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As filed with the Securities and Exchange Commission on May [__], 2023

 

Registration No. 333-[__]

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

AERWINS TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

Delaware   3721   86-2049355

(State or other jurisdiction

of incorporation or organization)

  

(Primary Standard Industrial

Classification Code Number)

  

(I.R.S. Employer

Identification Number)

 

AERWINS Technologies Inc.

Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome,

Minato-ku, Tokyo, Japan 105-0011

Telephone: 813-6409-6761

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Corporate Creations Network Inc.

3411 Silverside Road Tatnall Building, Suite 104

Wilmington, DE 19810

Telephone: (302) 351-3367

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Laura Anthony, Esq.

Craig D. Linder, Esq.

Anthony L.G., PLLC

625 N. Flagler Drive, Suite 600

West Palm Beach, Florida 33401

Telephone: (561) 514-0936

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

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 ☐
   
Non-accelerated filer ☒ Smaller reporting company ☒
   
  Emerging growth company ☒

 

If an emerging growth company, indicate by check market 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 7(a)(2)(B) of the Securities Act. ☐

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a), may determine.

 

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED MAY [__], 2023

 

AERWINS TECHNOLOGIES INC.

 

11,222,357 Shares of Common Stock for Resale by Selling Securityholder

 

This prospectus relates to the offer and sale from time to time of up to 11,222,357 shares of Common Stock, par value $0.000001 per share (“Common Stock”) of AERWINS Technologies Inc., a Delaware corporation (referred to herein as the “Company,” “we,” “our,” “us,” or other similar pronouns), by Lind Global Fund II LP, a Delaware limited partnership (“Lind Global” or the “Investor” or “Selling Securityholder”). These 11,222,357 shares of Common Stock are issuable by us in connection with Lind Global’s agreement to purchase from us up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock and consist of: (i) up to 2,800,000 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the outstanding principal amount of $2,520,000 issued to Lind Global dated April 12, 2023 (the “First Closing Convertible Note”); (ii) up to 1,913,390 shares of Common Stock issuable upon exercise of 1,913,390 Common Stock purchase warrants issued to Lind Global on April 12, 2023 (the “First Closing Warrants”); (iii) up to 1,866,667 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the principal amount of $1,680,000 to be issued to Lind Global (the “Second Closing Convertible Note”); (iv) up to 1,275,593 shares of Common Stock issuable upon exercise of 1,275,593 Common Stock purchase warrants to be issued to Lind Global (the “Second Closing Warrants”); (v) up to 2,000,000 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the principal amount of $1,800,000 to be issued to Lind Global (the “Third Closing Convertible Note,” together with the First Closing Convertible Note and the Second Closing Convertible Note, collectively, the “Convertible Notes”); and (vi) up to 1,366,707 shares of Common Stock issuable upon exercise of 1,366,707 Common Stock purchase warrants to be issued to Lind Global (the “Third Closing Warrants,” together with the First Closing Warrants and the Second Closing Warrants, collectively, the “Warrants”). The Convertible Notes and the Warrants are collectively referred to as the “Securities”.

 

The Convertible Notes have a conversion price equal to the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to conversion of the Note (the “Conversion Price”). Each of the Warrants will have an exercise period of 60 months from the date of issuance. The exercise price of the First Closing Warrants is $0.8926 per share, subject to adjustments as set forth in the warrant and the exercise price for each of the Second Closing Warrants and the Third Closing Warrants will be an amount equal to 100% of the 10-day VWAP prior to closing date for issuance of such warrants.

 

We sold the Securities to Lind Global pursuant to a Securities Purchase Agreement, dated April 12, 2023 (the “Purchase Agreement”), between us and Lind Global, as more fully described in this prospectus. See “The Lind Global Financing” for a description of the Purchase Agreement and the Securities and “Selling Securityholder” for additional information regarding the Selling Securityholder. The prices at which the Selling Securityholder may sell the Common Stock will be determined by the prevailing market price for the shares or in negotiated transactions.

 

We will not receive any of the proceeds from the sale of the Securities owned by the Selling Securityholder. We will not receive any proceeds from the conversion of the Convertible Notes, but will receive the proceeds of any cash exercise of the Warrants. See “Use of Proceeds” beginning on page 40 of this prospectus. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Securityholder will bear all commissions and discounts, if any, attributable to their sale of securities. See “Plan of Distribution” beginning on page 130 of this prospectus.

 

The Selling Securityholder may sell the shares of our Common Stock described in this prospectus in a number of different ways and at varying prices. The Selling Securityholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).

 

Our Common Stock and our redeemable warrants to purchase Common Stock (the “Public Warrants”) are listed on the Nasdaq Global Market under the symbols “AWIN” and “AWINW,” respectively. On May 9, 2023, the closing price of our Common Stock was $0.70 per share and the closing price of our Public Warrants was $0.0488 per warrant.

 

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and will be subject to reduced disclosure and public reporting requirements. See “Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

 

Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 40 of this prospectus.

 

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _____________, 2023.

 

 

 

 

TABLE OF CONTENTS

 

  Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
INDUSTRY AND MARKET DATA ii
TRADEMARKS AND COPYRIGHTS ii
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY AND A SMALLER REPORTING COMPANY ii
PROSPECTUS SUMMARY 1
THE OFFERING 11
RISK FACTORS 12
THE LIND GLOBAL FINANCING 37
USE OF PROCEEDS 40
DETERMINATION OF OFFERING PRICE 40
DIVIDEND POLICY 40
MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 40
DESCRIPTION OF BUSINESS 41
LEGAL PROCEEDINGS 99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 99
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 106
MANAGEMENT 116
EXECUTIVE COMPENSATION 121
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 124
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 125
DESCRIPTION OF SECURITIES 128
SELLING SECURITYHOLDER 129
PLAN OF DISTRIBUTION 130
SHARES ELIGIBLE FOR FUTURE SALE 133
LEGAL MATTERS 134
EXPERTS 134
WHERE YOU CAN FIND ADDITIONAL INFORMATION 134
INDEX TO FINANCIAL STATEMENTS F-1
EXHIBIT INDEX II-1
SIGNATURES II-4

 

No dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or that information contained herein is correct as of any time subsequent to the date hereof.

 

For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the shares of our Common Stock and the distribution of this prospectus outside the United States.

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Specifically, forward-looking statements may include statements relating to:

 

  ● our future financial performance;
  ● changes in the market for our products and services;
  ● our expansion plans and opportunities; and
  ● other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.

 

These forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements including those described in the “Risk Factors” section beginning on page 12 and elsewhere in this prospectus.

 

INDUSTRY AND MARKET DATA

 

We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications, and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

 

TRADEMARKS AND COPYRIGHTS

 

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

 

ii

 

 

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY AND A SMALLER REPORTING COMPANY

 

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For so long as we remain an emerging growth company, we are permitted, and currently intend, to rely on the following provisions of the JOBS Act that contain exceptions from disclosure and other requirements that otherwise are applicable to public companies and file periodic reports with the SEC. These provisions include, but are not limited to:

 

  ● being permitted to present only two years of audited financial statements and selected financial data and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our periodic reports and registration statements, including this prospectus, subject to certain exceptions;
     
  ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”);
     
  ● reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements, including in this prospectus;
     
  ● not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; and
     
  ● exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We will remain an emerging growth company until the earliest to occur of:

 

  ● December 31, 2026 (the last day of the fiscal year that follows the fifth anniversary of the completion of our initial public offering);
     
  ● the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion;
     
  ● the date on which we are deemed to be a “large accelerated filer,” as defined in the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
     
  ● the date on which we have issued more than $1 billion in non-convertible debt over a three-year period.

 

We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to holders of our Common Stock may be different than what you might receive from other public reporting companies in which you hold equity interests.

 

We have elected to avail ourselves of the provision of the JOBS Act that permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies.

 

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is $250 million or more measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is $700 million or more measured on the last business day of our second fiscal quarter.

 

iii

 

 

PROSPECTUS SUMMARY

 

This summary of the prospectus highlights material information concerning our business and this offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

In this prospectus, unless the context indicates otherwise, “AERWINS,” the “Company,” “we,” “our,” “ours” or “us” refer to AERWINS Technologies Inc., a Delaware corporation, and its direct and indirect subsidiaries, including, but not limited to, AERWINS, Inc., a Delaware corporation and A.L.I. Technologies Inc., a Japanese corporation. Lind Global Fund II LP is referred to herein as “Lind Global,” the “Investor,” and the “Selling Securityholder.”

 

This summary contains basic information about us and the offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire prospectus carefully, including the risk factors and our financial statements and the related notes to those statements included in this prospectus.

 

We have not authorized anyone to provide you with different information and you must not rely on any unauthorized information or representation. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus, or any sale of our Common Stock. Our business, financial condition and results of operations may have changed since the date on the front of this prospectus. We urge you to carefully read this prospectus before deciding whether to invest in any of the Common Stock being offered.

 

Business

 

AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All refences in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.

 

Corporate History

 

We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

 

On August 13, 2021, we consummated an initial public offering (“Initial Public Offering”). The registration statement for the Company’s Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A Common Stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 6) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000 Units at the Initial Public Offering price to cover over-allotments, if any. Simultaneously with the consummation of the closing of the Offering, the Company consummated the private placement of an aggregate of 469,175 units (the “Placement Units”) to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”).

 

On August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering. A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account established for the benefit of the Company’s public stockholders. On October 8, 2021, the Class A ordinary shares and Public Warrant included in the Units began separate trading.

 

On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative. Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation. The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022. On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.

 

On November 9, 2022, the Company entered into Purchase Agreements and completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement and deposited $1,150,000 into the Company’s Trust account for its public stockholders, representing $0.10 per public share, allowing the Company to extend the period of time it had to consummate its initial business combination by three months from November 11, 2022 to February 13, 2023. The Purchase Agreements and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.

 

1

 

 

On December 31, 2022, substantially all of the assets held in the Trust Account were held in mutual funds.

 

No payments for our expenses were made in the offering described above directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except in connection with the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered into with our sponsor.

 

On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).

 

Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono Common Stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ Common Stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”

 

After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ Common Stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.

 

As a result of the Merger and the Business Combination, holders of Pono Common Stock automatically received Common Stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A Common Stock and shares of Class B Common Stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ Common Stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies Common Stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies Common Stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies Common Stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies Common Stock.

 

At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.

 

AERWINS, Inc. formerly named AERWINS Technologies Inc. until it changed its name to AERWINS, Inc. on January 24, 2023, was incorporated in the State of Delaware on June 9, 2022. A. L. I. Technologies Inc., a Japanese corporation and a wholly owned subsidiary of AERWINS, Inc. was established in Japan in September 2016. On August 5, 2022, pursuant to the terms of a share exchange agreement among the Company, A. L. I. Technologies, the shareholders of A. L. I. Technologies and Shuhei Komatsu, as the representative of the shareholders of A. L. I. Technologies, we issued 30,000,000 shares of AERWINS, Inc. Common Stock to the shareholders of A. L. I. Technologies in exchange for 2,006,689 shares A. L. I. Technologies’ Common Stock, representing 100% of the issued and outstanding capital stock of A. L. I. Technologies. As a result of this transaction, A. L. I. Technologies became AERWINS Inc.’s 100%-owned subsidiary and the former shareholders of A. L. I. Technologies became the owners of 100% of AERWINS, Inc. outstanding Common Stock as of August 5, 2022.

 

2

 

 

Summary of our business

 

Mission

 

With the mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in which cars, motorcycles, and drones can fly freely. We are working in three areas: 1) manned air mobility, 2) unmanned air mobility, and 3) sharing computer power. The diagram below describes our business structure.

 

Overview

 

We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.

 

To realize this vision, we are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and

 

(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.

 

 

 

3

 

 

Current and Planned Product and Service Status

 

Our current and planned product status is as follows:

 

Product/Service   Launch Schedule   Delivery   Client Types   Details
XTURISMO LTD EDITION   October-2021   after December-2022   Individuals. Governments   Innovative hovering bike equipped with hybrid system, software, edge computing. Products for a government are under development.
                 
COSMOS   Available   In 2023   Municipalities, Local Governments   Unmanned traffic management system “UTM” in service for up to approximately 10 drones.
                 
COSMOS Advanced   In Development   In 2023   Municipalities, Local Governments, and Corporations   Currently in development for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units
                 
Shared Computing Service   Available   Available   Corporations, Individuals   The proprietary Software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering
                 
Drone Service   Available   Available   Municipalities, Lobal Governments, Corporations   Using our C.O.S.M.O.S. we offer geo-survey, infrastructure inspection and pesticide spraying service to various entities

 

Significant Market Opportunities

 

In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution. For additional information on our significant market opportunities, please see “Description of Business – Significant Market Opportunities” on page 43 of this prospectus.

 

Orders, Delivery and Financial Results

 

We are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster, etc.;

 

(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software) and the industrial drone business, which involves the sale and development of industrial drones; and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.

 

4

 

 

Below is a breakdown of revenues for each of these businesses.

 

 

Gross sales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmanned air mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. During the year ended December 31, 2022, gross sales totaled $5,207,490 (excluding consumption tax), consisting of $2,582,492 from shared computing, $2,524,998 from unmanned air mobility and $100,000 from consulting service. During the year ended December 31, 2022, one significant customer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.

 

In the future, considering regulation in each jurisdiction, we assume that the majority of XTURISMO Limited Edition sales will be in the public sector.

 

What Sets Us Apart. In this industry, various parties have announced their products, but our products have the following three characteristics compared to other companies. We intend to leverage these characteristics to gain market share. We believe the following characteristics set us apart in each domain.

 

Manned Air Mobility Domain

 

Ease of implementation in society

 

Our “XTURISMO Limited Edition” does not require aircraft category approval in Japan, as it is designed to levitate within a range of a few meters above ground effect. In Japan, it can also be used without a pilot’s license, making it a product that is easy to implement in society in Japan. In addition, given that the product is in this category in Japan, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. We believe this ease of providing insurance and after-sales service in Japan is one of the factors contributing to our competitiveness.

 

In Japan, through numerous conversations, the Civil Aviation Bureau of the Ministry of Land, Infrastructure, Transport and Tourism has stated that the XTURISMO LTD EDITION does not fall under Civil Aviation Law at this time, but that could change if we make certain additional modifications to the design specifications of the XTURISMO LTD EDITION. We have also received a HS Code from the Tokyo Customs office which is registered as code 95-03, where 95 is categorized as “Toys, playthings and sports equipment, and parts and accessories thereof” and subcategory 03 as “Tricycles, scooters, foot-operated vehicles and other similar wheeled toys, doll prams, dolls and other toys, scale models and other similar models for amusement (whether or not operating) and puzzles”.

 

Outside of Japan, we are subject to extensive legal and regulatory requirements, and are working to obtain relevant approvals and permits in the jurisdictions where we plan to sell our products. For example, we have begun the discussion with several public sectors and governments where the use can be limited to public use where the regulations may be limited. Additionally, in the US we have begun discussions with an attorney to discuss and file an application for certification from the FAA seeking the correct category for our product.

 

5

 

 

Practical Driving Capacity

 

The current battery technology has limitations in terms of power and cruising time, making it difficult to achieve a practical cruising time. Our “XTURISMO Limited Edition” achieves a practical cruising time of 40 minutes by utilizing the engine for power.

 

Pioneer and Leader in Urban Air Mobility

 

The above features enable us to launch products at a very early date, even by global standards, without having to wait for the long process of obtaining airworthiness and type certification, since we believe our products will not be classified as aircrafts and our products will not be deemed to utilize technological innovation in next generation batteries. We are planning to create an entirely electronic version targeting a 2025 launch.

 

Unmanned Air Mobility Domain

 

Original Operation Management System

 

This technology has been patented as “an infrastructure system that communicates with air traffic control systems in the air (low altitude) and mutually or unilaterally transmits, manages, controls, authenticates, registers, and settles flight routes and various information (including the use of external data). While many drone-related companies provide solutions focused on specific fields, we believe that our strength lies in the fact that our services are comprehensive, ranging from development in other areas to operation management systems, provision of operators, and data analysis and reporting.

 

Computing Power Sharing Domain

 

Equipment optimized for those wishing to rent out computing power

 

The computing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietary distributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD required for blockchain and AI lending, in addition to the latest model of GPUs. The system can be used for storage in a general data center. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of receiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.

 

Our Strategies.

 

We intend to pursue the following strategies to achieve our mission:

 

Transformation into a Global Company

 

We have established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where our administrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, including the United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansion area, with a target year of 2023. We plan to establish an office, research and development (“R&D”) center, logistics, manufacturing, and marketing hub for the vehicles in the GCC region. We believe that this region will be our distribution center to Europe and Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establish an office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venture capital firm.

 

As such, a global headquarters for finance and marketing will be established, and the ratio of foreign employees is intended to be increased to 50% by 2024.

 

Extend Our Technological Leadership

 

We plan to continue to invest in technological innovation to cement our leadership in Air Mobility technologies and establish ourselves as the industry benchmark for Air Mobility commercial solutions. We will continue to attract talent from around the world to expand our talent pool and drive innovation.

 

Expand Development and Manufacturing Capabilities

 

We plan to expand our existing engineering and manufacturing facilities and develop new ones. We may also develop manufacturing facilities in other countries or cooperate with local manufacturing partners to fulfill orders from international customers.

 

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Expand Our Air Mobility Portfolio and Strengthen Our Platform

 

We plan to continue to expand our Air Mobility portfolio and optimize our existing Air Mobility models. We will develop future Air Mobility models for different uses. We will continue to develop our technology platform and ancillary products and services to strengthen our ability to provide end-to-end Air Mobility commercial solutions that address the needs of our customers.

 

Continue Commercialization and Promote Adoption

 

We believe that urban air mobility will be an important part of global transportation in the future. We will continue to commercialize our Air Mobility technology and solutions and promote their adoption worldwide, not only through the sale of our air mobilities, but also through offering services such as manned air mobility services and urban air logistics services. As we continue to improve the regulatory acceptance, production scale and on-the-ground infrastructure of air mobilities, we plan to pilot urban air mobility services with predetermined routes as a precursor to more flexible, on-demand services networks. We plan to work closely with partners and regulatory agencies to foster and grow the commercial Air Mobility market. In particular, we are in discussions with multiple cities around the world to establish urban air mobility services for both passengers and goods.

 

Explore New Monetization Opportunities

 

We plan to explore new monetization opportunities by leveraging our Air Mobility technology platform. For example, we may charge recurring fees for our operational and maintenance services for our air mobilities. We may also enter into revenue sharing arrangements with customers to capture greater business opportunities.

 

Pursue Strategic Partnerships in Production and Technology

 

We intend to explore and pursue suitable strategic partnerships that can strengthen our production and technological capabilities. We may co-develop new Air Mobility models in collaboration with international industry leaders.

 

Industry

 

Overview of Our Market. The industrial drone market, the computing power sharing (cloud computing) market, and leisure use market, in which we are involved, are markets that are expected to grow significantly in Japan and overseas. In addition, the technology staffing business is expected to expand into various fields, although mainly in Japan. For additional information on the industry in which we operate, please see “Description of Business – Market size by our segment” on page 47 of this prospectus.

 

We operate in multiple business lines that include the following:

 

Air Mobility Business. Our air mobility business is built on our technology platform, which is designed to develop and market Manned Air Mobility and provide Unmanned Air Mobility operating systems and solutions. In the manned air mobility business, we develop and market “XTURISMO Limited Edition” air mobility vehicle. In our unmanned air mobility business, we provide “C.O.S.M.O.S. (Flight Operation Management System),” an unmanned traffic management system and C.O.S.M.O.S. Hub (Operator Network), a system that enables quick and efficient matching of registered pilots throughout Japan with operators who place orders.

 

Drone Photography Business. In this line of business, we provide aerial photography, inspections and video editing services and reports.

 

Joint Research and Development. Utilizing our business development and engineering teams, we provide research and development services for development for a wide range of drone and artificial intelligence (AI) solutions.

 

Computing Power Sharing Domain – In this line of business we provide A.L.I. Albatross (our original GPU machine), a shared computing service and proprietary software technology that allows computers to efficiently utilize capability for computing and rendering.

 

Technology Human Resources Business Domain. Through our non-controlling interest in ASC TECH Agent Co., we are engaged in licensing software for use in companies who use blockchain and AI technology in their businesses.

 

Research and Development Capabilities. In the area of manned air mobility, we are engaged in R&D to improve the safety, operability, and performance of the “Xturismo Limited Edition,” and in the area of unmanned air mobility, we are engaged in R&D to improve safety, environmental friendliness, and expandability of our products.

 

Our Proprietary Technologies

 

In order to provide highly differentiated solutions in the areas of manned air mobility, unmanned air mobility, and Computing Power Sharing Domain, we are engaged in research and development in the areas listed below.

 

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Manufacturing, Quality Control and Supply Chain

 

Manufacturing. We adopt a lean and efficient production strategy across our business, focusing on effective prototyping, manufacturing, supply chain management, final assembly, integration, quality and final acceptance testing using the our Xturismo Limited Edition manufacturing procedures system.

 

Intellectual Property

 

We have significant capabilities in the areas of Air Mobilities engineering, development and design and we have developed a number of proprietary systems and technologies. Our success depends in part on our ability to protect our core technology and intellectual property. We rely on a combination of patents, patent applications, trade secrets, know-how, copyrights, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition, we have entered into confidentiality and non-disclosure agreements with our employees and business partners. The agreements we entered into with our employees provide that all software, inventions, developments, works of authorship and trade secrets created by them during the course of their employment are our property. For additional information on our intellectual property portfolio, patent rights, trademark rights and design rights, please see “Description of Business – Intellectual Property” on page 64 of this prospectus.

 

Government Regulation

 

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. For additional information on the governmental regulations affecting our business, please see “Description of Business – Government Regulation” on page 86 of this prospectus.

 

Organizational Structure

 

The following is a current organizational chart of our Company:

 

 

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Summary of Lind Global Financing

 

On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).

 

The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.

 

The Convertible Note issued in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).

 

Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”).

 

The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.

 

Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.

 

In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.

 

In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023 of $0.70 per share.

 

The Purchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations by each party, including our agreement to refrain from engaging in certain “Prohibited Transactions” as defined in the Purchase Agreement, to hold a special meeting of shareholders for the purpose of obtaining shareholder approval of the Transactions, certain events giving rise to a default under the Convertible Notes, obligations to use the proceeds from certain future financings to repay a portion of the principal amount of the Convertible Notes, our pledge to the Selling Securityholder of the ownership interests in our subsidiaries, a grant by us and our subsidiaries of a security interest in all of their respective assets and rights as collateral for the obligations due under the Convertible Notes, and a guaranty by our subsidiaries of our obligations under the Convertible Notes.

 

See “The Lind Global Financing” on page 37 for a description of the Purchase Agreement, “Selling Securityholder” on page 129 for additional information regarding the Selling Securityholder and “Plan of Distribution” on page 130 for more information about how the Selling Securityholder may sell the shares of Common Stock being registered pursuant to this prospectus.

 

Summary Risk Factors

 

Our business is subject to numerous risks and uncertainties, including those described in the “Risk Factors” section beginning on page 12 and elsewhere in this prospectus. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:

 

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Risks Related to the Lind Global Financing

 

  ● It is not possible to predict the actual number of shares of Common Stock, if any, we will issue upon conversion of the Convertible Notes or sell upon exercise of the Warrants by the Selling Securityholder, or the actual gross proceeds resulting from exercise of those warrants;
     
  ● Investors who buy shares of Common Stock from the Selling Securityholder at different times will likely pay different prices; and
     
  ● We may use proceeds from issuance of the Convertible Notes sales of shares of our Common Stock upon exercise of the Warrants in ways with which you may not agree or in ways which may not yield a significant return.

 

Risks Related to our Business

 

  ● We have incurred, and in the future may continue to incur, net losses;
     
  ● We are a holding company and depend upon our subsidiary AERWINS, Inc. and its operating subsidiary, A.L.I. Technologies, Inc. for our cash flows;
     
  ● We will need additional capital, and we cannot be sure that additional financing will be available;
     
  ● Our business performance may be adversely affected if the growth of the Air Mobility Vehicle industry slows down;
     
  ● Our future growth depends on the demand for, and customers’ willingness to adopt, our Air Mobility Vehicles and air mobility solutions;
     
  ● We may be unable to make timely product deliveries due to limited production capacity;
     
  ● Our framework and conditional agreements may not result in material sales of our products;
     
  ● We expect to have substantial customer concentration;
     
  ● We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims;
     
  ● If we fail to successfully develop and commercialize new products, services and technologies that are well received by customers, our operating results may be materially and adversely affected;
     
  ● The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends;
     
  ● The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy;
     
  ● We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly;
     
  ● Our or our subsidiaries’ intellectual property rights may not protect us effectively;
     
  ● Failure to comply with laws and regulations could harm our business;
     
  ● We are exposed to fluctuations in currency exchange rates;
     
  ● Nasdaq may delist the Company’s securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions;
     
  ● The market price of our Common Stock may be volatile, and you could lose all or part of your investment; and
     
  ● As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

 

In addition, our management has concluded that its historical recurring losses from operations and negative cash flows from operations as well as its dependence on securing private equity and other financings raise substantial doubt about its ability to continue as a going concern and the auditor of AERWINS, Inc. has included an explanatory paragraph relating to its ability to continue as a going concern in its audit report for the fiscal years ended December 31, 2022 and December 31, 2021..

 

Corporate Information

 

We are a Delaware corporation based in Tokyo, Japan and were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our principal executive offices are located at Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome, Minato-ku, Tokyo, Japan 105-0011. Our telephone number in Japan is 813-6409-6761. Our website address is www.aerwins.us The information contained on, or that can be accessed through, our website is not part of this prospectus or the registration statement of which it forms a part. We have included our website address in this prospectus solely as an inactive textual reference.

 

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THE OFFERING

 

Securities being offered by the Selling Securityholder:   Up to 11,222,357 shares of Common Stock consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. Our Common Stock is listed on the Nasdaq Global Market under the symbol “AWIN.” Our Common Stock and Warrants are described in further detail in the section of this prospectus titled “Description of Securities.”
     
Common Stock Outstanding Before the Offering:   56,139,855 Shares.
     
Common Stock Outstanding After the Offering:   Up to 67,362,212 Shares, assuming the issuance of all 11,222,357 shares offered for resale by the Selling Securityholder pursuant to this prospectus. The actual number of shares issued will vary depending on the number of shares issued upon conversion of the Convertible Notes and the number of Warrants exercised by the Selling Securityholder pursuant to the Warrants.
     
Offering Price per Share:   The Selling Securityholder may re-sell all or a portion of the Shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices.
     
Terms of the Convertible Notes:  

The per share conversion price into which the principal amount under the Convertible Notes shall be convertible into shares of Common Stock hereunder is the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to conversion of the note.

 

The First Closing Convertible Note matures on April 12, 2025 and the Second Closing Convertible Note and the Third Closing Convertible Note will each have a maturity date of two years from the date of issuance.

     
Terms of the Warrants:  

First Closing Warrants. Each First Closing Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.8926 per share, subject to adjustments as set forth in the Warrant.

 

Second Closing Warrants and Third Closing Warrants. Each Second Closing Warrant and each Third Closing Warrant entitles the holder to purchase one share of Common Stock at an exercise price equal to 100% of the 10-day VWAP prior to such closing.

 

Provisions Common to all of the Warrants. Each of the Warrants issued will have an exercise period of 60 months from the date of issuance. In the event that there is no effective registration statement registering the shares underlying the Warrants, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.

     
Use of Proceeds:   We expect to receive approximately $4,211,736 in gross proceeds assuming the cash exercise of all of the Warrants being registered hereby at the applicable exercise prices stated above. However, the Warrants may be exercised on a cashless basis, in which case we would not expect to receive any gross proceeds from the cash exercise of the Warrants. Also, we will not receive any of the proceeds from the conversion of the Convertible Notes into shares of our Common Stock nor will we receive any proceeds from the disposition and/or resale of the shares of Common Stock by the Selling Securityholder or its transferees. While we retain broad discretion on the use of proceeds, we intend to use such proceeds for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions.
     
Nasdaq Listing:   Our Common Stock and Public Warrants are listed on Nasdaq under the symbols “AWIN” and “AWINW,” respectively.
     
Plan of Distribution:   The Selling Securityholder may, from time to time, sell any or all of the Shares on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. For further information, see “Plan of Distribution” beginning on page 130.
     
Risk Factors:   You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our Common Stock.

 

 

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RISK FACTORS

 

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our Common Stock shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”

 

We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

 

Risks Related to the Convertible Notes and Warrants

 

It is not possible to predict the actual number of shares of Common Stock, if any, we will issue upon conversion of the Convertible Notes to the Selling Securityholder, or the actual gross proceeds resulting from exercises of the Warrants.

 

On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder, pursuant to which we agreed to issue to the Selling Securityholder up to three Convertible Notes in the aggregate principal amount of $6,000,000 and up to 4,555,690 Warrants to purchase 4,555,690 shares of our Common Stock.

 

We do not have the right to control the timing and amount of any conversions of principal under the Convertible Notes or exercises of the Warrants by the Selling Securityholder pursuant to the terms of the Warrant. The number of shares that we issue to the Selling Securityholder pursuant to the Convertible Noes and Warrants, if any, will depend upon market conditions and other factors to be determined by the Selling Securityholder. The Selling Securityholder may ultimately decide to convert none or a portion of the principal amount of the Convertible Debt or exercise none or a portion of the Warrants.

 

Because the conversion price of the Convertible Notes purchased by the Selling Securityholder, will fluctuate based on the market prices of our Common Stock at the time of conversion by the Selling Securityholder pursuant to the Convertible Notes, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the purchase price per share that the Selling Securityholder will effectively pay for shares of Common Stock issued upon conversion under the Convertible Notes, or the aggregate gross proceeds that we will receive from any exercises of the Warrants.

 

Because the market price of our Common Stock may fluctuate from time to time after the date of this prospectus and, as a result, the actual number of shares we issue to the Selling Securityholder upon conversion of the Convertible Notes and the purchase prices to be paid by the Selling Securityholder upon exercise of the Warrants, if any, also may fluctuate significantly based on the market price of our Common Stock.

 

The number of shares of Common Stock ultimately offered for sale by the Selling Securityholder is dependent upon the number of shares, if any, we ultimately issue upon conversion of the Convertible Notes and exercises of the Warrants, if any. However, even if the Selling Securityholder elects to convert the entire principal amount of the Convertible Notes and exercises all of the Warrants, the Selling Securityholder may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices.

 

Investors who buy shares of Common Stock from the Selling Securityholder at different times will likely pay different prices.

 

Pursuant to the terms of the Convertible Notes and Warrants, we do not have the right to control the timing and amount of any conversions under the Convertible Notes or exercises of the Warrants by the Selling Securityholder. If and when the Selling Securityholder converts any principal amounts under the Convertible Notes or exercises any of the Warrants and has acquired shares of our Common Stock, the Selling Securityholder may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices. As a result, investors who purchase shares from the Selling Securityholder in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from the Selling Securityholder in this offering as a result of future conversions under the Convertible Notes and exercises of the Warrants at prices lower than the prices such investors paid for their shares in this offering. In addition, if we issue a substantial number of shares of Common Stock to the Selling Securityholder upon conversions under the Convertible Notes or exercises of the Warrants, or if investors expect that the Selling Securityholder will convert under the Convertible Notes or exercises the Warrants, the actual issuance of shares or the mere existence of the Convertible Notes and Warrants may result in significant dilution to our current stockholders and may cause volatility in the trading price of our Common Stock and may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.

 

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We may use proceeds from sales of shares of our Common Stock made pursuant to the Purchase Agreement in ways with which you may not agree or in ways which may not yield a significant return.

 

We have broad discretion over the use of proceeds from sales of shares of our Common Stock made pursuant to the Purchase Agreement, as described in the section entitled “Use of Proceeds,” and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. In addition, the ultimate use of the net proceeds may vary from the currently intended uses. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our Common Stock.

 

Risks Relating to Our Business and Industry

 

AERWINS, Inc. has incurred net losses in the past and may do so in the future, and in the future, the Company may also incur, net losses.

 

For the years ended December 31, 2022 and 2021, Pono had net income of $2,732,973 and $4,585,547, respectively, and we had net operating cash outflows of $1,233,766 and $459,012, respectively. AERWINS, Inc. has incurred net losses in the past. For the years ended December 31, 2022 and 2021, AERWINS, Inc. had net losses of $14,479,819 and $14,555,670, respectively, and had net operating cash outflows of $16,865,274 and $9,876,472, respectively. We expect our costs to increase in future periods as we continue to expand our business and operations. We also expect to incur substantial costs and expenses as a result of being a public company. We cannot assure you that we will be able to generate net profits or positive operating cash flows in the future. Our ability to achieve profitability depends in large part on, among other factors, our ability to increase orders and sales of our Air Mobility Vehicles, mobility solutions and services, achieve economies of scale, establish effective pricing strategies, effectively navigate the regulatory environments in different jurisdictions, and increase operational efficiency. If we are unable to generate adequate revenues or effectively manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or subsequently maintain profitability.

 

We are a holding company and depend upon our subsidiary AERWINS, Inc. and its operating subsidiary, A.L.I. Technologies, Inc. for our cash flows.

 

We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our operating subsidiary, A.L.I. Technologies Inc., a Japanese corporation. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our operating subsidiary and its subsidiary and the payment of funds by this operating subsidiary to us in the form of dividends, distributions or otherwise. The ability of our subsidiary and its operating subsidiary to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiary and its operating subsidiary when needed could have a material adverse effect on our business, results of operations or financial condition.

 

We will need additional capital, and we cannot be sure that additional financing will be available.

 

As of and for the year ended December 31, 2022, AERWINS has incurred operating losses of $13,435,045 and retained earnings deficit of $46,451,520. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our Common Stock, and the existing stockholders may experience dilution.

 

A new health epidemic could significantly disrupt our operations and adversely affect our results of operations.

 

Our business could be significantly affected by public health epidemics that may hit Japan and/or other countries where we sell our products, such as the outbreak of coronavirus, avian influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus or other disease. For example, the severity of the current COVID-19 pandemic resulted in lock-downs, travel restrictions and quarantines imposed by governments across the world and materially affected general commercial activities on a global scale.

 

A COVID-19 outbreak may result in these customers ceasing purchases, canceling or reducing orders for our products or services, or failing to make payments owed to us in a timely manner or at all, which may materially and adversely impact our business and result of operations. The COVID-19 pandemic has caused, and is expected to cause in the near future, an economic downturn in many countries. Such general economic slowdown may reduce the demand for our products and services. In the international market, the pandemic has continued to significantly affect many parts of the world, including Asia, Europe and North America, where many of our customers and business partners are located. Any future outbreak of a contagious disease, and other adverse public health developments may restrict economic activities in affected regions, resulting in reduced business volume, temporary closure of our production facilities and offices or otherwise disrupt our business operations and adversely affect our results of operations.

 

13

 

 

Our business performance may be adversely affected if the growth of the Air Mobility Vehicle industry slows down.

 

In the manned air mobility, unmanned air mobility, and computing power sharing domains, we have acquired various technological expertise and a global alliance network as a result of developing diverse product services utilizing various hardware and software technologies. We recognize that this trend will continue in the future. However, if the growth of the market slows down due to laws and regulations, economic trends, or changes in social awareness that restrict business in the industries in which our group is involved, and if our business does not expand accordingly, our group’s business performance may be affected.

 

Our future growth depends on the demand for, and customers’ willingness to adopt, our Air Mobility Vehicles and air mobility solutions.

 

We operate in the new and evolving Air Mobility Vehicles (“AMVs”) industry. Our business and operating results depend in large part on the acceptance of and demand for our AMVs and air mobility solutions. The success of these products and services are and will be subject to risks, including with respect to:

 

  ● the extent of market reception and adoption of AMVs as transportation and logistics solutions;
  ● our navigating a new and evolving regulatory environment;
  ● our timely fulfillment of product orders;
  ● our ability to produce safe, high-quality and cost-effective AMVs on an ongoing basis;
  ● the performance of our AMVs relative to customer expectations and customers’ interest in and demand for our manned AMVs and air mobility solutions; and
  ● our building a well-recognized and respected brand.

 

Our failure to manage the risks described above may discourage current or potential customers from purchasing our AMVs or using our air mobility solutions, and there may be downward price pressure on our AMVs and air mobility solutions. If the market for AMVs or air mobility solutions does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be materially and adversely affected.

 

We may be unable to make timely product deliveries due to limited production capacity.

