UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ______________ to _______________
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name
of each exchange on which each is registered | ||
| The
|
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 19, 2025, there were
DAMON INC.
TABLE OF CONTENTS
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are based on our management’s current expectations, assumptions or forecasts of future events based on information currently available to our management. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our history of losses; |
| ● | our ability to implement our growth strategy and achieve profitability; |
| ● | our limited operating history with recent acquisitions; |
| ● | our ability to obtain adequate financing in the future as needed; |
| ● | our ability to continue as a going concern; |
| ● | our status as a foreign private issuer; |
| ● | impact of our expected delisting from The Nasdaq Stock Market LLC (“Nasdaq”), and our ability to trade on an over-the-counter market maintained by OTC Markets Group Inc. (“OTC Markets”); |
| ● | customer demand for or acceptance of the products and services we develop or supply; |
| ● | the impact of competitive or alternative products, technologies and pricing; |
| ● | emerging competition and rapidly advancing technology in our industry that may outpace our technology; |
| ● | our ability to manufacture or distribute any products we develop or supply, and to secure and maintain strategic supply and manufacturing arrangements; |
| ● | our ability to protect our intellectual property; |
| ● | impact of any changes in existing or future regulatory and tax regimes applying to our business; |
| ● | our ability to successfully consummate strategic transactions and integrate companies or technologies we acquire; |
ii
| ● | our ability to attract and retain management and other employees who possess specialized knowledge and technical skills; |
| ● | our ability to develop and maintain effective internal controls; |
| ● | general economic conditions and events and the impact they may have on us and our customers, including, but not limited to escalating tariff and non-tariff trade measures imposed by the United States and other countries, increases in inflation rates and rates of interest, supply chain challenges, increased costs for materials and labor, cybersecurity threats, volatility in the financial and stock markets, and geopolitical conflicts such as those in Russia/Ukraine and Israel/Hamas; | |
| ● | the outcome of any known and unknown litigation and regulatory proceedings; |
| ● | our success at managing the risks involved in the foregoing items; and |
| ● | other factors discussed in this Form 10-Q. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Some of these risks and uncertainties may be amplified in the future and there may be additional risks that we currently consider immaterial, or which are unknown.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
iii
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 Parent’s 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 (the “Form 10 Registration Statement”) 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 Parent’s 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 the us with the Securities and Exchange Commission (the “SEC”) on November 18, 2024 (the “November 18, 2024 8-K”).
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.
About Our Foreign Private Issuer Status
As a corporation organized under the laws of British Columbia, 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 Company’s most recently completed second fiscal quarter, ended December 31, 2024. Notwithstanding the Company’s 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, including this quarterly report, 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 maintains 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. Additionally, the Company elects to follow certain home country corporate governance practices instead of those otherwise required under the listing rules of Nasdaq, as further discussed under Part II, Item 5 of our quarterly report on Form 10-Q for the quarterly period ended December 31, 2024 filed on February 14, 2025, as amended on March 17, 2025, and under the heading “Risk Factors” in Part II, Item 1A in such quarterly report.
iv
PART I — FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended March 31, 2025 are not necessarily indicative of the results of operations for the full year. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited consolidated financial statements for the fiscal years ended June 30, 2024 and 2023, which were included in the information statement filed as Exhibit 99.1 to our amended registration statement on Form 10-12B filed with the SEC on September 26, 2024 (the “Form 10”).
F-1
DAMON INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March
31, 2025 (unaudited) |
June
30, 2024 |
|||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance | ||||||||
| Other current assets | ||||||||
| Current assets | ||||||||
| Non-current assets | ||||||||
| Premises lease deposits | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Goodwill and customer list | ||||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Customer deposits | ||||||||
| Deferred revenue | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Short-term debt | ||||||||
| Pre-paid security purchase | ||||||||
|
Convertible promissory note |
||||||||
| Warrant liabilities | ||||||||
| Convertible notes | ||||||||
| Financial liability convertible to equity | ||||||||
| Current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Non-current portion of operating lease liabilities | ||||||||
| Non-current portion of finance lease liabilities | ||||||||
| Non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies (Note 18) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Warrants issued to underwriters (Note 11) | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive loss | ( |
) | ||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ deficit | ( |
) | ( |
) | ||||
| Total liabilities, mezzanine equity and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
DAMON INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
| Three
months ended March 31, |
Nine
months ended March 31, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Expenses | ||||||||||||||||
| Research and development, net | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Transaction costs | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Impairment | ||||||||||||||||
| Foreign currency transaction (gain)/loss | ( |
) |
( |
) | ( |
) | ||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income / (expenses) | ||||||||||||||||
| Changes in fair value of financial liabilities | ( |
) | ( |
) | ||||||||||||
| Loss on debt settlement | ( |
) | ( |
) | ||||||||||||
| Finance expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| ( |
) | ( |
) | ( |
) | |||||||||||
| Loss before taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Current income tax recovery | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| COMPREHENSIVE LOSS | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustments | ( |
) | ( |
) | ||||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss per share – basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of shares outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
DAMON INC.
