers the related revenue recognition until delivery of the motorcycle occurs.
****
**Leases**
****
The Company is obligated under certain operating and
finance leases for its offices, planned manufacturing plant, equipment and vehicles. The Company assesses whether an arrangement is a
lease or contains a lease at inception of the arrangement. For arrangements considered leases, the Company assesses the lease for finance
or operating classification and records a right-of-use (ROU) asset and lease liability as of the commencement date. The
Companys operating leases are included in operating lease right-of-use assets, short-term operating lease liabilities and long-term
operating lease liabilities on the consolidated balance sheets. The Companys finance leases are included in property and equipment,
net, short-term finance lease liabilities and long-term finance lease liabilities on the consolidated balance sheets.
F-12
ROU assets are presented in our Consolidated Balance
Sheets based on the present value of the corresponding liabilities and are adjusted for any prepayments, lease incentives received or
initial direct costs incurred. The present value of lease payments is based on our incremental borrowing rate according to the lease term
and information available at the lease commencement date, as our lease arrangements generally do not provide an implicit interest rate.
The incremental borrowing rate reflects the rate of interest that the Company would have to pay to borrow the funds necessary to obtain
an asset of similar value in a similar economic environment with similar terms and conditions.
The measurement of our ROU assets and liabilities
includes all fixed payments and any variable payments based on an index or rate. The Company has lease agreements with lease and non-lease
components and has elected to utilize the practical expedient to account for lease and non-lease components together as a single combined
lease component. We have elected to not record leases with a term of 12 months or less in our Consolidated Balance Sheets. Lease assets
are subject to review for impairment within the related long-lived asset group.
****
Recognition, measurement and presentation of expenses
and cash flows arising from a lease will depend on classification as a finance or operating lease. Operating lease expense is recognized
on a straight-line basis over the lease term, whereas the amortization of finance lease assets is recognized on a straight-line basis
over the shorter of the estimated useful life of the underlying asset or the lease term. Operating lease expense and finance lease amortization
are presented in operating expenses in the Consolidated Statements of Income depending on the nature of the leased item. Interest expense
on finance lease obligations is recorded over the lease term and is presented in Interest expense, based on the effective interest method.
****
The Company subleases one of its office spaces to
third parties, which does not relieve the Company of its primary lease obligations with the lessor (the headlease). This
sublease is classified as an operating lease, and therefore the Company continues to account for the headlease as it did before the commencement
of the sublease. Sublease income is presented within the same category of operating expenses as the underlying headlease expenses on the
consolidated statements of operations. If the lease cost of the term of the sublease exceeds the Companys anticipated sublease
income for the same period, the Company assesses the right-of-use asset associated with the head lease for impairment under the long-lived
asset impairment provisions of ASC 360.
**Deferred finance costs**
Costs incurred in connection with borrowings under
term loans (primarily debt discount and incentives) are deferred on the consolidated balance sheet as a reduction to the carrying value
of the associated borrowings, and are amortized as interest expense over the term of the related borrowings using the effective interest
method.
**Research and
development**
****
Research and development costs that do not meet the
criteria for capitalization are expensed as incurred. Research and development expenses include compensation, employee benefits, and stock-based
compensation for technology developers and product management employees as well as fees paid to outside consultants and software costs
for the Companys proprietary technology. The Company is eligible for government grant and tax credits. The Company accounts for
these credits as a reduction to research and development costs and will recognize these claims when it is probablethat the expense
incurredqualifies for the government grant claimand that the Company hascomplied with all the conditions to realize
the claim. Otherwise, the recognition of government grant claim would be deferred until the recognition criteria are satisfied.
**Government
grants**
****
Government grants are recognized when the Company
has reasonable assurance that it has complied with the relevant conditions of the grant and that it will be received. The Company recognizes
the grants that compensate the Company for expenses incurred against the financial statement line item that it is intended to compensate.
****
**Income taxes**
****
Income taxes are comprised of current and deferred
taxes. These taxes are accounted for using the liability method. Current tax is recognized in connection with income for tax purposes,
unrealized tax benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to
the taxation period during which the income or loss for tax purposes arose.
****
F-13
****
Deferred tax is recognized on the difference between
the carrying amount of an asset or a liability, as reflected in the financial statements, and the corresponding tax base, used in the
computation of income for tax purposes (temporary differences) and measured using the enacted tax rates and laws as at the balance sheet
date that are expected to apply to the income that the Company expects to arise for tax purposes in the period during which the difference
is expected to reverse. Management assesses the likelihood that a deferred tax asset will be realized, and a valuation allowance is provided
to the extent that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The determination of
both current and deferred taxes reflects the Companys interpretation of the relevant tax rules and judgement.
****
An unrealized tax benefit may arise in connection
with a period that has not yet been reviewed by the relevant tax authority. A change in the recognition or measurement of an unrealized
tax benefit is reflected in the period during which the change occurs.
****
Income taxes are recognized in the consolidated statements
of operations and comprehensive loss, except when they relate to an item that is recognized in other comprehensive loss or directly in
equity, in which case, the taxes are also recognized in other comprehensive loss or directly in equity respectively. Where income taxes
arise from the initial accounting for a business combination, these are included in the accounting for the business combination.
The One Big Beautiful Bill Act (the Act) was signed
on July 4, 2025, which marks the date of enactment for the tax provisions included in the Act. The Company is evaluating the impact of
this enactment.
**Share capital**
****
Common shares are classified as equity. Incremental
costs directly attributable to the issuance of common shares and stock options are recognized as a deduction from equity. Share issue
costs incurred in advance of share subscriptions are recorded as non-current deferred assets. Share issue costs related to uncompleted
share subscriptions are expensed in the period they are incurred.
Preferred shares are classified as equity. Incremental
costs directly attributable to the issuance of preferred shares are recognized as a deduction from equity. Share issue costs incurred
in advance of share subscriptions are recorded as non-current deferred assets. Share issue costs related to uncompleted share subscriptions
are expensed in the period they are incurred.
**Stock-based
compensation**
****
The Company measures and records the expense related
to stock-based payment awards based on the fair value of those awards as determined on the date of grant. The Company recognizes stock-based
compensation expense over the requisite service period of the individual grant, generally equal to the vesting period and uses the straight-line
method to recognize stock-based compensation. For stock options with performance conditions, the Company records compensation expense
when it is deemed probable that the performance condition will be met.
The Company uses a contemporaneous valuation model,
the Black-Scholes-Merton (Black-Scholes) option-pricing model to determine the estimated fair value of stock option awards.
The Black-Scholes option-pricing model requires the use of the Companys share price estimates on the date of grant as well as highly
subjective and complex assumptions, which determine the fair value of stock-based awards, including the options expected term and
the price volatility of the underlying stock.
**Segment reporting**
Operating segments are defined as components of an
entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (CODM)
in deciding how to allocate resources to an individual segment and in assessing performance. The Companys CODM is its Chief Executive
Officer. The Companys operations consist of two operating segments- electric personal mobility products and scientific software
products and services.
F-14
**Earning or
loss per share**
****
Basic earning or loss per share is computed by dividing
the net income or loss, less accrued dividends on any outstanding preferred stock, by the weighted average number of common shares outstanding
for the period. Diluted earning or loss per share calculations reflects the assumed exercise of all dilutive employee stock options and
warrants and the conversion of any outstanding convertible preferred shares or notes payable that are-in-the-money, applying the as-if-converted
method.
When the Company is in a loss position, all potential
share issuances on the exercise of stock options or warrants and the conversion of any preferred shares or convertible notes payable are
anti-dilutive and the diluted loss per share is the same as the basic loss per share. Potentially dilutive items outstanding as of June
30, 2025 and 2024 include preferred shares, stock options, SAFE, convertible notes and share purchase warrants.
**Foreign currency translation**
****
The Company and its subsidiaries functional
currency is U.S. dollars (USD), except for the functional currency of Grafiti Limited is British Pound.
Each entity within the consolidated group records
transactions using its functional currency, being the currency of the primary economic environment in which it operates. Foreign currency
transactions are translated into the respective functional currency of each entity using the foreign currency rates prevailing at the
date of the transaction. Period-end balances of monetary assets and liabilities in foreign currency are translated to the respective functional
currencies using period-end foreign currency rates. Foreign currency gains and losses arising from the settlement of foreign currency
transactions are recognized in the consolidated statements of operations and comprehensive loss.
On consolidation, the assets and liabilities of foreign
operations that have a functional currency other than USD are translated into USD at the exchange rates in effect at the end of the reporting
period. Revenues and expenses are translated at the average monthly exchange rates prevailing during the period. The resulting translation
gains and losses are included within other comprehensive loss. The cumulative deferred translation gains or losses on the foreign operations
are reclassified to net income, only on disposal of the foreign operations.
**Fair value measurements**
The Company follows the accounting guidance in ASC
820,Fair Value Measurement, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring
basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified
and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices,
for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by
little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or
estimation.