 

Commercial production of our manned AMVs requires timely and adequate supply of various types of raw materials and components, as well as mass production capacity and efficient manufacturing and assembly. We have no experience in high-volume manufacturing of our AMVs. We cannot assure you that we will be able to expand our production capacity efficiently and cost-effectively, or to procure sufficient raw materials and components to meet our production volume. While we are looking into expanding our manufacturing capacity through partnerships, such partnerships may not be successful, or we may not be able to do so in a timely manner to fulfill our backlog orders. While we obtain components from multiple sources whenever possible, some of the components used in our AMVs are currently selected to be purchased from a single source to improve cost-efficiency. Disruption in the supply of components, whether or not from a single-source supplier, could temporarily disrupt commercial production of our AMVs. We may experience operational difficulties with contract manufacturers we may utilize in the future, including reductions in the availability of production capacity, failure to comply with product specifications, insufficient quality control, failure to meet production deadlines, increases in manufacturing costs and longer lead time. Any of the foregoing could result in our failure to make timely deliveries to our customers. Such failure would materially and adversely affect our business, results of operations, financial condition and prospects.

 

Our framework and conditional agreements may not result in material sales of our products.

 

We have entered into a number of long-term agreements with customers and partners relating to the sale of our manned AMVs. Some of these agreements are conditional, and our counterparty is not obligated to purchase our products unless a number of conditions are satisfied. For example, the customer may not be required to purchase our AMVs unless our AMVs achieve a number of performance milestones and it obtains required governmental approvals (for example, in the United States, from the Federal Aviation Administration, or the FAA). We have yet to achieve the performance milestones, and the customers are allowed to terminate the agreements before that happens. Further, it may be time-consuming for the customer to obtain the required approvals, if they are able to do so at all. Some other agreements are framework agreements containing sales targets, but that does not obligate our counterparties to purchase our products at all. We expect the number of orders and pre-orders we receive under these framework agreements to depend on a number of factors, including changes in the regulatory environment, customers’ acceptance of and demand for our products and services and our production capacity. For the foregoing reasons, we may not receive substantial orders from our current or potential customers. As our long-term agreements may not result in material sales of our products, our future results of operations may not scale or otherwise meet our current expectations.

 

14

 

 

We expect to have substantial customer concentration.

 

Due to the short history of our business and that we have not achieved significant scale, we expect to have customer concentration. There are inherent risks whenever a large percentage of revenues are concentrated with a limited number of customers that mainly operate our AMVs in entertainment and tourism locations in Japan, rather than in broad, mainstream commercial operations. We are unable to predict the future level of demand for our services that will be generated by these customers.

 

Our technology platform may not perform in line with customer specifications or expectations.

 

Our technology platform, consisting of our AMVs, in-air operating systems and on-the-ground infrastructure, may not perform in line with customers’ expectations. For example, our AMVs may not be as easy to operate or maintain as customers expect. In addition, certain orders and pre-orders of our manned AMVs are conditioned on their meeting defined technical specifications (such as a specified cruising speed, operational range and payload capacity) according to agreed-upon delivery timetables. Future customers may also require performance specifications that we are unable to deliver. Some of these target specifications, such as those dependent on battery technology, are constrained by the pace of general technological advancement and the capabilities of our suppliers, which are largely beyond our control.

 

Our technology platform may contain design or manufacturing defects that result in unsatisfactory performance or require repair. Our technology platform uses a substantial amount of algorithms and software to operate. Software products are inherently complex and often contain defects and errors, especially when first introduced. While we have performed extensive internal testing on our AMV software and hardware systems, we have a limited frame of reference by which to evaluate the long-term performance of our technology platform. There can be no assurance that we will be able to detect and fix any defects in our technology platform before we and our subsidiaries sell products and services to customers.

 

If our technology platform is defective or otherwise fails to perform as expected or in accordance with prescribed technical specifications and timetable, our AMVs may experience accidents and we may suffer adverse publicity, order cancellations, revenue declines, delivery delays, product recalls, product liability claims, and significant warranty and other expenses. These consequences could have a material adverse impact on our business, financial condition, operating results and prospects.

 

Our reputation and the trading price of our common stock may be negatively affected by adverse publicity or detrimental conduct against us.

 

Adverse publicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation and cause the trading price of our common stock to decline and fluctuate significantly. The negative publicity and the resulting decline of the trading price of our common stock may lead to the filing of shareholder class action lawsuits against us and some of our senior executive officers, and may potentially have further severe impact on the market price of our common stock and divert management’s attention from the day-to-day operations of our company.

 

We may continue to be the target of adverse publicity and detrimental conduct against us, including complaints, anonymous or otherwise, to regulatory agencies regarding our operations, accounting, revenues and regulatory compliance. Additionally, allegations against us may be posted on the internet by any person or entity which identifies itself or on an anonymous basis. We and our subsidiaries may be subject to government or regulatory investigation or inquiries, or shareholder lawsuits, as a result of such third-party conduct and may be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we and our subsidiaries will be able to conclusively refute each of the allegations within a reasonable period of time or at all. Our reputation may also be negatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materially and adversely affect the trading price of our common stock.

 

We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growth or implement our business strategies.

 

Our subsidiaries have been providing air mobility solutions since September 2016. Although we have experienced growth, our historical performance may not be indicative of our future performance due to our limited operating history. We are currently commercializing our AMVs and air mobility solutions, and have a short history of accepting orders for our AMVs and delivering them to customers for testing, training and demonstration purposes. There is only a limited historical basis for making judgments on the demand for our products and services or our ability to produce and deliver AMVs and air mobility solutions, or to become profitable in the future.

 

15

 

 

You should consider our business and future prospects in light of the risks and challenges we face as a new entrant to a nascent industry and to overseas markets, including risks and challenges associated with our ability to:

 

  ● provide safe, convenient and effective air mobility solutions;
  ● maintain reliable, secure, high-performance and scalable infrastructure;
  ● identify suitable facilities to expand manufacturing capacity;
  ● navigate the evolving and complex regulatory environment across all the markets in which we operate;
  ● anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape, and adjust, manage and execute our marketing and sales activities to cater to local economic and demographic conditions, cultural differences and customer preferences across all our current and future markets;
  ● successfully market our air mobility solutions;
  ● improve and maintain our operational efficiency; and
  ● attract, retain and motivate talented employees.

 

If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected.

 

As our business grows, we or our subsidiaries may adjust our product and service offerings. These adjustments may not bring about expected results and may instead have a material and adverse impact on our financial condition and results of operations. Our revenue structure may continue to evolve in response to market demand. In particular, we expect the relative revenue contribution from air mobility solutions to increase in the future. Our growth is dependent on the development of such new products and services. We may not accurately identify market needs before we invest in the development of a new product or a new service. In addition, we might face difficulties or delays in the development process, which may result in losses in our market share and competitive advantages.

 

In pursuit of our growth strategy, we or our subsidiaries may enter into new strategic relationships to further penetrate our targeted markets. Should these relationships fail to materialize and develop into demand or orders for our products and services, or should we fail to work effectively with these companies, we may lose opportunities to generate sales growth and our business, results of operations and financial condition could be adversely affected.

 

We may not be successful in competing in the AMV industry.

 

We operate in the AMV industry and provide various mobility solutions, including air mobility (consisting of transportation and logistics and drone solutions), smart city management and aerial media solutions. Companies engaged in businesses similar to those of ours are entering the market one after another, and competition is fierce, with a wide range of products and service formats. Our policy is to continue to respond to customer needs and enhance its services. However, if these efforts do not produce the anticipated results, or if the emergence of competitors offering innovative services leads to customers leaving us, leading to a decrease in distribution and deliveries, our business and performance may be affected. However, if these efforts do not produce the anticipated results, or if the emergence of competitors offering groundbreaking services leads to customers leaving, distribution, and sales declines, the group’s business and earnings may be affected.

 

In addition to competing with other AMV companies, we compete with traditional industry players providing similar solutions, such as aircraft and ground transportation service providers. Many of our current and potential competitors, particularly international competitors, have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products.

 

We expect competition in our industry to intensify in the future in light of increased demand for alternative transportation, continuing globalization and consolidation in the global AMV industry. Factors affecting competition include, among others, ability to innovate, development speed, product quality, reliability, safety and features, pricing and customer service. Increased competition may lead to lower AMV unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, financial condition, operating results and prospects.

 

Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and will affect our market share. If our competitors introduce AMVs or services that are superior in quality or performance and/or lower in price compared with our offerings, we may lose existing customers or be unable to attract new customers at prices that would allow us to generate attractive rates of return on our investment, if at all.

 

16

 

 

Any significant cybersecurity incident or disruption to our operating systems or our command-and-control centers could subject us to significant reputational, financial, legal and operational consequences.

 

We depend on our and our subsidiaries’ integrated operating systems and on-the-ground infrastructure to operate our products and services. Any material disruption to or slowdown of our operating systems or infrastructure could cause our AMVs to malfunction or result in outages or delays in our services, which could harm our brand and adversely affect our operating results.

 

Our command-and-control centers rely on our proprietary cloud database, which can store all of the data collected under our clients’ approvals. Problems with our command-and-control centers or our telecommunications network providers could adversely affect our services and products. Our telecommunications network providers could decide to cease providing services to us without adequate notice. Any change in service levels of our telecommunications network or any errors, defects, disruptions or other performance problems with our operating systems or infrastructure could harm our brand and potentially affect our user data. If changes in technology cause our operating systems or infrastructure to become obsolete, or if our operating systems or command-and-control centers are inadequate to support our growth, we could lose customers, and our business and operating results could be adversely affected.

 

We could be subject to breaches of security by hackers. Although we proactively employ multiple measures to defend our systems against intrusions and attacks, our measures may not prevent unauthorized access or use of sensitive data. A breach of our AMV operating systems or command-and-control systems may result in product damages, data losses and, in extreme cases, AMV accidents or hijacking of our AMVs to perform unlawful activities.

 

A cybersecurity breach could harm our reputation and deter our customers and potential customers from using our AMVs. In addition, any such breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines.

 

An accident involving an AMV provided by us or another manufacturer could harm the AMV industry.

 

An accident involving an AMV provided by us or another manufacturer could cause regulatory agencies around the world to tighten restrictions on the use of AMVs, particularly over-populated areas, and could cause the public to lose confidence in our products and AMVs generally. There are risks associated with autopilot, flight control, communications and other advanced technologies, and, from time to time, there have been accidents associated with these technologies. The safety of certain cutting-edge technologies depends in part on user interaction, and users may not be accustomed to using such technologies. We or our subsidiaries could face unfavorable and tightened regulatory control and intervention on the use of autopilot and other advanced technologies and be subject to liability and government scrutiny to the extent accidents associated with our autonomous navigation systems occur. Should a high-profile accident occur resulting in substantial casualty or damages, either involving our AMVs or products offered by other companies, public confidence in and regulatory attitudes toward AMVs could deteriorate. Any of the foregoing could materially and adversely affect our results of operations, financial condition and growth prospects.

 

We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations.

 

Our AMVs may not perform in line with customers’ expectations. Any product defects, accidents or any other failure of our AMVs to perform as expected could harm our reputation and result in adverse publicity, revenue loss, delivery delays and product recalls, which could harm our brand and reputation. Any product recall or lawsuit seeking significant monetary damages either in excess of or outside of our insurance coverage may have a material adverse effect on our business and financial condition. In the future, we may, voluntarily or involuntarily, initiate a recall if any of our AMVs, including any systems or components sourced from our suppliers, prove to be defective or noncompliant with applicable laws and regulations. Such recalls, whether voluntary or involuntary and whether caused by systems or components engineered or manufactured by us or our suppliers, could incur significant expenses and adversely affect our brand image in our target markets. They may also inhibit or prevent commercialization of our current and future product candidates.

 

We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

 

We may be exposed to significant product liability claims if our AMVs do not perform as expected or malfunction. Any defects, errors, or failures in our products or the misuse of our AMVs, operating systems and infrastructure could also result in injury, death or property damage. Our risks in this area are particularly pronounced given we have limited field experience in the operation of our AMVs. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our AMVs and business and inhibit or prevent commercialization of our current and future AMV models. Our insurance coverage might not be sufficient to cover all potential product liability claims. In addition, the same level of insurance coverage may not be available in the future at economical prices, or at all. Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and result of operations.

 

17

 

 

We generally provide standard warranties on our AMVs. The term of a warranty is between six months to three years, depending on the product line and the specific part or component. The occurrence of any material defects in our AMVs could make us liable for damages and warranty claims. In addition, we could incur significant costs to correct any defects or other problems, including costs related to product recalls. Warranty claims may also lead to litigation. Any negative publicity related to the perceived quality of our AMVs could affect our brand image, decrease retailer, distributor and customer demand, and adversely affect our operating results and financial condition.

 

If we fail to successfully develop and commercialize new products, services and technologies that are well received by customers, our operating results may be materially and adversely affected.

 

Our future growth depends on whether we can continually develop and introduce new generations of our existing AMV product lines and update our operating systems and infrastructure with enhanced functionalities and value-added services. This is particularly important in the current industry landscape where technologies and consumer preferences evolve rapidly, which may shorten the lifecycles of our existing products. We plan to upgrade our current AMV models and introduce new models in order to continue to provide AMVs with the latest technologies. As technological advancements can be complex and costly, we could experience delays in the development and introduction of new products and services in the future.

 

Our ability to roll out new and innovative products and services depends on a number of factors, including significant investments in research and development, quality control of our products and services and effective management of our supply chain. We may need to devote more resources to the research and development of new or enhanced products, services and technologies, which may reduce our profitability. In addition, our research and development efforts may not yield the benefits we expect to achieve in a timely manner, or at all. To the extent that we are unable to execute our strategy of continuously introducing new and innovative products, diversifying our product portfolio and satisfying consumers’ changing preferences, we may not be able to grow our user base, and our competitive position and results of operations may be adversely affected. Even if we are able to keep up with technological changes and develop new models, our prior models may as a result become obsolete sooner than expected, potentially reducing our return on investment.

 

We have no experience in managing sales to multiple countries and we are subject to a variety of costs and risks due to our continued international expansion.

One of our core strategies is international expansion. We generally have less experience in marketing, selling and deploying our AMVs in markets outside Japan. International expansion will require us to invest significant capital and other resources, and our efforts may not be successful. International sales and operations are subject to risks such as:

 

  ● limited brand recognition;
     
  ● costs associated with establishing new distribution networks;
     
  ● difficulty in finding qualified partners for overseas distribution;
     
  ● inability to anticipate changes in local market conditions, economic landscapes, and consumers’ preferences and customs;
     
  ● difficulties in staffing and managing foreign operations;
     
  ● lack of familiarity with and understanding of the local legal, regulatory and policy frameworks, as well as burdens of complying with a wide variety of local laws and regulations, including those governing personal data protection and safety control;
     
  ● political and economic instability;
     
  ● trade restrictions;
     
  ● differing employment laws and practices, as well as potential labor disruptions;
     
  ● the imposition of government controls;
     
  ● lesser degrees of intellectual property protection;
     
  ● tariffs and customs duties and the classifications of our goods by applicable governmental bodies; and
     
  ● a legal system subject to undue influence or corruption.

 

Additionally, to export our AMVs to certain jurisdictions, we may face challenges in coordinating with both Japanese and the applicable foreign governments and regulatory authorities. If we cannot export our AMVs to such jurisdictions, our business, prospects, financial condition and operating results may be materially and adversely impacted.

 

The failure to manage any of these risks could negatively affect our international business and consequently our overall business and operating results. In addition, the concern over these risks may also prevent us from entering into, or marketing, selling or releasing our AMVs and mobility solutions in, certain markets.

 

18

 

 

Our operations may be interrupted by production difficulties or delays due to mechanical failures, utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities.

 

Production difficulties, such as capacity constraints, mechanical and systems failures and the need for equipment upgrades, may suspend our production and/or reduce our output. There can be no assurance that we will not experience problems with our production facilities in the future or that we will be able to address any such problems in a timely manner. Problems with key equipment in one or more of our production facilities may affect our ability to produce our AMVs or cause us to incur significant expenses to repair or replace such equipment. Scheduled and unscheduled maintenance programs may affect our production output. Any of these could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We depend on a continuous supply of utilities, such as electricity and water, to operate our production facilities. Any disruption to the supply of electricity or other utilities may disrupt our production, or cause the deterioration or loss of our inventory. This could adversely affect our ability to fulfill our sales orders and consequently may have an adverse effect on our business and results of operations. In addition, fire, natural disasters, pandemics or extreme weather, including droughts, floods, typhoons or other storms, or excessive cold or heat, could cause power outages, fuel shortages, water shortages, damage to our production, processing or distribution facilities or disruption of transportation channels, any of which could impair or interfere with our operations. We cannot assure you that such events will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impact of such events, or to effectively respond to such events if they occur.

 

Our consumers may experience service failures or interruptions due to defects in the software, infrastructure, components or engineering system that compromise our products and services, or due to errors in product installation, any of which could harm our business.

 

Our products and services may contain undetected defects in the software, infrastructure, components or engineering system. Sophisticated software and applications, such as those adopted and offered by us, often contain “bugs” that can unexpectedly interfere with the software and applications’ intended operations. Our internet services may from time to time experience outages, service slowdowns or errors. Defects may also occur in components or processes used in our products or for our services.

 

There can be no assurance that we will be able to detect and fix all defects in the hardware, software and services we offer. Failure to do so could result in decreases in sales of our products and services, lost revenues, significant warranty and other expenses, decreases in customer confidence and loyalty, losing market share to our competitors, and harm to our reputation.

 

Our business and prospects depend significantly on our ability to build the A.L.I. Technologies brand.

 

Our business and prospects are heavily dependent on our ability to build, maintain and strengthen the A.L.I. Technologies brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high-quality AMVs and mobility solutions and engage with our customers as intended. In addition, we expect that our ability to develop, maintain and strengthen the A.L.I. Technologies brand will also depend heavily on the success of our user development and branding efforts. Such efforts mainly include building a community of engaged online and offline users as well as other branding initiatives, such as AMV shows and events. To promote our brand, we may be required to change our user development and branding practices, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.

 

Our A.L.I. Technologies brand could be subject to adverse publicity if incidents related to our products occur or are perceived to have occurred, whether or not we are at fault. In particular, given the popularity of social media, including Facebook, Twitter, LinkedIn and Instagram in Japan, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidence in our brand. Furthermore, we may be affected by adverse publicity related to our manufacturing or other partners, whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions of the quality of our partners’ products and services. In addition, from time to time, our AMVs and mobility solutions are evaluated and reviewed by third parties. Any unfavorable reviews could adversely affect consumer perceptions of our AMVs and mobility solutions.

 

Weather and seasonality may have a material adverse effect on our operations.

 

Our sales of AMVs and mobility solutions may be affected by weather and seasonality. Our mobility solutions are mainly delivered outdoors. Customers may choose alternative transportation instead of our solution in severe weather conditions in consideration of safety factors, even if our AMVs are able to endure such conditions. As a result, our business, financial condition and operating results may be materially and adversely impacted by the weather conditions. Our operating results may vary from period to period due to many factors, including seasonal factors that may have an effect on the demand for our mobility solutions in the future. As a result, our quarterly results of operations and financial position at the end of a particular quarter may not necessarily be representative of the results we expect at year-end or in other quarters of a year. Our operating results would suffer if we did not achieve revenues consistent with our expectations due to seasonal demand and weather changes because many of our expenses are based on anticipated levels of annual revenues.

 

19

 

 

Any decline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effect on our operating results.

 

We collaborate with various business partners to promote our AMVs and mobility solutions. There can be no guarantee that those business partners will continue to collaborate with us in the future. If we are unable to maintain good relationships with our business partners, or the business of our business partners declines, the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease.

 

Most of the agreements with our business partners do not prohibit them from working with our competitors or from offering competing services. If our partners change their standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continue working with us, or choose to devote more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially favorable terms, or at all, and our competitive advantages may diminish.

 

Safety issues or public perceptions of safety issues concerning lithium-ion batteries could have a material adverse impact on our business.

 

The battery packs installed on our AMVs make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.

 

While the battery packs used for our AMVs are designed to passively contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of our AMVs could occur, which could result in accidents, casualty or damages, and subject us to lawsuits, product recalls, or redesign efforts. Also, negative public perceptions regarding the suitability of lithium-ion cells for AMV applications or any future incident involving lithium-ion cells, even if such incident does not involve our AMVs, could seriously harm our business. In addition, we store a significant number of lithium-ion cells at our facilities. Any mishandling of battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, a safety issue or fire related to the cells could disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall.

 

If we fail to comply with environmental and work safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

 

We are subject to numerous environmental and work safety laws and regulations. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Environmental and social laws and regulations have tended to become increasingly stringent. There has been increased global focus on environmental and social issues and it is possible that countries may potentially adopt more stringent standards or new regulations in these areas. To the extent regulatory changes occur in the future, they could result in, among other things, increased costs to our company. In addition, we may incur substantial costs in order to comply with current or future environmental and work safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

If our business partners, contractors, suppliers, sales agents, dealers or third-party logistics services providers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control.

 

Our reputation is sensitive to allegations of unethical business practices. We do not control the business practices of our business partners, independent contractors and suppliers, sales agents, dealers or third-party logistics services providers. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, sales agents or dealers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our suppliers, business partners, sales agent, dealers or third-party logistics services suppliers or the divergence of their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attract negative publicity, diminish our brand image and reduce demand for our AMVs and mobility solutions.

 

If customers modify our AMVs or operating systems, the AMVs may not operate properly, which may cause damage, create negative publicity and harm our business.

 

Our customers may try to modify our AMVs or operating systems for various reasons, which could compromise the performance and safety of our AMVs, as well as the safety of their passengers. During such modifications, they may use third-party parts that may not be compatible with our products. We do not test, nor do we endorse, such modification. In addition, the use of improper external cabling or unsafe charging outlets can expose our customers to injury from AMV malfunctioning. Any injuries or damages resulting from such modifications or misuses could result in adverse publicity, which would negatively affect our brand and harm our business, prospects, financial condition and operating results.

 

20

 

 

Failure to safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results of operations.

 

Through our AMVs, command-and-control systems, we log information about each AMV’s use, such as charge time, battery usage, mileage and location information, in order to aid us in vehicle diagnostics, repair and maintenance, as well as to help us customize and optimize the flying experience. Images and videos captured by cameras attached to our AMVs are stored on our servers, servers of third-party cloud storage providers or other servers designated by our customers. We, therefore, process, including but not limited to collect, store, process, use, transfer, provide, disclose and delete, personal data from our users in order to better understand our users and their needs for the purpose of our content feeds recommendation. Possession and use of our users’ flying behavior and data in conducting our business may subject us to legislative and regulatory oversight in Japan and other jurisdictions, such as the European Union and the United States. For example, in January 2018, the European Union promulgated the General Data Protection Regulation to further protect fundamental rights in privacy and personal information so that members of the general public have more control over their personal information. Regulations in relevant jurisdictions may require us to obtain user consent for the collection of personal information, restrict our use of such personal information and hinder our ability to expand our user base. In the event of a data breach or other unauthorized access to our user data, we may have obligations to notify users about the incident and we may need to provide some form of remedy for the individuals affected by the incident.

 

Concerns or claims about our practices with regard to the processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and results of operations. In the Japanese, governmental authorities have enacted a series of laws and regulations to enhance the protection of privacy and data. We may need to adjust our business to comply with data security requirements and other laws and regulations from time to time.

 

As laws and regulations in Japan on the protection of privacy and data are constantly evolving, complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

 

Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by such laws, regulations or obligations. Any failure on our part to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, collection, transfer, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing users from using our platform or result in investigations, fines, suspension of our app, or other penalties by government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. In addition, the interpretation and application of the aforementioned laws and regulations are often uncertain and in flux. Our practice may become inconsistent with these laws and regulations.

 

Our platform and internal systems depend on the ability of software and hardware developed and maintained internally and/or by third parties to store, retrieve, process and manage immense amounts of data, including personal information or other privacy-related matters. The software and hardware on which we rely may now or in the future contain, undetected programming errors, bugs, or vulnerabilities which may result in errors or compromise our ability to protect the data of our users and in turn adversely affect our business, financial condition and operation results. Any systems failure or compromise of security that results in the unauthorized access to or release of the data, photo or messaging history of our users could significantly limit the adoption of our services, as well as harm our reputation and brand, result in litigation against us, liquidation and other damages, regulatory investigations and penalties, and we could be subject to material liability. Additionally, we connect our platform with software development kit provided by third parties who may also process users’ data. The integrity of our user data also depends on their ability to secure and protect the data they process. The risk that these types of events could seriously harm our business is likely to increase as we expand the scope of services we offer and as we increase the size of our user base.

 

We may also become subject to laws and regulations affecting data protection, data privacy and/or information security in other jurisdictions by virtue of having users who reside in these jurisdictions, even if we do not have a physical presence there. Many jurisdictions have in the past adopted, and may in the future adopt, new laws and regulations, or amendments to existing laws and regulations, affecting data protection, data privacy and/or information security, such as the General Data Protection Regulation, or the GDPR, adopted by the European Union that became fully effective on May 25, 2018. The interpretation and application of these laws or regulations are often uncertain and in flux. We cannot guarantee you that our practice is consistent with these laws and regulations and our practice may become inconsistent with these laws and regulations, if so, we could be subject to fines and orders requiring that we change our practices, which could have an adverse effect on our business and results of operations. Complying with new data laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

 

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If users allege that we have improperly used, released or disclosed their personal information, we could face legal claims and reputational damage. We may incur significant expenses to comply with privacy, consumer protection and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. A major breach of our network security and systems could create serious negative consequences for our business and future prospects, including possible fines, penalties, reduced customer demand for our AMVs, and harm to our reputation and brand.

 

The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends.

 

We will need significant capital to, among other things, conduct research and development, expand our manufacturing capacity, roll out new products and solutions and provide mobility services. We may also need significant capital to maintain our existing property and equipment. Our expected sources of capital include both equity and debt financing. However, financing might not be available to us in a timely manner or on acceptable terms, or at all.

 

Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plans. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities, substantially change our current corporate structure, or even curtail or discontinue our operations.

 

In addition, our future capital needs and other business concerns could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute the equity interests of our shareholders. Additional indebtedness would increase our debt-service obligations and may be accompanied by covenants that would restrict our operations or our ability to pay dividends to our shareholders.

 

We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected.

 

We have entered into strategic alliances with various business partners, and may in the future enter into joint research and development agreements or co-branding agreements with third parties to further our business purpose from time to time. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the third parties and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties. If any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.

 

Although we currently do not have any specific acquisition plans, if appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to any required shareholders’ approval, we may also have to obtain approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable Japanese laws and regulations, which could result in delays and increased costs, and may derail our business strategy if we fail to do so. Furthermore, past and future acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.

 

Our business could be adversely affected by trade tariffs or other trade barriers.

 

The United States and other countries may in the future impose tariffs on the importation of consumer products related to our business, such as AMVs. We plan to export our AMVs to the United States and other countries, including, but not limited to, the UAE and European Union. Any new tariffs on AMVs or other relevant products imposed by the United States or other countries may significantly increase our costs. It is not yet clear what impact these tariffs may have or what actions other governments, including the Japanese government, may take in retaliation. In addition, these developments could have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

 

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We and our subsidiaries have limited insurance coverage, which could subject us to significant costs and business disruption.

 

We and our subsidiaries have limited liability insurance coverage for our products and business operations. We may not be able to secure additional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful liability claim against us, our subsidiaries or its subsidiaries due to injuries or damages suffered by our users could materially and adversely affect our financial condition, results of operations and reputation. Even if unsuccessful, such a claim could cause us adverse publicity, require substantial costs to defend, and divert the time and attention of our management. In addition, we do not have any business disruption insurance. Any business disruption could result in substantial cost to us and diversion of our resources. Furthermore, Japan, the United States or any other jurisdiction relevant to our business may impose requirements for maintaining certain minimum liability or other insurance relating to the operation of AMVs. Such insurance policies could be costly, which would reduce the demand for our AMVs. Alternatively, certain insurance products that would be desirable to AMV operators may not be commercially available, which would increase the risks of operating our AMVs and also reduce the demand for them.

 

We are involved in litigation from time to time and, as a result, we could incur substantial judgments, fines, legal fees or other costs.

 

We may be the subject of complaints or litigation from customers, suppliers, employees or other third parties for various actions. The damages sought against us in some of these litigation proceedings could be substantial. We cannot assure you that we will always have meritorious defenses to the plaintiffs’ claims. While the ultimate effect of these legal actions cannot be predicted with certainty, our reputation and the result of operations could be negatively impacted. The proceedings we may be involved in from time to time, including the aforementioned bankruptcy proceedings, could incur substantial judgments, fines, legal fees or other costs and have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Any financial or economic crisis or perceived threat of such a crisis may materially and adversely affect our business, financial condition and results of operations.

 

We are subject to risks inherent in economic volatility and disruptions that may arise. For example, the global financial markets experienced significant disruptions in 2008. The recovery since then has been geographically uneven. New challenges have also emerged, including the escalation of the European sovereign debt crisis since 2011, the hostilities in the Ukraine, the end of quantitative easing by the U.S. Federal Reserve and the economic slowdown in the Eurozone in 2014. More recently, in response to inflation, central bank interest rate increases, slowing of economic growth and other factors, stock markets across the world have experienced significant volatility and downward price pressure in 2022. It is unclear whether these challenges will be contained and what effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies, including Japan’s. Economic conditions in Japan are sensitive to global economic conditions. Any prolonged slowdown in Japan’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and customer confidence and dramatic changes in business and customer behaviors.

 

We face risks related to natural disasters, which could significantly disrupt our operations.

 

We are vulnerable to natural disasters and other calamities such as typhoons, tornadoes, floods, earthquakes and other adverse weather and climate conditions. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis, and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services on our platform. In addition, the further spread of the new coronavirus may affect our performance and financial position, depending on the course of events, and we will continue to closely monitor the situation and make necessary disclosures.

 

If the landlords of our and our subsidiaries’ leased properties fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.

 

We and our subsidiaries lease all the premises used in our operations from third parties. We and our subsidiaries require the landlords’ cooperation to effectively manage the condition of such premises, buildings and facilities. In the event that the condition of the office premises, buildings and facilities deteriorates, or if any or all of our and our subsidiaries’ landlords fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.

 

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Because our long-term growth strategy involves expansion of our sales to customers outside Japan, our business will be susceptible to risks associated with international operations.

 

A component of our growth strategy involves the expansion of our operations and customer base worldwide. We plan to open international offices in the future. These international offices will focus primarily on sales, professional services and support. Our future international operations and future initiatives will involve a variety of risks, including:

 

  ● difficulties in maintaining our company culture with a dispersed and distant workforce;
     
  ● more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information;
     
  ● the timing of our sales with our international clients and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these clients;
     
  ● unexpected changes in regulatory requirements, taxes or trade laws;
     
  ● differing labor regulations where labor laws are generally more advantageous to employees as compared to Japan, including deemed hourly wage and overtime regulations in these locations;
     
  ● challenges inherent in efficiently managing an increased number of employees, including remote employees, over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;
     
  ● difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;
     
  ● currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;
     
  ● global economic uncertainty caused by global political events;
     
  ● limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
     
  ● limited or insufficient intellectual property protection;
     
  ● political instability or terrorist activities;
     
  ● likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, or of U.S. and international export control and sanctions regulations, which likelihood may increase with an increase of sales or operations in foreign jurisdictions and operations in certain industries; and
     
  ● adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

 

Our inexperience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to establish our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer. We continue to implement policies and procedures to facilitate our compliance with U.S. laws and regulations applicable to or arising from our international business. Inadequacies in our past or current compliance practices may increase the risk of inadvertent violations of such laws and regulations, which could lead to financial and other penalties that could damage our reputation and impose costs on us.

 

Our customers may fail to pay us in accordance with the terms of their agreements, at times necessitating action by us to attempt to compel payment.

 

If our customers fail to pay us in accordance with the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our agreements, including litigation and arbitration costs. The risk of these issues increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our results of operations, financial condition and cash flow.

 

We believe our success depends on continuing to invest in the growth of our worldwide operations by entering new geographic markets. If our investments in these markets are greater than anticipated, or if our customer growth or sales in these markets do not meet our expectations, our results of operations and financial condition may be adversely affected.

 

We believe our success depends on expanding our business into new geographic markets and attracting customers in countries other than the United States. We anticipate continuing to expand our operations worldwide and have made, and will continue to make, substantial investments and incur substantial costs as we enter new geographic markets. This includes investments in facilities, information technology investments, sales, marketing and administrative personnel and facilities. Often we must make these investments when it is still unclear whether future sales in the new market will justify the costs of these investments. In addition, these investments may be more expensive than we initially anticipate. If our investments are greater than we initially anticipate or if our customer growth or sales in these markets do not meet our expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected.

 

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Risks Related to Our Dependence on Third Parties

 

We may rely on some third-party distributors for sales, marketing and distribution activities relating to our AMVs.

 

Currently we do not rely on any third-party distributors for sales, marketing and distribution activities relating to our AMVs. However, some of our business partners may act as third-party distributors that sell, market and distribute our AMVs to their customers in the future. Accordingly, we may be subject to a number of risks associated with third-party distributors, including a lack of day-to-day control over the activities of third-party distributors selling or using our products and solutions; third-party distributors may terminate their arrangements with us on limited or no notice, or may change the terms of these arrangements in a manner that is unfavorable to us for reasons outside of our control; and any disagreements with our third-party distributors could lead to costly and time-consuming litigation or arbitration. If we fail to establish and maintain satisfactory relationships with our third-party distributors, we may not be able to sell, market and distribute our AMVs according to our internal budget and plans, our future revenues and market share may not grow at a pace that we expect, and we could be subject to increases in sales and marketing and other costs which would harm our results of operations and financial condition.

 

We rely on external suppliers for raw materials and certain key externally sourced components and parts used in the assembly of our AMVs, and have limited control over the quality of these components and parts.

 

We purchase certain key externally sourced components and raw materials, such as computers chips, batteries, motors and electronic displays, from external suppliers for use in our assembly, production and operations of AMVs. A continuous and stable supply of components and raw materials that meet our standards is crucial to our assembly, production and operations. We cannot assure you that we will be able to maintain our existing relationships with our suppliers and continue to be able to stably source key components and raw materials at reasonable prices, or at all. We have integrated our suppliers’ technologies within our products such that having to change to an alternative supplier may cause significant disruption to our operations. The supply of key components could be interrupted for any reason, or there could be significant increases in the prices of these key components. Additionally, changes in business conditions, force majeure, governmental changes and other factors beyond our control, or that we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. If any of these events occurs, our business, financial condition, results of operations and prospects may be materially and adversely affected.

 

We cannot guarantee that the quality of components and parts manufactured by external suppliers will be consistent and maintained at a high standard. Any defects of or quality issues with these components or any noncompliance incidents associated with these third-party suppliers could result in quality issues with our AMVs and hence compromise our brand image and results of operations. In extreme situations, we may be exposed to liabilities as a result of significant damages caused by certain components from external suppliers and we cannot assure you that we will be able to obtain sufficient insurance coverage at an acceptable cost in the future. A successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business, financial condition and operating results.

 

We expect to rely on third-party logistics providers to deliver our domestic sales orders and overseas orders. Inadequate third-party logistics services or failure to mitigate the risks of damage or disruption to our distribution logistics could adversely affect our business.

 

Our ability to transport and sell our AMVs is critical to our success across our operations. We expect to rely on third-party logistics service providers to deliver our domestic sales orders and overseas orders. Damage or disruption to our distribution logistics due to disputes, weather, natural disasters, fire, explosions, terrorism, pandemics or labor strikes could impair our ability to distribute or sell our AMVs. Inadequate third-party logistics services could also potentially disrupt our distribution and sales and compromise our business reputation. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.

 

Risks Related to Employee Matters

 

If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.

 

We believe that a critical component to our success has been our company culture, which is based on transparency and personal autonomy. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow as and continue to develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.

 

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Our success depends on the continuing efforts of our key employees, including our senior management members and other key personnel. If we fail to hire, retain and motivate our key employees, we could lose the innovation, collaboration and focus that contribute to our business.

 

We believe that our success depends substantially on the continued efforts of our key employees, including our senior management members and other qualified and key personnel. We rely on our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the relationships and reputation that members of our management and key employees have established and maintain with government personnel contribute to our ability to maintain good customer relations and to identify new business opportunities. The loss of any key personnel or our failure to attract additional talent could reduce our employee retention, disrupt our research and development activities and operations, and impair our revenue growth and competitiveness. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all, and we might lose the innovation, collaboration and focus that contribute to our business.

 

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

 

To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for developers with high levels of experience in designing, developing and managing AMVs and air mobility solutions, as well as for skilled information technology, marketing, sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. Also, inbound sales, marketing, services, and content management domain experts are very important to our success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a competitive hiring environment in Japan, where we are headquartered and will continue to experience a competitive hiring environment as we recruit for remote talent worldwide. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the AMVs industry, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

 

Risks Related to Intellectual Property

 

We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly.

 

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our AMVs, AMV operating systems and infrastructure or their components, which could make it more difficult for us to operate our business. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights by us and our subsidiaries or otherwise assert their rights against us and our subsidiaries. Moreover, our and our subsidiaries’ applications and uses of trademarks relating to our and our subsidiaries’ design, software or artificial intelligence technologies could be found to infringe upon existing trademark ownership and rights. We or our subsidiaries may also fail to apply for key trademarks in a timely manner. We or our subsidiaries may continue to face intellectual property infringement claims in the future.