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND CHANGES IN STOCKHOLDERS’ DEFICIT
(unaudited)
| Mezzanine equity | ||||||||||||||||||||||||||||||||||||||||
| Number
of warrants |
Amount | Common shares1 | Preferred shares1 | Additional
paid in capital |
Accumulated
other comprehensive income (loss) |
Accumulated
Deficit |
Stockholders’
deficit |
|||||||||||||||||||||||||||||||||
| As of June 30, 2024 | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||
| Conversion of Simple Agreements for Future Equity (SAFEs) at maturity | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common share purchase warrants issued in connection with convertible promissory notes | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| As of September 30, 2024 | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||
| Common share purchase warrants issued in connection with convertible promissory notes | - | - | - | |||||||||||||||||||||||||||||||||||||
| Conversion of preferred shares | - | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||||
| Issuance of common shares, net of issuance costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for Business Combination | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | - | $ | $ | - | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||
| Issuance of common shares, net of issuance costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of warrants to underwriters | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for warrants exercised | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for pre-paid security purchase | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| As of March 31, 2025 | $ | $ | - | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
| As of June 30, 2023 | - | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Issuance of common shares, net of issuance costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock options exercised | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| As of September 30, 2023 | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock options exercised | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock options exercised | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Common share purchase warrants issued | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| As of March 31, 2024 | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||
| 1 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
DAMON INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine
months ended March 31, 2025 |
Nine
months ended March 31, 2024 |
|||||||
| Operating activities | ||||||||
| Net loss: | $ | ( |
) | $ | ( |
) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Shares issued for services | ||||||||
| Non-cash interest | ||||||||
| Non-cash transaction cost | ||||||||
| Loss on debt settlement | ||||||||
| Changes in fair value of financial liabilities | ( |
) | ||||||
| Impairment | ||||||||
| Foreign exchange gain | ( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets and premises lease deposits | ( |
) | ||||||
| Accounts receivable | ||||||||
| Accounts payable and accrued liabilities | ( |
) | ( |
) | ||||
| Deferred revenue | ||||||||
| Operating lease | ( |
) | ( |
) | ||||
| Customer deposits | ( |
) | ( |
) | ||||
| Cash used in operating activities | ( |
) | ( |
) | ||||
| Investing activities | ||||||||
| Net cash acquired from business combination | ||||||||
| Cash provided by investing activities | ||||||||
| Financing activities | ||||||||
| Payments on finance leases | ( |
) | ( |
) | ||||
| Proceeds from share issuance | ||||||||
| Proceeds from senior secured promissory notes | ||||||||
| Proceeds from promissory notes | ||||||||
| Repayment of promissory notes | ( |
) | ||||||
| Repayment of SR&ED loan | ( |
) | ( |
) | ||||
| Proceeds from pre-paid purchase, net | ||||||||
| Proceeds from convertible notes | ||||||||
| Proceeds from long-term debt | ||||||||
| Repayment of long-term debt | ( |
) | ||||||
| Proceeds from exercise of stock options | ||||||||
| Cash provided by financing activities | ||||||||
| Effect of exchange rates on cash holdings in foreign currencies | ( |
) | ||||||
| Net change in cash during the period | ( |
) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Nine
months ended March 31, 2025 |
Nine
months ended March 31, 2024 |
|||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest on finance lease paid | $ | $ | ||||||
| Interest paid on debt | ||||||||
| Supplemental disclosure of non-cash investing and financing activity: | ||||||||
| SAFEs converted to preferred shares | ||||||||
| Convertible notes converted to common shares | ||||||||
| Common shares issued for services | ||||||||
| Convertible notes issued for services | ||||||||
| Common shares issued for pre-paid security agreement | ||||||||
| Common shares issued for Business Combination | ||||||||
| Common shares issued for settlement of amount owing for severance payment | ||||||||
| Convertible notes issued for settlement of promissory notes | ||||||||
| Convertible notes issued for settlement of debt | ||||||||
| Common shares issued for warrants conversion | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
DAMON
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2025 AND 2024
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
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 are listed on the Nasdaq Global Market under the ticker symbol “DMN”. Following a delisting determination by Nasdaq, trading of the Company’s common shares was halted on April 29, 2025. To enable the Company’s common shares to trade on an alternative market, the Company has determined to forego its right to appeal Nasdaq’s delisting determination. The Nasdaq staff has informed the Company that its common shares will 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 Company expects its shares to begin trading on the OTC Pink Current Market on May 20, 2025, and is also seeking to have its shares posted for trading on the OTCQB Venture Market (“OTCQB”), though no assurance can be provided that the Company 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 Company’s shares for trading on the OTCQB.
The accompanying condensed interim unaudited 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.
The Company is subject to a number of risks, including, but not limited to, the need for successful development of products, 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, patent litigation, dependence on key individuals, and risks associated with changes in electric automotive technology. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to fund its research and development, complete the construction of a manufacturing facility or secure third-party manufacturing arrangements for the eventual production of electrical motorcycles and other personal mobility products and meet its obligations and repay its liabilities arising from normal business operations when they come due.
F-6
The
Company has utilized $
When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s 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 entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Management’s plans to address the uncertainty that the Company will continue as a going concern include obtaining sufficient debt and equity financing for the Company’s 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 Company’s ability to continue as a going concern has not been alleviated by management’s plans.
2. Summary of significant accounting policies
Basis of presentation and consolidation
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements and should be read in conjunction with the Company’s annual audited consolidated financial statements as at and for the year ended June 30, 2024 and the related notes thereto included in Exhibit 99.1 to our Form 10.
The condensed interim unaudited 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 management’s 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-7
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 Company’s common shares |
| ● | 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.
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. As of March 31, 2025, the Company’s
sole intangible asset consists of the customer list acquired from the Business Combination, which had a remaining estimated useful life
of
Impairment of goodwill and intangible assets
The Company test 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 scientific software products and services reporting unit.
During the three months ended March 31, 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 $
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.
F-8
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 Company’s 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 entity’s 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 Company’s performance as the services are performed.
Contract Balances
The
timing of the Company’s 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 $
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.
F-9
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 Company’s 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.
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 Company’s CODM is its Chief Executive Officer. The Company’s operations consist of
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-10
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.
Share-based compensation classified as mezzanine equity
Share-based compensation subject to possible redemption are classified as mezzanine equity based on the guidance provided under ASC 480-10-S99-3A and SAB Topic 14E. See also Note 11 for additional information on share-based compensation granted to the underwriter in connection with an offering of common stocks and warrants.
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. Balances with
these institutions exceeded the Federal Deposit Insurance Corporation insured amount of $
Recent accounting pronouncements not yet adopted
In December 2023, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, to increase the transparency and usefulness of income tax information through improvements to the income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of the new guidance. The Company does not expect the adoption of this guidance will have a material impact on its 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 Company’s 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”).
On November 13, 2024, the following events occurred upon the consummation of the Business Combination:
| ● | the
cancellation and conversion of all |
F-11
| ● | the
cancellation and conversion of $ |
| ● | the
surrender and exchange of all |
| ● | The
cancellation and exchange of all |
| ● | The
cancellation and exchange of all |
Upon
the consummation of the Business Combination, the holders of the historical outstanding shares of Damon Motors owned approximately
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 | $ | |||
| Settlement of preexisting relationship (Note 6) | ||||
| Net consideration | ||||
| Assets acquired: | ||||
| Cash and cash equivalents | ||||
| Accounts receivable | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Customer list | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued liabilities | ||||
| Deferred revenue | ||||
| Fair value of debt assumed | ||||
| Total liabilities assumed | ||||
| Estimated fair value of net assets acquired | $ | |||
The purchase price allocations for the Business Combination are preliminary as we have not obtained all of the detailed information to finalize the opening balance sheet related to the intangible assets acquired from the Business Combination. Management has recorded the purchase price allocations based on the information that is currently available.