F-15
Our financial
assets include cash and accounts receivable. Our financial liabilities include accounts payable and accrued liabilities, short -term debt,
pre-paid purchase, financial liability convertible to equity, convertible notes and lease liabilities. The carrying amounts of these instruments,
including cash and cash equivalents, accounts receivable, and trade payables and accrued liabilities, are considered to be representative
of their fair values because of their short-term nature.
**Warrant Liabilities**
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrants specific terms and applicable authoritative guidance
in the FASB Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity (ASC 480)
and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements
for equity classification under ASC 815, including whether the warrants are indexed to the Companys own ordinary shares, among
other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time
of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants
that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in
capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants
are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter
****
**Concentration of credit risk**
Financial instruments that potentially subject the Company to concentration
of credit risk consist of principally cash and cash equivalents, bank deposits and certain receivables. The Company holds cash and cash
equivalents with highly rated financial institutions. As of June 30, 2025 and 2024, cash and cash equivalents consisted of cash in Canada
and the United States. Balances in cash accounts exceed amounts insured by the Canada Deposit Insurance Corporation for up to C$100,000
and by the Federal Deposit Insurance Corporation for up to $250,000. The Company has not experienced any significant credit losses in
these accounts and does not believe the Company is exposed to any significant credit risk on these instruments.
****
**Recently adopted accounting standards**
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic
280): Improvements to Reportable Segment Disclosures. This standard requires public companies, including entities with a single reportable
segment, to disclose information about their reportable segments significant expenses and other items on an interim and annual
basis to provide more transparency about the expenses they incur from revenue generating business units. The new standard is effective
for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective
basis, with early adoption permitted. The Company adopted ASU 2023-07 for the year ended June 30, 2025, on a retrospective basis. The
adoption did not have a material effect on the Companys financial statements.
**Recent accounting pronouncements not yet adopted**
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (ASU 2023-09), which is intended to enhance the transparency
and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide enhanced income tax information primarily through
changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual
periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the updated
standard will have on the Companys disclosures within the consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03,
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income
Statement Expenses, that requires public companies to disclose, in interim and reporting periods, additional information about
certain expenses in the financial statements. For public business entities, it is effective for annual periods beginning after December
15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective
basis or retrospective basis. The Company is currently evaluating the impact that the updated standard will have on the Companys
disclosures within the consolidated financial statements.
**3. Business Combination**
On October 23, 2023, Grafiti and XTI Aerospace, Inc.
(then parent company of Grafiti) entered into a Business Combination Agreement with Damon Motors, Inc. (Damon Motors), in
which Damon Motors would combine and merge with a newly formed wholly-owned subsidiary of Grafiti (Amalco Sub), with Damon
Motors continuing as the surviving entity (Business Combination).
F-16
On November 13, 2024, the following events occurred
upon the consummation of the Business Combination:
|
| the
cancellation and conversion of all 134,068 issued and outstanding Damon Motors preferred shares to 370,880 Damon Motors
common shares with no gain or loss on conversion recognized; |
|
|
| the
cancellation and conversion of $8,370,546 convertible notes into 131,974 Damon Motors common shares; |
|
|
| the
surrender and exchange of all 613,738 issued and outstanding common shares of Damon Motors (including common shares resulting from the
conversion of preferred shares and convertible notes) to 118,088 Pubco common shares and 11,129 Pubco multiple voting shares after giving
effect to the exchange ratio of 0.21 (Exchange Ratio); |
|
|
| The
cancellation and exchange of all 73,795 granted and outstanding vested and unvested Damon Motors options, into 15,537 Pubco options exercisable
for Pubco common shares with the same terms and vesting conditions except for the numbers of shares exercisable and the exercise price,
each of which was adjusted by the Exchange Ratio; |
|
|
| The
cancellation and exchange of all 49,922 granted and outstanding Damon Motors warrants, into 17,491 Pubco warrants exercisable for Pubco
common shares with the same terms except for the numbers of shares exercisable and the exercise price, each of which was adjusted by
the Exchange Ratio. |
|
Upon the consummation of the Business Combination,
the holders of the historical outstanding shares of Damon Motors owned approximately 77.8% of the outstanding shares of Pubco and approximately
81.5% on a fully diluted basis. Upon the consummation of the Business Combination, the holders of the historical outstanding shares of
Grafiti owned approximately 22.2% of the outstanding shares of Pubco and approximately 18.5% on a fully dilutive basis.
The following tables summarize the consideration paid
for the acquisitions and the preliminary amount of identified assets acquired and liabilities assumed as of the acquisition date:
|
| |
Fair Value | | |
|
Equity consideration | |
$ | 11,123,075 | | |
|
Settlement of preexisting relationship (Note 8) | |
| 1,184,115 | | |
|
Net consideration | |
| 9,938,960 | | |
|
Assets acquired: | |
| | | |
|
Cash and cash equivalents | |
| 77,270 | | |
|
Accounts receivable | |
| 57,093 | | |
|
Prepaid expenses and other current assets | |
| 78,265 | | |
|
Property and equipment | |
| 2,311 | | |
|
Customer list | |
| 80,000 | | |
|
Goodwill | |
| 14,045,955 | | |
|
Total assets acquired | |
| 14,340,894 | | |
|
Liabilities assumed: | |
| | | |
|
Accounts payable and accrued liabilities | |
| 2,203,441 | | |
|
Deferred revenue | |
| 160,509 | | |
|
Fair value of debt assumed | |
| 2,037,984 | | |
|
Total liabilities assumed | |
| 4,401,934 | | |
|
| |
| | | |
|
Estimated fair value of net assets acquired | |
$ | 9,938,960 | | |
F-17
In connection with the Business Combination, the Company
recognized approximately $80,000 of identifiable intangible assets and $14,045,955 of goodwill, which represented the excess purchase
price over fair value of identifiable net assets acquired, pursuant to the preliminary purchase price allocation. Goodwill will not be
amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event
that the value of goodwill or other intangible assets have become impaired, an accounting charge for impairment during the period in which
the determination is made may be recognized. The goodwill is not anticipated to be deductible for tax purposes. In addition, the Company
recorded an adjustment to common stock of $11,123,075 to reflect the value of the consideration for the transaction pursuant to the additional
goodwill and intangible assets identified in the preliminary purchase price allocation. The customer list intangible assets of $80,000
was fair valued using replacement cost and will be amortized over the estimated useful life of five years.
The following table presents the unaudited, pro forma
consolidated results of operations for the years ended June 30, 2025 and 2024 as if the Business Combination had occurred at the beginning
of fiscal year 2023. The pro forma information provided below is compiled from the pre-acquisition financial information of Grafiti. The
pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of this
acquisition actually been acquired at the beginning of fiscal year 2023 or (ii) future results of operations:
|
| |
Year ended June 30, 2025 | | |
Year ended June 30, 2024 | | |
|
| |
unaudited | | |
unaudited | | |
|
Revenue | |
$ | 366,874 | | |
$ | 336,562 | | |
|
Net loss | |
$ | (8,199,606 | ) | |
$ | (35,316,605 | ) | |
During the year ended June 30, 2025, the Company determined
that based on its qualitative assessment for scientific software products and services reporting unit, factors existed which required
the Company to test its goodwill and intangible assets for impairment. These factors included underperformance for revenue growth and
operating cash flow from the scientific software products and services reporting unit, decline of the market price of the Companys
common stock, and general economic and market volatility. A quantitative impairment test on goodwill and intangible assets determined
that the fair value was below the carrying value. The Company estimated fair value using a combination of discounted cash flows and market
comparisons. It is also determined that the decline of the fair value of the scientific software products and services reporting unit
is not temporary. As such, for the year ended June 30, 2025, the Company recorded a non-recurring level 3 valuation charge, including
impairment of goodwill in the amount of $14,045,955 and impairment of the carrying value of intangible assets in the amount of $74,000,
reducing the carrying value of goodwill and intangible assets to $nil. The impairment charge was reflected in the consolidated statements
of operations.
****
**4. Cash and restricted cash**
****
The following table provides a reconciliation of cash
and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated
statements of cash flows.
****
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
Cash | |
$ | 2,479,283 | | |
$ | 395,580 | | |
|
Restricted cash | |
| 43,373 | | |
| - | | |
|
Total cash and restricted cash | |
$ | 2,522,656 | | |
$ | 395,580 | | |
****
F-18
As of June 30, 2025, the Companys restricted
cash consists of certificates of deposits related to the Company's corporate credit card program.
**5. Property and equipment, net**
****
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
Tools and office equipment | |
$ | 60,428 | | |
$ | 559,672 | | |
|
Computer equipment | |
| 435,225 | | |
| 432,109 | | |
|
Leasehold improvements | |
| 139,514 | | |
| 139,514 | | |
|
Financing lease right-of-use asset | |
| 259,211 | | |
| 259,211 | | |
|
Total property and equipment | |
| 894,378 | | |
| 1,390,506 | | |
|
Less: accumulated depreciation | |
| (812,486 | ) | |
| (941,251 | ) | |
|
Property and equipment, net | |
$ | 81,892 | | |
$ | 449,255 | | |
****
During the year ended June 30, 2025, the Company incurred
amortization of finance lease right-of-use asset in the consolidated statements of operations of $40,530 (2024 - $46,447).