 

If we or our subsidiaries are determined to have infringed upon a third party’s intellectual property rights, we or our subsidiaries may be required to do one or more of the following:

 

  ● cease selling, incorporating certain components into, or using AMVs or offering goods or services that incorporate or use the challenged intellectual property;
     
  ● pay substantial damages;
     
  ● seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all;
     
  ● redesign our, our subsidiaries or its subsidiaries’ AMVs, AMV operating systems and infrastructure, components or services; or
     
  ● establish and maintain alternative branding for our, our subsidiaries or its subsidiaries’ products and services.

 

In the event of a successful claim of infringement against us or our subsidiaries and our or our subsidiaries’ failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, even if frivolous, could result in substantial costs, negative publicity and diversion of resources and management attention.

 

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Our or our subsidiaries’ intellectual property rights may not protect us effectively.

 

As of December 31, 2022, we and our subsidiaries together had 49 issued patents in Japan, 29 registered trademarks in Japan, and 21 registered copyrights in Japan in relation to our and our subsidiaries’ technologies.

 

We cannot assure you that our or our subsidiaries’ pending patent applications will be granted. Even if our or our subsidiaries’ applications are successful, patents may be contested, circumvented or invalidated in the future.

 

In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages. The claims under any patents that issue from our or our subsidiaries’ patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours or our subsidiaries’ results. It is also possible that the intellectual property rights of others could bar us or our subsidiaries from licensing and exploiting any patents that are issued from our or our subsidiaries’ pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which we and our subsidiaries have developed and are developing our technologies. These patents and patent applications might have priority over our or our subsidiaries’ patent applications and could subject our or our subsidiaries’ patent applications to invalidation. Finally, in addition to those who may claim priority, any of our or our subsidiaries’ existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.

 

Implementation and enforcement of Japanese laws on intellectual property rights have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in Japan may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technologies is difficult and expensive. We and our subsidiaries rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our and our subsidiaries’ intellectual property rights. Despite our efforts to protect our and our subsidiaries’ proprietary rights, third parties may attempt to copy or otherwise obtain and use our or our subsidiaries’ intellectual property or seek court declarations that they do not infringe upon our or our subsidiaries’ intellectual property rights. Any unauthorized use of our or our subsidiaries’ intellectual property by third parties may adversely affect our current and future revenues and our reputation. Monitoring unauthorized use of our and our subsidiaries’ intellectual property is difficult and costly, and we cannot assure you that the steps we or our subsidiaries have taken or will take will prevent misappropriation of our and our subsidiaries’ intellectual property. From time to time, we or our subsidiaries may have to resort to litigation to enforce our and our subsidiaries’ intellectual property rights, which could result in substantial costs and diversion of our resources.

 

The Company may not be able to protect its intellectual property rights throughout the world.

 

Filing, prosecuting, and defending patents, trademarks and design rights on all of the Company’s product candidates throughout the world would be prohibitively expensive. The Company has filed (i) patent applications and/or obtained patents in Japan, United and Europe, (ii) trademark applications and/or obtained trademark in Japan, Europe, United States, United Arab Emirates, Qatar, Egypt, India, Singapore, Malaysia, Hong Kong, Macau, China, South Africa and Ethiopia and (iii) design rights application and/or obtained design rights in Japan, United States and China. Competitors may use the Company’s technologies in jurisdictions where it has not obtained patent protection to develop their own products and their products may compete with products of the Company.

 

If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary rights, our business, financial condition and results of operations could be materially harmed.

 

Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets, design rights and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, existing Japanese legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and our rights may be challenged by third parties. The laws of countries other than Japan may be even less protective of our intellectual property rights. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. Moreover, many of our employees have access to our trade secrets and other intellectual property. If one or more of these employees leave our employment to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations or financial condition could be materially harmed. From time to time, we have initiated lawsuits to protect our intellectual property and other proprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact our results of operations.

 

In addition, affirmatively defending our intellectual property rights and investigating whether any of our products or services violate the rights of others may entail significant expense. Our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, then the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we prevail.

 

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Risks Related to Government Regulation

 

Failure to comply with laws and regulations could harm our business.

 

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States.

 

Although we strive to comply with these laws and regulations, including Civil Aeronautics Law, Road Traffic Law, Radio Law, Product Liability Law, Worker Dispatch Law, and other laws and regulations related to our business, it is possible that regulations will be unexpectedly enacted, amended, or abolished in the future, or that planned deregulation will not proceed as planned. In such cases, if we receive some administrative sanction for violating such laws and regulations, etc., or if excessive legal restrictions are applied in the future, our activities may be restricted, which may affect our business and earnings. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.

 

In the jurisdictions where we and our subsidiaries plan to sell AMVs is subject to an uncertain or lengthy approval process, we cannot predict whether and when regulations will change, and any new regulations may impose onerous requirements and restrictions with which we and our subsidiaries, the AMVs and potential customers may be unable to comply. As a result, we and our subsidiaries may be limited in, or completely restricted from, growing business in the foreseeable future.

 

We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. As described below, in the jurisdictions relevant to us, the use and delivery of our AMVs are, and in the near future are expected to continue to be, subject to an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of AMV-related regulations and the lack of relevant precedents. For example, we are not aware of any operator having been granted all required approvals for the operation of AMVs in Japan, the United States or elsewhere. We cannot predict when these regulations will change, and any new regulations may impose onerous requirements and restrictions.

 

As we sell our AMV products internationally, we face challenges in quickly and sufficiently familiarizing ourselves with foreign regulatory environments and policy frameworks. If any new regulation is put in place, or a different interpretation of existing regulation is adopted, our ability to manufacture, market, sell or operate our AMVs or to advertise or deliver air mobility solutions in general may be limited or otherwise affected. Failure to comply with applicable regulations or to obtain, maintain or renew the necessary permits, licenses, registrations or certificates could cause delays in, or prevent us from, manufacturing, marketing, selling and operating our AMVs products, meeting product demand and expectations, introducing new products or expanding our service coverage, and could materially and adversely affect our operation results. If we are found to be in violation of applicable laws or regulations, we could be subject to administrative punishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our AMVs and mobility solutions are subject to safety standards, and the failure to satisfy such mandated safety standards or failure to design, manufacture and operate safe and high-performance AMVs and related operating systems and infrastructure would have a material adverse effect on our business and operating results.

 

Sales of our AMVs must comply with applicable standards in the market where they are sold, including standards on design, manufacturing and operation. In Japan, for example, certain components of our AMVs must pass various tests and meet criteria specified in product safety guideline issued by the Ministry of Economy, Trade and Industry in Japan. We have met the applicable requirements in the guideline and obtained approval of export with Certificate of Non-applicability. Currently, there are 193 members or contracting states in the International Civil Aviation Organization (“ICAO”), which is governed by the ICAO Council, which is composed of 36 member states including the United States. Pursuant to ICAO policy we believe that our product will not be considered an aircraft in the United States. However, the future commercial use of our product in the United States may be restricted by various regulations at the federal and state levels, as well as private regulations, such as the prohibition of private mobility near airports, which may prevent the use of our product.

 

Future changes in laws and regulations may also make it impossible to use our product in the ways that are currently planned. Although the United States is a member of the ICAO Council, in the United States, the FAA oversees the safety of aircraft operations in the national airspace system and has the authority to grant airworthiness certificates and related exemptions to unmanned aircraft systems. If we fail to have our AMVs satisfy applicable aerial vehicle standards in any jurisdiction where we operate, our business and operating results would be adversely affected. To achieve a high level of safety assurance, we have also established our own AMV safety standards. While we are committed to producing safe and high-quality products, there can be no assurance that our safety technology will be effective in preventing incidents related to product safety, such as accidents involving our AMVs. Failure to ensure the safe operation of our AMVs will affect our reputation and the sales of our AMVs, which will ultimately adversely affect our business operation and financial results.

 

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We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct our business or sell our products, including the Japanese anti-corruption laws and regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act 2010 also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. The Japanese anti-corruption laws and regulations prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection with the implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.

 

We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.

 

Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.

 

Risks Related to Indebtedness

 

Our wholly owned subsidiary’s substantial indebtedness could have important adverse consequences and adversely affect our financial condition.

 

Our wholly owned subsidiary AERWINS Inc. has a significant amount of indebtedness. As of December 31, 2022 and December 31, 2021, AERWINS Inc. had total indebtedness of $9,870,442 and $16,640,338, respectively.

 

Our level of debt could have important consequences, including making it more difficult for us to satisfy our obligations with respect to our debt, limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements, requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes, increasing our vulnerability to adverse changes in general economic, industry and competitive conditions, exposing us to the risk of increased interest rates, limiting our flexibility in planning for and reacting to changes in the industries in which we compete, placing us at a disadvantage compared to other, less leveraged competitors, increasing our cost of borrowing and hampering our ability to execute on our growth strategy.

 

We may be unable to generate sufficient cash flow to satisfy the significant debt service obligations of our subsidiaries, which could have a material adverse effect on our business, financial condition results of operations, and cash flows.

 

Our ability to make principal and interest payments on and to refinance the indebtedness of our subsidiaries will depend on our ability to generate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

 

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If we cannot generate sufficient cash flow from operations to make scheduled principal and interest payments, we may need to refinance all or a portion of the indebtedness of our subsidiaries on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of our existing or future debt agreements may also restrict us from affecting any of these alternatives. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of our indebtedness.

 

Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.

 

We and our subsidiaries may be able to incur significant additional indebtedness in the future, including off-balance sheet financings, contractual obligations and general and commercial liabilities. If new debt is added to our current debt levels, the related risks that we now face could intensify.

 

General Risks

 

Weakened global economic conditions may harm our industry, business and results of operations.

 

Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the AMV industry may harm us. The United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, uncertainty over the future of the Euro zone and volatility in the value of the pound sterling and the Euro, including instability surrounding Brexit. If economic conditions in key markets for our AMVs continue to remain uncertain or deteriorate further, it could adversely affect our customers’ ability or willingness to purchase our AMVs and delay prospective customers’ purchasing decisions, all of which could harm our operating results.

 

We are exposed to fluctuations in currency exchange rates.

 

We face exposure to movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions and expenses changes in the future. Furthermore, global political events, including Brexit and similar geopolitical developments, fluctuating commodity prices and trade tariff developments, have caused global economic uncertainty, which could amplify the volatility of currency fluctuations. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to predict our future results and earnings accurately. Although we may apply certain strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as we anticipate growing our business further outside of the United States, the effects of movements in currency exchange rates will increase as our transaction volume outside of the United States increases.

 

Our actual operating results may differ significantly from our guidance and projections.

 

From time to time, we may provide forward looking estimates regarding our future performance that represent management’s estimates as of a point in time. These forward-looking statements are based on projections prepared by our management.

 

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions and conditions, some of which will change. The principal reason that we provide forward looking information is to provide a basis for our management to discuss its business outlook with stakeholders. Forward looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions of its forward-looking statements will not materialize or will vary significantly from actual results. Accordingly, our forward-looking statements are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our forward-looking statements and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance or projections in making investment decisions.

 

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Risks Related to Ownership of Our Securities

 

Nasdaq may delist the Company’s securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions.

 

Our securities are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future. In order to continue listing its securities on Nasdaq, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum number of holders of its securities (generally 400 public holders).

 

If Nasdaq delists our securities from trading on its exchange and we are not able to list its securities on another national securities exchange, we expects our securities could be quoted on an over-the-counter market. If this were to occur, the Company could face significant material adverse consequences, including:

 

  ● a limited availability of market quotations for its securities;
     
  ● reduced liquidity for its securities;
     
  ● a determination that the Company’s common stock is a “penny stock” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities;
     
  ● a limited amount of news and analyst coverage; and
     
  ● a decreased ability to issue additional securities or obtain additional financing in the future.

 

The market price of our common stock may be volatile, and you could lose all or part of your investment.

 

The trading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your shares of common stock at an attractive price due to a number of factors such as those listed in this Risk Factors section and the following:

 

  ● results of operations that vary from the expectations of securities analysts and investors;
     
  ● results of operations that vary from those of the Company’s competitors;
     
  ● changes in expectations as to the Company’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
     
  ● declines in the market prices of stocks generally;
     
  ● strategic actions by the Company or its competitors;
     
  ● announcements by the Company or its competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments;
     
  ● announcements of estimates by third parties of actual or anticipated changes in the size of the Company’s customer base or the level of customer engagement;
     
  ● any significant change in the Company’s management;
     
  ● changes in general economic or market conditions or trends in the Company’s industry or markets;
     
  ● changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to the Company’s business;
     
  ● additional shares of the Company’s securities being sold or issued into the market by the Company or any of the existing stockholders or the anticipation of such sales, including if the Company issues shares to satisfy conversions under the Convertible Notes, exercises of Warrants or restricted stock unit related tax obligations or if existing stockholders sell shares into the market when applicable “lock-up” periods end;

 

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  ● investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives;
     
  ● the public’s response to press releases or other public announcements by the Company or third parties, including the Company’s filings with the SEC;
     
  ● litigation involving the Company, the Company’s industry, or both, or investigations by regulators into the Company’s operations or those of the Company’s competitors;
     
  ● guidance, if any, that the Company provides to the public, any changes in this guidance or the Company’s failure to meet this guidance;
     
  ● the development and sustainability of an active trading market for the Company’s common stock;
     
  ● actions by institutional or activist stockholders;
     
  ● developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies;
     
  ● changes in accounting standards, policies, guidelines, interpretations or principles; and
     
  ● other events or factors, including those resulting from pandemics, natural disasters, war, acts of terrorism or responses to these events.

 

These broad market and industry fluctuations may adversely affect the market price of the Company’s common stock, regardless of the Company’s actual operating performance. In addition, price volatility may be greater if the public float and trading volume of the Company’s common stock is low.

 

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If the Company was involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from the Company’s business regardless of the outcome of such litigation.

 

Because there are no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of the Company’s common stock at a price greater than what you paid for it.

 

The Company intends to retain future earnings, if any, for future operations, expansion and debt repayment, and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of the Company’s common stock will be at the sole discretion of the Company’s board of directors. The Company’s board of directors may take into account general and economic conditions, the Company’s financial condition and results of operations the Company’s available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends by the Company to its stockholders or by its subsidiaries to it and such other factors as the Company’s board of directors may deem relevant. As a result, you may not receive any return on an investment in the Company’s common stock unless you sell your common stock for a price greater than that which you paid for it.

 

The Company’s stockholders may experience dilution in the future.

 

The percentage of shares of the Company’s common stock owned by current stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that the Company may grant to its directors, officers and employees, exercise of the Company’s warrants. Such issuances may have a dilutive effect on the Company’s earnings per share, which could adversely affect the market price of the Company’s common stock.

 

We have no committed source of financing. Wherever possible, we may attempt to use non-cash consideration to satisfy obligations or obtain financing. Our board of directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions would result in dilution of the ownership interests of existing stockholders and may further dilute the common stock book value, and that dilution may be material.

 

If securities or industry analysts do not publish research or reports about our business, or they publish negative reports about our business, our share price and trading volume could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or publish negative views on us or our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

 

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As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

  ● have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
     
  ● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);
     
  ● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
     
  ● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (iii) the end of the fiscal year during which the fifth anniversary of our initial public offering (which closed on August 13, 2021) occurs.

 

Until such time, however, we cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.

 

The company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous for the Company’s warrant holders.

 

The company will have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders. If and when the public warrants become redeemable by the Company, the Company may exercise its redemption right if there is a current registration statement in effect with respect to the shares of the Company’s common stock underlying such warrants. Redemption of the outstanding public warrants could force you to: (i) exercise your warrants and pay the related exercise price at a time when it may be disadvantageous for you to do so; (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price which, at the time the outstanding public warrants are called for redemption, is likely to be substantially less than the market value of your warrants.

 

Our securities holders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws.

 

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether our common stock will be registered or exempt from registration under the laws of any state. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our common stock. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your common stock without the significant expense of state registration or qualification.

 

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

 

The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares.

 

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The Selling Securityholder may sell a large number of shares, resulting in substantial diminution to the value of shares held by existing stockholders.

 

Pursuant to the Purchase Agreement, we are prohibited from delivering an Advance Notice to the Selling Securityholder to the extent that the issuance of shares would cause the Selling Securityholder to beneficially own more than 4.99% of our then-outstanding shares of Common Stock. This restriction, however, does not prevent the Selling Securityholder from selling shares of Common Stock received in connection with the Purchase Agreement and then receiving additional shares of Common Stock in connection with a subsequent issuance. In this way, the Selling Securityholder could sell more than 4.99% of the outstanding shares of Common Stock in a relatively short time frame while never holding more than 4.99% at any one time. As a result, existing stockholders and new investors could experience substantial diminution in the value of their shares of Common Stock. Additionally, we do not have the right to control the timing and amount of any sales by the Selling Securityholder of the shares issued under the Purchase Agreement once we have sold them to the Selling Securityholder.

 

If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.

 

As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.

 

Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company. This means that the effectiveness of our financial operations may differ from our peer companies in that they may be required to obtain independent registered public accounting firm attestations as to the effectiveness of their internal controls over financial reporting and we are not. While our management will be required to attest to internal control over financial reporting and we will be required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent registered public accounting firm’s audit process in assessing the effectiveness of our internal controls over financial reporting, if obtained, would not find one or more material weaknesses or significant deficiencies. Further, once we cease to be an emerging growth company and cease to be a smaller reporting company (as described below), we will be subject to independent registered public accounting firm attestation regarding the effectiveness of our internal controls over financial reporting. Even if management finds such controls to be effective, our independent registered public accounting firm may decline to attest to the effectiveness of such internal controls and issue a qualified report.

 

If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.

 

If the benefits of any proposed acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the closing of the proposed acquisition may decline. The market values of our common stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.

 

In addition, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

 

Our common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.”

 

Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future. While our common stock is not currently considered “penny stock” since it is listed on Nasdaq, if we are unable to maintain that listing and our common stock is no longer listed on Nasdaq, unless we maintain a per-share price above $5.00, our common stock will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

 

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Legal remedies available to an investor in “penny stocks” may include the following:

 

  ● If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.
     
  ● If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

 

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

 

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.

 

We believe we will be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.

 

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

 

  ● had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or
     
  ● in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or
     
  ● in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.

 

As a smaller reporting company, we are not required to, and may not, include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares.

 

We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.

 

As a public company, we incur significant legal, accounting and other expenses that we did not previously incur as a private company. In addition, the Sarbanes-Oxley Act has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.

 

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The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an emerging growth company or a smaller reporting company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the value of our securities could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

 

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on value of our securities, and could adversely affect our ability to access the capital markets.

 

Anti-takeover provisions contained in our Amended Charter and Amended Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

 

The Company’s Amended Charter and Amended Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:

 

  ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
     
  ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
     
  ● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
     
  ● limiting the liability of, and providing indemnification to, our directors and officers;
     
  ● providing that a special meeting of the stockholders may only be called by a majority of the board of directors;
     
  ● providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and
     
  ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.

 

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.

 

Any provision of our Amended Charter or Amended Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.

 

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THE LIND GLOBAL FINANCING

 

On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrant” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).

 

The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.

 

Pursuant to the Purchase Agreement, we agreed to file a registration statement on Form S-1 (the “Registration Statement”) no later than 30 days from entry into the Purchase Agreement to register the shares of the Company’s common stock issuable upon conversion of the Convertible Note and the shares of the Company’s common stock issuable upon the exercise of the Warrants (the “Selling Securityholder Shares”). Additionally, the Company agreed that if the Company at any time determines to file a registration statement under the Securities Act of 1933, as amended (the “33 Act’) to register the offer and sale, by the Company, of common stock (other than on Form S-4 or Form S-8, an at-the-market offering, or a registration of securities solely relating to an offering and sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit plan arrangement), the Company will, as soon as reasonably practicable, give written notice to the Selling Securityholder of its intention to so register the offer and sale of common stock. Within 5 business days of the Company’s delivery of any such notice to the Selling Securityholder, the Selling Securityholder may request that the Company include the Selling Securityholder Shares in such registration.

 

In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023 of $0.70 per share.

 

Pursuant to the Purchase Agreement, we agreed, as an inducement for the Selling Securityholder to enter into the Purchase Agreement, that all of our obligations pursuant to the Purchase Agreement and the Convertible Note will be senior to all other existing indebtedness and equity of ours. Pursuant to the Purchase Agreement, we also agreed that we would not make any voluntary cash prepayments on any indebtedness at any time while any amounts are owing under the Convertible Note other than cash payments the Company is required to make pursuant to the express terms thereof existing on the date of entry into the Purchase Agreement.

 

Pursuant to the Purchase Agreement, the Company also agreed not to enter into any “Prohibited Transactions” without the Selling Securityholder’s prior written consent, until 30 days after the time that the Convertible Note has been repaid in full or fully converted, as applicable. The term “Prohibited Transactions” means a transaction with a third party or third parties in which the Company issues or sells (or arranges or agrees to issue or sell) (i) any debt, equity or equity-linked securities (including options or warrants) that are convertible into, exchangeable or exercisable for, or include the right to receive shares of the Company’s capital stock: (1) any debt, equity or equity-linked securities (including options or warrants) that are convertible into, exchangeable or exercisable for, or include the right to receive shares of the Company’s capital stock: (2) at a conversion, repayment, exercise or exchange rate or other price that is subject to being reset at some future date after the initial issuance of such debt, equity or equity-linked security or upon the occurrence of specified or contingent events (other than warrants that may be repriced by the Company); or (ii) any securities in a capital or debt raising transaction or series of related transactions which grant to an investor the right to receive additional securities based upon future transactions of the Company on terms more favorable than those granted to such investor in such first transaction or series of related transactions; or (iii) following the date that earlier of (i) the date the Selling Securityholder Shares may be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale or pursuant to an effective registration statement under the 1933 Act and (ii) the date that is six months following the date of entry into the Purchase Agreement. Pursuant to the Purchase Agreement, the Company also agreed that notwithstanding any other provisions in the Purchase Agreement, except for Exempted Securities, as such term is defined in the Purchase Agreement, the Company agrees not to issue any equity or debt securities, or otherwise incur any indebtedness for the period beginning on the date hereof and ending on the earlier of (i) the date that is 60 days following the date the Selling Securityholder Shares may be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale and (ii) the date that is 60 days following the date that the Selling Securityholder Shares are registered for resale under the 1933 Act.

 

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Pursuant to the Purchase Agreement, the Company also agreed to hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) on or before the 90th calendar day following the date of entry into the Purchase Agreement for the purpose of obtaining the shareholder approval of the transactions contemplated by the Purchase Agreement (“Shareholder Approval”). The Selling Securityholder agreed that the Selling Securityholders will not have a right to, and will not, vote any shares of common stock held by Selling Securityholder on any vote held with respect to the Shareholder Approval, and that this will remain in effect at all times until the Shareholder Approval has been obtained and regardless of whether the Company’s securities are then listed on any trading market.

 

The Convertible Note issued under the Purchase Agreement in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued under the Purchase Agreement in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).

 

The Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the Convertible Note (the “Conversion Price”). VWAP means as of any date, the price determined by the first of the following clauses that applies: (a) if the common stock is then listed or quoted on a trading market, the daily volume weighted average price of one share of common stock trading in the ordinary course of business at the applicable trading price for such date (or the nearest preceding date) on such trading market as reported by Bloomberg Financial L.P.; (b) if the common stock is not then listed on a trading market and if the common stock traded in the over the counter market, as reported by the OTCQX or OTCQB Markets, the volume weighted average price of one share of common stock for such date (or the nearest preceding date) on the OTCQX or OTCQB Markets, as reported by Bloomberg Financial L.P.; (c) if the common stock is not then listed or quoted on a trading market or on the OTCQX or OTCQB Markets and if prices for the common stock are then reported in the “Pink Sheets” published by the OTC Markets Group (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price of one share of Common Stock so reported, as reported by Bloomberg Financial L.P.; or (d) in all other cases, the fair market value of one share of common stock as determined by an independent appraiser. The Conversion Price is also subject to certain adjustments as set forth in the Convertible Note.

 

The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made. In that case, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.

 

Events of Default under the Convertible Note, include (a) any default in the payment of the principal amount or any other amounts due and payable under the Convertible Note when due, which failure has not been cured within 3 business days of the occurrence of such failure; (b) the company fails to observe or perform any other covenant, condition or agreement contained in the Convertible Note or any other transactions documents under the Purchase Agreement, which failure has not been cured within 3 business days of the occurrence of such failure; (c) the Company’s notice to the Selling Securityholder, including by way of public announcement, at any time, of its inability to comply with proper requests for conversion of this Convertible Note; (d)the Company fails to (i) timely deliver the shares of common stock as and when required in under the Convertible Note (ii) make the payment of any fees and/or liquidated damages under the Convertible Note, the Purchase Agreement or the other transaction documents which failure has not been cured within 3 business days of the occurrence of such failure; (e) default is be made in the performance or observance of any material covenant, condition or agreement contained in the Purchase Agreement or any other transaction document which failure has not been cured within 3 business days of the occurrence of such failure; (f) at any time the Company fails to have 200% of a sufficient number of shares of common stock authorized, reserved and available for issuance to satisfy the potential conversion in full of the Convertible Note or upon exercise of the Warrant; (g) any representation or warranty made by the Company, or any subsidiary in the Convertible Note, Purchase Agreement or Warrant or any other transaction document proves to false or incorrect or breached in a material respect on the date as of which made; (h)unless otherwise approved in writing in advance by the Selling Securityholder, the Company, announces an intention to pursue or consummate a change of control, or the Company negotiates, proposes or enter into any agreement, understanding or arrangement with respect to any change of control; (i) the Company or any subsidiary defaults in any payment of any amount or amounts of principal of or interest (if any) on any indebtedness the aggregate principal amount of which indebtedness is in excess of $100,000 which failure has not been cured within 3 business days of the occurrence of such failure; (j) the Company or any subsidiary (i) applies for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets; (ii) make a general assignment for the benefit of its creditors; (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors’ rights generally; (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (vi) issue a notice of bankruptcy or winding down of its operations or issue a press release regarding same; or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; (k)a proceeding or case shall be commenced in respect of the Company or any subsidiary, without its application or consent, in any court of competent jurisdiction, seeking: (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts; (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Company or any subsidiary; or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of 45 days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Company or any subsidiary or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Company or any subsidiary and shall continue undismissed, or unstayed and in effect for a period of 45 days; (l) one or more final judgments or orders for the payment of money aggregating in excess of $100,000 (or its equivalent in the relevant currency of payment) are rendered against one or more of Company or any subsidiary; (m) the failure of the Company to instruct the Transfer Agent to remove any legends from shares of common stock and issue such unlegended certificates to the Selling Securityholder within 3 trading days of the Selling Securityholder’s request so long as the Selling Securityholder has provided reasonable assurances to the Company that such shares be sold pursuant to Rule 144 or any other applicable exemption; (n) the Company’s common stock is no longer publicly traded or cease to be listed on the trading market or, after the 12 month anniversary of the date of the filing of a “Super 8-K” with respect to the closing of the transactions relating to the merger of a subsidiary of the Maker with AERWINS Technologies, Inc., which occurred on February 3, 2023, any Selling Securityholder Shares may not be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale, unless such Selling Securityholder Shares have been registered for resale under the 1933 Act and may be sold without restriction; (o) the Company proposes to or does consummate a “going private” transaction as a result of which the Common Stock will no longer be registered under Sections 12(b) or 12(g) of the 1934 Act; (p)there shall be any SEC or judicial stop trade order or trading suspension stop-order or any restriction in place with the Company’s transfer agent restricting the trading of the Company’s common Stock; (q)the Depository Trust Company places any restrictions on transactions in the common stock or the common stock is no longer tradeable through the Depository Trust Company Fast Automated Securities Transfer program; (r) the Company’s market capitalization is below $20,000,000 for ten (10) consecutive days; or (s) the occurrence of a material adverse effect in respect of the Company or subsidiaries, taken as a whole.

 

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Pursuant to the Convertible Note, the Company agreed that in the event that, at any time following the First Closing, the Company or its subsidiaries, issue any debt, including any subordinated debt or convertible or any equity interests, other than Exempted Securities, as such term is defined in the Purchase Agreement, in one or more transactions for aggregate proceeds of more than $5,000,000 of cash proceeds being received by the Company, unless otherwise waived in writing by and at the discretion of the Selling Securityholder, the Company will immediately utilize 20% of the proceeds of such issuance to repay the Convertible Notes issued to the Selling Securityholder pursuant to the Purchase Agreement, until there remains no outstanding and unconverted principal amount due.

 

Each Warrant issued under the Purchase Agreement in the First Closing and the Warrants issued under the Purchase Agreement in the Second Closing and the Third Closing will have an exercise period of 60 months from the date of issuance. The Exercise price of the Warrant issued in the First Closing is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.

 

In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.

 

The Selling Securityholders will not have the right to convert the portion of the Convertible Note or exercise the portion of the Warrant, if the Selling Securityholder together with its affiliates, would beneficially own in excess of 4.99%, of the number of shares of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.

 

Pursuant to the Purchase Agreement, on April 12, 2023, the Company also entered into a Security Agreement with the Selling Securityholder pursuant to which the Company agreed to grant the Selling Securityholder, a security interest in the following properties, assets and rights of the Company wherever located, whether now owned or acquired in the future, and all proceeds and products (the “Collateral”): all personal and fixture property of every kind and nature including all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents (whether tangible or electronic), accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), but excluding the Excluded Property. “Excluded Property” means (i) any property or assets to the extent that such grant of a security interest is prohibited by any law, requires a consent or approval not obtained of any Governmental Authority pursuant to such law or is prohibited by, or constitutes a breach or default under, results in the termination of, or requires any consent or approval not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any investment property or instruments, any applicable shareholder or similar agreement, but only to the extent, and for so long as, such law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is not terminated or rendered unenforceable or otherwise deemed ineffective under applicable law of any relevant jurisdiction or any other applicable law or principles of equity); (ii) any assets that are subject to a purchase money lien or capital lease constituting a permitted lien, but only to the extent the agreements relating to such purchase money lien or capital lease do not permit such assets to be subject to the security interests created hereby; (iii) all United States “intent to use” trademark applications where the grant of a security interest therein would impair the validity or enforceability of said intent to use trademark and (iv) proceeds of any Excluded Property unless such proceeds would otherwise constitute Collateral.

 

Pursuant to the Purchase Agreement, on April 12, 2023, the Company’s wholly owned subsidiary AERWINS, Inc. entered into a Guaranty with the Selling Securityholder. Pursuant to the Guaranty, AERWINS, Inc. agreed to guarantee the Company’s obligations owing under the Purchase Agreement, the Convertible Note, the Warrants, the Security Agreement, the Pledge Agreement and any other document or agreement executed or delivered in connection with the transactions relating to the Purchase Agreement and Convertible Note. The Guaranty applies to all debts, liabilities and obligations payable by the Company or AERWINS, Inc. to the Selling Securityholder. The obligations of the Company under the Purchase Agreement, Convertible Note and related transaction documents become immediately due and payable by AERWINS, Inc. upon default by the Company.

 

Pursuant to the Purchase Agreement, on April 12, 2023, the Company entered into a Stock Pledge Agreement with the Selling Securityholder whereby, in accordance with the obligations of the Company under the Security Agreement, the Company pledged, assigned, granted a security interest in and delivered to the Selling Securityholder all of the shares of capital stock that the Company owns in its wholly owned subsidiary AERWINS, Inc. The Company also pledged (i) all payments or distributions, whether in cash, property or otherwise, at any time owing or payable to the Company on account of its interest as a shareholder in AERWINS, Inc., (ii) all of the Company’s rights and interest under the organizational documents of AERWINS, Inc., including all voting and management rights and rights to grant or withhold consents or approvals; (iii) all rights of access and inspection to and use of all books and records, including computer software and computer software programs, of AERWINS, Inc., (iv) all other rights, interests, property or claims to which the Company may be entitled in its capacity as a stockholder of AERWINS, Inc., and (v) all proceeds, income from, increases in and products of any of the foregoing. The Company further agreed not to authorize or issue any additional shares of capital stock or other interests of AERWINS, Inc. without the Selling Securityholder’s prior written consent.

 

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Pursuant to the Purchase Agreement, on April 12, 2023, the Company’s wholly owned subsidiary AERWINS, Inc. entered into a Guarantor Security Agreement with the Selling Securityholder. Pursuant to the Guarantor Security Agreement, AERWINS, Inc. agreed to grant the Selling Securityholder, a security interest in the following properties, assets and rights of AERWINS, Inc. (wherever located, whether now owned or acquired in the future, and all proceeds and products): all personal and fixture property of every kind and nature including all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents (whether tangible or electronic), accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), but excluding the Excluded Property (as defined in the Guarantor Security Agreement). “Excluded Property” means (i) any property or assets to the extent that such grant of a security interest is prohibited by any law, requires a consent or approval not obtained of any Governmental Authority pursuant to such law or is prohibited by, or constitutes a breach or default under, results in the termination of, or requires any consent or approval not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any investment property or instruments, any applicable shareholder or similar agreement, but only to the extent, and for so long as, such law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is not terminated or rendered unenforceable or otherwise deemed ineffective under applicable law of any relevant jurisdiction or any other applicable law or principles of equity); (ii) any assets that are subject to a purchase money lien or capital lease constituting a permitted lien, but only to the extent the agreements relating to such purchase money lien or capital lease do not permit such assets to be subject to the security interests created hereby; (iii) all United States “intent to use” trademark applications where the grant of a security interest therein would impair the validity or enforceability of said intent to use trademark and (iv) proceeds of any Excluded Property unless such proceeds would otherwise constitute collateral of AERWINS, Inc. under the Guarantor Security Agreement.

 

Pursuant to the Purchase Agreement, on April 12, 2023, AERWINS, Inc. entered into a Pledge Agreement with the Selling Securityholder whereby, in accordance with the obligations of AERWINS, Inc. under the Guarantor Security Agreement, AERWINS, Inc. pledged, assigned, granted a security interest in and delivered to the Selling Securityholder all of the shares of capital stock that AERWINS, Inc. owns in its wholly owned subsidiary A.L.I. Technologies, Inc. (“A.L.I.”). AERWINS, Inc. also pledged (i) all payments or distributions, whether in cash, property or otherwise, at any time owing or payable to the Company on account of its interest as a shareholder in A.L.I., (ii) all of AERWINS, Inc.’s rights and interest under the organizational documents of A.L.I., including all voting and management rights and rights to grant or withhold consents or approvals; (iii) all rights of access and inspection to and use of all books and records, including computer software and computer software programs, of A.L.I., (iv) all other rights, interests, property or claims to which AERWINS, Inc. may be entitled in its capacity as a stockholder of A.L.I., and (v) all proceeds, income from, increases in and products of any of the foregoing. AERWINS, Inc. further agreed not to authorize or issue any additional shares of capital stock or other interests of A.L.I. without the Selling Securityholder’s prior written consent.

 

The Company will use the proceeds from the sale of the Convertible Notes and the Warrants for general working capital purposes.

 

USE OF PROCEEDS

 

We expect to receive approximately $4,211,736 in gross proceeds assuming the cash exercise of all of the Warrants being registered hereby at the applicable exercise prices stated above. However, the Warrants may be exercised on a cashless basis, in which case we would not expect to receive any gross proceeds from the cash exercise of the Warrants. Also, we will not receive any of the proceeds from the conversion of the Convertible Notes into shares of our Common Stock nor will we receive any proceeds from the disposition and/or resale of the shares of Common Stock by the Selling Securityholder or its transferees. While we retain broad discretion on the use of proceeds, we intend to use such proceeds for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions.

 

The intended use of proceeds in this section takes into account the potential impacts of COVID-19.

 

DETERMINATION OF OFFERING PRICE

 

We cannot currently determine the price or prices at which the shares of Common Stock may be sold by the Selling Securityholder under this prospectus.

 

DIVIDEND POLICY

 

We have not paid any cash dividends on our Common Stock and do not currently anticipate paying cash dividends in the foreseeable future. The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our capital stock. Payment of future dividends on our Common Stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.

 

MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our Common Stock and Public Warrants are listed on the Nasdaq Global Market under the symbols “AWIN” and “AWINW,” respectively. On May 9, 2023, the closing price of our Common Stock was $0.70 per share and the closing price of our Public Warrants was $0.0488.

 

Holders

 

As of March 31, 2023 we had approximately 78 holders of record of our Common Stock and 56,139,855 shares issued and outstanding and four holders of record of our Public Warrants and 9,188,756 warrants issued and outstanding. The number of record holders does not include beneficial owners of common stock or warrants whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

 

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Transfer Agent and Registrar

 

The Company’s transfer agent and registrar for our Common Stock and Public Warrants is Continental Stock Transfer & Trust Company located at 1 State Street, New York, NY 10004 and their telephone is (212) 509-4000.