F-12
In
connection with the Business Combination, the Company recognized approximately $
The
following table presents the unaudited, pro forma consolidated results of operations for the three and nine months ended March 31, 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.
| Three
months ended March 31, 2025 |
Three
months ended March 31, 2024 |
Nine
months ended March 31, 2025 |
Nine
months ended March 31, 2024 |
|||||||||||||
| unaudited | unaudited | unaudited | unaudited | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
During
the three months ended March 31, 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 Company's 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 three months ended March 31, 2025, the Company recorded
a non-recurring level 3 valuation charge, including impairment of goodwill in the amount of $
4. Accounts payable and accrued liabilities
| March
31, 2025 |
June
30, 2024 |
|||||||
| Trade payable | $ | $ | ||||||
| Due to related parties | ||||||||
| Payroll liabilities | ||||||||
| Accrued liabilities and other payables | ||||||||
| $ | $ | |||||||
As
at March 31, 2025, $
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 $
F-13
5. 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: | March
31, 2025 |
June
30, 2024 |
||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Current portion of operating lease liabilities | $ | $ | ||||||
| Long-term portion of operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance leases: | March
31, 2025 |
June
30, 2024 |
||||||
| Property, plant and equipment, net | $ | $ | ||||||
| Current portion of finance lease liabilities | $ | $ | ||||||
| Long-term portion of finance lease liabilities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
The following lease costs are included in the consolidated statements of operations:
| Three
months ended March 31, 2025 |
Three
months ended March 31, 2024 |
Nine
months ended March 31, 2025 |
Nine
months ended March 31, 2024 |
|||||||||||||
| Operating lease expense: | ||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short-term lease expense | ||||||||||||||||
| Total operating lease expense | ||||||||||||||||
| Finance lease expense: | ||||||||||||||||
| Amortization of leased assets | ||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease expense | ||||||||||||||||
| Rental income | ( |
) | ( |
) | ||||||||||||
| Total lease costs | $ | $ | $ | $ | ||||||||||||
The Company has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for the operating lease population. The Company uses the incremental borrowing rate as the lease discount rate, unless the lessor’s rate implicit in the lease is readily determinable, in which case it is used.
| March
31, 2025 |
||||
| Weighted-average remaining lease term (in years) | ||||
| Operating leases | ||||
| Finance expense | ||||
| Weighted-average discount rate: | ||||
| Operating leases | % | |||
| Finance expense | % | |||
F-14
As of March 31, 2025, the maturities of our operating lease liabilities (excluding short-term leases) are as follows:
| Operating
leases |
Finance leases |
|||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| Total minimum lease payments | ||||||||
| Less: interest | ||||||||
| Present value of lease obligations | ||||||||
| Less: Current portion | ||||||||
| Long-term portion of lease obligations | $ | $ | ||||||
6. Short-term debt
Short-term debt as of March 31, 2025 consisted of the following:
| Short-term debt: | March
31, 2025 |
June
30, 2024 |
||||||
| Promissory note | $ | $ | ||||||
| Senior secured promissory note | ||||||||
| Total short-term debt | $ | $ | ||||||
Promissory note
| (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 $
| (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 $
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
F-15
7. 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 $
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 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 $
As
of March 31, 2025, the Company has received an aggregate of $
As
of March 31, 2025, Streeterville has purchased, and the Company has issued, a total of
As
of March 31, 2025, pre-paid purchases amounted to $
8. Convertible notes
| Balance, July 1, 2023 | $ | |||
| Funds advanced | ||||
| Convertible note issued for settlement of debt | ||||
| Warrant bifurcated classified as liability | ( |
) | ||
| Warrant bifurcated classified as equity | ( |
) | ||
| Interest accrued, net of capitalized interest paid | ||||
| Changes in fair value of financial liabilities | ||||
| Balance, June 30, 2024 | ||||
| Funds advanced | ||||
| Convertible note issued for services | ||||
| Warrant bifurcated classified as equity | ( |
) | ||
| Interest accrued | ||||
| Changes in fair value of financial liabilities | ( |
) | ||
| Convertible notes converted to common shares | ( |
) | ||
| Balance, March 31, 2025 | $ |
From
October 2022 to October 2024, the Company issued convertible promissory notes to arms-length parties with an aggregate principal amount
of $
| June
30, 2024 |
||||
| Annualized volatility | % | |||
| Expected time to liquidity | ||||
| Dividend rate | % | |||
| Risk-free interest rate | % | |||
F-16
During the nine months
ended March 31, 2025, the Company issued $
Upon
the completion of Business Combination, the convertible notes were mandatorily converted into
9. 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 $
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 note’s 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 Investor’s prior consent.
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
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 nine months ended March 31, 2025, the Company repaid amount of $
Interest
expense on long-term debt for the three and nine months ended March 31, 2025 totaled $
Convertible promissory note as of March 31, 2025 consisted of the following:
| Convertible promissory note: | Maturity | March 31, 2025 |
June 30, 2024 |
|||||||
| Streeterville Note | $ | $ | ||||||||
| Total convertible promissory note | $ | $ | ||||||||
10. Financial liability convertible to equity
| Balance, July 1, 2023 | $ | |||
| Foreign exchange adjustment | ( |
) | ||
| Changes in fair value | ||||
| Balance, June 30, 2024 | ||||
| Converted to common shares | ( |
) | ||
| Balance, March 31, 2025 | $ |
F-17
From
August through September 2022, the Company entered into multiple SAFE agreements certain investors and received $
The SAFEs are valued by management at each measurement date based on the Company’s estimated enterprise value implied by the most comparable transaction and allocating the value to each of the Company’s 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 Company’s model values the preferred shares, SAFEs, common shares, and stock options as call options on the Company’s 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 management’s best estimate of the expected time for the occurrence of a conversion event as described in Note 8 above.
During
the three and nine months ended March 31, 2025, the Company recognized change in fair value of SAFEs of $
(three and nine month ended March 31, 2024 – loss of $
On
July 1, 2024, the SAFEs matured and the SAFE holders received
11. Warrant liabilities and mezzanine equity
The Company accounts for common share purchase warrants as either equity instruments or liabilities depending on the specific terms of the warrant agreement. 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 Company’s own common shares. The Company classifies warrant liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the common share purchase warrant.
Durin the three months ended March 31, 2025, the
Company completed public offering of
Each
Series A warrant will be immediately exercisable upon issuance at an initial exercise price of $
At
the closing of the public offering, the Company issued
F-18
The
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 $
The
| Warrants classified as liability | Number
of warrants |
Amount | ||||||
| $ | ||||||||
| Balance, July 1, 2024 | $ | |||||||
| Issuance of warrants in the units | ||||||||
| Issuance of overallotment warrants | ||||||||
| Converted to common shares | ( |
) | ( |
) | ||||
| Balance, March 31, 2025 | $ | |||||||
| Warrants classified as mezzanine equity | Number
of warrants |
Amount | ||||||
| $ | ||||||||
| Balance, July 1, 2024 | $ | |||||||
| Issuance of underwriters’ warrants | ||||||||
| Converted to common shares | ||||||||
| Balance, March 31, 2025 | $ | |||||||
The Company recognized transaction costs for issuance
of warrants of $
Also see Note 12.
12. 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. |
F-19
b) Issued and outstanding
| ● | As
of March 31, 2025, the Company had |
| ● | As of March 31, 2025, the Company had (June 30, 2024 – ) multiple voting shares outstanding; |
| ● | As
of March 31, 2025, the Company had (June 30, 2024 – |
March 2025 financing
On
March 21, 2025, the Company completed public offering of
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 (
Gross
proceeds to the Company, before deducting underwriting commissions and other offering expenses, were $
At
the closing of the financing, the Company issued
As
of March 31, 2025,
Other activities
On
July 1, 2024, the Company issued
On
November 13, 2024, in connection with the reverse acquisition treatment of the Business Combination, the Company effectively issued
F-20
Immediately
following the Business Combination, the Company (i.e., Pubco) had
During
the nine months ended March 31, 2025, the Company issued
During
the nine months ended March 31, 2025, the Company issued
During the nine months ended March 31, 2025 and 2024, 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
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. During the nine months ended March 31, 2025 and 2024, the Company issued stock options.