During the year ended June 30, 2025, the Company disposed an equipment
with a cost of $499,244 and accumulated depreciation of $341,151, and recorded a loss on disposal of $103,193, included in general and
administrative expenses.
****
**6. Accounts payable and accrued liabilities**
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
Trade payable | |
$ | 3,790,515 | | |
$ | 3,172,403 | | |
|
Due to related parties | |
| 101,955 | | |
| 404,426 | | |
|
Payroll liabilities | |
| 254,846 | | |
| 1,408,358 | | |
|
Accrued liabilities and other payables | |
| 543,764 | | |
| 938,934 | | |
|
| |
$ | 4,691,080 | | |
$ | 5,924,121 | | |
As of June 30, 2025, $168,278 (June 30, 2024 - $220,526)
was related to severance and included in payroll liabilities.
Included in accrued liabilities and other payables
is an amount owing for the surrender and settlement of the Damon Motors lease of a Surrey, British Columbia manufacturing facility of
$225,953 as of June 30, 2025 (June 30, 2024 - $237,452). Also see Note 20.
F-19
**7. Leases**
The Company has operating leases for its office spaces
and finance leases for its equipment trailer.
The lease liability in connection with operating and
finance leases are included in non-current lease liabilities and current portion of lease liabilities on the consolidated balance sheets
as follows:
|
Operating leases: | |
June 30, 2025 | | |
June 30, 2024 | | |
|
Operating lease right-of-use assets | |
$ | 475,739 | | |
$ | 689,165 | | |
|
| |
| | | |
| | | |
|
Current portion of operating lease liabilities | |
$ | 294,475 | | |
$ | 443,519 | | |
|
Long-term portion of operating lease liabilities | |
| 136,654 | | |
| 235,492 | | |
|
Total operating lease liabilities | |
$ | 431,129 | | |
$ | 679,011 | | |
|
Finance leases: | |
June 30, 2025 | | |
June 30, 2024 | | |
|
Property, plant and equipment, net | |
$ | 51,934 | | |
$ | 92,463 | | |
|
| |
| | | |
| | | |
|
Current portion of finance lease liabilities | |
$ | 178,447 | | |
$ | 7,141 | | |
|
Long-term portion of finance lease liabilities | |
| - | | |
| 177,403 | | |
|
Total finance lease liabilities | |
$ | 178,447 | | |
$ | 184,544 | | |
The following lease costs are included in the consolidated
statements of operations:
|
| |
Year ended June 30, 2025 | | |
Year ended June 30, 2024 | | |
|
| |
| | |
| | |
|
Operating lease expense: | |
| | |
| | |
|
Operating lease expense | |
$ | 706,714 | | |
$ | 587,677 | | |
|
Short-term lease expense | |
| 3,539 | | |
| - | | |
|
Total operating lease expense | |
| 710,253 | | |
| 587,677 | | |
|
| |
| | | |
| | | |
|
Finance lease expense: | |
| | | |
| | | |
|
Amortization of leased assets | |
| 40,530 | | |
| 46,447 | | |
|
Interest on lease liabilities | |
| 8,615 | | |
| 9,499 | | |
|
Total finance lease expense | |
| 49,145 | | |
| 55,946 | | |
|
| |
| | | |
| | | |
|
Sublet income | |
| (98,970 | ) | |
| (152,729 | ) | |
|
Total lease costs | |
$ | 660,428 | | |
$ | 490,894 | | |
The Company has calculated the weighted-average remaining
lease term, presented in years below, and the weighted-average discount rate for the operating and finance leases population. The Company
uses the incremental borrowing rate as the lease discount rate, unless the lessors rate implicit in the lease is readily determinable,
in which case it is used.
| | | June 30, 2025 | | |
| Weighted-average remaining lease term (in years) | | | | |
| Operating leases | | | 1.77 | | |
| Finance leases | | | 0.98 | | |
| Did you disclose the | | | | | |
| Weighted-average discount rate: | | | | | |
| Operating leases | | | 12 | % | |
| Finance leases | | | 4.89 | % | |
F-20
As of June 30, 2025, the maturities of our operating
lease liabilities (excluding short-term leases) are as follows:
|
| |
Operating leases | | |
Finance leases | | |
|
2026 | |
$ | 325,886 | | |
$ | 186,247 | | |
|
2027 | |
| 79,372 | | |
| - | | |
|
2028 | |
| 72,757 | | |
| - | | |
|
Total minimum lease payments | |
| 478,015 | | |
| 186,247 | | |
|
Less: interest | |
| 46,886 | | |
| 7,800 | | |
|
Present value of lease obligations | |
| 431,129 | | |
| 178,447 | | |
|
Less: Current portion | |
| 294,475 | | |
| 178,447 | | |
|
Long-term portion of lease obligations | |
$ | 136,654 | | |
$ | - | | |
**8. Short-term debt**
Short-term debt as of June 30, 2025 consisted of the following:
|
Short-term debt: | |
June 30, 2025 | | |
June 30, 2024 | | |
|
Promissory notes | |
$ | 504,685 | | |
$ | 548,886 | | |
|
Senior secured promissory note | |
| - | | |
| 550,603 | | |
|
Total short-term debt | |
$ | 504,685 | | |
$ | 1,099,489 | | |
Promissory notes
(a) WSGR promissory note
On April 16, 2024, the Company signed an agreement to issue as payment
and settlement of professional fees owing, a promissory note in the aggregate amount of $542,753 with an interest rate at 5.5% per annum
in favour of Wilson Sonsini Goodrich & Rosati Professional Corporation (WSGR). On September 16, 2024, the Company signed
an amendment to the promissory note agreement with WSGR to modify the due date from September 1, 2024 to October 31, 2024. On November
11, 2024, the Company signed another amendment to the promissory note agreement with WSGR to modify the due date of October 31, 2024 to
December 15, 2024. As of June 30, 2025, WSGR promissory note amounted to $504,685, including interest payable of $41,932, which is still
outstanding. As of June 30, 2025, the WSGR promissory note was in default. No consequences of default have been incurred by the company;
however, the Company plans to repay the outstanding balance in monthly installments by the end of May 31, 2026.
(b) SOL promissory note
On October 9, 2024, the Company entered into a promissory
note agreement with SOL Global Investments Corp. in the principal amount of $200,000. The note bears interest rate at 12% per annum and
matures on December 8, 2024. During the year ended June 30, 2025, the Company repaid principal and interest in full with an amount of
$239,679. As of June 30, 2025, SOL promissory note has no outstanding balance.
Senior secured promissory note
In connection with the promissory note agreement dated
June 26, 2024, Damon Motors had a senior secured promissory note with Grafiti with interest rate at 10.0% per annum and maximum aggregate
principal amount of $1,150,000. As of June 30, 2024, the balance under the senior secured promissory note amounted to $550,603. Upon completion
of the Business Combination, the balance of the promissory note was eliminated in consolidation.
F-21
**9. Pre-paid security purchase**
On December 20, 2024, the Company entered into a securities
purchase agreement (the Securities Purchase Agreement) with Streeterville Capital, LLC (Streeterville), pursuant
to which the Company agreed to issue and sell to Streeterville pre-paid purchases at an aggregate purchase price of up to $10,000,000
for the purchase of the Companys common shares. Each pre-paid purchase includes an original issue discount of 7% and accrues interest
at an annual rate of 8%. As consideration for Streetervilles commitment, the Company issued 2,744 common shares to Streeterville.
Also, $100,000 from the initial pre-paid purchase funding, and 15% of the funding from subsequent pre-paid purchases, shall be used to
repay the indebtedness under the secured promissory note issued to Streeterville in June 2024 with an original principal amount of $6,470,000
(Note 11).
On February 27, 2025, the Company and Streeterville
entered into an Amendment No. 1. Under the Amendment No. 1, the Company represented as to its foreign private issuer status and ability
to follow home country practice instead of Nasdaq Listing Rule 5635(d) shareholder approval requirements. The parties agreed that, as
long as the Company remains a foreign private issuer, the Company is not required to seek shareholder approval for issuing shares above
the limit set by Nasdaq Listing Rule 5635(d). If the Company loses its foreign private issuer status, it must obtain such approval within
90 days. Additionally, the Company agreed to permit Streeterville, beginning 45 days after the closing of March 2025 financing, to unilaterally
elect to make pre-paid purchases up to $3,000,000 of the remaining commitment amount, without affecting the Companys rights to
require Streeterville to make pre-paid purchases.
As of June 30, 2025, the Company has received an aggregate
of $4,400,000 from Streeterville out of the total $10,000,000 committed amount, resulting in an outstanding principal balance of $4,708,000.