 

Dividends, Common Stock and Unregistered Stock Issuances

 

We have not paid any cash dividends on our common or preferred stock and do not anticipate paying any such cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.

 

Equity Compensation Plans

 

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of March 31, 2023.

 

Plan category  Number of securities to be issued upon exercise of outstanding options, warrants and rights
(Column A)		   Weighted average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in
Column A)		 
Plans approved by our stockholders   1,173,228   $0.00015    8,916,214 
Plans not approved by our stockholders   N/A    N/A    N/A 

 

DESCRIPTION OF BUSINESS

 

AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All refences in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.

 

We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc., and this business section primarily includes information regarding the AERWINS’, Inc. business.

 

For additional information on the corporate history of our Company please see the section titled “Corporate History” on page 98 of this prospectus.

 

Mission

 

With the mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in which cars, motorcycles, and drones can fly freely. We are working in three areas: 1) manned air mobility, 2) unmanned air mobility, and 3) sharing computer power. The diagram below describes our business structure.

 

Overview

 

We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.

 

To realize this vision, we are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and

 

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(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.

 

 

 

Current and Planned Product and Service Status

 

Our current and planned product status is as follows:

 

Product/Service   Launch Schedule   Delivery   Client Types   Details
XTURISMO LTD EDITION   October-2021   after December-2022   Individuals. Governments   Innovative hovering bike equipped with hybrid system, software, edge computing. Products for a government are under development.
             
COSMOS   Available   In 2023   Municipalities, Local Governments   Unmanned traffic management system “UTM” in service for up to approximately 10 drones.
                 
COSMOS Advanced   In Development   In 2023   Municipalities, Local Governments, and Corporations   Currently in development for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units
                 
Shared Computing Service   Available   Available   Corporations, Individuals   The proprietary Software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering
                 
Drone Service   Available   Available   Municipalities, Lobal Governments, Corporations   Using our C.O.S.M.O.S. we offer geo-survey, infrastructure inspection and pesticide spraying service to various entities

 

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Estimated Price Ranges for our Products and Services

 

Our current estimated price ranges for our products and services are as follows:

 

Product/Service   Price Range   Client Types   Details
UAV Development   JPY 20,000,000 - JPY 40,000,000 (approximately $138,207 USD - $276,415 USD)   Corporations   Customizing drones for specific needs
             
Drone Inspection/Survey   JPY 200,000 - JPY 5,000,000 (approximately $1,382 USD - $34,551 USD)   Municipalities, Government, Corporations   Infrastructure inspections such as bridge, rivers, railways and geo-survey
             
UAV Marketing   JPY 1,500,000 - JPY 5,000,000 (approximately $10,365 USD - $34,551 USD)   Corporations   Agent agreement with manufacturers for marketing in Japan
       
C.O.S.M.O.S. additional development/demonstration*   JPY 5,000,000 - JPY 15,000,000 (approximately $34,551 USD - $103,655 USD)   Municipalities, Government, Corporations   Developing and customizing C.O.S.M.O.S. software for specific needs
       
Shared Computing Service   JPY 10,000 (approximately $69 USD) per unit/monthly   Corporations, Individuals   Sales of computing system and maintenance service

 

* For C.O.S.M.O.S., in many cases, in demonstration tests with large companies and local governments, the charge is calculated for the demonstration test as a whole, rather than setting the fee for C.O.S.M.O.S. alone the setting of the amount per account is expected to be changed depending on the number of available drones and the number of operators.

 

Significant Market Opportunities

 

In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution.

 

The market opportunities created by our technology are significant. According to an analysis by Frost & Sullivan, the autonomous vehicle services market is expected to grow from a mere $1.1 billion in 2019 to $202.5 billion in 2030 at a CAGR of 60.1%, facilitated by mutually beneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, we strive to continue to innovate and expand the boundaries for air-based mobility.

 

The sky above has always held possibilities, and we completed our first manned flight test of the XTURISMO LTD EDITION prototype 1 in 2019. The current XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. Currently we have 7 purchases total amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individuals to purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin delivery of the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed.

 

In the future, we are also preparing to develop new models that are electrically powered and even more compact, and to provide infrastructure such as airways and air traffic control systems in an air mobility society.

 

Our air mobility enables urban mobility to expand into three-dimensional space. We believe our technology will change the future of transportation, improve lives, and create new industries. The XTURISMO LTD EDITION is a full spec version ranging from high quality carbon and equipped with intensive software capability which allows manual/autonomous/remote control driving experience. Each XTURISMO LTD EDITION is built to order, and accordingly, we begin production of each specific unit when a confirmed order is received by us. Due to the cost of the XTURISMO LTD EDITION, we have decided to limit the production of the XTURISMO LTD EDITION to 200 units and target high net worth individuals as potential purchasers. Most of the parts were created exclusively for the product with small unit orders resulting in the purchase price to be relatively expensive. The price of the current XTURISMO LTD EDITION is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. We believe the price of the supply parts can be decreased if we are able to obtain more orders, and at such time we believe that we may be able to mass produce a less expensive model to facilitate safe, cost-effective, and easy-to-use air mobility solutions. Additionally, the materials can change depending on the usage omitting out unnecessary features which can also impact the final price to decrease in the future. Beginning from 2025 we plan that our EV version, the internally named project of “Speeder”, are planned to be in mass production where we intend the price to drop significantly. The Speeder is not yet in development as of now.

 

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We design, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide range of industries and applications, including passenger transportation, logistics, and smart city management. For example, in a project jointly with Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to control these drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be used during a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disaster by multiple vehicles flying simultaneously along the airways. Additionally, we have conducted similar service with the Ministry of Land, Infrastructure, Transport and Tourism of Japan. In the field of civil engineering surveying and infrastructure inspections, we are seeking to provide efficient services using unmanned aircraft instead of the existing methods of surveying and visual inspection using Cessna aircraft or physically done by workers. Furthermore, in the passenger sector, we develop, manufacture, sell, and operate XTURISMO LTD EDITION. Our goal is to ensure that both passengers and goods take to the skies safely and conveniently.

 

Orders, Delivery and Financial Results

 

We are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster, etc.;

 

(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software) and the industrial drone business, which involves the sale and development of industrial drones; and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.

 

Below is a breakdown of revenues for each of these businesses.

 

 

 

Gross sales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmanned air mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. During the year ended December 31, 2022, gross sales totaled $5,207,490 (excluding consumption tax), consisting of $2,582,492 from shared computing, $2,524,998 from unmanned air mobility and $100,000 from consulting service. During the year ended December 31, 2022, one significant customer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.

 

In the future, considering regulation in each jurisdiction, we assume that the majority of XTURISMO Limited Edition sales will be in the public sector.

 

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What Sets Us Apart

 

In this industry, various parties have announced their products, but our products have the following three characteristics compared to other companies. We intend to leverage these characteristics to gain market share.

 

We believe the following characteristics set us apart in each domain.

 

1) Manned Air Mobility Domain

 

Ease of implementation in society

 

Our “XTURISMO Limited Edition” does not require aircraft category approval in Japan, as it is designed to levitate within a range of a few meters above ground effect. In Japan, it can also be used without a pilot’s license, making it a product that is easy to implement in society in Japan. In addition, given that the product is in this category in Japan, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. We believe this ease of providing insurance and after-sales service in Japan is one of the factors contributing to our competitiveness.

 

In Japan, through numerous conversations, the Civil Aviation Bureau of the Ministry of Land, Infrastructure, Transport and Tourism has stated that the XTURISMO LTD EDITION does not fall under Civil Aviation Law at this time, but that could change if we make certain additional modifications to the design specifications of the XTURISMO LTD EDITION. We have also received a HS Code from the Tokyo Customs office which is registered as code 95-03, where 95 is categorized as “Toys, playthings and sports equipment, and parts and accessories thereof” and subcategory 03 as “Tricycles, scooters, foot-operated vehicles and other similar wheeled toys, doll prams, dolls and other toys, scale models and other similar models for amusement (whether or not operating) and puzzles”.

 

Outside of Japan, we are subject to extensive legal and regulatory requirements, and are working to obtain relevant approvals and permits in the jurisdictions where we plan to sell our products. For example, we have begun the discussion with several public sectors and governments where the use can be limited to public use where the regulations may be limited. Additionally, in the US we have begun discussions with an attorney to discuss and file an application for certification from the FAA seeking the correct category for our product.

 

Practical Driving Capacity

 

The current battery technology has limitations in terms of power and cruising time, making it difficult to achieve a practical cruising time. Our “XTURISMO Limited Edition” achieves a practical cruising time of 40 minutes by utilizing the engine for power.

 

Pioneer and Leader in Urban Air Mobility

 

The above features enable us to launch products at a very early date, even by global standards, without having to wait for the long process of obtaining airworthiness and type certification, since we believe our products will not be classified as aircrafts and our products will not be deemed to utilize technological innovation in next generation batteries. We are planning to create an entirely electronic version targeting a 2025 launch.

 

2) Unmanned Air Mobility Domain

 

Original Operation Management System

 

This technology has been patented as “an infrastructure system that communicates with air traffic control systems in the air (low altitude) and mutually or unilaterally transmits, manages, controls, authenticates, registers, and settles flight routes and various information (including the use of external data). While many drone-related companies provide solutions focused on specific fields, we believe that our strength lies in the fact that our services are comprehensive, ranging from development in other areas to operation management systems, provision of operators, and data analysis and reporting.

 

3) Computing Power Sharing Domain

 

Equipment optimized for those wishing to rent out computing power

 

The computing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietary distributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD required for blockchain and AI lending, in addition to the latest model of GPUs. The system can be used for storage in a general data center. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of receiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.

 

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Our Strategies

 

We intend to pursue the following strategies to achieve our mission:

 

Transformation into a Global Company

 

We have established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where our administrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, including the United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansion area, with a target year of 2023. We plan to establish an office, research and development (“R&D”) center, logistics, manufacturing, and marketing hub for the vehicles in the GCC region. We believe that this region will be our distribution center to Europe and Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establish an office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venture capital firm.

 

As such, a global headquarters for finance and marketing will be established, and the ratio of foreign employees is intended to be increased to 50% by 2024.

 

Extend Our Technological Leadership

 

We plan to continue to invest in technological innovation to cement our leadership in Air Mobility technologies and establish ourselves as the industry benchmark for Air Mobility commercial solutions. We will continue to attract talent from around the world to expand our talent pool and drive innovation.

 

Expand Development and Manufacturing Capabilities

 

We plan to expand our existing engineering and manufacturing facilities and develop new ones. We may also develop manufacturing facilities in other countries or cooperate with local manufacturing partners to fulfill orders from international customers.

 

Expand Our Air Mobility Portfolio and Strengthen Our Platform

 

We plan to continue to expand our Air Mobility portfolio and optimize our existing Air Mobility models. We will develop future Air Mobility models for different uses. We will continue to develop our technology platform and ancillary products and services to strengthen our ability to provide end-to-end Air Mobility commercial solutions that address the needs of our customers.

 

Continue Commercialization and Promote Adoption

 

We believe that urban air mobility will be an important part of global transportation in the future. We will continue to commercialize our Air Mobility technology and solutions and promote their adoption worldwide, not only through the sale of our air mobilities, but also through offering services such as manned air mobility services and urban air logistics services. As we continue to improve the regulatory acceptance, production scale and on-the-ground infrastructure of air mobilities, we plan to pilot urban air mobility services with predetermined routes as a precursor to more flexible, on-demand services networks. We plan to work closely with partners and regulatory agencies to foster and grow the commercial Air Mobility market. In particular, we are in discussions with multiple cities around the world to establish urban air mobility services for both passengers and goods.

 

Explore New Monetization Opportunities

 

We plan to explore new monetization opportunities by leveraging our Air Mobility technology platform. For example, we may charge recurring fees for our operational and maintenance services for our air mobilities. We may also enter into revenue sharing arrangements with customers to capture greater business opportunities.

 

Pursue Strategic Partnerships in Production and Technology

 

We intend to explore and pursue suitable strategic partnerships that can strengthen our production and technological capabilities. We may co-develop new Air Mobility models in collaboration with international industry leaders.

 

Industry

 

Overview of Our Market

 

The industrial drone market, the computing power sharing (cloud computing) market, and leisure use market, in which we are involved, are markets that are expected to grow significantly in Japan and overseas. In addition, the technology staffing business is expected to expand into various fields, although mainly in Japan.

 

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Market size by our segment

 

1) Manned Air Mobility

 

The manned air mobility industry has been the focus of much attention, with demonstration tests being conducted in many countries and a roadmap published in Japan under the leadership of the Ministry of Economy, Trade, and Industry.

 

According to data published by Morgan Stanley Research in 2019, the global market for manned air mobility, including hoverbikes, is expected to grow to over 150 trillion yen (approximately $1,036 billion USD) by 2040 according to long-term global forecasts. Data published by PWC in 2020 indicates that the air mobility market in Japan will grow to approximately 2.5 trillion yen (approximately $17 billion USD) by 2040. According to “Flying Cars Global Market Report 2021” published by The Business Research Company in 2021, the global market is expected to grow at a CAGR of 58.7% to 35 billion yen (approximately $241 million USD) by 2025. The report says that the key to growth will be the development of infrastructure system requirements, aircraft development, and institutional response, particularly in passenger transportation.

 

 

 

(Source: Flying Cars Global Market Report 2021)

 

The manned air mobility field in the air mobility industry, to which we belong, is expected to contribute to solving various social issues such as eliminating traffic congestion and improving productivity in cities, reducing land infrastructure costs for the approximately 20,000 marginalized villages in rural areas (remote islands and mountainous regions) in Japan, transporting people between inhabited islands, replacing helicopters, and diversifying entertainment and sightseeing, as advanced mobility that can go “wherever they want” and “whenever they want.”

 

The system is expected to contribute to solving a variety of social issues, such as inter-island transportation among inhabited islands, replacement of helicopters in times of disaster, and diversification of entertainment and tourism. In Japan, since the establishment of the public-private sector council for the air mobility revolution in 2018, studies for social implementation have been conducted, and many companies overseas are also working on development.

 

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However, there are various laws and regulations nowadays, and you cannot freely go everywhere. For this reason, we have developed a manned drone for leisure use, and as of November 2022, we are the only company in the world that actually sells such a drone.

 

The performance of the drone itself is limited, as it cannot fly higher than three meters and its speed cannot exceed 60 mph. This has earned it approval from the Japanese government that it is not a flying vehicle, but rather a vehicle that drives on the road, similar to a car. Of course, it cannot be driven on public roads in Japan without a license plate.

 

2) Unmanned Air Mobility

 

The market for the unmanned air mobility industry in Japan, the market utilizing drones, has been expanding against the backdrop of social issues such as labor shortages and aging infrastructure. According to the “Drone Business Research Report 2021” published by Impress Corporation in 2021, the market is expected to grow significantly from 184.1 billion yen (approximately $1,272 million USD) in 2020 to 646.8 billion yen (approximately $4,469 million USD) in 2025. Among these, the drone service market, on which we are focusing our efforts, is expected to grow from 112.8 billion yen (approximately $779 million USD) in 2020 to 436.1 billion yen approximately $3,013 million USD) in 2025. Looking at the service market by sector, the inspection sector, which we are focusing on, is expected to grow from 39.9 billion yen (approximately $275 million USD) in 2020 to 171.5 billion yen (approximately $1,185 million USD) in 2025, the logistics sector from 1.5 billion yen (approximately $10 million USD) in 2020 to 79.9 billion yen (approximately $552 million USD) in 2025, and the civil engineering and construction sector from 6.7 billion yen (approximately $46 million USD) in 2020 to 24.7 billion yen (approximately $170 million USD) in 2025.

 

 

 

Source: Drone Business Research Report 2021 (Impress Corporation, published in 2021)*

 

* The drone business market size consists of three components: drone airframes, services, and peripheral services. The drone airframe market refers to sales in Japan of finished commercial drones, including fixed-wing and rotary-wing drones, rover-type drones, boat-type drones, submarine-type drones, etc., and does not include military-use drones. The services market represents the sales of companies that provide drone-based services. In the case where a drone is used for only one part of a solution, sales for that part only are estimated. In addition, when public organizations or companies utilize their own drones, estimates are based on the assumption that the drone operations are outsourced to an external company. The peripheral services market includes sales of consumables such as batteries, regular maintenance costs, human resource development, and voluntary insurance.

 

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Source: Drone Business Research Report 2021 (Impress Corporation, published in 2021)*

 

The unmanned air mobility field is attracting increasing attention as a solution to meet the needs for manpower saving and unmanned air mobility in light of the declining working population, aging infrastructure, and the spread of new coronavirus infections, which require contactless and remote access. The government’s Digital Rural City Nation concept mentions the use of drones for logistics and inspections, and large corporations are pushing for the full-scale introduction of drones for inspection, surveying, and disaster prevention. In addition, the government has set a December 2022 deadline for Level 4 (unobserved flights over populated areas), and in June 2021, the House of Councillors passed a bill to amend the Civil Aeronautics Law and enacted it into law. The implementation of the “Level 4” (unobserved flights overpopulated areas) has been steadily progressing. Once the Level 4 certification system for aircraft safety and drone operator licenses are in place, the area where drones can be used is expected to expand significantly and a large market is expected to be created. Under these circumstances, we believe that players who can execute operations as well as develop drone technology will be able to meet demand in the future, and we will work on solutions that provide integrated airframes, operation management systems, and operators.

 

3) Computing Power Sharing Domain

 

The market for GPUs suitable for advanced computing, the computing power sharing industry, is expected to grow to nearly 6 trillion yen (approximately $41 billion USD) by 2024, according to GPU market research published by Global Market Insights in 2019 (Global Market Insights, Inc., 2019), as shown in Figure 6, the market is expected to be worth $14,415 million (1.56 trillion yen) in 2019 and is expected to grow to nearly 6 trillion yen (approximately $41 billion USD) by 2024.

 

* GPU is an abbreviation for Graphics Processing Unit, which refers to an arithmetic unit or processor specialized for real-time image processing.

 

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In the Computing Power Sharing Domain, demand for global computing power is booming. In the future, artificial intelligence (“AI”) and internet of things (“IoT”) are expected to develop more and more, and market conditions are expected to grow explosively. Furthermore, the market for cloud computing of computing power is also expected to expand rapidly in the future, backed by strong demand.

 

Our Business

 

Our business is built on our technology platform, which is designed to develop and market Manned Air Mobility and provide Unmanned Air Mobility operating systems and solutions. In this section, we will describe specific products and services in each area of our air mobility business.

 

(1) Manned air mobility business

 

In the manned air mobility business, we develop and market “XTURISMO Limited Edition.” To complement the single product development of the air mobility vehicle, we are aiming to appeal to a variety of purposes of use and create a product portfolio that is resistant to market fluctuations due to completely different applications: demand for solutions to social problems, including collaboration with national and local governments, and luxury demand targeting the ultra-wealthy who are resilient to recession.

 

 

XTURISMO Limited Edition

 

The basic specifications of the “XTURISMO Limited Edition” are as shown in Figure 1: internal combustion engine + electric drive, maximum speed of 80 km/h (approximately 50 miles per hour), dimensions of 3.7 m x 2.4 m x 1.5 m. The vehicle has been designed to meet the following requirements. Compared to other manned air mobility vehicles designed solely with electric power, this design is highly practical due to its high energy efficiency and long cruising time. The use of lightweight, tough, and non-corrosive Carbon Fiber Reinforced Polymer (“CFRP”) components for almost all airframe components significantly reduces the weight of the airframe and minimizes the drive energy. In addition, we have newly developed a control unit that controls the movement of the airframe, which is optimal for air mobility. In the future, we plan to respond to customization according to the requests of potential purchasers.

 

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The current XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. Currently we have 7 purchases total amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individuals to purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin delivery of the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed. The configuration and mechanism of the airframe for levitation is as follows: one gasoline engine is used to drive the two front and rear main propellers, and four batteries are used to drive the four fronts, rear, left, and right side propellers. Four batteries power the four side propellers, front, rear, left, and right, to achieve attitude control and stability. As shown in Figure 2, the main and side propellers are powered by the wind, which is rectified by ducts arranged around the propellers to create a high-pressure space between the lower fuselage and the ground, and the difference in pressure between the upper and lower fuselage is used to levitate the aircraft.

 

As shown in Figure 3, the names of the various sections of the aircraft and basic operations can be performed using the buttons and levers on the steering wheel.

 

The price is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. The vehicle is expected to be used as a disaster relief vehicle for emergencies and for hobby use on circuits, at sea, etc. For the usage of disaster relief, since Japan encounters a number of natural disasters, we have been in conversation with relevant authorities in Japan regarding situations such as earthquakes, floods and tsunamis, and the use of our products in such situations as upon the occurrence of such events the road infrastructure may be destroyed causing obstacles for emergency access. Furthermore, due to our hybrid engine system, the batteries can be used for electricity supply for disaster affected locations. For example, in a project jointly with Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to control these drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be used during a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disaster by multiple vehicles flying simultaneously along the airways.

 

Since its launch in October 2021, the product has received 7 purchases total amongst 3 purchasers and at least 10 inquiries for purchase in the Middle East, North America, Southeast Asia, Europe, and other regions of the world. The product is expected to be used for hobby and marine applications.

 

 

Figure2 (The mechanism of the aircraft’s levitation)

 

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“XTURISMO Limited Edition” Specification table (Tentative values)

 

 

Driving force   Internal combustion engine + Electric
     
Control   Electronic Autonomous Control/ Manual operation by crew/ Remote control
     
Weight   About 300 kg
     
Size  

Overall length: 3.7m

Full width: 2.4m

Full height: 1.5m

     
Maximum speed   80km/ h
     
Maximum loading capacity   150kg

 

Figure1 (The basic specifications of the “XTURISMO Limited Edition)

 

 

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Figure 3 (Name of each part - XTURISMO Limited Edition)

 

(2) Unmanned Air Mobility Domain

 

In the unmanned air mobility domain, we provide “C.O.S.M.O.S. (Flight Operation Management System),” “C.O.S.M.O.S. Hub (Operator Network),” and “Joint Research and Development”. C.O.S.M.O.S. is currently available as an unmanned traffic management system “UTM” in service for up to approximately 10 drones. We are currently developing C.O.S.M.O.S. Advanced for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units.

 

C.O.S.M.O.S. (Flight Operation Management System)

 

C.O.S.M.O.S. is a platform technology for unmanned AMVs and air mobility, including drones, to enable more reliable planning, monitoring, and management of the health of the aircraft, operational certainty, and safety of the surrounding area and operators, which are the principles of automated unmanned AMV operations. While seamlessly connecting to the Drone Information Platform System (“DIPS”) and Flight Operation Management Integration Function (“FIMS”) defined by the Ministry of Land, Infrastructure, Transport and Tourism (“MLIT”), it visualizes safe and secure operations by realizing both “spatial management” and “flight management,” thereby accelerating the speed of social implementation of drones.

 

C.O.S.M.O.S. can consolidate all the information necessary for drone flight management, including not only flight route information, but also aircraft information, operator information, and national drone license information, which will begin in 2022. At the same time, during flight, the current position, supplemented by Global Positioning System (“GPS”) and Long Term Evolution (“LTE”) overhead, is projected onto map data and three dimensional (“3D”) spatial data, and the current surrounding environment is also monitored by a 360-degree camera attached to the drone. Municipalities where drones fly overhead and operators who use drones on a daily basis will be able to check this information in real time as needed, thereby realizing safe and secure operations.

 

The fee structure is currently being quoted on a case-by-case basis as we are in the process of conducting demonstration tests with large corporations and local governments.

 

Other companies have developed operation management systems, such as those developed by KDDI Corporation and NTT DoCoMo, which were also selected for NEDO’s demonstration experiment. However, we are developing functions with the highest priority on the safe and secure use of drones by local governments.

 

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Figure 5 (Overview of C.O.S.M.O.S. Flight Operation Management System Functions)

 

 

Figure 6 (Conception image of a control center utilizing the C.O.S.M.O.S. flight operation management system)

 

C.O.S.M.O.S. Hub (Operator Network)

 

Data on more than 100 registered pilots throughout Japan is centrally managed by the pilot operation system “C.O.S.M.O.S. Hub (Cosmos Hub)”. This system enables quick and efficient matching of registered pilots throughout Japan with operators who place orders. The system also allows for the prompt and efficient matching of registered pilots with operators throughout Japan. In addition, the system provides highly accurate safety management manuals and business etiquette training to pilots registered with the system, enabling the provision of safe, secure, and high-quality drone solutions anywhere in Japan. We have built a system that enables us to provide safe, secure, and high-quality drone solutions anywhere in Japan. For example, in the agricultural sensing area, we have a track record of providing solutions in 36 prefectures throughout Japan by 2021.

 

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Our fee structure is quoted on a case-by-case basis, based on the required aircraft, pilot skills, data analysis, and report generation.

 

Although it is difficult to compare our solutions with those offered by other companies because they are not publicly available, we can say that our nationwide network of pilots has been independently developed since early on, and our flight operation management system has only been provided on a trial basis by KDDI Corporation and NTT DoCoMo, Inc. In addition, there are no carrier-independent services that provide a set of services with their own lines.

 

Drone Photography Business

 

We also have the following website: Kusatsu.com, through which we receive orders for drone solutions provided by our unmanned air mobility business. Via this website, we receive orders for aerial photography, inspections, video editing and creating reports. The main services provided by this website are filling orders for aerial photography and movies and we mainly provide images and videos, and sometimes we also provide promotional videos including editing services. Most of the customers for these services are companies, and in fiscal year 2021 we received 95 orders through this website from a total of 42 customers, in 2022 we received 62 orders through this website from a total of 22 customers. We use our affiliated network of drone operators to provide this service. Since drone aerial photography is carried out in various regions in Japan, we provide services in cooperation with drone operators in each region so that we can render the service widely and efficiently. We outsource the work to an operator who owns the necessary equipment and possesses the skills necessary to fill each order.

 

Joint Research and Development

 

Our joint R&D with large companies is characterized by the wealth of experience of our business development team and our engineering team, and by the close collaboration between the two teams to promote the project. The business development team consists of members who have consulting experience with major manufacturers and other companies at major strategy consulting firms, and are familiar with the key points of starting up a new business in a large corporation. The engineering team, on the other hand, has many members from Japan and overseas with experience at other drone companies, etc. The team also has a wide range of areas of expertise, from drone airframe development to AI engineers who analyze information obtained from the sensors mounted on the drone. We are capable of building a wide range of drone and AI solutions. In addition, for the areas where we collaborate with many large companies based on their needs, we have established a system that enables us to achieve many results with inexpensive joint development costs by developing the base aircraft and software in-house.

 

For example, as shown in Figure 7, we have implemented a drone-based individual delivery system for the “Green Infrastructure Model,” a concept home for a sustainable future built at Misawa Park Tokyo (Suginami-ku, Tokyo), a home-building experience facility, with Misawa Homes Co. Ltd. and Mitsui O.S.K. Lines, Ltd. in the world’s first demonstration experiment of unmanned operation using commercially operated container vessels, as shown in Figure 8.

 

Our fee structure is based on an individual estimate of the necessary development details.

 

Although it is difficult to compare our services with those provided by other companies because the contents of our services are not disclosed to the public, we believe that we are unique in that we can promote and design projects not only from a technical perspective but also from the perspective of contributing to management by having members from major consulting firms participate in the development of the project.

 

   

 

Figure 7 (Individual drone delivery system demonstration for future concept homes with Misawa Homes, Inc.)

 

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Figure 8 (Testing automation of mooring operations by drone with Mitsui O.S.K. Lines, Ltd.)

 

(3) Computing Power Sharing Domain

 

A.L.I. Albatross (our original GPU machine)

 

Our shared computing service is currently available and the proprietary software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering. Our shared computing service is a system that provides efficient computing power through distributed processing and was initially developed primarily for the purpose of computer generated graphics and game rendering. In addition to the latest model of GPU, this equipment is optimized for those who wish to rent out computing power, with hardware equipped with CPU, memory, and Solid State Drive (“SSD”) necessary for blockchain and AI lending, and our proprietary distributed processing algorithm software. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of more than 1,000 GPU machines in storage.

 

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The Details of our Shared Computing System are as follows:

 

 

Additionally we have expanded our services to the deep learning area of AI, and in 2020, we participated in an AI program to analyze corona vaccines. Further, our shared computing technology is also intended for the use of the future sky road visualization. Furthermore, we have applied game rendering and computer graphics rendering technology to visualize the sky road planned to be implemented in the unmanned traffic management system for air mobility infrastructure which we are currently internally using and which is planned for external use in the future.

 

The fee structure consists of a monthly operation management fee for managing the operation of the GPU machines and a license fee in the form of a performance fee based on the utilization of computing power (some of which was received in the form of cryptographic assets at the request of a single purchaser of our shared computing services). Specifically, during the period of January 1, 2021 through October 31, 2022. we received an average of approximately 3.22 Ethereum tokens per calendar month (for an aggregate of 74.06 Ethereum tokens) from a single purchaser of our shared computing services. However, as of December 23, 2022, all of the aforementioned Ethereum tokens have been sold for an aggregate amount of 87,690,644 yen ($605,975 US dollars). Furthermore, other than the Ethereum tokens as described in the immediately preceding sentence, we have not in the past nor will we at any time in the future accept any payment in cryptographic assets. Additionally, our shared computing service is not used for the mining of cryptographic assets. Some external users of our shared computing system may be using it in the blockchain area, but our shared computing system is neither designed for nor endorsed for use for cryptographic asset mining purposes.

 

In comparison with computing power services provided by other companies, the service is built by purchasing a large volume of AMD (Advanced Micro Devices, Inc.) GPUs at a low cost, so it is comparable to services lined up by AWS (Amazon Web Services), etc., which provide NVIDIA-made GPUs for enterprise use) and other services that offer NVIDIA-made enterprise GPUs.

 

 

Figure 9 (Container server that manages the operation of our original GPU machines.)

 

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(4) Technology Human Resources Business Domain

 

The technology staffing area in which our group is engaged is through our investment in ASC TECH Agent Co. In this business description, the technology human resources business is omitted.

 

Subsidiary

 

A.L.I. Technologies Co., Ltd. (Japan) is the only wholly-owned subsidiary of the AERWINS, Inc., a Delaware corporation, which is a wholly owned subsidiary of the Company(“A.L.I.”), and A.L.I. holds a 48.8% investment interest in ACS TECH Agent Co. and A.L.I. has no other current subsidiaries.

 

AM1  

Software equipment sales to customers who want to optimize the use of their server systems.

 

Consulting and marketing support on how to use blockchain and AI for their business.

 

*  If, as a result of the consulting and marketing support, customers wish to use shared computing, we will provide the equipment in the Computing Power Sharing Domain.

   
AM2   Research and development of Xturismo (Sales are planned to start in December 2022).
   
AM3  

Consulting and planning of drone utilization for large-scale companies and government agencies.

 

Consulting results in the provision of services in the area of drone services, including surveys, research, inspections, and measurements.

   
ASC   Hire construction management engineers and dispatch them to the client as a staffing service.

 

Regulatory Approvals Relating to our Air Mobilities

 

We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. While regulations governing this industry are evolving, currently in the jurisdictions where we sell and plan to sell our products, the commercial use of our manned air mobilities, and in some cases our unmanned air mobilities, is subject to an uncertain or lengthy approval process. In order for our customers to use our manned air mobilities, we are working on obtaining, or working closely with our customers, to obtain relevant approvals and permits in the jurisdictions where we sell and plan to sell our products. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of Air Mobility-related regulations and the lack of relevant precedents.

 

Our Research and Development Capabilities

 

In the area of manned air mobility, we are engaged in R&D to improve the safety, operability, and performance of the “Xturismo Limited Edition,” and in the area of unmanned air mobility, we are engaged in R&D to improve safety, environmental friendliness, and expandability.

 

The Company’s R&D activities are conducted by a staff of 24 in the manned air mobility domain and 8 in the unmanned air mobility domain, and the total amount of R&D expenses spent by the Company in FY2021 was 1,025,607 thousand yen (approximately $9,336 thousand USD) and in FY 2022 was 1,190,406 thousand yen (approximately $8,926 thousand USD). R&D activities in each domain are as follows.

 

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Domain   R&D Topics   Results in FY2021
Manned Air Mobility Domain   Safety  

Airframe control algorithms for stable navigation in numerous contingencies, and airframe control algorithms to improve stability during takeoff and landing

 

  Operability  

Airframe design for stable operating posture, operation system for intuitive airframe operation

 

  Performance upwards  

Clean sound function, thrust-enhancing design, ducted propeller, air-cooling function

 

Unmanned Air Mobility Domain   Safety  

Development of an operation management system to realize safe and secure drone utilization and linkage with the Ministry of Land, Infrastructure.

 

Transport and Tourism’s system, and development of aircraft capable of autonomous flight and collision avoidance utilizing Light Detection and Ranging (“Lidar”) Simultaneous Location and Mapping (“SLAM”) and Visual SLAM.

 

    Environment  

Development of drone airframe with explosion-proof performance

 

    Expandability   Development of a multi-system that uses AI to analyze video acquired from drones in real time and connect it to work instructions to save manpower and improve safety.

 

Our Proprietary Technologies

 

In order to provide highly differentiated solutions in the areas of manned air mobility, unmanned air mobility, and Computing Power Sharing Domain, we are engaged in research and development in the areas listed below.

 

Field of Technology   Outline of R&D Themes
     
Manned/Unmanned Air Mobility   ● Obstacle avoidance system (laser, image detection)
       
    ● Route flight system (electromagnetic resistance, nighttime operation)
       
    ● Autonomous route design system (waypoint-to-waypoint, N-node)
       
    ● Flight system under non-GPS/gyro environment
       
Field of Technology   Outline of R&D Themes
       
    ● Remote control system under GPS environment (using First Person View (“FPV”))
       
    ● Swarm control system
       
    ● Attitude control system (stationary in high winds)
       
    ● In-flight work system
       
    ● Visual SLAM system (inspection based on relative position)
       
    ● Wireless energy transmission system
       
Artificial Intelligence (AI) Data Analysis   ● Individual and Behavior Recognition and Mapping Systems for Construction Operations
       
    ● Individual and behavior recognition and mapping systems for railroad operations
       
    ● 360° laser 3D mapping system
       
    ● Defect detection system for inspections
       
    ● Cloud computing power provision system for the learning phase of AI
       
    ● Annotation system for the learning phase of AI
       
Block Chain   ● Blockchain-based Air Route Authentication System
       
    ● Blockchain-based drone control system
       
Decentralized Processing   ● Management System for Distributing Tasks to Multiple GPUs
       
*  A method in which a single process is distributed to     improve processing speed and reduce server load.   ● A management system that selects the allocated GPUs according to the type of task
       
    ● Distributed processing system for pre-rendering tasks
       
    ● Distributed processing system for real-time rendering tasks

 

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Manufacturing, Quality Control and Supply Chain

 

Manufacturing

 

We adopt a lean and efficient production strategy across our business, focusing on effective prototyping, manufacturing, supply chain management, final assembly, integration, quality and final acceptance testing.

 

Our manufacturing procedures system as to the Xturismo Limited Edition is as follows:

 

 

 

Sub Assembly, manufacturing, and shipping of the Xturismo Limited Edition is done by relevant members at our facilities in Yamato, Kanagawa Prefecture, and testing is done by members at our facilities in Minobu, Yamanashi Prefecture. Assembly itself takes about one week, but it typically takes 4 months from ordering parts to delivery. The number of workers is increased or decreased depending on the production volume, but since the assembly is basically made-to-order, it is based on multi-skilled workers: 4 to 6 workers per unit. In addition, several members of quality control and production control are involved. General operation and flight tests are conducted for shipping inspection which takes 1-2 days. With regard to part suppliers, we have collaborated with Toray Carbon Magic Co., Ltd. for CFRP (Carbon Fiber Reinforced Plastics) chassis, which has a proven track record in lightweight and rigidity performance in car racing and air mobility globally. We have also collaborated with Toda Racing Co. Ltd., which has a strong track record in car racing globally, for high-efficiency drive parts. For the internal combustion engine, we are using the proven engine of Kawasaki Motors Ltd., which has a proven track record in the global motorcycle industry.

 

We rely on third party suppliers to manufacture aspects of our products to the following extent:

 

Key Parts   Company Name
Chassis (as described above)   Toray Carbon Magic Co., Ltd.
Drive Gear & Shaft (as described above)   Toda Racing Co., Ltd
Main Propellers   Challenge Co., Ltd
Internal-combustion engine (as described above)   Kawasaki Motors, Ltd
Control CPU   Renesas Electronics Corporation
Embedded single board computer   NVIDIA Corporation
Battery for Main   Shorai Inc.
Battery for side propellers   Shenzhen Yowoo Electronic Technology Co.,Ltd
Flight controller   Holyblo
    Japan Aviation Electronics Industry, Limited
Motor for side propellers   Jiangxi Xintuo Enterprise Co.,Ltd.
    Aster Co., Ltd.
Engine control unit   MoTeC Pty Ltd
Front camera   Basler AG
Exhaust pipe   Shinba Iron Works Corporation

 

As described above, our products are manufactured and shipped at our facilities in Yamato, Kanagawa Prefecture, which is located at 1-2-11 Fukamidai, Yamato-shi, Kanagawa, and our testing processes are completed at our facilities in Minobu, Yamanashi Prefecture, which is located at 72 Misawa, Minobu-cho, Minami Koma-gun, Yamanashi.