A summary of the changes in the Company’s stock options is as follows:
| Stock
options (#) |
||||
| Outstanding, June 30, 2024 | ||||
| Expired/cancelled | ( |
) | ||
| Outstanding, March 31, 2025 | ||||
Details of stock options outstanding at March 31, 2025 were as follows:
| Exercise price | Weighted average contractual life |
Number
of options outstanding |
Number
of options exercisable |
|||||||||
| $ |
||||||||||||
| $ |
||||||||||||
| $ |
||||||||||||
| $ |
||||||||||||
During
the three and nine months ended March 31, 2025, the Company recognized stock-based compensation expense of $
Cash
received by the Company upon the exercise of stock options during the nine months ended March 31, 2025 amounted to $
(nine months ended March 31, 2024 – $
F-21
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 nine months ended March 31, 2025, in connection with the issuance of convertible promissory notes to arms-length parties (Note 8),
the Company issued
Warrants of the Company classified as equity are composed of the following as at March 31, 2025:
| Date of issuance | Number
of warrants outstanding |
Number
of warrants exercisable |
Exercise price |
Expiry date | ||||||||
| June 16, 2023 | ||||||||||||
| August 10, 2023 | ||||||||||||
| September 13, 2023 | ||||||||||||
| September 26, 2023 | ||||||||||||
| September 30, 2023 | ||||||||||||
| October 26, 2023 | ||||||||||||
| December 15, 2023 | ||||||||||||
| April 5, 2024 | ||||||||||||
| April 26, 2024 | ||||||||||||
| March 12, 2024 | ||||||||||||
| March 26, 2024 | ||||||||||||
| April 15, 2024 | ||||||||||||
| May 1, 2024 | ||||||||||||
| May 29, 2024 | ||||||||||||
| July 20, 2024 | ||||||||||||
| July 22, 2024 | ||||||||||||
| July 30, 2024 | ||||||||||||
| August 30, 2024 | ||||||||||||
| October 8, 2024 | ||||||||||||
| October 18, 2024 | ||||||||||||
| November 12, 2024 | ||||||||||||
13. 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.
As
at March 31, 2025, $
F-22
14. Income taxes
As
of March 31, 2025 and 2024, the Company’s deferred tax liability was
15. 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 Company’s chief operating decision maker, our CEO, for making operating decisions and assessing performance
as the source for determining the Company’s reportable segments. For the three and nine months ended March 31, 2024, the Company
is pre-revenue and pre-production and operates as a
reportable operating segment. Upon completion of the Business Combination, the Company’s operations consisted of
The following table is our long-lived assets information by geography as of March 31, 2025 and June 30, 2024:
| March
31, 2025 |
June
30, 2024 |
|||||||
| Canada | $ | $ | ||||||
| United States | ||||||||
| United Kingdom | ||||||||
| $ | $ | |||||||
| Three
months ended March 31, 2025 |
Nine
months ended March 31, 2025 |
|||||||||||||||
| Electric personal mobility products |
Scientific
software products and services |
Electric
personal mobility products |
Scientific
software products and services |
|||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Operating expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other items | ( |
) | ||||||||||||||
| Current income tax recovery | ||||||||||||||||
| Net (loss)/income | ( |
) | ( |
) | ( |
) | ||||||||||
| FX translation | ( |
) | ( |
) | ||||||||||||
| Comprehensive (loss)/income | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| March 31, 2025 | June 30, 2024 | |||||||||||||||
|
Electric personal mobility |
Scientific software products and services |
Electric personal mobility products |
Scientific software products and services |
|||||||||||||
| Plant and equipment, net | $ | $ | $ | $ | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||||||
| Other non-current assets | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
F-23
16. Fair value
The following table presents the hierarchy for our financial liabilities measured at fair value on a recurring basis as of March 31, 2025:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
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 | $ | $ | $ | $ | ||||||||||||
| Financial liability convertible to equity | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As of March 31, 2025, the warrant liabilities that were measured at fair value on a recurring basis were based on the pricing model with assumptions of stock price and warrant exercise price, which were generally observable (Level 2).
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 8).
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 three and nine months ended March 31, 2025, the Company recognized fair value adjustments with respect to financial instruments categorized
as Level 3 of $ and $
Also see Note 8 and Note 10.
17. Basic and diluted earning or loss per share
The
calculation of basic and diluted loss per share for three and nine months ended March 31, 2025 was based on the net loss attributable
to common shareholders of $
F-24
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:
| March
31, 2025 |
June
30, 2024 |
|||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Preferred shares | ||||||||
| SAFE | ||||||||
| Convertible notes | ||||||||
18. Commitments and contingencies
A summary of undiscounted liabilities and future operating commitments as at March 31, 2025:
| Total | Within
1 year |
2 - 5 years | Greater
than 5 years |
|||||||||||||
| Purchase obligations | $ | $ | $ | $ | ||||||||||||
| Investment obligation (1) | ||||||||||||||||
| Total financial liabilities and commitments | $ | $ | $ | $ | ||||||||||||
| (1) |
|
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.
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 $
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 Plaintiff’s resignation (i) the Board agreed to certain settlement terms which included provisions related to the payment of a listing bonus contingent on the Company’s successful listing on a recognized stock exchange (the “Listing Bonus”) and backpay for unpaid wages; and (ii) after the effective date of the Plaintiff’s 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 Plaintiff’s 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.
F-25
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 Company’s executives verbally agreed to issue $
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.
Also see Note 19.
F-26
19. Subsequent events
In addition to subsequent events disclosed elsewhere within these condensed consolidated financial statements, the following events occurred after March 31, 2025, up to the date these financial statements were issued:
Exercise of Series A Warrants
Subsequent to March 31, 025, investors exercised
their Series A Warrants on an alternate cashless basis, resulting in the issuance of an aggregate of
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 Company’s 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 $
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.
New lease agreement
On May 12, 2025, the Company entered into a lease
agreement for an office, which will be used as the Company’s head office. The lease is for the period of
F-27
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our condensed consolidated financial statements and the corresponding notes included elsewhere in this Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report” for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview of Our Business
Our Personal Mobility Products Development Business Through Damon Motors
The Company, through its wholly-owned subsidiary, Damon Motors Inc. (“Damon Motors”), is developing electric motorcycles and other personal mobility products 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 team’s 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 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.
Damon Motors’s 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 motorcycle’s 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 Damon Motors’s three patented cornerstone technologies, CoPilot™, Shift™ and its AI-enabled cloud platform. Damon Motors’s 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 will 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’s 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’s 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’s 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.