Of the $4,400,000 received, a total of $460,000 has been used to repay the indebtedness under the secured promissory note issued to Streeterville
in June 2024.
As of June 30, 2025, Streeterville has purchased,
and the Company has issued, a total of 65,068 common shares to satisfy pre-paid purchases made through this date, based on the pricing
formula described in the Streeterville Securities Purchase Agreement, and the outstanding principal balance was reduced by $1,550,000.
As of June 30, 2025, pre-paid purchases amounted to
$2,962,518, including principal balance of $3,158,000, interest payable of $131,982, net off $327,464 unamortized discount and transaction
cost.
As of June 30, 2025, the Company is in technical default,
but Streeterville has chosen not to issue a default letter.
**10. Convertible notes**
From October 2022 to October 2024, the Company issued
convertible promissory notes to arms-length parties with an aggregate principal amount of $25,939,772 and interest rate of 12% per annum,
payable in arrears on the maturity date, one year from notes issuance dates. At inception, the proceeds from the convertible notes issued
with detachable share purchase warrants were determined to be their fair values, were allocated between the convertible notes issued with
detachable share purchase warrants based on the residual method. Management has determined that due to the complexity of the various embedded
features and the short life expected of the notes, it will elect the fair value option under ASC 825-10-1 as the instruments are eligible
for the fair value election under ASC 825-10. As a result, the entire convertible promissory note is carried at fair value. As of June
30, 2024, the convertible notes are valued by management based on the Companys estimated enterprise value implied by the most comparable
transaction and allocating the value to each of the Companys equity-linked instruments (preferred shares, SAFE agreements, convertible
promissory notes, stock options and common shares) based on their respective characteristics and rights. In arriving at the value attributable
to each instrument, the Company applies an option pricing model. The Companys model values the preferred shares, SAFEs, convertible
promissory notes, common shares, warrants and stock options as call options on the Companys equity value with exercise prices based
on the conversion options of the respective instruments. The model used the following assumptions, including volatility, risk free rates
and managements best estimate of the expected time for the occurrence of a conversion event as described below.
****
|
| |
June
30, 2024 | | |
|
Annualized volatility | |
| 70% 90 | % | |
|
Expected time to liquidity | |
| 0.5 1.5 year | | |
|
Dividend rate | |
| 0 | % | |
|
Risk-free interest rate | |
| 5.09 | % | |
****
F-22
****
During the year ended June 30, 2025, the Company issued
$1,855,000 of convertible notes. The share purchase warrants meet the equity classification requirements and $875,127 was recorded as
a component of additional paid-in capital. The residual value of $979,873 was allocated to the debt.
Upon the completion of Business Combination, the convertible
notes were mandatorily converted into 131,974 Damon Motors common shares. Upon conversion, the carrying value of the convertible
debt approximates fair value of the shares issued. As of June 30, 2025, there were no convertible notes outstanding.
The activity in convertible notes for the years ended
June 30, 2025 and 2024 was as follows:
|
Balance, July 1, 2023 | |
$ | 14,727,183 | | |
|
Funds advanced | |
| 11,549,945 | | |
|
Convertible note issued for settlement of debt | |
| 1,308,441 | | |
|
Warrant bifurcated classified as liability | |
| (1,086,240 | ) | |
|
Warrant bifurcated classified as equity | |
| (674,034 | ) | |
|
Interest accrued, net of capitalized interest paid | |
| 1,793,574 | | |
|
Changes in fair value of financial liabilities | |
| 13,011,887 | | |
|
Balance, June 30, 2024 | |
| 40,630,756 | | |
|
Funds advanced | |
| 1,105,000 | | |
|
Convertible note issued for services | |
| 750,000 | | |
|
Warrant bifurcated classified as equity | |
| (875,127 | ) | |
|
Interest accrued | |
| 1,093,490 | | |
|
Changes in fair value of financial liabilities | |
| (34,333,573 | ) | |
|
Convertible notes converted to common shares | |
| (8,370,546 | ) | |
|
Balance, June 30, 2025 | |
$ | - | | |
**11. Convertible promissory note**
On June 26, 2024, Grafiti and Streeterville Capital,
LLC (Streeterville or Investor) entered into a note purchase agreement, pursuant to which Grafiti agreed to
sell, and Streeterville agreed to purchase, a secured promissory note in an aggregate original principal amount of $6,470,000 (the Streeterville
Note). The Streeterville Note accrues interest on the outstanding balance of the note at the rate of 10% per annum, and all principal
plus accrued interest is due and payable in December 2025. The Streeterville Note carries an original issue discount of $1,450,000 and
$20,000 of issuance costs to cover legal, accounting, due diligence, monitoring and other transaction costs, which were recorded as a
contract liability within long-term debt and will be amortized over the term of the note.
Starting on the earlier of 13 months after the closing
of the Business Combination or January 1, 2026, the Investor may require the borrower to redeem up to one-sixth of the notes initial
principal and accrued interest monthly, and any unexercised redemption amounts can be carried over to future months. Grafiti has also
agreed to not issue or sell any equity securities for capital raising purposes without the Investors prior consent.
On November 13, 2024, upon consummation of the business
combination, the outstanding balance of the convertible promissory note of $2,037,984 was assumed by the Company (see Note 3).
On February 27, 2025, the Company and Streeterville
entered into an amendment, pursuant to which, Streeterville was granted the right to convert from time to time at its election, all or
any portion of the outstanding balance of the Steeterville Note into common shares of the Company. The number of common shares to be converted
will be calculated using the conversion price, which is 90% of the lowest daily volume weighted average price of the Companys common
shares during the ten trading days preceding the delivery date of a conversion notice. This is subject to a floor price of $3.1375 per
share.
F-23
The amendment was accounted for as a debt modification
and the conversion feature should be accounted for as a derivative instrument. However, the conversion feature is considered to have immaterial
value due to the high weight of probability that it will not be exercised due to the uncertainty of lack of trading liquidity.
During the year ended June 30, 2025, the Company repaid
of $2,216,168 principal. As of June 30, 2025, the total outstanding balance of the Streeterville Note consists of $4,253,832 principal,
$237,868 monitoring fee, $638,517 accrued interest, and $576,283 unamortized debt discount and issuance costs.
Interest expense on convertible promissory note for
the year ended June 30, 2025 totaled $1,831,280 (June 30, 2024- $nil), which was not paid and included in the long-term debt balance in
the consolidated balance sheet as of June 30, 2025.
Convertible promissory note as of June 30, 2025 consisted
of the following:
| Convertible promissory note: | | Maturity | | June 30, 2025 | | | June 30, 2024 | | |
| Streeterville Note | | 12/26/2025 | | $ | 5,130,217 | | | $ | - | | |
| Unamortized debt discount | | | | | (576,283 | ) | | | - | | |
| Total convertible promissory note | | | | $ | 4,553,934 | | | $ | - | | |
**12. Financial liability convertible to equity**
|
Balance, July 1, 2023 | |
$ | 2,700,000 | | |
|
Foreign exchange adjustment | |
| (92,543 | ) | |
|
Changes in fair value | |
| 592,543 | | |
|
Balance, June 30, 2024 | |
| 3,200,000 | | |
|
Converted to common shares | |
| (3,200,000 | ) | |
|
Balance, June 30, 2025 | |
$ | - | | |
From August through September 2022, the Company
entered into multiple SAFE agreements with certain investors and received $2,005,213. The SAFEs are recorded as a liability measured
at fair value at inception and subsequently carried at fair value with changes in fair value recorded in the statements of operations.
The SAFEs are valued by management at each measurement
date based on the Companys estimated enterprise value implied by the most comparable transaction and allocating the value to each
of the Companys equity-linked instruments (preferred shares, SAFE agreements, convertible promissory notes, share purchase warrants,
stock options and common shares) based on their respective characteristics and rights. In arriving at the value attributable to each instrument,
the Company applies an option pricing model. The Companys model values the preferred shares, SAFEs, common shares, and stock options
as call options on the Companys equity value with exercise prices based on the conversion options of the respective instruments.
The model used for the valuation of convertible promissory
notes, share purchase warrants and SAFEs used certain assumptions as of June 30, 2024, including volatility, risk free rates and managements
best estimate of the expected time for the occurrence of a conversion event as described in Note 10 above.
F-24
During the year ended June 30, 2025, the Company recognized
change in fair value of SAFEs of $nil (June 30, 2024 loss of $592,543), included in changes in fair value of financial liabilities
in the consolidated statements of operations.
On July 1, 2024, the SAFEs matured and the SAFE holders
received 11,496 Damon Motors common shares, which were converted into 2,420 common shares of the Company upon completion of the
Business Combination.
As of June 30, 2025, the Company is in technical default,
but Streeterville has chosen not to issue a default letter.