 

Quality Control

 

Our quality control efforts focus on designing and producing products and implementing processes that will ensure high levels of safety and reliability. We have a dedicated quality control team that works with our engineering arm and our suppliers to ensure that the product designs meet safety requirements and functional specifications. Together with our supplier review committee, our quality control team also collaborates with our suppliers to ensure that their processes and systems are capable of delivering the parts and components we need at the required quality levels, on time and within budgets.

 

Our air mobilities are produced with strict product quality control. Our quality control team undertakes robust inspections of our production lines in accordance with internal guidelines and assessment criteria. We also conduct licensed flight tests for the air mobilities of the XTURISMO LTD EDITION prototype 1 under a variety of conditions, which we believe have shown to be an efficient and effective means for us to assess the quality and airworthiness of our products. Data and results generated from flight tests of the XTURISMO LTD EDITION prototype 1 are carefully studied and analyzed to inform any process of alteration or improvement that may follow. In conjunction with our provision of a broad range of after-sales services and assistance to our customers, our air mobilities quality control management extends beyond the point of sale as we continue tracking the performance and quality of our air mobilities.

 

Supply Chain and Value Chain

 

We adopt a strict reviewing mechanism to ensure quality and stability of our supply chain. We also aim to fully engage with our suppliers to foster long-standing and strong partnership with qualified suppliers. Our air mobilities are generally manufactured on specific orders and we have been able to effectively manage our inventory level. Historically, we have not experienced significant delays in the supply or availability of our key raw materials or components provided by our suppliers, nor have we experienced a significant price increases for raw materials or components. We do not anticipate any such delays or significant price increases in 2023. Notwithstanding, we cannot guarantee there will be no such delays or significant price increases in 2023.

 

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During 2020 and 2021, the Japanese Government issued four series of Declaration of Emergency (which we refer to as the “Declarations”), whereby the Japanese Government requested the closing of non-essential activities and businesses across the country as a preemptive safeguard against the COVID-19 pandemic. This adversely impacted businesses across Japan, particularly in the supply chain sector.

 

During the period, the COVID 19 pandemic and the Government-driven or voluntary closure of workplaces and public spaces, the general public’s reluctance or inability to commute on public transportation, shop, or enjoy outdoor leisure activities have negatively affected our business operations and liquidity position.

 

The first series of Declarations was in effect during the period beginning on April 7, 2020 and ending on May 25, 2020. The second series of Declarations was in effect during the period beginning on January 8, 2021 and ending on March 21, 2021. The third series of Declarations was in effect during the period beginning on April 25, 2021 and ending on June 20, 2021. The fourth series of Declarations was in effect during the period beginning on July 12, 2021 and ending on September 30, 2021. During a portion of the time periods covered by the Declarations, many prefectures were affected, including Kanagawa (the location of our manufacturing and shipping facility), Tokyo, Saitama, Chiba, Osaka, Ibaraki, Tochigi, Gunma, Shizuoka, Kyoto, Hyogo, and Fukuoka.

 

We have not experienced supply chain disruptions in our business since the end of the Declarations in 2021. Since the end of the Declarations in 2021, we have not had to suspend the production, purchase, sale or maintenance of certain items due to a lack of raw materials; inventory shortages; closed factories or stores; reduced headcount; or delayed projects. For certain parts for our products, such as the engines and other parts, we only have a limited number of our products that require these parts currently in production, and accordingly we have not been affected by supply chain disruptions in this regard. However, as noted above, during the years 2020 and 2021 with the COVID-19 pandemic the Japanese Government implemented a lockdowns where certain factories have been shut down resulting in delay of supply and production of our products. If a Declaration of Emergency is declared in the future, it may cause the suspension of the production, purchase, sale, or maintenance of certain items due to a lack of raw materials, inventory shortages, closed factories or stores, reduced headcount, or delayed projects. This is primarily due to the fact that we obtain all of the parts of our items from third party suppliers pursuant to contract by order arrangements, and accordingly we rely upon those suppliers to provide the requisite items at the time of our orders. If our suppliers do not have enough raw materials or if our suppliers are unable to fulfill our orders due to an absence of a long term contract with us, then we may experience a supply chain disruption as a result. However, we believe that our risk of supply chain disruption is limited since a Declaration of Emergency has not been made since 2021, we have high employee retention, and we require a low quantity of supplies for our items at this time.

 

We have not experienced labor shortages that have impacted our business. We have a high employee retention rate and we believe that we will be able to maintain that rate with competitive compensation. With the limited number of productions currently in place we do not face challenges in labor shortage. However, we will need to increase our labor to increase our production capability in the future. We believe that our unique position where we are entering into a new industry allows us to have access to new hires from vendors and directly by candidates internationally. Once we expand into global business, we will need to hire more employees in selected regions which we need to take necessary measures such as adopting market labor costs in various regions. We are in the process of securing third party employee outsourcing as well in order to be in a position to satisfy an increased commercialization production effort.

 

We have not experienced cybersecurity attacks in our supply chain, however we do have engineers with experience in the cyber security field and plan to take measures to counter any potential cybersecurity attacks in the future.

 

Additionally, we have not experienced higher costs due to constrained capacity or increased commodity prices or challenges sourcing materials. We believe that we would be able to absorb higher costs of parts from our suppliers since our margins are high in comparison to the total cost of the parts of our items.

 

We have not experienced surges or declines in consumer demand for which we are unable to adequately adjust our supply. The industry is still in its inception period starting from regulatory infrastructure and the market will likely expand in the foreseeable future. However, if we do experience a surge in consumer demand, we will be highly reliant upon our third party suppliers to provide higher quantities of parts, which we will not have control over since we do not have long term contracts with such third party suppliers. Further, we build our product after an order is placed, and accordingly a decline in consumer demand would not affect our supply.

 

We have not been unable to supply products at competitive prices or at all in certain regions due to export restrictions, sanctions, tariffs, trade barriers, or political or trade tensions among countries. As the XTURISMO LTD EDITION is a new product and unique, we do not see an inability to compete in the foreseeable future. We have obtained a HS Code from the Japanese Customs Office where we do not have any export restrictions. Depending on geopolitical tensions, we may be subject to sanctions, tariffs and trade barriers, however we do not have such issues with our targeted markets currently. Also, we do not have any intentions to market to sanctioned nations in order to comply with regulations of US and Japan. Furthermore, our supply chain is predominantly within Japan; therefore, we have not been exposed to supply chain risk in light of Russia’s invasion of Ukraine and accordingly have not needed to take efforts to mitigate potential impact.

 

The following is Delivery Schedule of our Manned Air Mobility “XTURISMO Limited Edition” and a schematic representation of our value chain. (* Some items are still in the conceptual stage.)

 

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After-sales Services

 

Our “XTURISMO Limited Edition” is based on a levitation range of a few meters above the ground effect, so it is not subject to approval for the aircraft category in Japan and can be used without a pilot’s license. In addition, given that the product is in this category, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. The figure on the right shows the Maintenance and Coverage Plans that we offer.

 

 

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Marketing and Sales

 

Marketing

 

We aim to promote awareness of our brand globally. Our air mobilities are marketed to customers through online events as well as offline promotional and advertising activities. We conduct online marketing through our websites, domestic and international social media, online video platforms and e-commerce platforms, among others. We organize new product launches, company milestone media events, aviation exhibitions and other offline marketing events.

 

Competition

 

We recognize that there are no new alternatives at this time, as hoverbikes and drones themselves are substitutes for existing solutions at this time. The competitive landscape for each of our business areas is as follows.

 

(1) Manned Air Mobility Domain

 

Most of the industry’s production experience in the manned air mobility domain is still in the demonstration stage, although EHang in China has produced and delivered products. Many companies are still in the research and development stage and are not disclosing their sales prices. As for hoverbikes, we believe that technological innovations in battery capacity density and power will enable competitors to develop hoverbikes that can maintain a practical cruising time even when fully electrified.

 

(2) Unmanned Air Mobility Domain

 

In the unmanned air mobility field, China’s DJI holds a large share of the global market, but from a security perspective, domestic drones are expected to increase their market share in the future. In the area of drones, various players are aiming for various technological innovations in the fields of agriculture, inspection, aerial photography, and logistics. In particular, technologies for autonomous flight and AI-based image analysis are being developed for various applications. While DJI and other companies have announced their sales prices for airframes, many companies do not announce their prices for drone solutions, which are the main focus of our company’s efforts, because many cases are quoted on an individual basis.

 

(3) Computing Power Sharing Domain

 

In the Computing Power Sharing Domain, no major companies have entered the market, and it is a decentralized market where small and medium-sized companies are developing their services, making it difficult to identify clear competitors. The three companies with the largest global production share are NVIDIA, AMD, and INTEL. This is an area where GPU makers are working to develop new models with improved computing power.

 

Sales prices increase and decrease according to changes in the supply-demand balance of semiconductors (GPUs, etc.), which are the main component parts.

 

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International Competitiveness and Barriers to Entry

 

(1) Manned air mobility domain

 

The barriers to entry in the manned air mobility domain are expected to be very high, as the Company has invested a large amount of R&D funds since 2018, and has been developing the product while applying for/obtaining patent and design rights, and has also successfully developed the product based on partnerships with several companies. In the area of manned air mobility, the launch of the “Xturismo Limited Edition,” a mobility vehicle that can travel in low altitudes within the range of ground effect, is unprecedented worldwide, and we expect it to be internationally competitive.

 

(2) Unmanned Air Mobility Domain

 

Although there are no clear barriers to entry in the unmanned air mobility area, we expect certain barriers to entry to exist, as we have been working on building an operation management system using our sky infrastructure patents and a network of drone pilots skilled in various aircraft and operations as early as 2018. (i.e., the drone operator network). In the unmanned air mobility domain, China’s DJI holds a large share of the mass-produced drone “airframe” market. However, the Japanese government has announced a policy of limiting the use of drones for operations that may hinder public safety and the maintenance of order to security-compliant drones in September 2020, and we expect a return to domestically produced drones and global expansion centered on security to increase international competitiveness.

 

(3) Computing Power Sharing Domain

 

In the Computing Power Sharing Domain, we expect a certain level of barriers to entry to exist, as we have a track record of managing the operation of many machines and working to improve capital investment and cost efficiency in farms since 2018. In the Computing Power Sharing Domain, we believe that overseas expansion will be difficult due to the high cost of electricity in Japan compared to other countries, but we expect that there will be certain barriers for overseas companies to enter the Japanese market from the perspective that providing computing power for local consumption will guarantee security.

 

Intellectual Property

 

We have significant capabilities in the areas of Air Mobilities engineering, development and design and we have developed a number of proprietary systems and technologies. Our success depends in part on our ability to protect our core technology and intellectual property. We rely on a combination of patents, patent applications, trade secrets, know-how, copyrights, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition, we have entered into confidentiality and non-disclosure agreements with our employees and business partners. The agreements we entered into with our employees provide that all software, inventions, developments, works of authorship and trade secrets created by them during the course of their employment are our property.

 

As of December 31, 2021, we have 72 issued or pending patents in Japan and 46 registered trademarks related to our technology in Japan. As of December 31, 2022, we have 71 issued or pending patents in Japan and 48 registered trademarks related to our technology in Japan. We intend to continue to file additional intellectual property applications related to our technology in the future. Below is an example of one of our patent initiatives.

 

 

64

 

 

Our Intellectual Property Portfolio

 

IP Classification  2017   2018   2019   2020   2021   Total 
Patent Rights   15    18    21    15    2    70 
Trademark Rights   4    7    24    9    2    46 
Design Right   -    3    2    -    19    24 
                               
Total   19    28    47    24    23    140 

 

List of Patent Rights

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features

Flying body

(Acquired)

   Japan  

July 7, 2017

Japanese Patent Application No. 2017-133787

  

August 13, 2020

No. 6749019

   July 7, 2037   Provided is a manned flying object as a new means of movement.
           

FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM

(Acquired)

   Japan  

July 31, 2017

Japanese Patent Application No. 2017-147310

  

April 1, 2021

No. 6861434

   July 31, 2037   Provided is a novel technique for guiding a flying object.
           

Storage device

(Acquired)

   Japan  

September 25, 2017

Japanese Patent Application No. 2017-184212

  

March 26, 2020

No. 6681861

   September 25, 2037   Technology related to a new delivery box is provided.
           

DISTRIBUTED MANAGEMENT SYSTEM FOR MINING PROCESSING AND METHOD THEREOF

(Acquired)

   Japan  

December 4, 2017

Japanese Patent Application No. 2017-232527

  

April 8, 2020

No. 6688779

   December 4, 2037   Provided are a distributed management system and a method for performing efficient mining processing.
           

METHOD AND SYSTEM FOR IDENTIFYING FLYING OBJECT

(Acquired)

   Japan  

December 5, 2017

Japanese Patent Application No. 2017-232990

  

February 3, 2021

No. 6832014

   December 5, 2037   Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism.
           

TICKET INSPECTION METHOD AND TICKET INSPECTION SYSTEM USING BLOCKCHAIN NETWORK

(Pending)

   Japan  

December 31, 2017

Japanese Patent Application No. 2017-255287

   -   -   Provided is a technology capable of providing the security of transaction information and the certainty of settlement.
           

MONITORING DEVICE, MONITORING PROGRAM, AND MONITORING SYSTEM USING FLYING OBJECT

(Pending)

   Japan  

March 12, 2018

Japanese Patent Application No. 2018-044241

   -   -   Provided is a technology for performing a monitoring service with a plurality of flying objects in a specific area.

 

65

 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

Monitoring system

(Pending)

   Japan  

March 12, 2018

Japanese Patent Application No. 2018-044242

   -   -   Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism.
           

Flying body

(Acquired)

   Japan  

March 19, 2018

Japanese Patent Application No. 2018-050692

  

August 9, 2019

No. 6566585

   March 19, 2038   Provided is a flying object having a new shape capable of improving flight efficiency.
           

Distributed machine learning system

(Acquired)

   Japan  

June 9, 2018

Japanese Patent Application No. 2018-110761

  

November 15, 2019

No. 6615946

   June 9, 2038   Efficiently run resources that maintain a blockchain network.
           

FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM

(Acquired)

   Japan  

September 17, 2018

Japanese Patent Application No. 2018-173169

  

October 18, 2019

No. 6601810

   September 17, 2038   Provided is a novel technique for guiding a flying object.
           

Hybrid manned vehicle

(Acquired)

   Japan  

September 19, 2018

Japanese Patent Application No. 2018-175395

  

August 19, 2020

No. 6751537

   September 19, 2038   Provided is a manned flying object as a new means of movement.
           

Asset Information Registration Method

(Pending)

   Japan  

November 19, 2018

Japanese Patent Application No. 2018-216374

   -   -   Provide a secure platform for the transaction of assets.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

November 26, 2018

Japanese Patent Application No. 2018-220342

  

August 14, 2020

No. 6749612

   March 25, 2037   Disclosed is a technology capable of improving warehouse storage efficiency for multiple types of cargo.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Pending)

   Japan  

November 26, 2018

Japanese Patent Application No. 2018-220341

   -   -   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.

 

 

66

 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Pending)

   Japan  

November 26, 2018

Japanese Patent Application No. 2018-220340

   -   -   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Pending)

   Japan  

November 26, 2018

Japanese Patent Application No. 2018-220339

   -   -   Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo.
           

DELIVERY METHOD AND DELIVERY SYSTEM

(Pending)

   Japan  

November 26, 2018

Japanese Patent Application No. 2018-220343

   -   -   An object of the present invention is to provide a delivery method capable of safely delivering a package.
           

Flying body

(Acquired)

   Japan  

March 27, 2019

Japanese Patent Application No. 2019-061538

  

August 2, 2019

No. 6561342

   March 27, 2039   Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger.
           

Flying body

(Acquired)

   Japan  

March 27, 2019

Japanese Patent Application No. 2019-061537

  

May 24, 2019

No. 6530875

   March 27, 2039   Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger.
           

Flying body

(Pending)

   Japan  

May 17, 2019

Japanese Patent Application No. 2019-094037

   -   -   Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger.
           

Flying body

(Pending)

   Japan  

June 25, 2019

Japanese Patent Application No. 2019-116857

   -   -   Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger.

 

67

 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

Hybrid

Manned vehicle

(Pending)

   Japan/PCT  

August 31, 2019

PCT/JP2019/034315

   -   -   Provided is a flying object as a new means.
           

METHOD FOR GUIDING FLYING OBJECT, GUIDING DEVICE

AND GUIDANCE SYSTEM

(Pending)

   Malaysia  

September 17, 2019

PI2021001406

   -   -   Provided is a novel technique for guiding a flying object.
           

METHOD FOR GUIDING FLYING OBJECT, GUIDING DEVICE

AND GUIDANCE SYSTEM

(Pending)

   Japan/PCT  

September 17, 2019

PCT/JP2019/036309

   -   -   Provided is a novel technique for guiding a flying object.
           

FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM

(Pending)

   Japan  

September 30, 2019

Japanese Patent Application No. 2019-179383

   -   -   Provided is a novel technique for guiding a flying object.
           

Flying Body (Hover Motorcycle CG Lower Layout)

(Pending)

   Japan/PCT  

October 8, 2019

PCT/JP2019/039708

   -   -   Provided is a flying object capable of improving driving feeling and riding comfort.
           

Flying Object (Hover Bike _ Main + Front and Back Sub + Vertical Sub)

(Pending)

   Japan/PCT  

October 8, 2019

PCT/JP2019/039710

   -   -   Provided is a flying object capable of improving driving feeling and riding comfort.
           

Flying Object (Hover Bike _ Operation Layout)

(Pending)

   Japan/PCT  

October 8, 2019

PCT/JP2019/039710

   -   -   Provided is a flying object which can realize easy operation in operation.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Pending)

   Japan/PCT  

October 26, 2019

PCT/JP2019/042074

   -   -   Provided is a technology capable of simultaneously managing and controlling a plurality of flying objects.

 

68

 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

October 26, 2019

Japanese Patent Application No. 2020-522084

  

January 6, 2021

No. 6820045

   October 26, 2039   The route control control servers are communicably connected to a plurality of first flying objects via a network.
           

FLYING OBJECT AND BUFFER ATTACHED TO FLYING OBJECT

(Pending)

   Japan  

October 31, 2019

Japanese Patent Application No. 2019-198649

   -   -   Provided is a flying object capable of mitigating impact at the time of collision.
           

Distributed machine learning system

(Pending)

   Japan  

November 6, 2019

Japanese Patent Application No. 2019-201356

   -   -   Efficiently run resources that maintain a blockchain network.
           

Flight situation

Management system

(Pending)

   Japan/PCT  

November 27, 2019

PCT/JP2019/04644

   -   -   Provided is a technique capable of grasping the state of a flying object.
           

FLIGHT SITUATION MANAGEMENT SYSTEM, FLIGHT SITUATION MANAGEMENT METHOD, AND PROGRAM

(Acquired)

   Japan  

November 27, 2019

Japanese Patent Application No. 2019-214478

  

May 26, 2020

No. 6708867

   November 27, 2039   The situation of the flying object can be grasped.
           

POWER SUPPLY DEVICE FOR FLYING OBJECT

(Acquired)

   Japan  

November 28, 2019

Japanese Patent Application No. 2019-215435

  

September 14, 2020

No. 6763588

   November 28, 2039   Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude.
           

POWER SUPPLY DEVICE FOR FLYING OBJECT

(Acquired)

   Japan  

November 28, 2019

Japanese Patent Application No. 2019-215436

  

April 20, 2020

No. 6693635

   November 28, 2039   Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude.
                     

DISTRIBUTED MANAGEMENT SYSTEM FOR MINING PROCESSING AND METHOD THEREOF

(Pending)

   Japan  

December 23, 2019

Japanese Patent Application No. 2019-231598

   -   -   To perform efficient mining processing.
           

Flying object and

99 system

(Pending)

   Japan/PCT  

January 7, 2020

PCT/JP2020/000113

   -   -   Provided is a flying object capable of grasping the attitude of the flying object with higher accuracy.
           

CONTROL DEVICE FOR FLYING OBJECT AND OF FLYING OBJECT

Control method

(Pending)

   Japan/PCT  

January 7, 2020

PCT/JP2020/007269

   -   -   Provided are a flying object control device and a flying object control method wherein a passenger can easily perform a turning operation of the flying object.
           

Flight status control

99 system

(Pending)

   Japan  

January 17, 2020

Japanese Patent Application No. 2020-006242

   -   -   The situation of the flying object can be grasped.
           

Flying body

(Pending)

   Japan/PCT  

February 22, 2020

PCT/JP2020/007269

   -   -   Provided is a flying object capable of improving the degree of freedom of operation of the flying object while suppressing an increase in weight of the flying object.
           

IMAGE PROCESSING SYSTEM, PROGRAM, AND IMAGE PROCESSING METHOD

(Pending)

   Japan/PCT  

March 9, 2020

PCT/JP2020/009993

   -   -   Provided are an image processing system, program, and image processing method wherein a game can be easily enjoyed without being affected by image processing capability.

 

69

 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

POWER SUPPLY DEVICE FOR FLYING OBJECT

(Pending)

   Japan  

April 2, 2020

Japanese Patent Application No. 2020-066399

   -   -   Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude.
           

POWER SUPPLY DEVICE FOR FLYING OBJECT

(Acquired)

   Japan  

April 2, 2020

Japanese Patent Application No. 2020-066400

  

September 14, 2020

No. 6763592

   November 28, 2039   Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude.
           

Flying body

(Pending)

   Japan  

May 22, 2020

Japanese Patent Application No. 2020-090142

   -   -   Provided is a manned flying object as a new means of movement.
           

Power engine

(Pending)

   Japan  

May 22, 2020

Japanese Patent Application No. 2020-090141

   -   -   Provided is a manned flying object as a new means of movement.
           

Flying body

(Pending)

   Japan  

May 22, 2020

Japanese Patent Application No. 2020-090140

   -   -   Provided is a manned flying object as a new means of movement.
           

PROCESSING UNIT MANAGEMENT SYSTEM AND PROCESSING SPACE MANAGEMENT SYSTEM

(Pending)

   Japan   July 27, 2020 Japanese Patent Application No. 2020-126346   -   -   To efficiently operate a resource having processing capability.
           

Flying body

(Acquired)

   Japan  

August 4, 2020

Japanese Patent Application No. 2020-132127

  

August 19, 2021

No. 6931940

   July 7, 2037   Provided is a manned flying object as a new means of movement.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

September 14, 2020

Japanese Patent Application No. 2020-153999

  

June 17, 2021

No. 6899606

   March 25, 2037   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.

 

70
 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

September 14, 2020

Japanese Patent Application No. 2020-154001

  

June 17, 2021

No. 6899608

   March 25, 2037   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

September 14, 2020

Japanese Patent Application No. 2020-154000

  

June 17, 2021

No. 6899607

   March 25, 2037   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

September 14, 2020

Japanese Patent Application No. 2020-153998

  

June 17, 2021

No. 6899605

   March 25, 2037   Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo.
           

METHOD AND SYSTEM FOR IDENTIFYING FLYING OBJECT

(Pending)

   Japan   January 18, 2021 Japanese Patent Application No. 2021-005832   -   -   Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism.
           

Manned vehicle

(Acquired)

   Japan  

January 21, 2021

Japanese Patent Application No. 2021-008265

  

January 5, 2022

No. 7002793

   September 19, 2038   Provided is a manned flying object as a new means of movement.
           

INFORMATION PROCESSING DEVICE, METHOD, AND PROGRAM

(Acquired)

   Japan  

March 18, 2021

Japanese Patent Application No. 2021-044767

  

August 23, 2021

No. 6933417

   March 18, 2041   Provided are an information processing device, a method, and a program capable of notifying that the emission amount of an environmentally hazardous substance has been offset.

 

71
 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

Flying body

(Acquired)

   Japan  

August 10, 2021

Japanese Patent Application No. 2021-130766

  

January 5, 2022

No. 7002801

   July 7, 2037   Provided is a manned flying object as a new means of movement.
           

Anonymization system

(Pending)

   Japan  

November 4, 2021

Japanese Patent Application No. 2021-180042

   -   -   To improve anonymity when a service is provided by a flying object.
           
Disaster Drone System Using LoRa Network (Acquired)   Japan  

April 21, 2017

Japanese Patent Application No. 2017-084879

  

May 25, 2018

No. 6343366

   April 21, 2037   Disclosed is a technique for quickly collecting a wide range of information.
           

Using blockchain technology

Delivery box system

(Acquired)

   Japan  

August 7, 2017

Japanese Patent Application No. 2017-152734

  

July 6, 2018

No. 6363278

   August 7, 2037   Provided is a delivery method capable of safely delivering a package to a user.
           

Blockchain certified delivery boxes

(Acquired)

   Japan  

September 25, 2017

Japanese Patent Application No. 2017-184212

  

March 26, 2020

No. 6681861

   September 25, 2037   Technology related to a new delivery box is provided.
           

Spherical drone

(Acquired)

   Japan  

March 19, 2018

Japanese Patent Application No. 2018-050692

  

August 9, 2019

No. 6566585

   March 19, 2038   Provided is a flying object of a new shape.
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Acquired)

   Japan  

March 25, 2017

Japanese Patent Application No. 2017-060237

  

May 11, 2018

Article 6335354

   March 25, 2037   Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo.
           

Anonymization system

(Pending)

   Japan  

July 31, 2017

Japanese Patent Application No. 2017-147311

   -   -   Anonymization System by Drone Distribution

 

72
 

 

Name of patent right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of

registration

Registration

number

   Expiration date of
duration		   Contents and
features
           

DELIVERY METHOD AND DELIVERY SYSTEM

(Pending)

   Japan  

August 25, 2017

Japanese Patent Application No. 2017-162422

   -   -   Providing delivery methods that enable safe delivery of packages
           

Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN

(Pending)

   Japan  

April 19, 2018

Japanese Patent Application No. 2018-080594

   -   -   Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo.
                     

DELIVERY METHOD AND DELIVERY SYSTEM

(Pending)

   Japan  

June 28, 2018

Japanese Patent Application No. 2018-122555

   -   -   Distribution box system using blockchain
           

Flying body

(Pending)

   Japan  

December 11, 2020

Japanese Patent Application No. 2021-111668

   -   -   Explosion-proof drone
           

CONTROL SYSTEM FOR MANNED FLYING OBJECT, TERMINAL, AND PROGRAM

(Pending)

   Japan  

November 5, 2021

Japanese Patent Application No. 2021-181257

   -   -   Hoverbike operation status can be managed via user app, and the app can also be used to control automatic operation.
           
XTURISMO Hardware (Pending)   United States  

April 7, 2022

17/767054

   -   -   To improve the driving feel and ride quality of air vehicles that can carry passengers and move by surfacing from the ground.
           
XTURISMO Hardware (Pending)   Europe  

April 8, 2022

19948813.1

   -   -   To improve the driving feel and ride quality of air vehicles that can carry passengers and move by surfacing from the ground.
           
XTURISMO Hardware (Pending)   United States  

April 7, 2022

17/767055

   -   -   To improve the driving feel and ride quality of air vehicles that carry people and move from the ground to the air.
           
XTURISMO Hardware (Pending)   Europe  

April 8, 2022

19948841.2

   -   -   To improve the driving feel and ride quality of air vehicles that carry people and move from the ground to the air.
           

XTURISMO Hardware

(Pending)

   Japan  

March 3, 2022

2022-032517

   -   -   A pair of flaps can change the direction of the airflow generated by the lift-generating part of the hoverbike.
                     

XTURISMO Software

(Pending)

   Japan  

March 3, 2022

2022-032977

   -   -   A plurality of lift force generating sections, arranged at a plurality of positions in a plan view of the hoverbike to generate an air flow from above to below, and an attitude control unit to control the output generated from the plurality of lift force generating sections to suppress an increase in the inclination of the hoverbike when the inclination exceeds a predetermined threshold value The posture control unit and the input unit that accepts operation information by a passenger, wherein the posture control unit changes the tilt angle of the hoverbike at which the posture control is initiated according to the operation information received at the input unit.
           

XTURISMO Hardware

(Pending)

   Japan  

March 11, 2022

2021-550985

   -   -   Improved driving feel and ride comfort for hoverbike riders.
           

XTURIS

MO Hardware

(Pending)

   Japan  

March 11, 2022

2021-550987

   -   -   Ease of operation in hoverbike operation can be achieved.
           

XTURISMO Software

(Pending)

   Japan  

April 20, 2022

2021-569620

   -   -   More accurate determination of the hoverbike’s altitude.

 

73
 

 

List of Trademark Rights

 

Name of trademark right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of registration

Registration number

  

Expiration date of

duration

Speeder (Standard character)

(Acquired)

   EU  

March 8, 2019

2019-034948

  

March 25, 2019

1475983

   March 25, 2029
         

Speeder (Standard character)

(Pending)

   India  

March 25, 2019

2019-034948

   -   -
         

Speeder (Standard character)

(Acquired)

   Egypt  

March 8, 2019

2019-034948

  

March 25, 2019

1475983

   March 25, 2029
         

Speeder (Standard character)

(Pending)

   Qatar  

August 21, 2019

133846

   -   -
         

Speeder (Standard character)

(Acquired)

   UAE  

July 31, 2019

314852

  

October 13, 2019

314852

   July 31, 2029
         

Speeder (Standard character)

(Pending)

   South Africa  

July 10, 2019

2019/19118

   -   -
         

Speeder (Standard character)

(Pending)

   Ethiopia  

August 8, 2019

FTM/10891/19

   -   -
         

Speeder (Standard character)

(Pending)

   Malaysia  

July 23, 2019

TM2019026826

   -   -
         

Rendering Power Pool

(Standard character)

(Acquired)

   EU  

March 25, 2019

2019-035729

  

March 25, 2019

1477187

   March 25, 2029
         

Rendering Power Pool

(Standard character)

(Acquired)

   United States  

March 25, 2019

2019-035729

  

March 25, 2019

6303192

   March 25, 2029
         

Rendering Power Pool

(Standard character)

(Acquired)

   United States  

March 25, 2019

2019-035730

  

March 25, 2019

6055618

   March 25, 2029
         

Rendering Power Pool

(Standard character)

(Acquired)

   EU  

March 25, 2019

2019-035730

  

March 25, 2019

1477145

   March 25, 2029
         

XTURISMO

(Acquired)

   UAE  

April 27, 2020

329186

  

August 18, 2020

329186

   August 27, 2030

 

74
 

 

Name of trademark right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of registration

Registration number

  

Expiration date of

duration

XTURISMO

(Acquired)

   Hong Kong  

April 2, 2020

305240178

  

October 21, 2020

305240178

   April 2, 2030
         

XTURISMO

(Acquired)

   China  

January 30, 2020

1522501

  

January 30, 2020

1522501

   January 30, 2030
         

XTURISMO

(Acquired)

   Europe  

January 30, 2020

1522501

  

January 30, 2020

1522501

   January 30, 2030
         

XTURISMO

(Acquired)

   United States  

January 30, 2020

1522501

  

January 26, 2021

6253661

   January 30, 2030
         

XTURISMO

(Acquired)

   Singapore  

January 30, 2020

1522501

  

January 30, 2020

1522501

   January 30, 2030
         

XTURISMO

(Acquired)

   Macau  

April 22, 2020

N168092(022)

  

November 4, 2020

N168092(022)

   October 14, 2027
         

XTURISMO

(Acquired)

   Qatar  

April 26, 2020

138546

  

March 26, 2020

16144732

   March 25, 2030
         

Drone skyway

(Acquired)

   Japan  

November 10, 2017

2017-147756

  

July 27, 2018

6065110

   July 27, 2028
         

Drone highway

(Acquired)

   Japan  

November 10, 2017

2017-147757

  

July 27, 2018

6065111

   July 27, 2028
         

Speeder

(Acquired)

   Japan  

March 14, 2018

2018-030273

  

November 22, 2018

6100233

   November 22, 2028
         
Speeder-one (Acquired)   Japan  

March 14, 2018

2018-030274

  

November 22, 2018

6100234

   November 22, 2028
         

Airwing

(Acquired)

   Japan  

March 14, 2018

2018-030275

  

November 22, 2018

6100235

   November 22, 2028
         

Airwing-one

(Acquired)

   Japan  

March 14, 2018

2018-030276

  

November 22, 2018

6100236

   November 22, 2028
         

Aeris

(Acquired)

   Japan  

March 19, 2018

2018-032019

  

February 8, 2019

6120025

   February 8, 2029
         

cloud hash lending

(Acquired)

   Japan  

July 24, 2017

2018-094534

  

July 19, 2019

6163117

   July 19, 2029
         

SMARK

(Acquired)

   Japan  

July 24, 2018

2018-094535

  

February 25, 2020

6228920

   February 25, 2030
         
Aerial Lab Industrial Technologies (Acquired)   Japan  

December 17, 2018

2018-154071

  

October 25, 2019

6192220

   October 25, 2029

 

75
 

 

Name of trademark right

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of registration

Registration number

  

Expiration date of

duration

A. L. I. Technologies

(Acquired)

   Japan  

December 17, 2018

2018-154072

  

October 25, 2019

6192221

   October 25, 2029
         

Rendering as a Service

(Acquired)

   Japan  

March 7, 2019

2019-034361

  

March 3, 2020

6231855

   March 3, 2030
         

Speeder

(Acquired)

   Japan  

March 7, 2019

2019-034947

  

July 31, 2020

6275313

   July 31, 2030
         

Air-Speeder

(Acquired)

   Japan  

March 7, 2019

2019-034945

  

August 7, 2020

6278071

   August 7, 2030
         

Air-wing

(Acquired)

   Japan  

March 7, 2019

2019-034946

  

August 7, 2020

6278072

   August 7, 2030
         

Sky-wing

(Acquired)

   Japan  

March 7, 2019

2019-034944

  

August 7, 2020

6278070

   August 7, 2030
         

Speeder

(Acquired)

   Japan  

March 8, 2020

2019-034948

  

August 7, 2020

6278073

   August 7, 2030
         

Rendering Power Pool

(Acquired)

   Japan  

March 11, 2019

2019-035729

  

February 27, 2020

6230219

   February 27, 2030
         

Computing Power Pool

(Acquired)

   Japan  

March 11, 2019

2019-035730

  

February 27, 2020

6230220

   February 27, 2030
         

Bullet Render

(Acquired)

   Japan  

June 21, 2019

2019-087083

  

August 27, 2020

6284895

   August 27, 2030
         

A.L.I. WORKS

(Acquired)

   Japan  

October 1, 2019

2019-128057

  

October 23, 2020

6307727

   October 23, 2030
         

XTurismo

(Acquired)

   Japan  

September 10, 2019

2019-120097

  

November 11, 2020

6315082

   November 11, 2030
         

XTURISMO

(Acquired)

   Japan  

November 14, 2019

2019-144396

  

March 3, 2020

6232082

   March 3, 2030
         

XTURISMO (Script Logo)

(Acquired)

   Japan  

June 10, 2021

2021-072109

  

January 4, 2022

6494442

   January 4, 2032
         

XTURISMO (Logo)

(Acquired)

   Japan  

June 10, 2021

2021-072110

  

January 4, 2022

6494443

   January 4, 2032
         

Owned Media

(Pending)

   Japan  

November 15, 2019

2019-144976

   -   -

 

76
 

 

List of Design Rights

 

Name of Design

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of registration

Registration number

  

Expiration date of

duration

Air-Mobility

(Pending)

   China  

October 29, 2021

202130709465.5

   -   -
         

Air-Mobility

(Pending)

   United States  

November 25, 2021

29/816653

   -   -
         

Shared Computing System

(Acquired)

   Japan  

June 4, 2018

2018-012216

  

May 10, 2019

1633188

   May 10, 2023
         

Air-Mobility

(Acquired)

   Japan  

October 3, 2018

2018-021740

  

April 19, 2019

1631716

   April 19, 2023
         

Air-Mobility

(Acquired)

   Japan  

August 28, 2019

2019-019010

  

April 28, 2020

1660004

   April 28, 2023
         

Drone

(Pending)

   Japan  

April 21, 2020

2020-008195

   -   -
         

Drone

(Acquired)

   Japan  

January 25, 2021

2021-001399

  

August 13, 2021

1693978

   August 13, 2023
         

Air-Mobility

(Acquired)

   Japan  

May 25, 2021

2021-011003

  

November 17, 2021

1701536

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013462

  

November 17, 2021

1701540

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013463

  

November 17, 2021

1701541

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013464

  

November 17, 2021

1701578

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013465

  

November 17, 2021

1701542

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013466

  

November 17, 2021

1701543

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013467

  

November 17, 2021

1701544

   November 17, 2023

 

77
 

 

Name of Design

(Acquired or Pending)

   Country  

Date of application

Application Number

  

Date of registration

Registration number

  

Expiration date of

duration

Air-Mobility

(Pending)

   Japan  

June 22, 2021

2021-013468

   -   -
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013469

  

November 17, 2021

1701545

   November 17, 2023
         

Air-Mobility

(Pending)

   Japan  

June 22, 2021

2021-013470

   -   -
         

Air-Mobility

(Pending)

   Japan  

June 22, 2021

2021-013471

   -   -
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013472

  

April 25, 2022

1714229

   April 25, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013473

  

November 17, 2021

1701546

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013474

  

November 17, 2021

1701547

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013475

  

November 17, 2021

1701548

   November 17, 2023
         

Air-Mobility

(Acquired)

   Japan  

June 22, 2021

2021-013476

  

November 17, 2021

1701549

   November 17, 2023

 

COVID-19

 

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The pandemic has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. As of the date of this prospectus, the extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted.