1
Our SAVES Distribution Business Through Grafiti Limited
The Company, 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 user’s 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’s strategy is to build a broader, long term customer base by increasing its sales of Grafiti Limited’s 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 Corporate Strategy
We are pursuing a corporate strategy focused on developing a business offering 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 transactions, including acquisitions of companies with personal mobility products, technologies and intellectual property that complement those goals by adding technology, differentiation, customers and/or revenue. We are primarily looking for accretive acquisitions 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, artificial intelligence, 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 make the acquisition. We are also exploring opportunities that will supplement our revenue growth. We are primarily looking for accretive acquisitions that have business value and operational synergies, yet also opportunistic for other strategic and/or attractive transactions that we believe may increase overall shareholder value, which may include, but not be limited to, other alternative investment opportunities, such as minority investments and 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
Second Amendment to June 2024 Secured Promissory Note
On February 27, 2025, the Company and Streeterville Capital, LLC ( “Streeterville”) entered into a Second Amendment (the “Note Amendment”) to the Secured Promissory Note originally issued by the Company to Streeterville on June 26, 2024, in an original principal amount of $6,470,000 (as previously amended, the “June 2024 Note”).
Pursuant to the Note Amendment, the parties have agreed to amend the June 2024 Note to grant Streeterville the right to convert from time to time at its election, all or any portion of the outstanding balance of the June 2024 Note into common shares, no par value, of the Company (“Conversion Shares”). The number of Conversion Shares deliverable under a conversion notice will be equal to the amount of the outstanding balance of the June 2024 Note being converted, divided by the conversion price, which is 90% of the lowest daily volume weighted average price of the Company’s common shares reported by Bloomberg during the ten trading days preceding the delivery date of a conversion notice. This is subject to a floor price of $0.20 per share (the “June 2024 Note Floor Price”), which will be adjusted accordingly in the event of a share split or combination. If the Company issues any securities with a floor price less than $0.20 per share in the future, the June 2024 Note Floor Price will automatically adjust to be equal to such lower floor price.
2
Upon the closing of the underwritten registered offering on March 21, 2025 as described below (the “Offering”), the outstanding principal amount was partially repaid and reduced to $4,491,700, and the June 2024 Note Floor Price was adjusted to $0.0251.
Amendments to December 2024 Securities Purchase Agreement
On February 27, 2025, the Company and Streeterville entered into an Amendment No. 1 (the “SPA Amendment”) to the Securities Purchase Agreement dated December 20, 2024 (the “December 2024 SPA”). Under the SPA Amendment, 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 the Company remains a foreign private issuer, the Company is not required to seek shareholder approval for issuing shares pursuant to the December 2024 SPA 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, in connection with the Offering, the Company agreed to permit Streeterville, beginning 45 days after the closing of the Offering, to unilaterally elect to make pre-paid purchases up to $3,000,000 of the remaining commitment amount under the December 2024 SPA, without affecting the Company’s rights to require Streeterville to make pre-paid purchases in accordance with the terms of the December 2024 SPA.
As of March 31, 2025 and May 19, 2025, under the December 2024 SPA, the Company has received an aggregate of $4,400,000 pursuant to pre-paid purchases made by Streeterville out of the total $10,000,000 committed amount, resulting in an outstanding principal balance of $4,708,000, which excludes any accrued interest and is calculated prior to any purchase of common shares described below. Of the $4,400,000 received, a total of $460,000 has been used to repay the indebtedness under the June 2024 Note.
As of March 31, 2025 and May 19, 2025, Streeterville has purchased, and the Company has issued, a total of 8,133,614 common shares to satisfy pre-paid purchases made through this date, based on the pricing formula described in the December 2024 SPA, and as a result, the outstanding principal balance has been reduced to $3,158,000.
Completion of Registered Underwritten Offering
On March 20, 2025, in connection with the Offering, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC, as the sole underwriter (the “Underwriter”) , pursuant to which the Company sold and issued (i) 126,900,000 units (each a “Unit” and collectively, the “Units”) at a public offering price of $0.130 per Unit, with each Unit consisting of (A) one common share of the Company, no par value per share (each a “Common Share” and collectively, the “Common Shares”) and (B) one Series A Warrant (each a “Series A Warrant” and collectively, the “Series A Warrants”) to purchase one Common Share for cash or otherwise acquire such greater number of Common Shares as determined in accordance with the provisions of the Series A Warrant upon an alternate cashless exercise option and (ii) warrants to purchase 6,345,000 Common Shares to the Underwriter (each a “Underwriter’s Warrant” and collectively, the “Underwriter’s Warrants”) for cash or otherwise acquire such greater number of Common Shares as determined in accordance with the provisions of the Underwriter’s Warrant upon an alternate cashless exercise option. The Underwriter’s Warrants are identical to the Series A Warrants except that the Underwriter’s Warrants are subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA.
Each Series A Warrant is exercisable at an initial exercise price of $0.195 per share (150% of the public offering price per Unit). The Series A Warrants will be exercisable from issuance and will expire two and one-half (2.5) years after issuance. 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). Accordingly, the Company believes it is highly unlikely that a holder of the Series A Warrants would pay an exercise price in cash to receive one Common Share when the holder could instead choose the alternate cashless exercise option and pay no cash to receive 2.5 Common Shares. As a result, the Company will likely not receive any additional funds and does not expect to receive any additional funds upon the exercise of the Series A Warrants.
3
In addition, at 4:01 p.m. Eastern time on the 7th trading day after the date of issuance (the “First Reset Date”), the exercise price of the Series A Warrants was reset to $0.0502 per share, which equaled the initial floor price based on the first reset formula provided in the Series A Warrants; and the number of shares issuable upon exercise was increased such that the aggregate exercise price of the Series A Warrants on the issuance date for the Common Shares underlying the Series A Warrants then outstanding remained unchanged. Subsequently, at 4:01 p.m. Eastern time on the 15th trading day after the date of issuance (the “Second Reset Date”), the exercise price of the Series A Warrants was further reset to $0.0251 per share, which equaled the second floor price based on the second reset formula provided in the Series A Warrants; and the number of shares issuable upon exercise was further increased such that the aggregate exercise price of the Series A Warrants on the issuance date for the Common Shares underlying the Series A Warrants then outstanding remained unchanged.
Under the Underwriting Agreement, the Company granted the Underwriter an option to purchase from the Company either up to an additional 19,035,000 Common Shares at a price of $0.129 per share, or up to 19,035,000 Series A Warrants to purchase Common Shares at a price of $0.001 per warrant, or a combination of the two (the “Overallotment Option”). On March 21, 2025, the Underwriter exercised its Overallotment Option with respect to 19,035,000 Series A Warrants.
The Underwriter received a cash fee of six and a half percent (6.5%) of the aggregate gross proceeds raised in the Offering as underwriting discounts and commissions. The Company paid $100,000 of the Underwriter’s out-of-pocket accountable expenses in connection with the Offering.
The Offering closed on March 21, 2025. The net proceeds to the Company from the Offering were approximately $15 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The Company intends to use the net proceeds for working capital and general corporate purposes, including research and development as well as marketing and sales of the Company’s products. Additionally, the Company used approximately 14% of the net proceeds to repay the outstanding balance of the June 2024 Note.