**13. Share capital and other components of equity**
**Share capital**
**a) Authorized**
The authorized share capital of the Company consists
of the following:
|
| An
unlimited number of common shares without par value; |
|
|
| An
unlimited number of multiple voting shares without par value. |
|
**b) Issued and outstanding**
| | | As of June 30, 2025, the Company had 19,603,815 (June 30, 2024 20,758) common shares outstanding; | |
| | | As of June 30, 2025, the Company had nil (June 30, 2024 nil) multiple voting shares outstanding; | |
| | | As of June 30, 2025, the Company had nil (June 30, 2024 3,528,408) preferred shares outstanding. | |
*March 2025 financing*
On March 21, 2025, the Company completed public offering
of 1,015,200 units at a price of $16.25 per unit. Each unit consisted of one common share and one Series A warrant to purchase one common
share. The Company also issued 50,760 Series A warrants to the underwriters. In addition, the Company granted the underwriters a 45-day
option to purchase up to an additional 152,280 common shares, and/or 152,280 Series A warrants, to cover over-allotments. On March 21,
2025, the underwriters partially exercised its overallotment option with respect to 152,280 Series A warrants.
Each Series A warrant will be immediately exercisable
upon issuance at an initial exercise price of $24.375 per common share, subject to adjustment on the First Reset Date and the Second Reset
Date and subject to a floor price therein. The floor price has been set at $3.1375. Additionally, under the alternate cashless exercise
option of the Series A warrants, during the period of 90 calendar days following the issue date of the Series A warrants, a holder of
the Series A warrant has the right to receive, without payment of any additional cash to the Company, an aggregate number of shares equal
to the product of (x) the aggregate number of common shares that would be issuable upon a cash exercise of the Series A warrant and (y)
two and a half (2.5).
Transaction costs consisted of legal, accounting,
underwriting discount and other costs incurred that were directly related to the issuance of the units. Pursuant to the terms of the Underwriting
Agreement, the underwriters received a cash fee of six and a half percent (6.5%) of the aggregate gross proceeds as underwriting discounts
and commissions. The Company also paid the Underwriters out-of-pocket accountable expenses of $100,000. The Company incurred other
transaction costs in the amount of $594,167.
F-25
Gross proceeds to the Company, before deducting underwriting
commissions and other offering expenses, were $16,516,035. The Company allocated the proceeds first to the warrants based on their fair
values as determined at initial measurement, with the remaining proceeds allocated to common shares. Transaction costs are allocated to
the separable financial instruments based on a relative fair value basis, compared to total proceeds received. Transaction costs allocated
to warrant liabilities are expensed as incurred, presented as non-operating expenses in the accompanying statements of operations. Transaction
costs allocated to the common stocks were charged against the carrying value of the common shares. The Company recognized transaction
costs for issuance of warrants of $2,424,033, which was included in the finance expense in the statements of operations for the year ended
June 30, 2025. The Company received proceeds of $19,035 from the issuance of overallotment warrants. As the fair value of the overallotment
warrants exceeded the proceeds, the Company recognized $2,315,311 loss from issuance, which was included in the finance expense in the
statements of operations for the year ended June 30, 2025.
At the closing of the financing, the Company issued
1,015,200 common shares, 1,015,200 Series A warrants, 50,760 underwriters warrants, and 152,280 overallotment warrants. The gross proceeds
from the offering, excluding the over allotment proceeds, of $16,497,000 was first allocated to the fair value of the Series A Warrants
of $15,689,207 and the remaining $807,793 allocated to the fair value of the common stock, net of allocated issuance costs of $108,642,
resulting in net proceed allocated to the common stock of $699,151.
The warrants issued within the units and the overallotment
warrants were accounted for as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the
future. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented
within change in fair value of warrant liabilities in the consolidated statements of operations. The Company recognized warrant liabilities
of $18,023,553 at inception. The fair value of the warrants were measured using its quoted market price, assuming all the warrants will
be exercised at the second reset price of $3.1375, under the alternate cashless exercise option.
The underwriters warrants were classified as
a contingently redeemable warrant in accordance with ASC 718, since these warrants did qualify for equity classification, but could be
settled in cash or other assets in the event that another person or entity becomes the beneficial owner of 50% of the outstanding shares
of the Companys common stock. Because this contingently redeemable feature could result in the warrant holders receiving additional
compensation not on par with the holders of Common Stock, the underwriters warrants were classified as temporary equity and therefore
reported in Mezzanine Equity at inception. The Company recognized mezzanine equity of $784,000 at inception. As of June
30, 2025, all the underwriters warrants were exercised.
A summary of the changes in the fair value of the
warrant liability Level 3 roll forward was as follows:
|
Warrants classified as liability | |
Number of warrants | | |
Amount | | |
|
| |
| | |
$ | | |
|
Balance, July 1, 2024 | |
| - | | |
$ | - | | |
|
Issuance of warrants in the units | |
| 1,015,200 | | |
| 15,689,207 | | |
|
Issuance of overallotment warrants | |
| 152,280 | | |
| 2,334,346 | | |
|
Converted to common shares | |
| (1,167,461 | ) | |
| (18,023,263 | ) | |
|
Balance, June 30, 2025 | |
| 19 | | |
$ | 290 | | |
|
Warrants classified as mezzanine equity | |
Number of warrants | | |
Amount | | |
|
| |
| | |
$ | | |
|
Balance, July 1, 2024 | |
| - | | |
$ | - | | |
|
Issuance of underwriters warrants | |
| 50,760 | | |
| 784,000 | | |
|
Converted to common shares | |
| (50,760 | ) | |
| (784,000 | ) | |
|
Balance, June 30, 2025 | |
| - | | |
$ | - | | |
As of June 30, 2025, 18,347,303 common shares were
issued for 1,218,221 warrants exercised, and $18,023,262 warrants liabilities and $784,000 mezzanine equity were transferred to equity.
As of June 30, 2025,19 Series A Warrants remain
outstanding, which may result in the issuance of up to365 additional common shares, assuming exercise on an alternate cashless basis
at the floor price of $3.1375.
*Other activities*
On July 1, 2024, the Company issued 2,420 common shares
in connection with the conversion of SAFE with an estimated fair value of $3,200,000 (Note 12).
On November 13, 2024, in connection with the reverse
acquisition treatment of the Business Combination, the Company effectively issued 36,923 new common shares. At the closing of the Business
Combination, the Company also issued 78,085 new common shares for the conversion of all 28,227 issued and outstanding preferred shares
and issued 27,786 new common shares for the conversion of convertible notes. For clarification, these issuances occurred at the Damon
Motors level prior to the exchange of Damon Motors securities into Pubco securities at the closing of the Business Combination.
F-26
Immediately following the Business Combination, the
Company (i.e., Pubco) had 155,041 common shares outstanding without par value and 11,129 multiple voting shares outstanding. The holder
of each common share is entitled to one vote. Subsequent to the closing of the Business Combination, the 11,129 multiple voting shares
were converted to common shares.
During the year ended June 30, 2025, the Company issued
196 common shares for the service fee in connection with the Business Combination, 3,216 common shares for investor relationship service
received, and 4,116 common shares for advisory service received.
During the year ended June 30, 2025, the Company issued
2,744 common shares in connection with entering the Securities Purchase Agreement with Streeterville. Also, the Company issued 65,068
in connection with the share purchase made by Streeterville under the Securities Purchase Agreement. Also see Note 9.
During the year ended June 30, 2025 and 2024, no preferred
shares were issued.
**Stock options**
On August 30, 2017 (and amended on September 24, 2021),
the Board adopted a Stock Option Plan which provides that the Board may from time to time, in its discretion, grant to directors, officers,
employees, and consultants, non-transferable stock options to purchase common shares of the Company. As per the terms of the Stock Option
Plan, the requisite vesting period of the employees is generally four years.
The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option pricing model. During the years ended June 30, 2025 and 2024, the Company issued nil
stock options.