 

Recent Developments

 

Closing of Business Combination

 

We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).

 

Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono common stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ common stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”

 

78
 

 

After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ common stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.

 

As a result of the Merger and the Business Combination, holders of Pono common stock automatically received common stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A common stock and shares of Class B common stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ common stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies common stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies common stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies common stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies common stock.

 

At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.

 

Lock-up Agreements

 

In connection with the Business Combination, certain stockholders of AERWINS, Inc. and certain of AERWINS’, Inc. officers and directors (such stockholders, the “Company Holders”) entered into a lock-up agreement (the “Lock-up Agreement”) pursuant to which they are contractually restricted, during the Lock-up Period (as defined below), from selling or transferring any of (i) their shares of AERWINS common stock held immediately following the closing and (ii) any of their shares of AERWINS common stock that result from converting securities held immediately following the closing (the “Lock-up Shares”). The “Lock-up Period” means the period commencing at closing and end the earliest of: (a) six months from the closing (or, in the case of Shuhei Komatsu, AERWINS’ Chief Executive Officer, thirty months from the closing), (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00.

 

The Sponsor is subject to a lock-up pursuant to a letter agreement (the “Sponsor Lock-up Agreement”), entered into at the time of the IPO (as defined below), among Pono, the Sponsor and the other parties thereto, pursuant to which the Sponsor is subject to a lock-up beginning on the Closing and end the earliest of: (a) six months from the Closing, (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of the Company’s common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00. “IPO” means Pono’s public offering of 10,000,000 units (the “Units”) at $10.00 per Unit, generating gross proceeds of $100,000,000, which was consummated on August 13, 2021.

 

79
 

 

Indemnification Agreements

 

On February 7, 2023, AERWINS Technologies entered into indemnification agreements, with each of AERWINS Technologies’ directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements will require AERWINS Technologies, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

Non-Competition and Non-Solicitation Agreements

 

Following execution of the Merger Agreement, certain significant stockholders of AERWINS, Inc. entered into non-competition and non-solicitation agreements (the “Non-Competition and Non-Solicitation Agreements”), pursuant to which they agreed not to compete with Pono, AERWINS, Inc. and their respective subsidiaries during the two-year period following the Closing and, during such two-year restricted period, not to solicit employees or customers or clients of such entities. The Non-Competition and Non-Solicitation Agreements also contain customary non-disparagement and confidentiality provisions.

 

Registration Rights Agreements

 

At the closing of the Business Combination, certain significant stockholders of AERWINS, Inc. entered into a registration rights agreement with Pono providing for the right to three demand registrations, piggy-back registrations and shelf registrations with respect to the Merger Consideration shares.

 

Purchaser Support Agreement

 

Simultaneously with the execution of the Merger Agreement, the Purchaser Representative entered into a support agreement (the “Purchaser Support Agreement”) in favor of Pono and AERWINS, Inc. and their present and future successors and subsidiaries. In the Purchaser Support Agreement, the Purchaser Representative agreed to vote all equity interests in Pono in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Purchaser Support Agreement also prevents the Purchaser Representative from transferring its voting rights with respect to equity interests in Pono or otherwise transferring equity interests in Pono prior to the meeting of Pono’s stockholders to approve the Merger Agreement and related transactions, except for certain permitted transfers.

 

Voting Agreement

 

Simultaneously with the execution of the Merger Agreement, certain stockholders of AERWINS, Inc. entered into a voting agreement (the “Voting Agreement”) in favor of Pono and AERWINS, Inc. and their present and future successors and subsidiaries. In the Voting Agreement for certain stockholders of AERWINS, they each agreed to vote all of their AERWINS, Inc. stock interests in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Voting Agreement also prevents them from transferring their voting rights with respect to their AERWINS, Inc. stock or otherwise transferring their AERWINS stock prior to the AERWINS, Inc. approval of the Merger Agreement and related transactions, except for certain permitted transfers.

 

Executive Employment Agreements

 

On February 3, 2023, the Company entered into employment agreements (the “Employment Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer). The Employment Agreements all provide for at-will employment that may be terminated by the Company for death or disability and with or without cause, by the executive with or without good reason, or mutually terminated by the parties. The Employment Agreements for Mr. Komatsu, Mr. Ito, Mr. Miura, and Mr. Okabe provide for a severance payment equal to the remaining base salary for the remaining period of the respective term of employment (each term is one (1) year) upon termination by the Company without cause or termination by such executive for good reason. The executive agreements provide for a base salary of $200,000, $200,000, $200,000 and $200,000 for Mr. Komatsu, Mr. Ito, Mr. Miura and Mr. Okabe, respectively, as well as possible annual performance bonuses and equity grants under the equity incentive plan if and when determined by the Company’s Compensation Committee.

 

80
 

 

Option Award Agreements

 

On February 3, 2023, the Company entered into Option Award Agreements (the “Option Award Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer).

 

The Option Award Agreements grants to each of the following persons options to acquire shares of the Company’s common stock, to vest as set forth in the Option Award Agreements, as follows:

 

● Shuhei Komatsu - 1,525,196 options at an exercise price of $0.00015 per share of common stock
   
● Taiji Ito - 703,937 options at an exercise price of $0.00015 per share of common stock
   
● Kazuo Miura - 739,916 options at an exercise price of $0.00015 per share of common stock
   
● Kensuke Okabe - 469,291 options at an exercise price of $0.00015 per share of common stock

 

Stock Purchase Agreement

 

On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate 3,196,311 shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 shares of common stock of the Company (the “Company Shares”) upon the consummation of the Business Combination in exchange for an aggregate sum of $5,000,000 (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Company Shares, and the Company Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 (Registration No. 333-268625) which was declared effective by the Securities and Exchange Commission on January 13, 2023.

 

Standby Equity Purchase Agreement

 

On January 23, 2023 (the “Effective Date”), Pono entered into a Standby Equity Purchase Agreement (the “SEPA”) with Lind Global Fund II LP, (“Lind Global”). The Company and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of the Company’s shares of common stock, par value $0.000001 per share (the “Common Shares”) at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 96% or 97% (depending on the type of notice) of the Market Price (as defined below) and would be subject to certain limitations, including that Lind Global could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. “VWAP” means, for any trading day, the daily volume weighted average price of the Common Shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.

 

Pursuant to the SEPA, the Company is required to register all shares which Lind Global may acquire. The Company agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to Lind Global pursuant to the SEPA. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. The Company may not issue more than 19.99% of its shares issued and outstanding as of the Effective Date without first receiving shareholder approval for such issuances, unless such additional shares may be issued consistent with the rules and regulations of the Nasdaq Stock Market. Pursuant to the SEPA, the use of proceeds from the sale of the shares by the Company to Lind Global shall be used by the Company in the manner as will be set forth in the prospectus included in the Registration Statement (and any post-effective amendment thereto) and any prospectus supplement thereto filed pursuant to the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid Lind Global II SPV, LLC, a subsidiary of Lind Global, a structuring fee in the amount of $15,000, and, on the Effective Date, the Company agreed to issue to Lind Global shares with aggregate value equal to one million dollars, as a commitment fee.

 

Lind Global has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our common stock during any time prior to the public disclosure of the SEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36-month anniversary of the Effective Date or (ii) the date on which the Lind Global shall have made payment of Advances (as defined in the SEPA) pursuant to the SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).

 

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JV Agreement

 

On February 6, 2023, the Company and its wholly owned subsidiary’ AERWINS, Inc., wholly owned subsidiary, A.L.I. Technologies Inc. (“ALI”) entered into a Joint Venture Agreement (the “Agreement”) with Vault Investments LLC, an investment and consulting company registered in Dubai and based in the United Arab Emirates (“U.A.E.”) which is involved in investment consultancy and fundraising services (“VAULT”). Pursuant to the Agreement, the parties agreed to set forth and define each other’s roles, responsibilities and obligations to develop the ALI business solutions in the U.A.E. and Gulf Cooperation Counsel (“GCC”) region. The GCC includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Pursuant to the Agreement, ALI and VAULT agreed to establish a new joint venture company in Dubai, U.A.E. (the “JV Entity”) which will be the official partner and supplier of the ALI business solutions and products for the UAE and GCC region.

 

Pursuant to the Agreement, VAULT agreed, together with its strategic partners, to start a technical and financial analysis of the XTURISMO Limited Edition product and different business solutions of ALI (the “Products”), and present it to potential investors and partners in the U.A.E. and GCC region, and to introduce potential investors, partners and clients to ALI, as well as draft contracts and negotiate fees and structure the business set up of the JV Entity as well as to draft and negotiate contracts and memorandums of understanding for the different business opportunities provided, for VAULT or its affiliated companies or companies that are referred to by VAULT to invest in the JV Entity and to select and facilitate office and factory locations.

 

Pursuant to the Agreement, ALI agreed to be responsible for providing any technical, financial, strategic and corporate documents to VAULT to assist with VAULT’s duties under the Agreement and further agreed to be responsible for the fee payments to VAULT under the Agreement, and be ready, willing and able to open the JV Entity in the U.A.E. with VAULT and to transfer to the JV Entity selected IP and technology (the “IP”) as a substitute of capital with the parties agreeing that the IP can be still also be used by ALI and its affiliates and for ALI to be ready, willing and able to attend any meeting, physical or virtual with VAULT to be presented to potential investors, partners of clients introduced by VAULT.

 

Pursuant to the Agreement, the parties also agreed to create a working group to be called the VAULT and ALI Development Committee to review, evaluate and analyze existing documents related to business opportunities, consisting of three (3) members from VAULT and three (3) members from ALI.

 

Pursuant to the Agreement, the parties agreed that all costs and expenses in connection with the negotiations, preparation, execution and performance under the Agreement will be borne by the JV Entity. The parties also agreed that the JV Entity will be structured to be owned 49% by ALI and 51% by VAULT, with the terms and conditions of the JV Entity to be discussed and agreed on separately between the parties and to be evidenced under a memorandum of association when forming the JV Entity.

 

Additionally, the parties agreed that ALI will be the sole supplier of the parts necessary to manufacture the Products and that ALI will be entitled to receive 5% of the total sales of the JV Entity as a software license fee and VAULT will be entitled to receive 5% of the total sales of the JV Entity as consulting fees.

 

The term of the Agreement is for a period of three (3) months after the completion of the first phase of consultancy under the Agreement, and thereafter if agreed between the parties may continue for an additional twelve (12) months from the date of which either party gives written notice of termination of the Agreement to the other party. Any disagreements under the Agreement are to be settled by an arbitration committee formed by the parties to consist of two (2) members and a chairman which will be nominated and approved by the two (2) members and by each party respectively.

 

Edison Award Nomination

 

The XTURISMO has been selected as a finalist for the 2023 Edison Awards in the AEROSPACE & FLIGHT TECHNOLOGIES field in the Air Mobility category. Finalists are selected by a peer-related voting body, made up of top executives, academics, and innovation leaders from across the globe. The gold, silver and bronze winners will be announced at the 2023 Edison Awards Gala in Fort Myers, Florida on April 20, 2023.

 

Loan Agreement

 

On February 27, 2023, the wholly owned subsidiary of the Company’s wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“A.L.I.”) entered into a Loan Agreement with Shuhei Komatsu, the Company’s former Chief Executive Officer (the “Agreement”). The Agreement was approved by the Company’s Board of Directors on February 26, 2023 and by the Company’s Compensation Committee on February 26, 2023. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,469,400 US Dollars based on a conversion rate of $0.007347 US Dollar for each $1 yen as of February 27, 2023) (the “Loan”). The maturity date of the Loan under the Agreement is April 15, 2023 (the “Maturity Date”). The interest rate under the Agreement is 2.475% per annum (calculated on a pro rata basis for 365 days a year), and the interest period is from February 27, 2023 until the Maturity Date.

 

If any of the following events occur while the Loan is outstanding, the Loan will become immediately due and payable together with all interest thereon: (i) if payment is suspended or bankruptcy proceedings are initiated against A.L.I., (ii) if A.L.I. initiates legal proceedings related to debt reorganization involving court intervention or when facts are recognized as having occurred that payment has been suspended, (iii) if provisional seizure, preservation seizure, seizure order, or delinquent disposition is received by A.L.I., (iv) if A.L.I. is delayed in make any payments under the Agreement, (v) if A.L.I. violates any provisions of the Agreement or (vi) upon the occurrence of any equivalent reasons requiring the preservation of the right to claim arise in addition to the foregoing. Pursuant to the Agreement, if A.L.I. does not timely repay the Loan in accordance with the terms of the Agreement, the interest rate on the Loan will increase to 14.6% per annum until the full payment is made. Under the Agreement, for any litigation arising under the Agreement, regardless of the amount or claim, the exclusive court of jurisdiction will be the Tokyo District Court.

 

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Summary of Lind Global Financing

 

On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).

 

The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.

 

The Convertible Note issued in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).

 

Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”).

 

The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.

 

Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.

 

In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.

 

In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023] of $0.70 per share.

 

The Purchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations by each party, including our agreement to refrain from engaging in certain “Prohibited Transactions” as defined in the Purchase Agreement, to hold a special meeting of shareholders for the purpose of obtaining shareholder approval of the Transactions, certain events giving rise to a default under the Convertible Notes, obligations to use the proceeds from certain future financings to repay a portion of the principal amount of the Convertible Notes, our pledge to the Selling Securityholder of the ownership interests in our subsidiaries, a grant by us and our subsidiaries of a security interest in all of their respective assets and rights as collateral for the obligations due under the Convertible Notes, and a guaranty by our subsidiaries of our obligations under the Convertible Notes.

 

83
 

 

Officer and Director Changes

 

On March 20, 2023, Shuhei Komatsu resigned from his positions as Chief Executive Officer and Director and Chairman of the Board of the Company. Mr. Komatsu previously served as the Company’s Chief Executive Officer and a Director and Chairman of the Company since February 3, 2023. Mr. Komatsu’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

On March 20, 2023, the Company’s Board of Directors appointed Taiji Ito to serve as Chief Executive Officer of the Company. Mr. Ito also serves as the Company’s Global Markets Executive Officer and as a Director of the Company, and has served in such capacities since his appointment to those positions on February 3, 2023.

 

On March 22, 2023, the Company’s Board of Directors appointed Daisuke Katano to fill the vacancy on its Board of Directors created upon Mr. Komatsu’s resignation to serve as a Director of the Company, and on the same date also appointed Mr. Katano to serve as the Company’s Chief Operating Officer.

 

On March 22, 2023, the Company’s Board of Directors appointed Marehiko Yamada to serve as the Chairman of the Board of Directors. Mr. Yamada was appointed as an independent director of the Company on February 3, 2023. On March 22, 2023, the Company’s Board of Directors also appointed Dr. Sayama to serve as the Vice-Chair of the Board of Directors. Dr. Sayama was appointed as an independent director of the Company on February 3, 2023. On March 22, 2023, the Company’s Board of Directors also appointed Kensuke Okabe to serve as Secretary of the Company. Mr. Okabe was appointed as the Company’s Chief Financial Officer on February 3, 2023.

 

On March 22, 2023, the Company’s Board of Directors also appointed Mr. Yamada as the Chair of the Company’s Compensation Committee and appointed Mike Sayama as the Chair of the Company’s Nominating and Corporate Governance Committee. Dr. Sayama previously served as the Chair of the Company’s Compensation Committee from February 3, 2023 to March 22, 2023. Mr. Yamada previously served as the Chair of the Company’s Nominating and Corporate Governance Committee from February 3, 2023 to March 22, 2023.

 

On March 27, 2023, the Board approved the removal of Kazuo Miura as the Company’s Chief Product Officer. Mr. Miura served as the Company’s Chief Product Officer since his appointment to this position on February 3, 2023. Mr. Miura’s removal was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

Memorandum of Understanding

 

On March 17, 2023, the Company entered into a Memorandum of Understanding (the “MOU”) with Outsourcing Inc. (“OSI”). Pursuant to the MOU, OSI agreed to invest up to 300,000,000 yen (approximately $2.3 million USD) (the “Investment”) in a planned joint venture (“JVC”) between the Company, either directly or through the Company’s wholly owned subsidiary AERWINS Inc., or its wholly owned subsidiary A.L.I. Technologies Inc. (“A.L.I.”) with Vault Investments LLC (“Vault”).

 

OSI is only required to make the Investment in the JVC, if the following conditions are met by April 30, 2023:

 

(1) The JVC is established with the investment of the Company, Vault and OSI;

 

(2) The terms and conditions of the shareholders’ agreement or the investment agreement have been negotiated between the Company, Vault and OSI and executed (the “Definitive Agreement”); and

 

(3) In the Definitive Agreement, Vault must be obligated to invest in the JVC.

 

Pursuant to the MOU, if OSI becomes obligated to make the Investment in the JVC, the currency of the Investment and base date for the exchange rate will be determined in the Definitive Agreement.

 

The MOU is effective from the date of entry until April 30, 2023 (the “Term”). Pursuant to the MOU, If the Definitive Agreement is not executed by the end of the Term, OSI will not be obligated to make the Investment in the JVC. Pursuant to the MOU, all disputes in connection with the MOU will be settled by arbitration in accordance with the Commercial Arbitration Rules of the Japan Commercial Arbitration Association in Tokyo Japan.

 

84
 

 

Effects of Inflation

 

AERWINS has not been affected by inflationary pressure as our parts supply has been predominantly limited to within Japan. Japan, relative to other nations, has not experienced inflationary pressures and furthermore, our production number has been limited and the price point being high allows enough cushion if the procurement cost were to be affected in the future.

 

Employees

 

Prior to the closing of the Business Combination, at December 31, 2022, the Company had three executive officers and the Company did not have any full-time employees prior to the completion of the Business Combination.

 

We have 103 employees as of March 31, 2023. Of these, 76 are full-time, contract, and short-time regular employees, and 27 are part-time, temporary, or other temporary employees. Since the Company operates in a single segment of the air mobility business, segment information is omitted. The average age of employees is 37.6 years old and the average length of service is 2 years. No labor union has been formed, but labor-management relations are amicable.

 

Our wholly owned subsidiary’s AERWINS, Inc., a Delaware corporation, wholly owned Japanese subsidiary, A.L.I. Technologies, Inc. is covered by various employee social security systems organized by the government, including health insurance, unemployment insurance, pension insurance, and medical insurance, in accordance with the laws and regulations in Japan.

 

We typically enter into standard employment and confidentiality agreements with our key employees. In addition, we enter into confidentiality and non-compete agreements with senior management and intellectual property assignment agreements with core technical personnel.

 

Our success depends on our ability to attract, retain and motivate qualified employees that share our values and vision. We believe that we maintain a good working relationship with our employees. As of the date of this prospectus, we have no material labor disputes and we believe that we maintain a good working relationship with our employees.

 

Facilities

 

Prior to the closing of the Business Combination, the Company’s executive offices were located at 643 Ilalo Street, Honolulu, Hawaii 96813 and its telephone number was (808) 892-6611. The Company agreed to pay Mehana Equity LLC, its sponsor at the time, a total of $10,000 per month for the office space, utilities and secretarial and administrative support and the use of this office location is included in such $10,000 monthly payment. For the year ended December 31, 2022, and for the period from February 12, 2021 (inception) through December 31, 2021, the Company incurred expenses of $120,000 and $47,096, respectively, under this agreement. Upon completion of our Business Combination, the Company ceased paying these monthly fees.

 

After the closing of the Business Combination, our headquarters is located at Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome, Minato-ku, Tokyo, Japan 105-0011, where we lease and occupy our office space with an aggregate floor area of approximately 340 square meters from unrelated third parties under operating lease agreements. Our manufacturing and shipping facility is located at 1-2-11 Fukamidai, Yamato-shi, Kanagawa. Our testing facilities is located at 72 Misawa, Minobu-cho, Minami Koma-gun, Yamanashi.

 

As of the date of this prospectus we do not currently own any of our facilities. The following table shows the location of our primary leased facilities, the name of the entity leasing the building, the annual rent, approximate square footage, primary use, and lease expiration date.

 

We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate our future growth. There are no major facilities currently inactive. Annual rent below does not include consumption tax.

 

85
 

 

Name of Firm

(Location)

   Name of
company lending		   Primary Use   Annual rent
(Thousands
of yen and US
dollars)		     Approximate Size
in Square Meters		     Lease Expiration
Date		  
Head Office                                
(Shibakoen, Minato-ku, Tokyo)   Mori Trust Co.   Head office    

16,694 yen

(approximately $115.36 USD

 

 

)

     340.64       March 31,
2024
 
Noda Firm                                
(Noda City, Chiba Prefecture)   Amenix Co.   Data Center    

8,040 yen

(approximately $55.56 USD

 

 

)

     1,001.00       December 13,
2024
 
Hiratsuka Firm                                
(Hiratsuka City, Kanagawa Prefecture)   Mitsuwa Chemical Co.   Data Center    

3,360 yen

(approximately $23.21 USD

 

 

)

     195.96       August 31,
2023
 
Kawaguchi Firm                                
(Kawaguchi City, Saitama Prefecture)   Shioka Kiko Co.   Data Center     2,880 yen       166.16       August 10,
2025
 
Yamato Technology Center             (approximately $19.90 USD )                
(Yamato City, Kanagawa Prefecture)   Omiya Warehouse Co.   R&D & Experimentation; Manufacturing; Shipping    

22,418 yen

 

(approximately $154.90 USD

 

 

)

     1,273.03       October 31,
2025
 
Minobu Testing Center                                
(Minobu City, Yamanashi Prefecture)   Minobu City   Testing Center    

1,850 yen

 

(approximately $12.78 USD

 

 

)

     3,720       April 30,
2025
 

 

Insurance

 

We maintain various types of insurance, employer’s liability insurance, to protect assets in the event of any accident that might cause significant losses. We also purchase insurance policies that are either legally compulsory or required by our customers. For example, we maintain third-party liability insurance for unmanned AMVs. We have civil liability insurance with coverage and conditions that our management considers appropriate. For example, we maintain product liability insurance, which covers bodily injury or property damage caused by defects in our products. We believe that our insurance coverage is adequate to cover our key assets, facilities and liabilities.

 

Government Regulation

 

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.

 

We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. As described below, in the jurisdictions relevant to us, the use and delivery of our AMVs are, and in the near future are expected to continue to be, subject to an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of AMV-related regulations and the lack of relevant precedents. For example, we are not aware of any operator having been granted all required approvals for the operation of AMVs in Japan, the United States or elsewhere. We cannot predict when these regulations will change, and any new regulations may impose onerous requirements and restrictions.

 

As we sell our AMV products internationally, we face challenges in quickly and sufficiently familiarizing ourselves with foreign regulatory environments and policy frameworks. If any new regulation is put in place, or a different interpretation of existing regulation is adopted, our ability to manufacture, market, sell or operate our AMVs or to advertise or deliver air mobility solutions in general may be limited or otherwise affected. Failure to comply with applicable regulations or to obtain, maintain or renew the necessary permits, licenses, registrations or certificates could cause delays in, or prevent us from, manufacturing, marketing, selling and operating our AMVs products, meeting product demand and expectations, introducing new products or expanding our service coverage, and could materially and adversely affect our operation results. If we are found to be in violation of applicable laws or regulations, we could be subject to administrative punishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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Sales of our AMVs must comply with applicable standards in the market where they are sold, including standards on design, manufacturing and operation. In Japan, for example, certain components of our AMVs must pass various tests and meet criteria specified in Product safety guideline issued by the Ministry of Economy, Trade and Industry in Japan. We have met the applicable requirements in the guideline and obtained approval of export with Certificate of Non-applicability. Currently, there are 193 members or contracting states in the International Civil Aviation Organization (“ICAO”), which is governed by the ICAO Council, which is composed of 36 member states including the United States. Pursuant to ICAO policy we believe that our product will not be considered an aircraft in the United States. However, the future commercial use of our product in the United States may be restricted by various regulations at the federal and state levels, as well as private regulations, such as the prohibition of private mobility near airports, which may prevent the use of our product. Future changes in laws and regulations may also make it impossible to use our product in the ways that are currently planned. Although the United States is a member of the ICAO Council, in the United States, the FAA oversees the safety of aircraft operations in the national airspace system and has the authority to grant airworthiness certificates and related exemptions to unmanned aircraft systems. If we fail to have our AMVs satisfy applicable aerial vehicle standards in any jurisdiction where we operate, our business and operating results would be adversely affected. To achieve a high level of safety assurance, we have also established our own AMV safety standards. While we are committed to producing safe and high-quality products, there can be no assurance that our safety technology will be effective in preventing incidents related to product safety, such as accidents involving our AMVs. Failure to ensure the safe operation of our AMVs will affect our reputation and the sales of our AMVs, which will ultimately adversely affect our business operation and financial results.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct our business or sell our products, including the Japanese anti-corruption laws and regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act 2010 also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. The Japanese anti-corruption laws and regulations prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection with the implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.

 

We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.

 

Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.

 

Japan Regulation

 

Our air mobility business includes the manned air mobility domain, the unmanned air mobility domain, the computing power sharing domain, and the human resource technology domain. An overview of the laws, regulations, administrative guidance, and supervisory authorities related to each of these domains is provided below. We are promoting our business in compliance with these relevant laws and regulations. At present, there are no matters that have been pointed out or guidance given by the supervisory authorities.

 

87
 

 

Manned Air Mobility Domain

 

Related Laws
and Regulations		   Business-related Content  

Supervising

 

Government Agency

  

Qualified

 

Persons

Civil Aeronautics Law   The purpose of this Act is to promote the development of aviation and to promote the public welfare by providing for safe navigation of aircraft and methods to prevent obstructions arising from the navigation of aircraft, and by ensuring the proper and reasonable operation of business conducted by operating aircraft, in accordance with the provisions of the Convention on   Ministry of Land, Infrastructure, Transport and Tourism   N/A
       
    International Civil Aviation and the standards, systems and procedures adopted as annexes thereto, and by securing the safety of transportation. The purpose of the Act is to promote the development of aviation and the public welfare by providing for the safety of aircraft navigation and methods for preventing obstructions caused by the navigation of aircraft, and by ensuring the proper and reasonable operation of businesses operating aircraft, and by promoting the convenience of users.        
       
    We recognize that hoverbikes are not considered aircraft under the Civil Aeronautics Law because their levitation performance is within the range of the ground effect. In the event that the same applies overseas, we will check with the relevant authorities in each country at the time of sale and proceed with our business in compliance with laws and regulations.        
       
Road Traffic Law  

The purpose of this law is to prevent hazards on roads, to ensure the safety and smoothness of other traffic, and to contribute to the prevention of obstacles caused by traffic on roads.

 

 

 

As a mobility vehicle that travels near the ground, it is expected to be subject to the Road Traffic Law when used on a road (public road) under the Road Traffic Law, in which case it will be subject to regulations under the Law.

   National Police Agency   N/A

 

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Unmanned Air Mobility Domain

 

Related Laws
and Regulations		   Business-related Content  

Supervising

 

Government Agency

  

Qualified

 

Persons

Civil Aeronautics Law   The purpose of this Act is to promote the development of aviation and to promote the public welfare by providing for safe navigation of aircraft and methods to prevent obstructions arising from the navigation of aircraft, and by ensuring the proper and reasonable operation of business conducted by operating aircraft, in conformity with the provisions of the Convention on International Civil Aviation and the standards, systems and procedures adopted as annexes thereto, and by securing the safety of transportation. The purpose of the Civil Aeronautics Law is to promote the development of aviation and the public welfare by providing for the safety of aircraft navigation and methods for preventing obstructions caused by aircraft navigation, and by ensuring the proper and reasonable operation of businesses that operate aircraft, and by promoting the convenience of its users.   Ministry of Land, Infrastructure, Transport and Tourism   N/A
       
    With respect to the Civil Aeronautics Law, which regulates drone flights, we have obtained permission and approval under the Law when we fly drones in the Saiji area, which is a no-fly zone for drones, and when we fly drones without following the prescribed procedures.        
       
Law Concerning the Prohibition of Flying by Small Unmanned Aircraft and Other Means  

The purpose of this law is to prohibit small unmanned aircraft, etc. from flying over the National Diet Building, the Prime Minister’s Official Residence and other important national facilities, foreign diplomatic missions, defense-related facilities, airports, and areas surrounding nuclear power plants, thereby preventing danger to these important facilities and contributing to the maintenance of the central functions of the national government, good international relations, the infrastructure for the defense of Japan, and the infrastructure for national life and economic activities. The purpose of this prohibition is to prevent danger to these important facilities and thereby contribute to the maintenance of the central functions of the national government, good international relations, the foundation for the defense of Japan, and the infrastructure of the people’s lives and economic activities, as well as to public safety.

 

The law prohibits the flight of small unmanned aircraft, etc. over important national facilities, etc. and the surrounding area of approximately 300 meters. When we fly our drones, we are committed to flying in compliance with this law.

   National Police Agency   N/A
       
Radio Law   The purpose of this law is to promote the public welfare by ensuring the fair and efficient use of radio waves. Depending on the radio band used for drones, qualifications and the opening of radio stations, etc., based on this law may be required. At present, this is not a requirement, but if it becomes necessary in the future, we will promote our business in compliance with the Act.   Ministry of Internal Affairs and Communications  

Land Special Radio Engineer (Level 3 or above)

 

There is no particular requirement for the number of applicants at each location.

 

Amateur Radio Technician (Level 4 and above)

 

There is no special requirement for the number of applicants at each location.

       
Prefectural and Municipal Ordinances   In addition to the above, some local ordinances may impose descriptions by local governments in some areas.   Each local government   N/A

 

There are no significant laws and regulations in the computing power sharing domain. In addition, there are no matters other than legal regulations or administrative guidance that have a significant impact on the industry that should be noted.

 

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UAE Regulation

 

In the United Arab Emirates (the “UAE”), UAE Federal Laws establish the General Civil Aviation Authority (the “GCAA”) which is the authority that governs all civil aviation activities in the UAE. The GCAA has implemented the CAR-UAM to specify the requirements to be met for civil aviation activities in the UAE as well as the grant of an Urban Air Mobility (“UAM”) operator certificate and for the continued validity of such certificate. The CAR-UAM regulations apply to aircraft with a pilot on board as well as remotely piloted aircraft. The CAR-UAM represent the minimum requirements designed to achieve an acceptable level of safety and security for urban air mobility activities in the UAE.

 

Under the CAR-UAM, there are three levels of compliance (i) implemented rules (“IR”) which are binding and used to specify a high and uniform level of safety and uniform conformity and compliance (ii) acceptable means of compliance (“AMC”) which serve as guidance by which the requirements contained in the IR can be met and (iii) guidance material (“GM”) which are non-binding explanatory and interpretation materials on how to achieve the requirements contained in the IRs and the AMCs. Additionally, under the CAR-UAM there are alternative means of compliance (“AMOC”) to the AMC’s and may be used by an organization to establish compliance with the CAR-UAM. In order to do so however, an organization would have to first provide the GCAA with a full description of its proposed AMOC which must include any relevant manuals and procedures and an assessment demonstrating compliance with the CAR-UAM. AMOCs can only be implemented if approved in advance by the GCAA. The CAR-UAM also provides that the International Civil Aviation Organization (“ICAO”) protocols and agreements pertaining to civil aviation and its protection, of which the UAE is a party, will only be considered complementary to the provisions of the CAR-UAM in as much as they do not contradict its provisions.

 

Under the IR’s an urban air mobility operation includes: (i) flights operating primarily in close proximity of populated urban areas, for the carriage by air of passengers, freight or mail, or any combination thereof for remuneration and (ii) where the aircraft used is an Urban Air Mobility Vehicle (“UAMV”), which may be operated with a pilot on-board, remotely piloted or with various degrees of autonomy. Under the CAR-UAM, no organization or person is permitted to conduct any urban air mobility operations in the UAE unless approved by the GCAA under the CAR-UAM. In order to obtain an Urban Air Mobility Operator Certificate or an amendment to an existing certificate, an applicant must demonstrate compliance with the CAR-UAM to the satisfaction of the GCAA. In order to obtain the certificate, an organization must also show to the GCAA that the granting of such a certificate is not contrary to the interests of aviation safety. The application must be submitted through the GCAA E-Service system, and must include the following documentation:

 

  ● Operator’s operations manual;

 

  ● GCAA security clearance;

 

  ● Safety management system manual;

 

  ● Quality management system manual;

 

  ● Training manuals;

 

  ● Operations manual; and

 

  ● Any other documentation as requested by the GCAA.

 

There are also associated fees that are required to be paid in connection with the application. If a certificate is issued, it will remain valid so long as the applicant remains in compliance with the CAR-UAM and the certificate has not been surrendered to the GCAA or suspended or revoked by the GCAA.

 

In order to maintain compliance under the CAR-UAM, an organization is required to grant access at any time to the GCAA to any facility, aircraft, document, record, data, procedures and any other relevant materials and must facilitate both planned and unplanned inspections and audits by the GCAA. If after any inspection, the GCAA provides a notice of non-compliance to any organization, the organization must identify the root cause of the non-compliance, define a corrective and preventative action plan acceptable to the GCAA and demonstrate the corrective action implantation to the satisfaction of the GCAA within the time period established by the GCAA. The GCAA may impose restrictions, suspend, limit or revoke a certificate if an operator cannot demonstrate its capability to implement and maintain the appropriate safety standards. Under the CAR-UAM, an operator is also required to report to the GCAA any accident, serious incident and any other occurrence as required by Safety Incident Reporting guidance available on the GCAA website. In the event of an accident or serious incident, an organization must secure all flight data and evidence relevant to the incident aircraft and provide support to the GCAA investigation.

 

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Under the CAR-UAM, an operator is required to establish, implement and maintain a management system that includes the following:

 

 

  ● Clearly defined lines of responsibility and accountability throughout the operator, including a direct safety accountability of the accountable manager;

 

  ● A description of the overall philosophies and principles of the operators with regard to safety referred to as a safety policy;

 

  ● The identification of aviation safety hazards entailed by the activities of the operator, their evaluation and the management of associated risks, including taking actions to mitigate risks and verify the effectiveness of the mitigating actions;

 

  ● Maintaining personnel trained and competent to perform their assigned tasks;

 

  ● Documentation of all management system key processes, including a process of making personnel aware of their responsibilities and procedures for amending this documentation;

 

  ● A function to monitor compliance of the operator with the relevant requirements of the CAR-UAM, this monitoring must include a feedback system of findings to the accountable manager to ensure effective implementation of corrective actions as necessary; and

 

  ● Any additional requirements imposed by the GCAA.

 

The management system must correspond to the size of the operators and the nature and complexity of its activities, taking into account the hazards and associated risks inherent in these activities. The organization must also appoint an accountable manager who has the authority to oversee all activities and to ensure that they can be financed and carried out in accordance with the CAR-UAM. An operator is also required to have a sufficient number of qualified personnel for its operators and has to maintain records of this as well as document the training, experience and qualifications of its personnel. An organization must also establish, implement and maintain a safety management system to ensure that the security of their facilities and personnel so as to prevent unlawful interference with the provisions of their services and that the security of operational data that they receive or produce is only accessible to authorized persons.

 

Pursuant to the CAR-UAM, an operator must maintain facilities allowing for the performance and management of all planned tasks and activities. Additionally, under the CAR-UAM, an operator must have in place insurance coverage to cover any liabilities related to their operations, as well as insurance covering occupants and third-party liability. Pursuant to the CAR-UAM, an operator must maintain a system of record keeping that allows for adequate storage and reliable traceability of all activities developed in a format that is acceptable to the GCAA. The records must be stored in a manner that ensures protection from damage, alteration and theft. Additionally, the organization must maintain all flight records including the date and commencement of the time of the flight, the departure and arrival destinations and landing sites, the flight duration, flight paths and altitudes as well as any instructions received from the GCAA command center. The CAR-UAM also requires that an operator keep certain documents on board for each flight, such as the certificate issued by the CAR-UAM. Additionally, pursuant to the CAR-UAM, a UAMV must be deemed to have met “airworthiness” by the GCAA before it can be operated which requires the prior inspection of the UAMV by the GCAA. Further, an operator must meet the maintenance requirements of the CAR-UAM as established by the GCAA. An operator must also comply with all air traffic services requirements, clearances and instructions of the CAR-UAM.