The Offering was made pursuant to a registration statement on Form S-1 (File No. 333-285872), which was initially filed with the SEC on March 18, 2025, and declared effective by the SEC on March 20, 2025, and a registration statement on Form S-1 (File No. 333- 285981), which was filed with the SEC on March 20, 2025 and became effective upon filing. The final prospectus relating to the Offering was filed with the SEC on March 21, 2025.
Subsequent Exercise of Series A Warrants
Subsequent to March 31, 2025, the Company has issued an aggregate of 1,946,710,549 common shares upon exercise of the Series A Warrants pursuant to the alternate cashless exercise provision. The fair value of the exercised warrants in the amount of $14,396,075 were recorded to equity. As of May 19, 2025, 2,352 Series A Warrants remain outstanding, which may result in the issuance of up to 45,681 additional common shares, assuming exercise on an alternate cashless basis at the floor price of $0.0251.
Termination of Loan Documents
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.
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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.
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 Company’s 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 €1,581,670, 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 Company’s acceptance of the corresponding phase.
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.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We evaluate our critical accounting estimates and assumptions on an ongoing basis. Our estimates are based on historical experience, current trends, and various other assumptions that we believe to be reasonable under the circumstances to ensure that our financial statements are presented fairly and in accordance with GAAP. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
There have been no significant changes to our critical accounting estimates as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended June 30, 2024 and 2023 included in the information statement filed as Exhibit 99.1 to the amended registration statement on Form 10-12B filed with the SEC on September 26, 2024, except as disclosed below.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in 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 Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all 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.
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Results of Operations
The following financial information is for the three and nine months ended March 31, 2025 and 2024:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March
31, 2025 |
March
31, 2024 |
March
31, 2025 |
March
31, 2024 |
|||||||||||||
| Revenue | $ | 81,411 | $ | - | $ | 130,934 | $ | - | ||||||||
| Cost of revenue | 40,161 | - | 61,493 | - | ||||||||||||
| Gross profit | 41,250 | - | 69,441 | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net | 959,672 | 1,805,747 | 2,014,226 | 3,760,318 | ||||||||||||
| General and administrative | 3,702,113 | 1,531,065 | 6,674,473 | 4,895,715 | ||||||||||||
| Sales and marketing | 185,776 | 201,509 | 538,321 | 774,481 | ||||||||||||
| Transaction costs | 203,000 | - | 5,620,436 | - | ||||||||||||
| Depreciation | 61,090 | 74,791 | 175,902 | 229,643 | ||||||||||||
| Impairment | 14,119,955 | - | 14,119,955 | - | ||||||||||||
| Foreign currency transaction loss/(gain) | 115,476 | (137,337 | ) |
(119,103 |
) | (176,575 | ) | |||||||||
| Total operating expenses | 19,347,082 | 3,475,775 | 29,024,210 | 9,483,582 | ||||||||||||
| Operating loss | (19,305,832 | ) | (3,475,775 | ) | (28,954,769 | ) | (9,483,582 | ) | ||||||||
| Other non-operating income / (loss) | (5,857,606 | ) | (9,621,158 | ) | 26,600,259 | (16,121,402 | ) | |||||||||
| Current income tax recovery | - | 5 | - | |||||||||||||
| Net loss | $ | (25,163,438 | ) | $ | (13,096,933 | ) | $ | (2,354,505 | ) | $ | (25,604,984 | ) | ||||
Revenue
The Company derives revenue from the sale of software and software as a service. Revenue for the three and nine months ended March 31, 2025 was $81,411 and $130,934, respectively, compared to $nil for the three and nine months ended March 31, 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
Cost of revenues for the three and nine months ended March 31, 2025 were $40,161 and $61,493, respectively, compared to $nil for the three and nine months ended March 31, 2024. The gross profit margin for the three and nine months ended March 31, 2025 were 51% and 53%, respectively.
Research and development expenses
Research and development expenses were $959,672 for the three months ended March 31, 2025, compared to $1,805,747 for the three months ended March 31, 2024. The decrease of $846,075 was primarily due to the following:
| ● | salaries decreased by approximately $798,000; |
| ● | rent expense decreased by approximately $167,000; |
| ● | lab supplies and materials decreased by approximately $120,000; partially offset by |
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| ● | engineering contract expense increased by approximately $239K. |
Research and development expenses were $2,014,226 for the nine months ended March 31, 2025, compared to $3,760,318 for the nine months ended March 31, 2024. The decrease of $1,746,092 was primarily due to the following:
| ● | Salaries decreased by approximately $1,942,000; |
| ● | Lad supplies and materials decreased by approximately $540,000; |
| ● | rent decreased by approximately $294,000; |
| ● | share-based compensation expense decreased by approximately $206,000; |
| ● | other expenses decreased by approximately $102,000; partially offset by |
| ● | Canadian Scientific Research & Development tax credits received decreased by approximately $1,099,000; | |
| ● | engineering contract expense increased by approximately $239,000. |
The Company anticipates research and development expenses will increase as the Company entered into a Technical Design Agreement for the development of the Company’s HyperSport Race electric motorcycle.
General and administrative expenses
For the three months ended March 31, 2025, general and administrative expenses were $3,702,113, compared to $1,531,065 for the three months ended March 31, 2024. The increase of $2,171,048 was primarily due to the following:
| ● | professional fee increased by approximately $809,000; |
| ● | salaries increased by approximately $672,000; |
| ● |
insurance increased by approximately $178,000;
| |
| ● | audit and consulting fee increased by approximately $177,000; | |
| ● | investor relation expense decreased by approximately $123,000; | |
| ● | rent increased by approximately $113,000; | |
| ● | other expenses increased by approximately $99,000. |
For the nine months ended March 31, 2025, general and administrative expenses were $6,674,473, compared to $4,895,715 for the nine months ended March 31, 2024. The increase of $1,778,758 was primarily due to the following:
| ● | professional fee increased by approximately $960,000; |
| ● | investor relation expense increased by approximately $742,000; | |
| ● | salaries increased by approximately $655,000; | |
| rent expense increased by approximately $213,000; | ||
| ● | insurance expense increased by approximately $199,000; partially offset by | |
| ● | legal fee decreased by approximately $487,000; | |
| ● |
audit and consulting fee decreased by approximately $323,000; | |
| ● | share-based compensation expense decreased by approximately $122,000. | |
| ● | other expense decreased by approximately $58,000; |
The Company anticipates that general and administrative expenses will be consistent with previous quarters to year end.
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Sales and marketing expenses
Sales and marketing expenses were $185,776 for the three months ended March 31, 2025, compared to $201,509 for the three months ended March 31, 2024. Sales and marketing expenses were $538,321 for the nine months ended March 31, 2025, compared to $774,481 for the nine months ended March 31, 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 re increase in the coming months as we launch our HyperSport Race marketing campaigns.