A summary of the changes in the Companys stock
options is as follows:
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
| |
Options (#) | | |
Weighted average exercise price | | |
Options (#) | | |
Weighted average exercise price | | |
|
Outstanding, beginning of year | |
| 15,586 | | |
$ | 421 | | |
| 17,076 | | |
$ | 406 | | |
|
Expired/cancelled | |
| (9,805 | ) | |
| 493 | | |
| (817 | ) | |
| 356 | | |
|
Exercised | |
| - | | |
| - | | |
| (673 | ) | |
| 108 | | |
|
Outstanding, end of year | |
| 5,781 | | |
| 187 | | |
| 15,586 | | |
| 421 | | |
|
Exercisable, end of year | |
| 5,677 | | |
| 161 | | |
| 15,172 | | |
| 344 | | |
|
Weighted average fair value at grant date of options granted | |
| n/a | | |
| | | |
| n/a | | |
| | | |
|
Total intrinsic value of options exercised | |
$ | - | | |
| | | |
$ | 1,020,473 | | |
| | | |
|
Total intrinsic value of options outstanding | |
$ | - | | |
| | | |
$ | 30,563,749 | | |
| | | |
|
Total intrinsic value of options exercisable | |
$ | - | | |
| | | |
$ | 30,135,740 | | |
| | | |
Details of stock options outstanding at June 30, 2025
were as follows:
| Exercise price | | | Weighted average contractual life | | | Number of options outstanding | | | Number of options exercisable | | |
| | | | | | | | | | | | |
| $ | 71 | | | | 0.46 | | | | 4,412 | | | | 4,412 | | |
| $ | 119 | | | | 1.87 | | | | 868 | | | | 868 | | |
| $ | 154 | | | | 2.71 | | | | 94 | | | | 94 | | |
| $ | 1,591 | | | | 7.21 | | | | 407 | | | | 303 | | |
| | | | | | | | | | 5,781 | | | | 5,677 | | |
F-27
During the year ended June 30, 2025, the Company recognized
stock-based compensation expense of $63,539 (2024 $146,841).
|
Stock-based compensation expense recorded in | |
June 30, 2025 | | |
June 30, 2024 | | |
|
General and administrative expenses | |
$ | 9,138 | | |
$ | 58,765 | | |
|
Research and development expenses | |
| 48,706 | | |
| 72,605 | | |
|
Sales and marketing expenses | |
| 5,695 | | |
| 15,471 | | |
|
| |
$ | 63,539 | | |
$ | 146,841 | | |
Cash received by the Company upon the exercise of
stock options during the year ended June 30, 2025 amounted to $nil (2024 $61,155).
**Warrants**
For warrants that meet the criteria for equity classification,
the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.
During the year ended June 30, 2025, in connection
with the issuance of convertible promissory notes to arms-length parties (Note 10), the Company issued 1,631 common share purchase warrants
to the noteholders. At inception, these warrants were assessed to meet the equity classification requirements and fair value of the warrants
of $875,127 was recorded as a component of additional paid-in capital.
Warrants of the Company classified as equity are composed
of the following as at June 30, 2025:
| Date of issuance | | Number of warrants outstanding | | | Number of warrants exercisable | | | Exercise price | | | Expirydate | |
| June 16, 2023 | | | 2,664 | | | | 2,664 | | | | 976 | | | June 15, 2028 | |
| August 10, 2023 | | | 1,091 | | | | 1,091 | | | | 976 | | | August 9, 2028 | |
| September 13, 2023 | | | 1,086 | | | | 1,086 | | | | 976 | | | September 12,2028 | |
| September 26, 2023 | | | 2,882 | | | | 2,882 | | | | 976 | | | September 25,2028 | |
| September 30, 2023 | | | 204 | | | | 204 | | | | 976 | | | September 29,2028 | |
| October 26, 2023 | | | 4,556 | | | | 4,556 | | | | 976 | | | October 25, 2028 | |
| December 15, 2023 | | | 372 | | | | 372 | | | | 976 | | | December 14,2028 | |
| April 5, 2024 | | | 324 | | | | 324 | | | | 976 | | | April 4, 2029 | |
| April 26, 2024 | | | 159 | | | | 159 | | | | 976 | | | April 25, 2029 | |
| March 12, 2024 | | | 794 | | | | 794 | | | | 976 | | | March 11, 2029 | |
| March 26, 2024 | | | 90 | | | | 90 | | | | 976 | | | March 25, 2029 | |
| April 15, 2024 | | | 1,537 | | | | 1,537 | | | | 976 | | | April 14, 2029 | |
| May 1, 2024 | | | 78 | | | | 78 | | | | 976 | | | April 30, 2029 | |
| May 29, 2024 | | | 20 | | | | 20 | | | | 976 | | | May 28, 2029 | |
| July 20, 2024 | | | 256 | | | | 256 | | | | 976 | | | July 19, 2029 | |
| July 22, 2024 | | | 102 | | | | 102 | | | | 976 | | | July 21, 2029 | |
| July 30, 2024 | | | 20 | | | | 20 | | | | 976 | | | July 29, 2029 | |
| August 30, 2024 | | | 189 | | | | 189 | | | | 976 | | | August 29, 2029 | |
| October 8, 2024 | | | 512 | | | | 512 | | | | 976 | | | October 7, 2029 | |
| October 18, 2024 | | | 51 | | | | 51 | | | | 976 | | | October 17, 2029 | |
| November 12, 2024 | | | 499 | | | | 499 | | | | 976 | | | November 11,2029 | |
| | | | 17,486 | | | | 17,486 | | | | | | | | |
**14. Related party transactions**
Parties are considered to be related if one party
has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial
and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is
a transfer of resources or obligations between related parties.
During the year ended June 30, 2025, the Company incurred
$190,000 (2024 - $nil) of consulting services fee and $175,000 (2024 - $nil) fee upon closing the Business Combination to Melanie Figueroa,
who is also a director of the Company.
As at June 30, 2025, $101,955 (June 30, 2024 - $404,426)
was due for remuneration payable to key management and a director.
F-28
**15. Income taxes**
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest
and penalties.
ASC 740 additionally requires a valuation allowance
to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. After consideration
of all of the information available, management believes that significant uncertainty exists with respect to future realization of the
deferred tax assets and has therefore established a full valuation allowance. For the years ended June 30, 2025 and 2024, the change in
the valuation allowance was $5,339,652 and $3,425,000, respectively. After the end of fiscal year 2025, on July 4, 2025, the One Big Beautiful
Bill Act (OBBBA) was enacted, which includes several tax related provisions that may impact the Company beginning in fiscal
year 2026. We are currently evaluating the potential impact of OBBBA on our consolidated financial statements for future periods.
The disaggregation of the Company's Canadian and foreign
pre-tax loss for the years ended June 30, 2025 and 2024 is as follows:
|
| |
June 30,
2025 | | |
June 30,
2024 | | |
|
Canada | |
$ | (2,715,386 | ) | |
$ | (30,831,794 | ) | |
|
Foreign | |
| (2,634,481 | ) | |
| (3,136,454 | ) | |
|
| |
$ | (5,349,867 | ) | |
$ | (33,968,248 | ) | |
The following is a reconciliation between statutory
income taxes and the income tax expense for years ended June 30, 2025 and 2024:
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
Loss before tax | |
$ | 5,349,867 | | |
$ | 33,968,248 | | |
|
Statutory tax rate | |
| 27 | % | |
| 27 | % | |
|
Expected tax recovery at statutory rate | |
| (1,444,464 | ) | |
| (9,172,000 | ) | |
|
Impact of foreign tax rate | |
| (15,766 | ) | |
| - | | |
|
Impact of permanent differences | |
| (3,570,201 | ) | |
| 5,622,000 | | |
|
SR&ED and IRAP government assistance | |
| - | | |
| (327,000 | ) | |
|
Foreign exchange and other | |
| (308,426 | ) | |
| 452,000 | | |
|
Change in valuation allowance | |
| 5,339,652 | | |
| 3,425,000 | | |
|
Income tax expense | |
$ | 795 | | |
$ | - | | |
|
| |
| | | |
| | | |
|
Current income tax | |
$ | 795 | | |
$ | - | | |
|
Deferred income tax | |
| - | | |
| - | | |
|
Income tax expense | |
$ | 795 | | |
$ | - | | |
The Companys deferred tax assets are as follows
for the year end June 30, 2025 and 2024:
|
| |
June 30,
2025 | | |
June 30,
2024 | | |
|
Deferred tax asset: | |
| | |
| | |
|
Financing cost | |
$ | 609,684 | | |
$ | 562,282 | | |
|
Non-capital loss carry forward | |
| 22,149,686 | | |
| 17,158,967 | | |
|
Property and equipment | |
| 366,964 | | |
| 368,513 | | |
|
ROU liability | |
| 164,585 | | |
| 244,036 | | |
|
Convertible promissory note | |
| 240,861 | | |
| - | | |
|
CECL | |
| 64,288 | | |
| - | | |
|
Capitalized R&D | |
| 1,129,727 | | |
| 1,120,043 | | |
|
Deductible SR&ED pool | |
| 1,444,099 | | |
| 1,647,638 | | |
|
Non-refundable BC ITCs | |
| 407,267 | | |
| 405,957 | | |
|
Non-refundable federal ITCs | |
| 286,478 | | |
| 285,557 | | |
|
Other | |
| 233,171 | | |
| - | | |
|
Total deferred tax assets | |
| 27,096,810 | | |
| 21,792,993 | | |
|
| |
| | | |
| | | |
|
Deferred tax liabilities: | |
| | | |
| | | |
|
ROU asset | |
| (142,472 | ) | |
| (179,572 | ) | |
|
Pre-paid security purchase | |
| (5,255 | ) | |
| (20,194 | ) | |
|
BC proxy SR&ED | |
| - | | |
| (208,182 | ) | |
|
Federal ITC claimed during the year | |
| - | | |
| - | | |
|
Total deferred tax liabilities | |
| (147,727 | ) | |
| (407,948 | ) | |
|
Total deferred tax assets/liabilities | |
| 26,949,083 | | |
| 21,385,045 | | |
|
Less: valuation allowance | |
| (26,949,083 | ) | |
| (21,385,045 | ) | |
|
Net deferred tax assets (liabilities) | |
$ | - | | |
$ | - | | |
F-29
The Company has unclaimed Canadian SR&ED expenditures of approximately
$6,102,364 as at June 30, 2025 and 2024, which can be carried forward indefinitely to reduce future years taxable income. The balance
is included as a reduction to research and development expense.