 

U.S. Regulation

 

The Federal Aviation Administration, or the FAA, one of several modal organizations within the Department of Transportation, or the DOT, is the regulatory agency in the United States with authority to oversee the safety of aircraft operations in the national airspace system of the United States, or the NAS. By statute, the Congress of the United States, or the US Congress, has vested the FAA with authority to regulate airspace use, management and efficiency, air traffic control, safety, navigational facilities, and aircraft. By contrast, the DOT retains regulatory control over all economic authority granted to commercial operations of aircraft (including for goods or passenger transportation for hire) within the United States. Thus, in addition to any FAA approvals and authorization required for operation of aircraft within the NAS, each aircraft operator conducting commercial operations must also be issued and hold economic authority (or an exemption) from the DOT. Unmanned aircraft systems, or UAS, are considered a category of aircraft for purposes of regulation by the FAA and the DOT. Our AAVs are classified as UAS and their operations are therefore subject to the approval by both the FAA and the DOT.

 

Note that the description of the regulation of UAS in the United States as provided herein reflects the regulatory landscape with respect to the approval of UAS and UAS operations current as of the date of this document. FAA’s authority, processes and methodologies for the evaluation of UAS operations in the NAS continues to rapidly evolve, and the regulation and processes described herein are subject to change.

 

FAA Regulation of UAS

 

With respect to UAS operations in the NAS, the FAA currently has the authority to promulgate and enforce restrictions regarding (i) the types of flights that may be conducted; (ii) the equipment that may be used to conduct those flights; and (iii) the training required. The regulatory framework applicable to a particular UAS operation is determined by whether (a) the UAS is used by a government agency, for commercial purposes, or as a model aircraft; and (b) whether at takeoff the UAS (including any attachments) weighs less than 55 pounds (Small UAS), or equal to or more than 55 pounds (Large UAS). Importantly, FAA currently considers AAVs to be UAS - the remote pilot requirement for UAS can be satisfied by a person who supervises an autonomous operation but who does not physically guide the aircraft. Our passenger-grade AAVs are classified as Large UAS.

 

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Small UAS

 

Small UAS can be operated for commercial purposes under the recently enacted Part 107 of Title 14 of the Code of Federal Regulations, or Part 107. Importantly, Part 107 explicitly does not permit “air carrier operations,” meaning generally the transport of property over state borders (i.e. interstate operations). However, under Part 107, property can be transported within state borders. UAS operations under Part 107 are subject to a

 

number of operational limitations, including, for example, that the UAS: (i) must remain within the visual line of sight of either the pilot in command or a visual observer, if any; (ii) may not be operated over persons not involved in the UAS operation; (iii) may not be operated at night, and (iv) not be operated within certain restricted airspace (e.g. airspace in close proximity to airports, public stadiums, national parks, etc.). However, §107.200 of Part 107 provides for a mechanism whereby a potential UAS operator can apply to the FAA for a waiver of some of the restrictions described in Part 107, including the restrictions listed in this paragraph. While exemptions to certain restrictions and limitation under Part 107 may be applied for and granted by FAA, Part 107 expressly provides that the beyond visual line of sight restriction cannot be waived if the purpose of the authorized operation is to transport goods.

 

It should also be noted that certain other restrictions do apply, and the FAA will not waive these restrictions. For example, the UAS must be operated by a pilot holding a remote pilot airman certificate. This certificate can be obtained by demonstrating aeronautical knowledge by either (i) passing an initial aeronautical knowledge test; or (ii) holding a Part 61 pilot certificate, completing a flight review once every 24 months, and completing a UAS training course. Pilots must also be at least 16 years of age and vetted by the United States Transportation Security Administration.

 

The FAA has also been directed by the US Congress, and is actively engaged in the rulemaking process required, to revise Part 107 to expand the scope of permissible commercial operations by Small UAS without the need to apply to the FAA for a waiver under §107.200. See “- Recent and Pending Federal Legislation and Regulation” below.

 

Large UAS

 

Large UAS can be operated in the NAS for testing purposes by obtaining authority from FAA pursuant to a special airworthiness certificate in the experimental category, or an SAC. The specific requirements and process for obtaining an SAC are described in FAA Order 8130.34D - Airworthiness Certification of Unmanned Aircraft Systems and Optionally Piloted Aircraft. If the FAA determines the proposed operation does not present an unreasonable safety risk, the FAA will issue an SAC with operating limitations applicable to the particular UAS or the proposed operation, as applicable. With respect to operational authority, it is important to note that the FAA will only grant an SAC for the purposes of research and development (R&D), showing compliance with regulations, crew training, exhibition, and/or market survey. Carrying persons or property for compensation or hire is prohibited. Thus, an SAC might be beneficial for the purposes of obtaining authority to test proposed operational concepts, but would not ultimately authorize the carriage of packages or persons for compensation.

 

By contrast, Large UAS can be operated in the NAS for commercial purposes by obtaining two types of authority addressed below.

 

First, a manufacturer must obtain a type certificate (and ultimately a production certificate and airworthiness certificate) from the FAA pursuant to 14 CRF Part 21 with respect to the UAS.

 

Alternatively, if the FAA will consent, the operator may obtain an exemption to all type certification and airworthiness requirements pursuant to an exemption granted under the Special Authority for Certain Unmanned Systems located in 49 U.S.C. § 44807, or a Section 44807 Exemption. By way of background, the Section 44807 Exemption grants the FAA the authority to use a risk-based approach to determine whether a UAS can operate safely in the NAS with respect to a specific proposed operation without complying with those certain airworthiness and operational requirements for which the Section 44807 Exemption is sought. As recently as December 2018, the FAA strongly encourages allowing 90 days for processing of applicable waivers and exemptions. It should also be noted here that the FAA will only grant Section 44807 exemptions for UAS under the operational control of the petitioner (person or organization). Exemptions to operate a UAS will not be granted to a UAS manufacturer unless the manufacturer intends to maintain operational control of the UAS. To receive this type of exemption, the operator must demonstrate that the applicable aircraft can be safely operated in the NAS.

 

Second, an operator must obtain FAA approval for a specific proposed operation, such as the provision of urban air mobility services. In general, the FAA will issue such approval in the form of a Section 44807 Exemption. To obtain a Section 44807 Exemption, an applicant must submit a description of the precise scope of operations to be conducted, the UAS the applicable petitioner intends to use, the flight and communication procedures that will be used, the safety procedures that will be implemented, and training for all personnel involved in the UAS operations.

 

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Lastly, in addition to the authority obtained pursuant to either an SAC or a Section 44807 Exemption, petitioners pursuing authority to either test a UAS or operate a UAS commercially must also obtain authority from the FAA to conduct operations in specific airspace within the NAS. All petitioners who are granted either a SAC or a Section 44807 Exemption by the FAA also simultaneously receive a Blanket Certificate of Authorization, or the Blanket COA. This Blanket COA gives an operator the authority to operate Small UAS under daytime Visual Flight Rule conditions at specific altitudes (such as below 400 feet) and outside of certain distances from airports and heliports. Blanket COAs are valid for a set period of time, typically two years. Operators holding either a SAC or a Section 44807 Exemption, and seeking to conduct operations which have been approved by the FAA, but which are in airspace that is outside of the limited scope permitted by the Blanket COA, such as operations above 400 feet, by Large UAS or within close proximity to an airport or other controlled or restricted airspace, will need to apply to the FAA for a Standard Certificate of Authorization, or the Standard COA. The provision of air mobility solutions does not fall within the permitted scope of the Blanket COA and will require a Standard COA alongside an SAC or a Section 44807 Exemption, as applicable.

 

The process and requirements for submitting a petition to the FAA in order to obtain a Standard COA are set forth in FAA Joint Order 7200.23A: Unmanned Aircraft Systems (UAS) Operations in the National Airspace System (NAS), or the Joint Order. According to the Joint Order, electronic applications should be submitted at least 60 business days before the proposed start of UAS operations requiring a Standard COA. The proponent must submit an application for a Standard COA using the online application system. Waiver processing times will vary depending on the complexity of the request. The Standard COA will typically describe the airspace and geographic location in which the proposed operations are permitted, as well as the duration of its effectiveness, which is commonly two years.

 

Registration

 

Both Small UAS and Large UAS operating in the NAS must be registered with the FAA. Operators of UAS conducting flights under Part 107 can register their UAS through the FAA’s “FAADroneZone” website. Operators of Large UAS can register their UAS by filing FAA Form 8050-1 with the FAA.

 

Airspace Considerations

 

Within the NAS, the FAA has created two categories of airspace: regulatory and non-regulatory, and each category can be further classified into four types: controlled, uncontrolled, special use, and other airspace. The categories and types of airspace are dictated by the complexity or density of aircraft movements, nature of the operations conducted within the airspace, the level of safety required, and national and public interest. The permissibility of UAS operations and the regulations that apply vary with respect to each category and type of airspace.

 

UAS Traffic Management

 

The FAA, the National Aeronautics and Space Administration, or NASA, and other federal partner agencies are collaborating on two related efforts to create and fully implement a framework to manage UAS operations in the NAS. First, the FAA and NASA are developing the Unmanned Aircraft System Traffic Management, which is a “traffic management” ecosystem for UAS operations that is separate from, but complementary to, the FAA’s Air Traffic Management system. Research and testing will identify airspace operations requirements to enable safe visual and beyond visual line-of-sight UAS flights in low-altitude airspace.

 

As part of this effort, the FAA has developed an internet-based platform known as the Low Altitude Authorization and Notification Capability, or the LAANC. The purpose of the LAANC platform is to automate and thus expedite the process for UAS operators to both notify the FAA of flights within five miles of an airport and submit requests to obtain FAA authorization to fly in restricted classes of airspace. This platform, which is already partially implemented, will ultimately enable the FAA to more rapidly issue requested authorizations and waivers.

 

UAS Test Sites

 

In response to direction from the US Congress in the FAA Modernization and Reform Act of 2012, the FAA ultimately selected seven applicants to establish Test Sites to support UAS integration into the NAS. While they are not the mandatory experimental sites for UAS commercial operators, the Test Sites provide an avenue and a venue to conduct more advanced UAS research and test operational concepts. Data and other information related to the operation of UAS generated by the Test Sites will ultimately enable the FAA to develop regulations and operational procedures for future commercial and civil use of the NAS.

 

Each Test Site has established relationships with the FAA and an existing facility or location that can host the testing of proposed UAS operations. Each Test Site has established credibility with the FAA and may prove helpful in facilitating and expediting the FAA’s validation and evaluation of any data produced during testing.

 

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UAS Integration Pilot Program

 

The DOT first announced the creation of the UAS Integration Pilot Program (IPP) in October 2017 consistent with a Presidential Memorandum directing the DOT to create the program. The IPP objectives include accelerating the safe integration of low altitude operations of UAS into the NAS by testing and validating new concepts with respect to beyond visual line of sight operations in a controlled environment, focusing on detect and avoid technologies, command and control links, navigation, weather and human factors. In particular, the DOT has explained that the FAA will use the data provided by the IPP “to advance the overall state of the industry, including the development of enabling regulations that will increase other types of routine UAS operations, such as: (1) beyond line-of-sight flights; (2) operations over people; and (3) package delivery. Consistent with this direction, the FAA has indicated that it will rely on the IPP to provide data and insight on expanded UAS operations that will help the agency continue its regulatory agenda to allow expanded operations through incremental rulemakings.

 

DOT Regulatory Overview

 

In order to engage directly or indirectly in air transportation, and in addition to the FAA authority described above, each UAS operator is required to hold economic authority granted by the DOT, either in the form of a “certificate of public convenience and necessity” or in the form of an exemption from the certificate requirement. Air transportation includes transportation of property by aircraft for compensation across state boundaries.

 

In May 2018, the DOT announced procedures to streamline the grant of economic authority to UAS operators proposing to deliver “goods” as an “air taxi.” Under these simplified procedures, UAS operators seeking goods delivery authority must: (1) be a U.S. citizen; (2) maintain liability insurance as required by FAA rules; and (3) register with the DOT. As of the date of this prospectus, the DOT has not pronounced any guidance regarding UAS-based passenger transportation for compensation.

 

Federal Communications Commission (FCC)

 

The FCC governs and regulates radio frequency spectrum. Both the ground-based control transmitter and the airborne video transmitter of UAS come under FCC regulation. Any petition for exemption submitted to the FAA must also describe the radio frequency spectrum used for control of the UAS and associated equipment that is part of the UAS, such as sensors, cameras, and whether it complies with FCC or other appropriate government oversight agency requirements. Thus, before submitting any petition to the FAA, an applicant should ensure that its UAS use certified radio frequencies in the proper strength as specified by the FCC. Furthermore, the security of the communication links between the ground station and the AAV shall be ensured so that unauthorized persons are prevented from gaining control of the AAVs.

 

State/Local Law

 

Though the FAA establishes the applicable rules and regulations with respect to the operation of UAS in the NAS, operators must still comply with state and local laws regarding privacy and public safety. As an example of the type of law that must be followed, in June 2018 the Colorado legislature passed, and the governor signed, HB18-1314 prohibiting a UAS operator from “knowingly” obstructing a peace officer, firefighter, or emergency medical services provider in the performance of their duties. Other state and local entities may try to regulate takeoff and landing areas, noise abatement and other aspects of operating UAS within their jurisdictions. Many of these state and local laws or regulations may however be in conflict with the federal laws and regulations which govern all operations of aircraft (and therefore UAS) in the NAS, and, therefore may be unenforceable in whole or in part.

 

Recent and Pending Federal Legislation and Regulation

 

The FAA has continued to develop regulations to expand the scope of permitted UAS operations in the NAS. The FAA has made public two draft documents according to the announcement by U.S. Secretary of Transportation Elaine L. Chao on January 15, 2019, which were published in the Federal Register on February 13, 2019. The first of these documents is a draft notice of a proposed rulemaking that would significantly expand the scope of permitted commercial UAS operations under Part 107 by allowing operations at night and over people without first obtaining a waiver from the FAA. In the second, the FAA published an Advance Notice of Proposed Rulemaking on the “Safe and Secure Operations of Small Unmanned Aircraft Systems.” Additionally, the 2018 Act specifically required the FAA to release new regulations authorizing for-profit package delivery by Small UAS on or before October 4, 2019, but the FAA has yet to promulgate such regulations as of the date of this prospectus. The 2018 Act also provided that while the new rules are pending, UAS operators may avail themselves of existing processes to obtain authority for the delivery of goods, which presumably includes the air taxi exemption process, as described above, that the DOT is currently using for UAS. Finally, please note that the FAA has recently announced that its remote identification rulemaking for UAS, originally scheduled for publication in July 2019, will now be published in December 2019.

 

In 2018, H.R. 7395 attempted to facilitate the delivery of medical supplies by UAS for the purposes of improving medical care for rural populations and for patients in need of immediate attention. Although this bill did not ultimately become law in 2018, it is possible that similar legislation may be introduced in the future.

 

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Import of AAVs into the United States

 

In general, the importation of our AAVs into the United States should comply with the normal importation and customs procedures, while some unique aspect of the AAVs may require additional analysis and/or licenses, such as the AAVs containing banned or otherwise restricted materials or technology or constituting a product that could be considered as munitions, etc.

 

European Regulation

 

European Union Regulation Related to UAS

 

The main regulation of the European Union, or the EU, in the field of aviation is Regulation (EU) 2018/1139, which is generally referred to as the Basic Regulation by the European Union Aviation Safety Agency, or EASA. It was adopted by the European Parliament and the European Council on July 4, 2018 and entered into force on September 11, 2018. It repealed and replaced the previous Basic Regulation, Regulation (EC) No 216/2008.

 

Under the previous Basic Regulation, civil UAS with an operating mass of no more than 150 kg were regulated by each EU member state. On December 22, 2017, the member states endorsed an agreement reached with the European Parliament for the revision of the previous Basic Regulation, extending the competence of the EU to all UAS, except those used for state operations, such as military, customs, police and firefighting, and defining the essential requirements to ensure the safety of UAS. The agreement led to the adoption of the current Basic Regulation. The current Basic Regulation includes a new mandate for EASA in the domain of UAS and urban air mobility. It enables EASA to prepare rules for all sizes of civil UAS and harmonize standards for the commercial market across Europe.

 

Pursuant to the Basic Regulation, the European Commission published a delegated act, Regulation (EU) 2019/945, and an implementing act, Regulation (EU) 2019/947, on June 11, 2019. These regulations aim to protect the safety and privacy of EU citizens while enabling the free circulation of UAS and a level playing field within the EU. They include technical as well as operational requirements for UAS. Both regulations entered into force on July 1, 2019, although Regulation (EU) 2019/947 will not become applicable until July 1, 2020 to give member states and operators time to prepare for and implement it.

 

With the recent regulations described above, the EU has established a regulatory framework that divides UAS operations into three categories according to the level of risks involved: “open,” “specific,” and “certified.”

 

The “Open” Category

 

Operations in the “open” category are those considered to impose low safety risks. To be classified in the “open” category, operations must meet certain technical requirements, including, among others:

 

 

● the unmanned aircraft must have a maximum take-off mass, or MTOM, of less than 25 kg;

 

● the remote pilot must ensure that the unmanned aircraft is kept at a safe distance from people and that it is not flown over assemblies of people;

 

● with limited exceptions, the remote pilot must keep the unmanned aircraft in visual line of slight, or VLOS, at all times;

 

● the unmanned aircraft is generally required to be maintained within 120 meters from the closest point of the surface of the earth; and

 

● the unmanned aircraft may not carry dangerous goods or drop any material.

 

If UAS operations fall into the “open” category, they can be conducted without any operational authorization.

 

The “Specific” Category

 

Operations in the “specific” category are those considered to impose medium safety risks. When operations do not meet the requirements to be classified in the “open” or the “certified” category (described below), they fall into the “specific” category.

 

For operations falling into the “specific” category, a UAS operator is generally required to obtain an operational authorization from the competent authority in the EU member state where it is registered. To apply for such authorization, the operator must perform a risk assessment and submit it together with the application, including adequate mitigating measures. Ground risks that must be considered include, among others, VLOS or beyond visual line of sight, or BVLOS, population density of the overflown areas, flying over an assembly of people, and the dimension characteristics of the unmanned aircraft. Air risks that must be considered include, among others, the airspace volume used for the operation, the class of the airspace, and the impact on other air traffic and air traffic management. If the competent authority considers the operational risks are adequately mitigated, it shall issue an operational authorization.

 

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However, for operations that comply with certain defined standard scenarios, the operator does not need to obtain an operational authorization, but only needs to submit an operational declaration of such compliance to the competent authority of the member state. EASA is expected to publish guidance material and a proposal for two standard scenarios (urban VLOS and rural BVLOS) in October 2019.

 

In addition, UAS operators meeting certain requirements are eligible to apply for a light UAS operator certificate, or LUC. These requirements include, among others, maintaining a safety management system corresponding to the size of the organization, to the nature and complexity of its activities, taking into account the hazards and associated risks inherent in these activities. If an LUC is granted, the holder will not be required to apply for an operational authorization or submit an operational declaration for operations falling into the “specific” category.

 

The “Certified” Category

 

Operations in the “certified” category are those considered to impose higher safety risks than the other categories. The design, production and maintenance of UAS shall be certified if the UAS

 

  ● has a characteristic dimension of three meters or more, and is designed to be operated over assemblies of people;

 

  ● is designed for transporting people; or

 

  ● is designed for the purpose of transporting dangerous goods and requiring a high level of robustness to mitigate the risks for third parties in case of accident.

 

If the UAS is certified pursuant to the criteria above and the operation does involve flying over assemblies of people, the transport of people or carriage of dangerous goods that may result in high risk for third parties in case of accident, then the operation falls into the “certified” category. In addition, UAS operations shall be classified as “certified” if the competent authority, in evaluating an application for operational authorization for operations in the “specific” category, considers that the risk of the operation cannot be adequately mitigated without the certification of the UAS and of the UAS operator and, where applicable, without the licensing of the remote pilot.

 

For operations falling into the “certified” category, classical aviation rules apply. In other words, the UAS involved are treated similarly as manned aircraft. They are certified for their airworthiness and have more stringent operational restrictions. The processing time for applications for approvals under classical aviation rules varies among the EU member states. EASA plans to develop amendments to the existing regulations applicable to manned aviation for UAS operations in the “certified” category. The future EASA rules are expected to provide all the requirements to allow UAS operations with comparable procedures applied today to manned aircraft without increasing the level of risk to third parties on the ground and in the air.

 

Registration of UAS and UAS Operators

 

Under Regulation (EU) 2019/947, which will become applicable from July 1, 2020, EU member states shall establish and maintain accurate registration systems for UAS whose design is subject to certification and for UAS operators whose operations may present a risk to safety, security, privacy, and protection of personal data or environment. In addition, UAS operators must also register themselves when operating in the “specific” category and, if certain types of unmanned aircraft are used, in the “open” category.

 

In registration of UAS whose design is subject to certification, information solicited include the manufacturer’s name, the manufacturer’s designation of the unmanned aircraft, the unmanned aircraft’s serial number, and the name and contact information of the person under whose name the unmanned aircraft is registered. The owner of an unmanned aircraft whose design is subject to certification shall register the unmanned aircraft. An unmanned aircraft cannot be registered in more than one member state at a time.

 

In registration of UAS operators, information solicited include names and identification information, contact information, an insurance policy number if required by law, a confirmation by legal persons as to the competency of operational personnel, and, as applicable, operational authorizations, LUCs, or operational declarations with confirmation by the competent authority. UAS operators shall register themselves in the member state where they have their residence for natural persons or where they have their principal place of business for legal persons. A UAS operator cannot be registered in more than one member state at a time.

 

Norwegian Regulation Related to UAS

 

Norway is not an EU member state. However, as a member of the European Economic Area, Norway implements relevant EU legislation in its domestic regulations. Norway is also an EASA member state.

 

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Before July 1, 2020, UAS operations in Norway are governed by the Act of 11 June 1993 No 101 on aviation, or the Norwegian Aviation Act, and the Regulation on aircraft that do not have a pilot on board etc. (“Forskrift om luftfartøy som ikke har fører om bord mv.”), or the Norwegian UAS Regulation. Under the Norwegian UAS Regulation, UAS undertakings are divided into three categories, RO 1, RO 2 and RO 3.

 

An RO 1 undertaking is an undertaking in which aircraft with an MTOM of up to 2.5 kg and a maximum speed of up to 60 knots will be operated exclusively within VLOS during daylight hours and subject to fixed safety distances. RO 1 operators must notify the Civil Aviation Authority - Norway, or CAA Norway, before starting up any new undertaking. Such notification shall contain information about the undertaking’s name, address and contact information, as well as information about the type of aircraft that will be used.

 

An RO 2 undertaking is an undertaking in which aircraft with an MTOM of up to 25 kg and a maximum speed of up to 80 knots will be used for VLOS or extended visual line of sight, or EVLOS, operations during daylight hours and subject to fixed safety distances. RO 2 operators must obtain a license from CAA Norway before starting up an undertaking. The application must be accompanied by a risk analysis and an operations manual.

 

An RO 3 undertaking is an undertaking in which the aircraft a) have an MTOM of 25 kg or more, or b) have a maximum speed of over 80 knots, or c) is operated by a turbine engine, or d) will be used for BVLOS operations at altitudes of more than 120 meters, or e) will operate in controlled airspace at altitudes of more than 120 meters, or f) will operate over or in the vicinity of crowds of people with certain exceptions for aircraft with an MTOM of 250 grams or less. RO 3 operators must obtain a license from the CAA Norway before starting up an undertaking. The application must be accompanied by a risk analysis and an operations manual.

 

The operator may only use aircraft or systems approved by CAA Norway for the relevant type of operation. The operator must document the aircraft’s airworthiness. The application must be accompanied by documentation of the system design, control system, type of components, technical safety systems and completed test programs that show that the aircraft and system can carry out the relevant type of operation. CAA Norway may recognize aircraft, systems and components approved or certified by other aviation authorities. Based on a consultation with CAA Norway, in general the processing time for applications for approval for RO 3 operators is four weeks provided that all required documentation is included in the application.

 

The goal of the CAA Norway is to implement the new EU UAS regulations, including Regulation (EU) 2019/945 and Regulation (EU) 2019/947, in Norway from July 1, 2020. CAA Norway estimates that the new set of rules will not limit the scope of drone operations in Norway, but there will be new and additional requirements for registration, documentation and competence for operators. The new EU rules will replace the categories of RO 1, RO 2 and RO 3. Registered operators will however be able to operate under these categories until July 1, 2021.

 

Organizational Structure

 

The following is a current organizational chart of our Company:

 

 

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Corporate History

 

We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

 

On August 13, 2021, we consummated an initial public offering (“Initial Public Offering”). The registration statement for the Company’s Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 6) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000 Units at the Initial Public Offering price to cover over-allotments, if any. Simultaneously with the consummation of the closing of the Offering, the Company consummated the private placement of an aggregate of 469,175 units (the “Placement Units”) to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”).

 

On August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering. A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account established for the benefit of the Company’s public stockholders. On October 8, 2021, the Class A ordinary shares and Public Warrant included in the Units began separate trading.

 

On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative. Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation. The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022. On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.

 

On November 9, 2022, the Company entered into Purchase Agreements and completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement and deposited $1,150,000 into the Company’s Trust account for its public stockholders, representing $0.10 per public share, allowing the Company to extend the period of time it had to consummate its initial business combination by three months from November 11, 2022 to February 13, 2023. The Purchase Agreements and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.

 

On December 31, 2022, substantially all of the assets held in the Trust Account were held in mutual funds.

 

No payments for our expenses were made in the offering described above directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except in connection with the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered into with our sponsor.

 

On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).

 

Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono common stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ common stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”

 

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After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ common stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.

 

As a result of the Merger and the Business Combination, holders of Pono common stock automatically received common stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A common stock and shares of Class B common stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ common stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies common stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies common stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies common stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies common stock.

 

At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.

 

AERWINS, Inc. formerly named AERWINS Technologies Inc. until it changed its name to AERWINS, Inc. on January 24, 2023, was incorporated in the State of Delaware on June 9, 2022. A. L. I. Technologies Inc., a Japanese corporation and a wholly owned subsidiary of AERWINS, Inc. was established in Japan in September 2016. On August 5, 2022, pursuant to the terms of a share exchange agreement among the Company, A. L. I. Technologies, the shareholders of A. L. I. Technologies and Shuhei Komatsu, as the representative of the shareholders of A. L. I. Technologies, we issued 30,000,000 shares of AERWINS, Inc. common stock to the shareholders of A. L. I. Technologies in exchange for 2,006,689 shares A. L. I. Technologies’ common stock, representing 100% of the issued and outstanding capital stock of A. L. I. Technologies. As a result of this transaction, A. L. I. Technologies became AERWINS Inc.’s 100%-owned subsidiary and the former shareholders of A. L. I. Technologies became the owners of 100% of AERWINS, Inc. outstanding common stock as of August 5, 2022.

 

LEGAL PROCEEDINGS

 

From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

AERWINS Technology Inc., formerly Pono Capital Corp. (the “Company”) is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination. The following unaudited pro forma condensed combined financial information presents the combination of the financial information of AERWINS, Inc., formerly AERWINS Technologies, Inc. (“AERWINS”) adjusted to give effect to the Business Combination. The following unaudited pro forma condensed consolidated combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”

 

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Immediately before the Business Combination, the Company was a blank check company incorporated on February 12, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.

 

AERWINS is developing a manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner. AERWINS is headquartered in Tokyo, Japan.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2022 combines the historical audited balance sheet of the Company as of December 31, 2022 with the historical audited consolidated balance sheet of AERWINS as of December 31, 2022, giving effect to the Business Combination as if they had been consummated on December 31, 2022.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 combines the historical audited statement of operations of the Company for the year ended December 31, 2022 with the historical audited consolidated statement of operations of AERWINS for the year ended December 31, 2022, giving effect to the Business Combination as if they had been consummated on January 1, 2022, the beginning of the earliest period presented.

 

The unaudited pro forma condensed combined financial information was derived from, and should be read in conjunction with, the following historical financial statements and the accompanying notes, which are included elsewhere in this prospectus:

 

● The historical audited consolidated financial statements of the Company as of and for the year ended December 31, 2022; and

 

● The historical audited consolidated financial statements of AERWINS as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations of AERWINS for the year ended December 31, 2022.

 

The foregoing historical financial statements have been prepared in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information has been prepared based on the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma condensed combined financial information. The pro forma adjustments reflect transaction accounting adjustments related to the Business Combination, which is discussed in further detail below. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to represent the Company’s consolidated results of operations or the consolidated financial position that would actually have occurred had the Business Combination been consummated on the dates assumed or to project the Company’s consolidated results of operations or consolidated financial position for any future date or period.

 

The unaudited pro forma condensed combined financial information should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and other financial information included elsewhere in this prospectus.

 

These unaudited pro forma condensed combined and consolidated financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Business Combination and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined and consolidated financial information.

 

The pro forma adjustments giving effect to the Business Combination and related transactions are summarized below, and are discussed further in the footnotes to these unaudited pro forma condensed combined and consolidated financial statements:

 

  ● the consummation of the Business Combination and reclassification of cash held in Pono’s Trust Account to cash and cash equivalents, net of redemptions (see below); and

 

  ● the accounting for deferred offering costs and transaction costs incurred by both Pono and AERWINS.

 

Prior to the Closing, Pono’s public stockholders holding 11,328,988 shares of Class A common stock elected to redeem such shares.

 

The following summarizes the pro forma ownership of common stock of AERWINS following the Business Combination and related transactions:

 

   Number of
Shares		   Percentage of
Outstanding
Shares		 
Aerwins Stockholders   51,986,565    93.3%
Pono Public Stockholders   171,012    0.3%
Pono Sponsor and affiliates   3,569,175    6.4%
           
Pro forma common stock at December 31, 2022   55,726,752    100.0%

 

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PRO FORMA CONDENSED COMBINED AND CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2022

 

   Pono
Capital
Corp
(Historical)		   Aerwins
Technologies,
Inc.
(Historical)		   Transaction
Accounting
Adjustments		     Pro Forma
Combined		 
ASSETS                      
Current assets                      
Cash and cash equivalents  $193,829   $1,278,026   $1,130,000  A  $4,744,568 
              1,795,997  C     
    —    —    5,000,000  D   — 
    —    —    5,321  E   — 
    —    —    (4,658,605) F   — 
Notes receivable   —    3,488           3,488 
Accounts receivable, net   —    980,688    —      980,688 
Other receivable   —    2,089,921    (5,321) E   2,084,600 
Inventory   —    2,687,092    —      2,687,092 
Escrow deposit   —    575,000    —      575,000 
Prepaid expenses and other current assets   25,750    611,959    —      637,709 
Total current assets   219,579    8,226,174    3,267,392      11,713,145 
Investments held in Trust Account   120,600,737    —    (118,804,740) B   — 
              (1,795,997) C     
Equity method investments   —    997,470    —      997,470 
Operating lease right-of-use assets   —    693,474    —      693,474 
Property and equipment, net   —    1,390,547    —      1,390,547 
Intangible assets, net   —    150,576    —      150,576 
Other assets   —    213,370    —      213,370 
Other long term receivables   —    107,735    —      107,735 
Total assets  $120,820,316   $11,779,346   $(117,333,345)    $15,266,317 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)                      
Current liabilities                      
Accounts payable  $720,507   $3,333,675   $(448,618) F  $3,605,564 
Others payable   —    230,060    —      230,060 
Accrued expenses and other current liabilities   386,701    402,036    (401,920) F   386,817 
Income tax payable   159,122    —    —      159,122 
Franchise tax payable   200,000    —    —      200,000 
Contract liabilities   —    1,104,582    —      1,104,582 
Notes Payable—current   —    —    1,580,000  A   1,580,000 
Other current liabilities   —    380,344    —      380,344 
Current portion of long-term liabilities   —    54,624    —      54,624 
Finance leases liabilities-current   —    102,114    —      102,114 
Operating leases liabilities-current   —    293,710    —      293,710 
Sponsor working capital loan   150,000    —    —      150,000 
Total current liabilities   1,616,330    5,901,145    729,462      8,246,937 
Long-term loans   —    3,259,237    —      3,259,237 
Corporate bond   —    —    —      — 
Finance leases liabilities-non-current   —    87,056    —      87,056 
Operating leases liabilities-non-current   —    397,720    —      397,720 
Other long term liabilities   —    225,284    —      225,284 
Deferred underwriting fee payable   3,450,000    —    (450,000) A   — 
              (3,000,000) F     
Warrant liabilities   643,213    —    —      643,213 
Total liabilities   5,709,543    9,870,442    (2,720,538)     12,859,447 
                       
Class A common stock subject to possible redemption   120,141,615    —    (118,804,740) B   — 
              (1,336,875) G     
Stockholders’ equity (deficit)                      
Preferred stock   —    —    —      — 
Common stock   6    3,000    3  D   56 
              (2,953) H     
Additional paid-in capital   —    49,296,390    4,999,997  D   50,067,698 
              (537,669) F     
    —    —    1,336,875  G   — 
    —    —    2,953  H   — 
    —    —    (5,030,848) I   — 
(Accumulated deficit) retained earnings   (5,030,848)   (46,472,904)   (270,398) F   (46,743,302)
    —    —    5,030,848  I   — 
Accumulated other comprehensive loss   —    (917,582)   —      (917,582)
                       
Total stockholders’ equity (deficit)   (5,030,842)   1,908,904    5,528,808      2,406,870 
                       
Total liabilities, temporary equity, and stockholders’ equity  $120,820,316   $11,779,346   $(117,333,345)    $15,266,317 

 

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PRO FORMA CONDENSED COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2022

 

   Pono Capital
(Historical)		   Aerwins
Technologies,
Inc.
(Historical)		   Transaction
Accounting
Adjustments		     Pro Forma
Combined		 
Revenues  $—   $5,207,490   $—     $5,207,490 
Cost of Sales   —    5,070,507    —      5,070,507 
Gross Profit   —    136,983    —      136,983 
Operating costs                      
Formation and operations   2,102,272    —    —      2,102,272 
Franchise tax expense   200,000    —    —      200,000 
Selling expenses   —    90,654    —      90,654 
General and administrative expenses   —    7,212,327    270,398        AA   7,482,725 
Research and development expenses   —    8,926,205    —      8,926,205 
Total operating costs   2,302,272    16,229,186    270,398      18,801,856 
Operating loss   (2,302,272)   (16,092,203)   (270,398)     (18,664,873)
Other income (expense), net                      
Interest Income   (8,321)   —    —      (8,321)
Dividends earned on marketable securities held in Trust Account   1,702,524    —    (1,702,524) BB   — 
Interest expense   —    (25,065)   —      (25,065)
Gain on foreign currency transaction   —    60,533    —      60,533 
Loss on disposal of fixed assets   —    (9,316)   —      (9,316)
Impairment on fixed assets   —    (511,695)   —      (511,695)
Equity in earnings of investee   —    (16,964)   —      (16,964)
Gain on sale of investment securities   —    1,801,660    —      1,801,660 
Other income   —    314,774    —      314,774 
Loss on change in fair value of Sponsor Working Capital Loan   17,400    —    —      17,400 
Change in fair value of warrant liabilities   3,612,764    —    —      3,612,764 
Total other income (expense), net   5,324,367    1,613,927    (1,702,524)     5,235,770 
Income (loss) from operations before income taxes   3,022,095    (14,478,276)   (1,972,922)     (13,429,103)
Income tax expense   (289,122)   (1,543)   —      (290,665)
Net income (loss) from continuing operations   2,732,973    (14,479,819)   (1,972,922)     (13,719,768)
Other comprehensive income                      
Foreign currency translation adjustment   —    (679,525)   —      (679,525)
Total comprehensive income (loss)  $2,732,973   $(15,159,344)  $(1,972,922)    $(14,399,293)
Net income (loss) per share (Note 4):                      
Weighted average shares outstanding of Class A common stock   12,083,113    —           — 
Basic and diluted net income per common stock  $0.18    —           — 
Weighted average shares outstanding of Class B common stock   2,875,000    —           — 
Basic and diluted net income per common stock  $0.18    —           — 
Weighted average shares outstanding—basic   —    28,565,198           55,726,752 
Weighted average shares outstanding—diluted   —    31,427,684           55,726,752 
Net loss per share—basic   —   $(0.51)         $(0.25)
Net loss per share—diluted   —   $(0.51)         $(0.25)

 

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NOTES TO PRO FORMA CONDENSED COMBINED AND CONSOLIDATED FINANCIAL INFORMATION

 

Note 1. Basis of Presentation

 

The Business Combination has been accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, Pono has been treated as the “accounting acquiree” and AERWINS as the “accounting acquirer” for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination has been treated as the equivalent of AERWINS issuing shares for the net assets of Pono, followed by a recapitalization. The net assets of Pono will be stated at historical cost. Operations prior to the Business Combination will be those of AERWINS.