Transaction costs
Transaction costs were $203,000 and $5,620,436 for the three and nine months ended March 31, 2025, respectively, compared to $nil for the three and nine months ended March 31, 2024. Transaction costs were legal, professional and consulting fees related to the business combination transaction completed in November 2024.
Impairment
For the three months and nine months ended March 31, 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 three months ended March 31, 2025, other non-operating loss were $5,857,606, compared to $9,621,158 for the three months ended March 31, 2024. The decrease of other non-operating loss of $3,763,552 was primarily due to the following:
| ● | loss from change in fair value of financial liabilities decreased by $8,201,000; | |
| ● | loss on extinguishment of debt decreased by approximately $720,000; partially offset by | |
| ● | finance expense for warrants issuance increased by approximately $4,739,000; |
| ● | interest expense increased by approximately $418,000. |
For the nine months ended March 31, 2025, other non-operating income were $26,600,259, compared to other non-operating loss of $16,121,402 for the nine months ended March 31, 2024. The increase of other non-operating income of $42,721,661 was primarily due to the following:
| ● | income from change in fair value of financial liabilities increased by approximately $47,273,000; |
| ● | loss on extinguishment of debt decreased by approximately $720,000; partially offset by | |
| ● | finance expense for warrants issuance increased by approximately $4,739,000; | |
| ● | interest expense increased by approximately $532,000. |
Net Loss
During the three months ended March 31, 2025, the Company incurred a net loss of $25,163,438, compared to a net loss of $13,096,933 for the three months ended March 31, 2024. The increase in net loss is mainly due to the Company recognized impairment of goodwill and intangible assets of $14,119,955 for the three months ended March 31, 2025. The increase in net loss was partially offset by the $nil fair value loss recognized in the three months ended March 31, 2025, compared to a fair value loss of $8,201,000 for the three months ended March 31, 2024.
During the nine months ended March 31, 2025, the Company incurred a net loss of $2,354,505, compared to a net loss of $25,604,984 for the nine months ended March 31, 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 nine months ended March 31, 2025, compared to the loss from change in fair value of financial liabilities of $12,939,830 for the nine months ended March 31, 2024. Upon the completion of Business Combination, the convertible notes were mandatorily converted into 16,496,750 Damon Motor’s common shares. Upon conversion, the carrying value of the convertible debt approximates fair value of the shares issued.
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Liquidity and Capital Resources
As of March 31, 2025, the Company had cash of $7,555,820, and working capital deficiency of approximately $21.1 million. The Company’s accumulated deficit and expected future losses cast substantial doubt upon its ability to continue as a going concern. Furthermore, the Company had negative cash flows from operating activities of approximately $14.7 million for the nine months ended March 31, 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. As such, the substantial doubt of the Company’s ability to continue as a going concern has not been alleviated by management’s plans.
The Company’s 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.
Summary of Cash Flows
| Nine Months Ended | ||||||||
| March
31, 2025 |
March
31, 2024 |
|||||||
| Cash Flows: | ||||||||
| Cash flows used in operating activities | $ | (14,676,985 | ) | $ | (10,746,591 | ) | ||
| Cash flows provided by investing activities | 77,270 | - | ||||||
| Cash flows provided by financing activities | 21,774,284 | 8,701,545 | ||||||
| Increase / (decrease) in cash | $ | 7,174,569 | $ | (2,045,046 | ) | |||
Cash Flows from Operating Activities
During the nine months ended March 31, 2025, cash used in operating activities was $14,676,985, compared with $10,746,591 for the nine months ended March 31, 2024. Cash used in operating activities increased by $3,930,394 principally as a result of an increase of operating expenses by approximately $19,541,000, partially offset by the non-cash impairment loss of approximately $14,130,000 and other non-cash items and changes in working capital of approximately $1,481,000.
Cash Flows from Investing Activities
During the nine months ended March 31, 2025, cash provided by investing activities were $77,270, representing cash acquired through the Business Combination. During the nine months ended March 31, 2024, $nil cash provided by investing activities.
Cash Flows from Financing Activities
During the nine months ended March 31, 2025, cash provided by financing activities were $21,774,284 compared with $8,701,545 for the nine months ended March 31, 2024. The increase of $13,072,739 was primarily due to the following:
| ● | the Company received cash of approximately $14,767,000 from the recent financing completed in March 2025; |
| ● | proceeds from pre-paid purchase increased by approximately $4,400,000; | |
| ● | proceeds from Streeterville notes increased by approximately $3,150,000; |
| ● | proceeds from promissory notes increased by approximately $929,000; |
| ● | proceeds from senior secured promissory notes increased by approximately $596,000; partially offset by |
| ● | proceeds from convertible notes decreased by approximately $8,470,000; | |
| ● | payments of debt increased by approximately $2,240,000. | |
| ● | proceeds from stock options exercise decreased by approximately $59,000. |
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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer 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 SEC’s rules and forms and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 or 15d-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, being March 31, 2025. This evaluation was carried out by our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2025.
We determined material weaknesses in our 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.
Management is continuing to enhance and document the design and implementation of its internal control systems and has begun performing testing of certain controls, as part of its ongoing efforts to address the identified material weaknesses.
Changes in Internal Controls Over Financial Reporting
The material weakness described above has not been remediated as of March 31, 2025. Other than the ongoing progress toward completing documentation and testing of the internal control systems of key financial cycles, there were no changes in our internal controls (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
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 Plaintiff’s resignation (i) the Board agreed to certain settlement terms which included provisions related to the payment of a listing bonus contingent on the Company’s successful listing on a recognized stock exchange (the “Listing Bonus”) and backpay for unpaid wages; and (ii) after the effective date of the Plaintiff’s 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 Plaintiff’s 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 Company’s executives verbally agreed to issue $3.2 million worth of the Company’s 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.
Item 1A. Risk Factors
In addition to the risk factors below and the other information set forth in this Form 10-Q, you should carefully consider the risk factors in the “Risk Factors” section of the Company’s registration statement on Form S-1 filed on March 18, 2025, which are incorporated herein by reference. Our business, results of operations and financial condition could be materially adversely affected by these risks.
The Company is currently subject to a delisting determination by the staff of Nasdaq, and trading of its common shares was halted on April 29, 2025. The Company expects that after its common shares are delisted from Nasdaq, its common shares to begin trading on the OTC Pink Current Market, which may affect the market price and liquidity of the shares and could limit the Company’s ability to raise additional capital.
The Nasdaq Stock Market LLC requires listed companies to comply with certain standards in order to remain listed. On January 7, 2025, the Company received notice from the Listing Qualifications Staff (the “Staff”) of Nasdaq that for the 30 consecutive business days from November 18, 2024 to January 6, 2025, the Company’s Market Value of Listed Securities (“MVLS”) was below the minimum of $50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A) (the “MVLS Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until July 7, 2025, to regain compliance with the MVLS Requirement.
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On January 22, 2025, the Company received notice from the Staff that the bid price of its common shares had not maintained a minimum closing bid price of $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until July 21, 2025, to regain compliance with the Minimum Bid Price Requirement.