The Company has also received approximately $277,000
(over 2019, 2020, 2021, 2022 and 2023) in assistance from the Government of Canada through the Industrial Research Assistance Program
(IRAP) administered by the National Research Council of Canada.
At June 30, 2025, the Company had Canadian non-capital losses carry-forward
of $75,036,390 (June 30, 2024 58,606,697) which expires over 2038 through 2045, and a US net operating loss carry forward of $8,441,315
(June 30, 2024 $6,357,899) which can be carried forward indefinitely.
The amount and expiry date of deductible temporary
differences, unused tax losses and unused tax credits for which no deferred tax asset is recognized in the statement of financial position
are as follows:
| Jurisdiction | | Expiry | | Operating losses | | | SR&ED expenditure pool | | | Investment tax credit | | |
| Canada | | Indefinite | | $ | - | | | $ | 6,102,364 | | | $ | - | | |
| Canada | | 2038-2045 | | | 75,036,390 | | | | - | | | | - | | |
| US - Federal | | 2042-2045 | | | - | | | | 5,379,650 | | | | - | | |
| US - Federal | | Indefinite | | | 8,441,315 | | | | - | | | | - | | |
| US - California | | 2042-2045 | | | 14,576,222 | | | | - | | | | - | | |
| UK | | Indefinite | | | 616,731 | | | | - | | | | - | | |
| | | | | $ | 98,670,658 | | | $ | 11,482,014 | | | $ | - | | |
**Our ability to use our net operating loss
carry-forwards and certain other tax attributes may be limited.**
Under Section 382 of the Internal Revenue Code
of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an ownership change (generally
defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporations ability to
use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its
post-change income may be limited. We may also experience ownership changes in the future as a result of subsequent shifts in our stock
ownership, including as a result of the completion of the business combination when it is taken together with other transactions we may
consummate in the succeeding three-year period. As a result, if we earn net taxable income, our ability to use our pre-change net operating
loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased future
tax liability to us. We have not yet determined the amount of the cumulative change in our ownership resulting from the recent transactions,
or any resulting limitations on our ability to utilize our net operating loss carryforwards and other tax attributes. As a result, if
we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income
may be subject to limitations, which potentially could result in increased future tax liability to us.
**16. Segment reporting**
ASC 280 - Segment Reporting establishes standards
for reporting information about operating segments on a basis consistent with internal organization reporting used by the Companys
chief operating decision maker, our CEO, for making operating decisions and assessing performance as the source for determining the Companys
reportable segments. For the year ended June 30, 2024, the Company is pre-revenue and pre-production and operates as a single reportable
operating segment. Upon completion of the Business Combination, the Companys operations consisted of two operating segments-
electric personal mobility products and scientific software products and services.
The following table is our long-lived assets information
by geography as of June 30, 2025 and 2024:
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
| |
| | |
| | |
|
Canada | |
$ | 539,725 | | |
$ | 676,886 | | |
|
United States | |
| 16,348 | | |
| 461,534 | | |
|
United Kingdom | |
| 1,558 | | |
| - | | |
|
| |
$ | 557,631 | | |
$ | 1,138,420 | | |
F-30
|
| |
June 30, 2025 | | |
|
| |
Electric personal mobility products | | |
Scientific software productsand services | | |
|
Revenue | |
$ | - | | |
$ | 222,736 | | |
|
Gross profit | |
| - | | |
| 115,342 | | |
|
Depreciation and amortization | |
| (210,828 | ) | |
| (6,615 | ) | |
|
Operating expenses | |
| (17,026,452 | ) | |
| (14,346,364 | ) | |
|
Other items | |
| 26,125,050 | | |
| - | | |
|
Current income tax (expense)/recovery | |
| (800 | ) | |
| 5 | | |
|
Net (loss)/income | |
| 8,886,970 | | |
| (14,237,632 | ) | |
|
FX translation | |
| - | | |
| (11,598 | ) | |
|
Comprehensive (loss)/income | |
$ | 8,886,970 | | |
$ | (14,249,230 | ) | |
|
| |
June 30, 2025 | | |
June 30, 2024 | | |
|
| |
Electric personal mobility products | | |
Scientific software productsand services | | |
Electric personal mobility products | | |
Scientific software productsand services | | |
|
Plant and equipment, net | |
$ | 80,334 | | |
$ | 1,558 | | |
$ | 449,255 | | |
$ | - | | |
|
Operating lease right-of-use assets | |
| 475,739 | | |
| - | | |
| 689,165 | | |
| - | | |
|
Other non-current assets | |
| 176,632 | | |
| 273 | | |
| 612,932 | | |
| - | | |
|
Total assets | |
$ | 3,617,828 | | |
$ | 464,870 | | |
$ | 1,751,352 | | |
$ | - | | |
**17. Fair value**
The following table presents the hierarchy for our
financial liabilities measured at fair value on a recurring basis as of June 30, 2024:
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
| |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible notes |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,630,756 |
|
|
$ |
40,630,756 |
| |
|
Financial liability convertible to equity |
|
|
- |
|
|
|
- |
|
|
|
3,200,000 |
|
|
|
3,200,000 |
| |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
43,830,756 |
|
|
$ |
43,830,756 |
| |
As of June 30, 2024, the convertible notes and SAFEs
that were measured at fair value on a recurring basis were categorized as Level 3. For assets and liabilities recognized at fair value
on a recurring basis, the Company reassesses categorization to determine whether changes have occurred between the hierarchy levels at
the end of each reporting period. The fair value of these Level 3 financial liabilities is determined using pricing models, discounted
cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation
(see Note 10).
Areas of significant judgement are the risk-free rate,
volatility rate, dividend yield, term to liquidation, discount for lack of marketability, most recent financing rounds and implied equity
value per letter of intent. These valuations use assumptions and estimates the Company believes would be made by a market participant
in making the same valuation. The Company reassesses these assumptions and estimates on an on-going basis as additional data impacting
the assumptions and estimates are obtained. A significant increase/decrease in some of those unobservable inputs would result in a significantly
higher/lower fair value measurement.
During the year ended June 30, 2025, the Company recognized
fair value adjustments with respect to financial instruments categorized as Level 3 of $34,333,573 (2024 - $18,424,992), in the statements
of operations as changes in fair value of financial liabilities. No amounts were recognized in other comprehensive income as the changes
in fair value due to credit risk were nominal.
Also see Note 10 and Note 12.
**18. Basic and diluted earning or loss per share**
The calculation of basic and diluted loss per share
for year ended June 30, 2025 was based on the net loss attributable to common shareholders of $5,350,662 (2024 net loss of $33,968,248)
and the weighted average number of common shares outstanding of 4,645,505 (2024 20,516).
F-31
The following table presents the potentially dilutive shares that were
excluded from the computation of diluted loss per share because their effect was anti-dilutive:
|
|
|
June 30,
2025 |
|
|
June 30,
2024 |
| |
|
Stock options |
|
|
5,781 |
|
|
|
15,586 |
| |
|
Warrants |
|
|
17,505 |
|
|
|
9,530 |
| |
|
Preferred shares |
|
|
- |
|
|
|
59,139 |
| |
|
SAFE |
|
|
- |
|
|
|
2,150 |
| |
|
Convertible notes |
|
|
- |
|
|
|
25,771 |
| |
|
|
|
|
23,286 |
|
|
|
112,176 |
| |
**19. Credit risk**
****
During the year ended June 30, 2025, the Company had one customer that
accounted for10% of revenue.
During the year ended June30, 2025, cost of goods sold was the
license fee incurred with Grafiti LLC, pursuant to the Distributor Agreement entered between Grafiti Limited and Grafiti LLC on July 19,
2024.
****
**20. Commitments and contingencies**
A summary of undiscounted liabilities and future operating
commitments as at June 30, 2025:
|
| |
Total | | |
Within 1 year | | |
2 - 5
years | | |
Greater than 5 years | | |
|
| |
| | |
| | |
| | |
| | |
|
Purchase obligations | |
$ | 931,713 | | |
$ | 931,713 | | |
$ | - | | |
$ | - | | |
|
Investment obligation (1) | |
| 1,000,000 | | |
| 1,000,000 | | |
| - | | |
| - | | |
|
Total financial liabilities and commitments | |
$ | 1,931,713 | | |
$ | 1,931,713 | | |
$ | - | | |
$ | - | | |
|
(1) | The
Company entered into a strategic partnership arrangement with a third-party. As part of the agreement, the Company agree to invest an
aggregate amount of $1,000,000 in the third-party upon a future financing and negotiation of terms that are agreed to by both parties
during the term of the agreement. As at the date of these financial statements no such arrangement has been made. |
|
**Technical Design Agreement**
On April 4, 2025, the Company entered into a Technical
Design Agreement (the Agreement) with Engines Engineering S.p.a. (EE), an Italian corporation specializing
in vehicle engineering, design and development, to provide such services for development of the Companys HyperSport Race electric
motorcycle (the Project).