On March 20, 2025, the Company received notice from the Staff that, for the 30 consecutive business days from February 3, 2025 to March 19, 2025, the Company’s Market Value of Publicly Held Shares (“MVPHS”) had not maintained a minimum aggregate market value of $15,000,000 required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(C) (the “MVPHS Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company was provided 180 calendar days, or until September 16, 2025, to regain compliance with the MVPHS Requirement.
On April 4, 2025, the Company received notice (the “April 4 Letter”) from Nasdaq that the Staff has determined that as of April 3, 2025, the Company’s common shares had a closing bid price of $0.10 or less for ten consecutive trading days, triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security. As a result, the Staff has determined to delist the Company’s common shares from the Nasdaq Global Market, unless the Company timely requests an appeal of the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.
On April 25, 2025, the Company received a notification letter from the Staff, stating that based on its review of the Company’s public filings with the SEC, its staff has determined to delist the Company’s securities pursuant to its discretionary authority under Listing Rule 5101. Specifically, as set forth in the letter, Nasdaq’s staff determined that the Company’s issuance of securities pursuant to the underwriting agreement dated March 20, 2025, particularly the Series A warrants exercisable on an alternate cashless basis as described in the Company’s prior SEC filings, raises public interest concerns because the issuance resulted in substantial dilution for its shareholders. Accordingly, as set forth in the letter, this matter serves as an additional basis for delisting the Company’s securities from Nasdaq.
On April 29, 2025, the Nasdaq staff informed the Company that, pursuant to the staff’s authority under Listing Rule 4120(a)(5), trading in its shares on Nasdaq has been halted pending the outcome of the Panel hearing, unless the staff determines to lift the halt prior to the hearing. To enable the Company’s common shares to trade on an alternative market, the Company has determined to forego its right to appeal Nasdaq’s delisting determination. The Nasdaq staff has informed the Company that its common shares will 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 Company currently expects that its common shares will begin trading on the OTC Pink Current Market maintained by OTC Markets on May 20, 2025, in accordance with Rule 15c2-11(f)(1) under the Exchange Act. The OTC Pink Current Market will become the OTCID Basic Market effective as of July 1, 2025. The Company is also seeking to have its shares posted for trading on the OTCQB Venture Market (“OTCQB”), though no assurance can be provided that the Company 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 Company’s shares for trading on the OTCQB.
Delisting from the Nasdaq could make trading our common shares more difficult for investors, potentially leading to declines in our share price and liquidity. In addition, without a Nasdaq market listing, shareholders may have a difficult time getting a quote for the sale or purchase of our shares, the sale or purchase of our shares would likely be made more difficult and the trading volume and liquidity of our shares could decline. Delisting from Nasdaq could also result in negative publicity and make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common shares as transaction consideration or the value accorded our common shares by other parties. Further, following delisting, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common shares and the ability of our shareholders to sell our common shares in the secondary market. Once delisted, they may come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors.
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While we currently anticipate our common shares will begin trading on the OTC Pink Current Market after our common shares are delisted from Nasdaq, there is no guarantee that such trading will proceed as expected. If we are unable to resume trading, investors will face further limitations in the liquidity of our common shares, and our ability to raise capital, continue as a going concern, and maintain investor confidence could be materially and adversely affected. If our common shares are delisted from Nasdaq and our shares are unable to resume trading on any market, we may also face cash payment obligations and trigger defaults under our existing financing arrangements with Streeterville, which could further strain our liquidity position and ability to continue as a going concern.
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 registered offering on March 21, 2025 (the “Offering”), investors began exercising their Series A Warrants on an alternate cashless basis, resulting in the issuance of 2,293,412,544 common shares by the Company. As of May 19, 2025, 2,352 Series A Warrants remain outstanding, which may result in the issuance of up to 45,681 additional common shares, assuming exercise on an alternative cashless basis at the floor price of $0.0251.
In connection with the Offering, the floor price under the June 2024 Note has been adjusted to $0.0251. As of May 19, 2025, the outstanding principal amount was partially repaid and reduced to $4,491,700, with an additional $570,578 in accrued unpaid interest, which may result in an issuance of 201,684,382 common shares assuming Streeterville will convert the remaining balance under the June 2024 Note at the floor price of $0.0251.
Additionally, as of May 19, 2025, the outstanding principal balance under the December 2024 SPA was $3,158,000, with an additional $97,080 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. For example, in connection with the settlement of certain fees owed to a former financial advisor, the Company has agreed to pay either cash or issue common shares in the amount of $1,000,000 no later than May 21, 2025, based on a pricing formula as described in greater detail in the Company’s Current Report on Form 8-K filed with the SEC on March 25, 2025; and the Company has also agreed to register any such issued shares no later than one trading day following their issuance. The Company is generally not restricted from issuing additional common shares or securities convertible into or exchangeable for common shares. Under our Articles and British Columbia corporate law, 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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) Sales of Unregistered Securities
There were no sales of unregistered securities by the Company during the quarter ended March 31, 2025 that were not previously reported in current reports on Form 8-K filed with the SEC.
c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
c) Rule 10b5-1 Trading Plans.
During
the quarter ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
Item 6. Exhibits
See the Exhibit index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements 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: May 19, 2025 |
By: | /s/ Dominique Kwong |
| Dominique Kwong | ||
| Interim Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Bal Bhullar | |
| Bal Bhullar | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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EXHIBIT INDEX
| Exhibit Number |
Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed
Herewith | ||||||
| 3.1 | Certificate of Incorporation, and Notice of Articles (latest updated) | Form 10-Q | 001-42190 | 3.1 | December 18, 2024 | |||||||
| 3.2 | Articles | Form 8-K | 001-42190 | 3.1 | November 18, 2024 | |||||||
| 4.1 | Form of Series A Warrant. | Form 8-K | 001-42190 | 4.1 | March 25, 2025 | |||||||
| 4.2 | Form of Underwriter’s Warrant. | Form 8-K | 001-42190 | 4.2 | March 25, 2025 | |||||||
| 10.1 | Amendment No. 2 to Secured Promissory Note, dated February 27, 2025. | Form 8-K | 001-42190 | 10.1 | February 27, 2025 | |||||||
| 10.2 | Amendment No. 1 to Securities Purchase Agreement, dated February 27, 2025. | Form 8-K | 001-42190 | 10.2 | February 27, 2025 | |||||||
| 10.3 | Underwriting Agreement, dated as of March 20, 2025, by and between Damon Inc. and Maxim Group LLC. | Form 8-K | 001-42190 | 10.1 | March 25, 2025 | |||||||
| 10.4* | Amendment to Interim Executive Employment Agreement, dated May 4, 2025, between Damon Inc. and Dominique Kwong. | Filed herewith | ||||||||||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1# | Certification of 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 | X | ||||||||||
| 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 | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | X |
| * | Indicates a management contract or compensatory plan. |
|
# |
This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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