Under the Agreement, EE will be responsible for delivering
services in multiple areas including technical compliance, component selection, development and validation testing, and prototyping. The
Project is structured into nine development phases continuing through March 2026, with specific milestones and deliverables required at
each phase.
The total contract value of the Agreement is $1,864,265(1,581,670).
As of June 30, 2025, half of the contract amount was paid, and the unamortized project deposit of $389,505 was included in the other current
assets in the consolidated balance sheets. The remaining half of $931,713 (790,833) will be paid within one year in installments
following the Companys acceptance of the corresponding phase.
F-32
Pursuant to the Agreement, all work product developed
under the Agreement will be owned by the Company upon full payment for the applicable phase, while EE retains ownership of its pre-existing
intellectual property and grants the Company an irrevocable, perpetual, nonexclusive, worldwide and paid-up license to use such intellectual
property and create derivative works when used as part of or in support of the work product developed under the Agreement.
**Other matters**
On September 30, 2023, the Company signed a full surrender
agreement with the lessor of the Surrey, British Columbia manufacturing facility. Per the agreement, cash consideration must be paid in
seven installments on or before the dates set forth in the agreement. In the event that the Company defaults on such payment obligations,
the Company will immediately have to pay the lessor the full amount of all rent. On April 29, 2024 the Company requested payment deferment
of the 5th and 6th instalment payment due on March 1, 2024 and May 1, 2024 respectively to July 1, 2024. On September 6, 2024, the lessor
agreed to further defer the payments due on July 1, 2024 to be paid on or before September 30, 2024. On October 1, 2024, the Company and
the lessor signed an amendment to the surrender agreement whereby the lessor agreed to a waiver of breach by the Company of its payment
obligations. As of June 30, 2025, the Company has not made payments for the last three installments and the amount owing of $238,934 (June
30, 2024 - $237,452) was included in accounts payable and accrued liabilities.
The Company met the eligibility criteria under the
Small Business Venture Capital Act (the Act) and was registered as an Eligible Business Corporation (EBC)
in 2018. Under the Act, the Company was approved to raise up to $10 million through the issuance of authorized equity capital whereby
the investing shareholders received up to 30% of the amount invested as a tax credit against their B.C. provincial taxes. Under this program,
should the Company be out of compliance with the Act during the required five-year investment hold period, it would be contingently liable
to repay any tax credits previously issued to investors. At the date of these financial statements, repayable tax credits are approximately
$0.37 million. Management believes the Company is compliant with all relevant terms of the Act.
On March 7, 2025, the Company was served with a notice
of civil claim (the Notice), which was filed on February 28, 2025, in the Supreme Court of British Columbia by Damon Jay
Mercredi Giraud, former director and CEO of the Company (the Plaintiff), against the Company and all of the directors of
the Company. The Notice alleges, among other things, that in connection with the Plaintiffs resignation (i) the Board agreed to
certain settlement terms which included provisions related to the payment of a listing bonus contingent on the Companys successful
listing on a recognized stock exchange (the Listing Bonus) and backpay for unpaid wages; and (ii) after the effective date
of the Plaintiffs resignation, the Company provided the Plaintiff with a written settlement agreement which fundamentally altered
the terms of the previously agreed settlement terms, including the payment date for the Listing Bonus and backpay for unpaid wages; and
(iii) that the Company has not discharged its obligations pursuant to the alleged settlement terms and (iv) that the Plaintiff received
a letter from major shareholders containing unfounded accusations against the Plaintiff and threatening him with legal action, and that
such letter was sent by or at the direction of the Company. The Company is required to respond within 21 days after the date a copy of
the Notice was served. As of the date of the filing, neither the Company or its directors have responded to the Notice and the Company
denies the allegations of wrongdoing described in the Notice. The relief sought by the Plaintiff includes, among others, specific performance
of the allegedly original verbal settlement terms, an order assigning any debts in the Plaintiffs name owed by the Company to the
Company, and special costs, or, in the alternative, breach of an employment contract, and damages for wrongful dismissal.
On April 11, 2025, Andy DeFrancesco (DeFrancesco)
filed a notice of civil claim (the Claim) against the Company in the Supreme Court of British Columbia. In the Claim, DeFrancesco
alleges that, in or around October 2023, the Companys executives verbally agreed to issue $3.2 million worth of the Companys
shares (the Shares) to DeFrancesco in exchange for past and future services provided to Damon, including advising and working
with the Company on financings and other operational aspects. DeFrancesco further alleges the Shares were to be provided as soon as possible
and that he delivered an irrevocable direction regarding delivery of the shares in November 2023, however the Company has refused to issue
the Shares. The relief sought by DeFrancesco includes specific performance of the alleged verbal agreement and damages for loss of opportunities
caused by the alleged breach of contract or, alternatively, unjust enrichment on a quantum meruit basis for the services allegedly provided
by DeFrancesco. The Company filed a response to the Civil Claim (defense) on May 9, 2025, denying all allegations.
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On March 29, 2025, the Company entered into a letter
agreement with Braebeacon Holdings Inc. (Braebeacon) to formally terminate the following loan agreements, under which the
Company received no loan funds prior to such termination: (i) the Note Purchase Agreement, dated November 13, 2024, between the Company
and Braebeacon; (ii) the Secured Promissory Note, dated November 13, 2024, issued by the Company to Braebeacon; (iii) the Security Agreement,
dated November 13, 2024, executed by the Company in favor of Braebeacon; (iv) the Security Agreement, dated November 13, 2024, executed
by Damon Motors, Inc., a wholly owned subsidiary of the Company, in favor of Braebeacon; (v) the Intellectual Property Security Agreement,
dated November 13, 2024, executed by Damon Motors, Inc. in favor of Braebeacon; (vi) the Guaranty, dated November 13, 2024, executed by
Damon Motors, Inc. in favor of Braebeacon; and (vii) the Guaranty, dated November 13, 2024, executed by Damon Motors Corporation, a wholly
owned subsidiary of the Company, in favor of Braebeacon.
Additionally, the Company entered into a letter agreement
with East West Capital, LLC (East West, and together with Braebeacon, the Note Holders) to formally terminate
the following loan agreements, under which the Company received no loan funds prior to such termination: (i) the Note Purchase Agreement,
dated November 13, 2024, between the Company and East West; (ii) the Secured Promissory Note, dated November 13, 2024, issued by the Company
to East West; (iii) the Security Agreement, dated November 13, 2024, executed by the Company in favor of East West; (iv) the Security
Agreement, dated November 13, 2024, executed by Damon Motors, Inc. in favor of East West; (v) the Intellectual Property Security Agreement,
dated November 13, 2024, executed by Damon Motors, Inc. in favor of East West; (vi) the Guaranty, dated November 13, 2024, executed by
Damon Motors, Inc. in favor of East West; and (vii) the Guaranty, dated November 13, 2024, executed by Damon Motors Corporation in favor
of East West.
Under the letter agreements, the Company and each
Note Holder acknowledged that, as of the termination date, no amounts had been funded under the respective Note Purchase Agreements or
Secured Promissory Notes. As a result of such terminations, all rights and obligations of the parties under the terminated agreements
have been extinguished and are of no further force or effect.
**21. Subsequent events**
In addition to subsequent events disclosed elsewhere
within these consolidated financial statements, the following events occurred after June 30, 2025, up to the date these financial statements
were issued:
On July 3, 2025, the Companys Board of Directors
approved a reverse stock split of its issued and outstanding common shares, without par value, at a ratio of 1-for-125.After the
reverse stock split, every 125 issued and outstanding common shares were converted automatically into one common share.The total
number of issued and outstanding common shares was reduced by a corresponding proportion from2,450,477,042 to19,603,815. All
share and per share amounts have been retroactively adjusted to reflect the reverse stock split for all periods presented. The Companys
common shares are traded on the OTCID Basic Market under the symbol DMNIF. As a result of the reverse stock split effective
on July 3, 2025, the trading symbol was temporarily changed to DMNID until August 1, 2025, after which it reverted to DMNIF.
On September 9, 2025, the Damon Motors Inc. was served
with a notice of civil claim (the Notice), which was filed on September 4, 2025, in the Supreme Court of British Columbia,
by Moz Holdings Canada Inc. (Moz), landlord of 704 and 714 Alexander Street, Vancouver, BC, whereby Damon Motors Inc. had
previously occupied space. The alleges that the Damon Motors Inc. has unpaid rent of $376,527 for unpaid rent up to and including September
2025. Damon Motors does not agree with the claim made by Moz and will be filing a response denying the allegation.
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