 

The unaudited pro forma condensed combined and consolidated balance sheet as of December 31, 2022 assumes that the Business Combination and related transactions occurred on December 31, 2022. The unaudited pro forma condensed combined and consolidated statement of operations for the year ended December 31, 2022 gives pro forma effect to the Business Combination and related transactions as if they had occurred on January 1, 2022. These periods are presented on the basis that AERWINS is the acquirer for accounting purposes.

 

The pro forma adjustments reflecting the consummation of the Business Combination and related transactions are based on certain currently available information and certain assumptions and methodologies that Aerwins believes are reasonable under the circumstances. The unaudited condensed combined and consolidated pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. Aerwins believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and related transactions based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined and consolidated financial information.

 

The unaudited pro forma condensed combined and consolidated financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. The unaudited pro forma condensed combined and consolidated financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination and related transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of Pono and AERWINS.

 

Note 2. Accounting Policies and Reclassifications

 

Upon consummation of the Business Combination, management performed a comprehensive review of the two entities’ accounting policies. As a result of the review, management did not identify any differences between the accounting policies of the two entities that would have a material impact on the unaudited pro forma condensed consolidated combined financial information. As a result, the unaudited pro forma condensed consolidated combined financial information does not assume any differences in accounting policies.

 

As part of the preparation of these unaudited pro forma condensed combined and consolidated financial statements, certain reclassifications were made to align Pono’ financial statement presentation with that of AERWINS.

 

Note 3. Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Financial Information

 

The unaudited pro forma condensed combined and consolidated financial information has been prepared to illustrate the effect of the Business Combination and related transactions and has been prepared for informational purposes only.

 

The following unaudited pro forma condensed combined and consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Aerwins has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined and consolidated financial information. Pono and AERWINS have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

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The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined and consolidated statement of operations are based upon the number of shares of AERWINS’ common stock outstanding, assuming the Business Combination and related transactions occurred on January 1, 2022.

 

Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Balance Sheet

 

The adjustments included in the unaudited pro forma condensed combined and consolidated balance sheet as of December 31, 2022 are as follows:

 

  A. Reflects the issuance of two promissory notes to Pono Captial Corp. prior to the closing of the Business Combination. On January 31, 2023, Pono Captial Corp. entered into promissory note agreements in the amounts of $1,130,000 and $450,000 between Mehana Equity LLC and EF Hutton, respectively.
     
  B. Reflects the redemption of 11,328,988 Pono Public Shares for aggregate redemption payments of $119.0 million, inclusive of $0.2 million in accrued interest, allocated to New Pono common stock and additional paid-in capital using par value $0.0001 per share and a redemption price of $10.50 per share.
     
  C. Reflects the reclassification of $1.8 million of investments held in the Trust Account to cash and cash equivalents that becomes available at closing of the Business Combination.

 

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  D. Represents the proceeds from the issuance of 3,196,311 Escrow Shares per the Escrow Agreement entered into in connection with the closing of the Business Combination (as previously defined) for an aggregate of $5.0 million.
     
  E. Represents the receivables of $5,321 and outstanding to shareholders of AERWINS subject to collection pursuant to the Merger Agreement.
     
  F. Represents AERWINS’ transaction costs of $0.5 million, and Pono’s transactions costs of $4.4 million inclusive of advisory, banking, printing, legal and accounting fees that are expensed as a part of the Business Combination, deferred underwriting fees and equity issuance costs that are capitalized into additional paid-in capital. Of the transaction costs, $3.5 million has been incurred and reflected in the historical financial statements of Pono, $0.6 million has been recorded in accounts payable, $0.4 million has been recorded in accrued expenses and $0.2 million in transaction costs already paid in the historical financial statements and reflected in the transaction accounting adjustments in the unaudited condensed combined and consolidated balance sheet.
     
  G. Reflects the reclassification of Pono’ Class A common stock subject to possible redemption into permanent equity.
     
  H. Represents the issuance of Pono’s common stock at a par value of $0.000001 to AERWINS shareholders as consideration for the Business Combination.
     
  I. Reflects the reclassification of Pono’ historical accumulated deficit into additional paid-in capital as part of the reverse recapitalization.

 

Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Statement of Operations

 

The pro forma adjustments included in the unaudited pro forma condensed combined and consolidated statement of operations for the year ended December 31, 2022 are as follows:

 

  AA. Reflects estimated non-recurring transaction costs not already reflected in the historical financial statements of approximately $0.3 million as if incurred on January 1, 2022, the date the Business Combination occurred for the purposes of the unaudited pro forma condensed combined and consolidated statement of operations.

 

  BB. Reflects elimination of investment income on the Trust Account.

 

Note 4. Net Loss per Share

 

Net loss per share was calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2022. As the Business Combination is being reflected as if it had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entirety of all periods presented.

 

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   For the Year Ended
December 31, 2022 (1)		   For the Year Ended
December 31, 2021 (1)		 
Numerator:          
Pro forma net loss  $(13,719,768)  $(10,215,085)
Denominator:          
Weighted average shares outstanding—basic and diluted(2)   55,726,752    55,726,752 
Net loss per share:          
Basic and diluted  $(0.25)  $(0.18)

 

(1) Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information.”

 

(2) The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive and/or issuance or vesting of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the periods presented.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of AERWINS, Inc.’s (formerly named AERWINS Technologies, Inc.) financial condition and results of operations should be read in conjunction with its audited consolidated financial statements and the notes related thereto which are included elsewhere in this prospectus. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “ Risk Factors” and elsewhere in this prospectus.

 

Overview

 

AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” or “us”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All references in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI, except that references to the “Company” “we,” “us,” or “Pono” in this Item 7 refer to Aerwins Technologies Inc. f/k/a Pono Capital Corp.

 

We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Pono Capital Corp was treated as the acquired company and AERWINS, Inc. was treated as the acquirer for financial statement reporting purposes.

 

At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.

 

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The Business Combination is a subsequent event that occurred after the periods for which the financial information herein is presented. The financial information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the historical operations of AERWINS prior to the Business Combination, unless otherwise noted. For additional information on the Business Combination please see the section titled “Recent Developments” on page 78 of this prospectus. For additional information on the corporate history of our Company please see the section titled “Corporate History” on page 98 of this prospectus.

 

Business Overview

 

We were incorporated in the State of Delaware on June 9, 2022. We conduct business activities principally through our 100%-owned subsidiary, A. L. I. Technologies Inc., a Japanese corporation (“A. L. I. Technologies”), which was established in Japan in September 2016 and was acquired by us in August, 2022.

 

The acquisition of A. L. I. Technologies was accounted for as a recapitalization among entities under common control since the same controlling shareholders controlled all these entities before and after the transaction. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

 

We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.

 

To realize this vision, we are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster,

 

(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI.

 

 

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Significant Market Opportunities

 

In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution.

 

The market opportunities created by our technology are significant. According to an analysis by Frost & Sullivan, the autonomous vehicle services market is expected to grow from a mere $1.1 billion in 2019 to $202.5 billion in 2030 at a CAGR of 60.1%, facilitated by mutually beneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, we strive to continue to innovate and expand the boundaries for air-based mobility.

 

The sky above has always held possibilities, and we have already completed our first manned flight test with a test aircraft in 2019, and our business is progressing well since then. We plan to work with business partners, mainly in the Middle East area, for additional development, production and sales to realize products that can be utilized in the Middle East area. In the future, we are also preparing to develop new models that are electrically powered and even more compact, and to provide infrastructure such as airways and air traffic control systems in an air mobility society.

 

We are one step closer to making safe, cost-effective, and easy-to-use air mobility solutions a reality. Our air mobility enables urban mobility to expand into three-dimensional space. We believe our technology will change the future of transportation, improve lives, and create new industries.

 

We design, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide range of industries and applications, including passenger transportation, logistics, and smart city management. Our goal is to ensure that both passengers and goods take to the skies safely and conveniently.

 

Orders, Delivery and Financial Results

 

We are developing the following business areas:

 

(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster;

 

(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and

 

(3) the computing power sharing domain, which provides services such as blockchain verification and AI.

 

For the fiscal years ended December 31, 2022 and 2021, we generated revenues of $5,270,490 and $7,830,130, respectively, from continuing operations, and reported net loss of $14,479,819 and net loss of $14,527,021, respectively from continuing operations, and cash flows used in operating activities of $16,865,274 and $10,119,103, respectively. As noted in our consolidated financial statements, as of December 31, 2022, we had an accumulated deficit of $46,472,904.

 

Key Factors that Affect Our Results of Operations

 

We believe the following key factors may affect our financial condition and results of operations:

 

Our Ability to Strength Our Competitive Advantages

 

Our results of operations rely on our purported product superiority. Both hardware and software technologies are key factors intended to strengthen our competitive advantages. Regarding hardware, we developed air mobility CFRP material for XTURISMO which reduced the weight of the open propeller and its body. CFRP is also easy to process and corresponds to various designs, and has strong resistance to dust and salt air. We also developed an original body and steering wheel which enables a driver to drive manually easier. The original hybrid engine has high power generation with low revolution with electric supply support to control system device. Regarding software, the stability control of XTURISMO assists driving by sensor fusion surrounding the body and links with cloud real time with encrypted driving and control data communication. Also, C.O.S.M.O.S., the air traffic control platform connects with each hoverbike and provides flight and network management. These hardware and software are all made in Japan.

 

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Our Ability to Expand International Market

 

We are seeking to promote global expansion using partnerships, and our ability to succeed in this endeavor will affect our results of operations. Especially in Gulf Cooperation Council, we have partners for creating the business in the area and will raise fund which we believe enables the Company to establish an office and R&D center in the area and we also intend that the area can be a distribution, manufacturing and marketing hub for the vehicles. After that or at the same time, we plan to expand sales channels to other regions including the United States. Also, in order to facilitate such global expansion, the Company plans to acquire human resources in various countries, and the Company intends that by 2024, over 50% of its employees will be non-Japanese.

 

Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency

 

We are aiming to establish a highly profitable structure for a mass production of hoverbikes by using a fabless model which focuses on design and supply chain control. We plan to select subcontractors and suppliers appropriately based on cost, quality, and delivery date, and seek to build an efficient production system. We also hope to sign a partnership agreement with a local government to implement hoverbikes in society. We aim to reduce the cost of developing advanced technologies and implementing our products in society by utilizing subsidies as part of such support.

 

A Severe or Prolonged Slowdown in the Global and Japan Economy Could Materially and Adversely Affect Our Business and Our Financial Condition

 

In recent years, the economic indicators in Japan have shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The Japanese economy is gradually recovering due to the effects of various government policies which encourage the transition to the post-covid society. However, it is necessary to note downside risks due to fluctuations in the financial markets, price increase, and supply-chain constraints as global monetary tightening is progressing. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products and their prices.

 

Results of Operations

 

Comparison of Results of Operations for the Fiscal Years Ended December 31, 2022 and 2021

 

The following table summarizes our operating results as reflected in our statements of income during the fiscal years ended December 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

   For the Years ended December 31, 
   2022   2021   Variance 
   Amount   % of
revenue		   Amount   % of
revenue		   Amount   % of 
REVENUE  $5,207,490    100.0%  $7,830,130    100%  $(2,622,640)   -33.5%
COST OF REVENUE   5,070,507    97.4%   6,433,913    82.2%   (1,363,406)   -21.2%
GROSS PROFIT   136,983    2.6%   1,396,217    17.8%   (1,259,234)   -90.2%
Operating expenses                              
Selling expenses   90,654    1.7%   259,799    3.3%   (169,145)   -65.1%
General and administrative expenses   7,212,327    138.5%   5,839,433    74.6%   1,372,894    23.5%
Research and development expenses   8,926,205    171.4%   9,335,977    119.2%   (409,772)   -4.4%
Total operating expenses   16,229,186    311.7%   15,435,209    197.1%   793,977    5.1%
Loss from operations   (16,092,203)   -309.0%   (14,038,992)   -179.3%   (2,053,211)   14.6%
Other income (expenses)   1,613,927    31.0%   (488,029)   -6.2%   2,101,956    -430.7%
Loss before income tax provision   (14,478,276)   -278.0%   (14,527,021)   -185.5%   48,745    -0.3%
Income taxes expense   (1,543)   -0.0%   —    —    (1,543)   — 

 

   For the Years ended December 31, 
   2022   2021   Variance 
   Amount   % of
revenue		   Amount   % of
revenue		   Amount   % of 
Net loss from continuing operations   (14,479,819)   -278.1%   (14,527,021)   -185.5%   47,202    -0.3%
Less: net income (loss) attributable to non-controlling interest   —    —%        —%        % 
Net loss from discontinued operations   —    —    28,649    -0.4%   28,649    -100.0%
NET INCOME (LOSS) ATTRIBUTABLE TO AERWINS TECHNOLOGIES INC.  $(14,479,819)   -278.1%  $(14,555,670)   -185.9%  $75,851    -0.5%

 

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Revenue

 

Our total revenues decreased by $2,622,640, or 33.5%, to $5,207,490 for the year ended December 31, 2022 from $7,830,130 for the year ended December 31, 2021. The decrease in our revenues was mainly due to the depreciation of JPY and decrease in sales from shared computing business.

 

Cost of Revenue

 

Our total costs of revenues decreased by $1,363,406, or 21.2%, to $5,070,507 for the year ended December 31, 2022 from $6,433,913 for the year ended December 31, 2021. The decrease in our costs was attributable to the decrease of the sales described above.

 

Gross Profit

 

Our total gross profit decreased by $1,259,234, or 90.2%, to $136,983 for the year ended December 31, 2022 from $1,396,217 for the year ended December 31, 2021. For the reasons discussed above, our overall gross profit margin decreased by 15.2% to 2.6% in the fiscal year 2022 from 17.8% in the fiscal year 2021.

 

Operating Expenses

 

The following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2022 and 2021:

 

   For the Years ended December 31, 
   2022   2021   Variance 
       % of       % of         
   Amount   revenue   Amount   revenue   Amount   % of 
Total revenue  $5,207,490    100%  $7,830,130    100%  $(2,622,640)   (33.5)%
Operating expenses                              
Selling expenses (advertising expenses)   90,654    1.7%   259,799    3.3%   (169,145)   (65.1)%
General and administrative expenses   7,212,327    138.5%   5,839,433    74.6%   1,372,894    23.5%
Research and development expenses   8,926,205    171.4%   9,335,977    119.2%   (409,772)   (4.4)%
Total operating expenses  $16,229,186    311.7%  $15,435,209    197.1%  $793,977    5.1%

 

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General and Administrative Expenses

 

Our general and administrative expenses primarily consist of employee salaries and welfare, consulting and professional service fees incurred for company reorganization and going public, depreciation and amortization expenses, rental expenses, office, utility and other expenses, bad debt expenses, and travel and entertainment expenses.

 

   For the Years ended December 31, 
   2022   2021   Variance 
   Amount   % of*   Amount   % of   Amount   % of 
General and Administrative Expenses                              
Salaries and welfare  $2,744,757    38.1%  $2,800,058    48.0%  $(55,301)   (2.0)%
Consulting and professional service fees   2,680,345    37.2%   1,527,311    26.2%   1,153,034    75.5%
Depreciation expense   141,026    2.0%   86,025    1.5%   55,001    63.9%
Rent expense   148,474    2.1%   243,265    4.2%   (94,791)   (39.0)%
Office, utility and other expenses   674,238    9.3%   472,868    8.1%   201,370    42.6%
Travel and entertainment expense   395,708    5.5%   145,598    2.5%   250,110    171.8%
Commission fees expenses   46,673    0.6%   302,495    5.2%   (255,822)   (84.6)%
Other expenses   381,106    5.3%   261,813    4.5%   119,293    45.6%
Total general and administrative expenses  $7,212,327    100%  $5,839,433    100%  $1,372,894    23.5%

 

* Refers to the percentage of total general and administrative expenses.

 

Our general and administrative expenses increased by $1,372,894 or 23.5%, to $7,212,327 in the fiscal year 2022 from $5,839,433 in the fiscal year 2021, primarily attributable to an increase of consulting and professional service fees, mainly outsourcing fees paid to professionals for the completion of the merger with Pono Capital Corp.

 

The overall increase in our general and administrative expenses in fiscal year 2022 as compared to fiscal year 2021 reflected the above-mentioned factors combined. As a percentage of revenues, general and administrative expenses were 138.5% and 74.6% of our revenue for the fiscal years ended December 31, 2022 and 2021, respectively.

 

Research and development expenses

 

Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.

 

   For the Years ended December 31, 
   2022   2021   Variance 
   Amount   % of*   Amount   % of   Amount   % of 
Research and Development Expenses                              
Raw materials  $2,727,178    30.6%  $2,434,512    26.1%  $292,666    12.0%
Labor cost   1,675,129    18.8    1,142,652    12.2    532,478    46.6 
Outsourcing expenses   3,762,590    42.2    5,062,176    54.2    -1,299,586    (25.7)
Other expenses   761,307    8.4    696,637    7.5    64,670    9.3 
Total research and development expenses  $8,926,205    100.0%  $9,335,977    100.0%  $-409,772    (4.4)%

 

* Refers to the percentage of total research and development expenses.

 

Our research and development expenses decreased by $409,772, or 4.4%, to $8,926,205 in the year ended December 31, 2022 from $9,335,977 in the year ended December 31, 2021, primarily attributable to the decrease in outsourcing expenses for development of XTURISMO.

 

As a percentage of revenues, research and development expenses were 171.4% and 119.2% of our revenue for the fiscal years ended December 31, 2022 and 2021, respectively.

 

Other Income (Expenses), net

 

Our other income (expenses) primarily includes gain or loss on disposal of fixed assets, impairment on fixed assets and financial related expenses. Total other income in the fiscal year 2022 was $1,613,927, and the total net expenses in the fiscal year 2021 was $422,469.

 

The Company disposed part of its business of Zeroboard and recognized $580,177 of gain on disposal of the business in the fiscal year 2021.

 

In the fiscal year 2022, the Company recognized impairment loss of fixed assets of $511,695 and recognized $1,801,660 of gain on sale of investment securities from sale of Zeroboard and Liberaware stocks (See Note 18 to the Notes to Consolidated Financial Statements included elsewhere in this prospectus).

 

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Provision for Income Taxes

 

Our provision for income taxes was $1,543 and zero in the fiscal year 2022 and 2021 respectively.

 

Net Income (Loss)

 

As a result of the foregoing, we reported a net loss of $14,479,819 for the fiscal year ended December 31, 2022, representing a $47,202 or 0.3% decrease from a net loss of $14,527,021 for the fiscal year ended December 31, 2021. All net income is attributable to AERWINS Technologies Inc.

 

Liquidity and Capital Resources

 

As of December 31, 2022, we had $1,278,026 in cash as compared to $10,020,459 as of December 31, 2021. We also had $980,688 in accounts receivable as of December 31, 2022 as compared to $725,287 as of December 31, 2021. Our accounts receivable primarily include balance due from customers AMVs sold and services provided and accepted by customers.

 

As of December 31, 2022, our working capital balance was $2,325,029. In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenue in the future, and our operating and capital expenditure commitments. We believe that our current cash and cash flows provided by operating activities, borrowings from banks and from our principal shareholders, and other capital raising contracts including the standby equity purchase agreement will be sufficient to meet our working capital needs in the next 12 months from the date the audited financial statements were issued. Even though we face uncertainties with regards to the size and timing of capital-raising, we are confident that we can continue to meet operational needs solely by utilizing cash flows generated from our operating activities and shareholder working capital funding, as necessary.

 

Cash Flows for the Years Ended December 31, 2022 and 2021

 

The following table sets forth summary of our cash flows for the periods indicated:

 

   For the Years Ended
December 31,		 
   2022   2021 
Net cash provided by (used in) operating activities  $(16,865,274)  $(10,119,103)
Net cash provided by (used in) investing activities   (344,964)   293,303 
Net cash provided by (used in) financing activities   9,579,119    6,380,047 
Effect of exchange rate changes   (1,111,314)   (1,603,633)
Net increase (decrease) in cash and cash equivalents   (7,631,119)   (3,284,283)
Cash and cash equivalents, beginning of the year   10,020,459    14,619,164 
           
Cash and cash equivalents, end of the year  $1,278,026   $10,020,459 

 

Operating Activities

 

Net cash used in operating activities was $16,865,274 for the year ended December 31, 2022, primarily consisting of the following:

 

  ● Net loss of $14,479,819 for the fiscal year.
  ● Depreciation expenses of $327,576.
  ● An increase in inventory of $2,483,254, as raw materials increased to prepare for manufacturing hoverbikes.
  ● Gain on sale of investment securities of $1,801,660.

 

Net cash used in operating activities was $10,119,103 for the year ended December 31, 2021, primarily consisting of the following:

 

  ● Net loss of $14,527,021 for the fiscal year.
  ● Depreciation expenses of $193,812.
  ● A decrease in accounts receivable of $3,289,638, as the relevant sales increased from the prior year
  ● Gain on disposal of business of $580,177.

 

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Investing Activities

 

Net cash used by investing activities amounted to $344,964 for the year ended December 31, 2022, and primarily included purchase of fixed assets of $950,500, purchase of investment securities of $575,000 and proceeds from disposal of investments of $1,189,725.

 

Net cash provided by investing activities amounted to $293,303 for the year ended December 31, 2021, and primarily included purchase of fixed assets of $866,862, proceeds from disposal of a subsidiary of $473,123 and proceeds from disposal of a business of $819,352.

 

Financing Activities

 

Net cash provided by financing activities amounted to $9,579,119 for the fiscal year ended December 31, 2022, primarily consisting of proceeds from capital contribution of $9,834,302 and repayments to loans of $171,384.

 

Net cash provided by financing activities amounted to $6,380,047 for the fiscal year ended December 31, 2021, primarily consisting of proceeds from issuance of bonds of $7,524,383 and proceeds from loans of $1,165,937 and repayment to loans of $2,262,294.

 

Contractual obligations

 

Lease commitment

 

The Company’s subsidiary, A. L. I. Technologies entered into 13 leases for its office space, multi-function printers and a vehicle, which were classified as operating leases. A. L. I. Technologies also entered into two leases for containers, and these leases were classified as finance leases.

 

As of December 31, 2022, future minimum lease payments under the non-cancelable lease agreements are as follows:

 

Year ending December 31,  Finance
lease		   Operating
lease		 
2023  $105,775   $298,580 
2024   54,888    244,125 
2025   11,271    157,099 
2026   11,271    — 
Thereafter   14,088    — 
Total lease payments   197,293    699,804 
Less: imputed interest   (8,123)   (8,374)
Total lease liabilities   189,170    691,430 
Less: current portion   102,114    293,710 
Non-current lease liabilities  $87,056   $397,720 

 

Long Term Debt

 

The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions.

 

As of December 31, 2022, future minimum loan payments are as follows:

 

Year ending December 31,  Loan
Payment		 
2023  $77,930 
2024   332,900 
2025   354,339 
2026   2,240,117 
2027   341,942 
Thereafter   23,352 
Total   3,370,580 
Less interest   56,719 
Balance as of December 31, 2022  $3,313,861 

 

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Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of December 31, 2022 and 2021.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period. The most significant estimates and assumptions include the valuation of accounts receivable, advances to suppliers, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this prospectus reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.

 

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:

 

Use of Estimates

 

In preparing the consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment, the impairment of long- lived assets, valuation allowance of deferred tax assets, and revenue recognition. Actual results could differ from those estimates.

 

Accounts Receivable

 

Accounts receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of income and comprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.

 

Lease-Lessee

 

In accordance with the Accounting Standards Update (“ASU”) 2016-02 Leases (Topic 842), the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.

 

The Company leases office facilities, which are classified as operating leases and leases office equipment and furniture, and a vehicle, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheet.

 

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

 

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The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less.

 

Foreign Currency Translation

 

The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.

 

The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes shareholders’ deficit.

 

Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:

 

   December 31,
2022		   December 31,
2021		 
Current JPY: US$1 exchange rate   131.81    115.17 
Average JPY: US$1 exchange rate   131.46    109.84 

 

Revenue Recognition

 

The Company recognize revenue under ASC 606, “Revenue from Contracts with customers”.

 

To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales is calculated at 8% before October 1, 2020, and 10% afterwards of gross sales.

 

The Company currently generates its revenue from the following main sources:

 

Revenue from Sales of Computing Equipment

 

Revenues from the sale of equipment are recognized at the point in time when obligations under the terms of a contract with our customer are satisfied and control has been transferred to the customer. For equipment placements that require us to install the product at the customer location, revenue is normally recognized when the equipment has been delivered and installed at the customer location. Sales of customer installable products are recognized upon shipment or receipt by the customer according to the customer’s shipping terms.

 

Revenue from Computing Power Sharing services with Equipment Installation

 

The Company provides customers with computing power sharing services with equipment installation, which includes a one-time equipment installation and a certain period of time technology service. The Company recognizes revenue from one-time equipment installation at the point in time when the installation is completed and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Computing Power Sharing services without Equipment Installation

 

The Company also provides customers with computing power sharing services without equipment installation, which includes a one-time platform set up without equipment installation, and a certain period of time technology service. The Company recognizes revenue from one-time platform set up at the point in time when the platform is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

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Revenue from Air Mobility Drone Solution

 

The Company provides customers with air mobility drone solution, which includes UAS (Unmanned Aircraft Systems) main equipment, laser scanner, software package, camera system, etc. The solution includes a one-time system set up and a certain period of time technology service. The Company recognizes revenue from one-time system set up at the point in time when the system is set up to function and accepted by the customer. The Company recognize revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Project Management

 

The Company provides customers with project management, which includes project planning and implement, and providing needed technology human resources, such as construction engineers and software engineers for various projects. The Company recognizes revenue from project management over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Outsourcing Service

 

The Company provides customers with outsourcing service of temporary staffing for construction or technology industries. The Company recognizes revenue from outsourcing over time as the service is rendered.

 

Disaggregation of Revenue

 

The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the years ended December 31, 2022 and 2021 is as following:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Revenue from Sales of Computing Equipment  $894,736   $879,164 
Revenue from Computing Power Sharing services   1,092,012    2,166,953 
Revenue from Project Management for Computing Share   595,745    2,172,421 
Revenue from Air Mobility Drone Solution   797,396    822,078 
Revenue from Project Management   1,727,601    1,507,409 
Other   100,000    282,105 
           
Total Revenue  $5,207,490   $7,830,130 

 

As of December 31, 2022 and 2021, and for the years then ended, almost all the revenue generated are attributed to the Company’s operation in Japan.

 

Share-based Compensation

 

The Company accounts for share-based compensation awards in accordance with ASC 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.

 

MANAGEMENT

 

Board of Directors and Executive Officers

 

Our directors hold office until his or her term expires at the next annual meeting of stockholders for such director’s class or until his or her death, resignation, removal or the earlier termination of his or her term of office. Biographical information concerning our directors and executive officers listed above is set forth below.

 

Our directors and executive officers, their ages, positions held, and durations of such are as follows:

 

         
Name   Age   Position(s)
Taiji Ito   46   Chief Executive Officer, Director and Global Markets Executive Officer
Kensuke Okabe   40   Chief Financial Officer and Secretary
Daisuke Katano   38   Chief Operating Officer and Director
Steve Iwamura   64   Independent Director
Mike Sayama   68   Independent Director and Vice-Chair
Marehiko Yamada   49   Chairman and Independent Director

 

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Executive Officers and Directors

 

Taiji Ito. Mr. Ito was appointed as the Company’s Chief Executive Officer on March 20, 2023. Mr. Ito was appointed as the Company’s Global Markets Executive Officer and as a member of the Company’s Board of Directors on February 3, 2023. Mr. Ito has served as AERWINS Inc.’s Global Markets - Investor Relations and a member of AERWINS Inc.’s Board of Directors since June 15, 2022. Mr. Ito is also a member of the Board of Directors of A. L. I. Technologies since April 2022. From April 1999 to 2002, Mr. Ito served as Associate at Deutsche Bank in Tokyo. From May 2002 to July, 2008, Mr. Ito served as Vice President and thereafter Director at Credit Suisse in Japan and the United States. From August 2008 to April 2022, Mr. Ito served as a founder and CEO at Meta Capital. Mr. Ito has extensive experience in the financial field. Mr. Ito graduated with a bachelor’s degree in Economics from Keio University, Japan. Mr. Ito does not hold, and has not previously held, any directorships in any reporting companies.

 

Kensuke Okabe. Mr. Okabe was appointed as the Company’s Chief Financial officer on February 3, 2023. Mr. Okabe was appointed as the Secretary of the Company on March 22, 2023. Mr. Okabe has served as AERWINS Inc.’s Chief Financial Officer, Secretary and been a member of AERWINS Inc. Board of Directors since June 15, 2022. Mr. Okabe has also served as the Chief Financial Officer and a member of the Board of Directors of A. L. I. Technologies since July 1, 2022. From March, 2008 through June, 2022, Mr. Okabe served as a certified public accountant at Ernst & Young ShinNihon LLC. Mr. Okabe was seconded to the International Accounting Standards Board as a technical fellow from April 2019 to March 2021 and the Accounting Standards Board of Japan from July 2017 to March 2019. Before joining Ernst & Young ShinNihon LLC., Mr. Okabe worked for Yamaha Corporation. Mr. Okabe graduated with a bachelor’s degree in Economics from University of Tokyo.

 

Daisuke Katano. On March 22, 2023, the Company’s Board of Directors appointed Daisuke Katano to fill the vacancy on its Board of Directors created upon Mr. Komatsu’s resignation to serve as a Director of the Company, and on the same date also appointed Mr. Katano to serve as the Company’s Chief Operating Officer. Mr. Katano has been serving as the Chief Executive Officer of A.L.I. since March 2019. Mr. Katano was also a member of the Board of Directors of AERWINS, Inc. from June 15, 2022 to February 3, 2023. Mr. Katano was a member of the Board of Directors of A.L.I. from March 2018 to March 2019. Mr. Katano was a member of the Board of Directors of ASC Tech Agent from December 2019 to March 2022. Mr. Katano was CEO of YCP International Ltd. in UK from 2016 to 2018. Mr. Katano was CEO of YCP Japan from 2014 to 2017. Mr. Katano served as Consultant at The Boston Consulting Group in Japan from 2010 to 2014. Mr. Katano served as Business Producer at Dream incubator from 2007 to 2010. Mr. Katano has over 10 years’ experience in the business consulting field and 5 years of experience in our group. Mr. Katano graduated with a bachelor’s degree in Engineering from University of Tokyo, Japan. Mr. Katano has not previously held any directorships in any reporting companies.

 

Dr. Mike K. Sayama, Ph.D. Dr. Mike Sayama was appointed as an independent director of the Company on February 3, 2023 and previously served as a director of the Company prior to the Business Combination. Dr. Sayama was appointed as the Vice-Chair of the Company’s Board of Directors on March 22, 2023. Dr. Mike Sayama has been the Director of Strategy of Community First since January 2021. He was formerly the Executive Director since it was established in July 2016. As the founding executive director, he was responsible for operations, developing a strategic plan for an accountable health community in East Hawaii, community relations, and fund raising. From October 2013 to December 2018, Dr. Sayama served as a Vice President at Pono Health and was Director of Learning Health Homes, a project where he was responsible for managing the East Hawaii Independent Physicians Association (EHI) and implementing a data platform integrating health plan, hospital, and physician data. Dr. Sayama also facilitated the reorganization of EHI and development of its strategic direction. Community First, a 501(c) 3 non-profit, which serves as a neutral forum for healthcare stakeholders in East Hawaii, grew out of the Learning Health Homes Initiative. From August 1997 to October 2013, Dr. Sayama served as a Vice President of the Hawaii Medical Service Association, first in Health Benefits Management and then in Customer Relations. In the first position, he streamlined preauthorization and appeal processes, including the elimination of preauthorization for inpatient admissions without increase in inpatient utilization. In his second position he established call centers in Hilo which stabilized the call center work force and improved the timeliness and accuracy of customer service. In 2010, he played a key role in obtaining a $16 million Federal Beacon Grant for Hawaii County to develop models for the use of health information technology. From April 2001 to April 2005, Dr. Sayama was a Director on the City Bank Board, and from April 2005 to April 2009, was a Director on the Boards of Central Pacific Bank and Central Pacific Financial Corporation. Regarding education: In May 1975, he received his Bachelor of Arts degree in Psychology from Yale University, and in August 1979, his Master of Arts degree in Clinical Psychology from University of Michigan. In August 1982, Dr. Sayama received his Ph.D. degree in Clinical Psychology from University of Michigan. His community service includes being a Director on the Bay Clinic Board (the Federally Qualified Health Center in East Hawaii) and the Abbot of Chozen-ji, International Zen Dojo.

 

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Steve Iwamura Mr. Steve Iwamura was appointed as an independent director of the Company on February 3, 2023 and previously served as a director of the Company prior to the Business Combination. Mr. Steve Iwamura served as the Partner of Deloitte Touche Tohmatsu LLC from June 1999 to September 2020 based in Osaka, Japan. Mr. Iwamura was transferred to Japan and pioneered cross-border business advisory services to Japanese companies in Kansai. Mr. Iwamura also served foreign entities entering and doing business in Japan, including foreign joint venture agreement and operations, and venture companies seeking to partner with major Japanese companies. During his profession at Deloitte, Mr. Iwamura was responsible for the M&A negotiations and due diligence; forensic investigations on behalf of court-appointed administrators and creditors, documenting recommendations, providing litigation support and prepared testimony; cross-border restructuring and dispositions consulting together with coordinated multi-jurisdictional business planning; dispute resolution, mediation and negotiating settlement agreements; negotiating licensing agreements, distribution agreements and franchise rights; coordinating solutions for foreign venture operations in Japan involving foreign parent companies and major Japan company partners. Mr. Iwamura has been serving as an external advisor of Deloitte Touche Tohmatsu LLC, Osaka since October 2020, where he continues to perform similar services as above on a time limited basis under an annual services contract. From August 1984 to August 1990, Mr. Iwamura served as an Audit Manager of Deloitte & Touche based in Honolulu, Hawaii, where he provided audit services to Japanese subsidiaries in Hawaii. In June 1984, Mr. Iwamura received his BBA degree in Accounting at University of Hawaii.

 

Marehiko Yamada. Mr. Marehiko Yamada was appointed as an independent director of the Company on February 3, 2023. Mr. Marehiko Yamada was appointed as the Chairman of the Company’s Board of Directors on March 22, 2023. Mr. Marehiko Yamada has served as the Chief Executive Officer and representative director of The Gift Life Inc. since February 2012. Mr. Yamada also founded and served as the Chairman and the representative director of Bridal in Project since December 2002. From January 2010 through December 2012, he served as the Chief Executive Officer of Ole Lyngaard Japan. From August 2000 to August 2022, Mr. Yamada served as an account executive at Deutsche Bank. From April 1997 through August 2000, he served as an account executive at SMBC Nikko Securities Inc. Since February 2022, Mr. Yamada has served as a committee member of the Tokyo Riding Club. Since June 2021, he has served as an outside director of Piece to Peace. Since April 2022, Mr. Yamada has served as an outside director of All Blue Inc. and World Park Inc. Mr. Yamada has extensive experience in the financial field. He received his bachelor’s degree in Economics from Aoyama Gakuin University in Tokyo, Japan in March 1997. Mr. Yamada does not hold, and has not previously held, any directorships in any reporting companies.

 

Family Relationships

 

There are no family relationships among any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

 

Director Independence

 

Under the listing requirements and rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors and of certain board committees. There are currently 3 independent directors on the Company’s Board of Directors who constitute a majority of the Board of Directors. These independent directors are Steve Iwamura, Mike Sayama and Marehiko Yamada. For a discussion of the independent directors on the Company’s board committees please see below section titled “Committees of the Board of Directors.”

 

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Board Diversity Matrix as of March 31, 2023

 

Total Number of

Directors

   5            
    Female   Male   Non-Binary   Did Not Disclose Gender
Part I: Gender Identity                
Directors       5        
Part II: Demographic Background                
African American or Black                
Alaskan Native or American Indian                
Asian       5        
Hispanic or Latinx                
Native Hawaiian or Pacific Islander                
White                
Two or More Races or Ethnicities                
LGBTQ+                
Did Not Disclose Demographic Background                

 

Committees of the Board of Directors

 

Audit Committee

 

The Company’s audit committee of the board of directors consists of Messrs. Iwamura, Sayama and Yamada. The board of directors has determined each member is independent under the Nasdaq listing standards and Rule 10A-3(b)(1) under the Exchange Act. The chairperson of the audit committee is Mr. Iwamura. Mr. Iwamura also qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K and possesses financial sophistication, as defined under the rules of Nasdaq.

 

The primary purpose of the audit committee is to discharge the responsibilities of the board of directors with respect to our accounting, financial, and other reporting and internal control practices and to oversee our independent registered accounting firm. Specific responsibilities of our audit committee include:

 

  ● selecting a qualified firm to serve as the independent registered public accounting firm to audit the Company’s financial statements;
     
   ● helping to ensure the independence and performance of the independent registered public accounting firm;
     
   ● discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results;
     
   ● developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
     
   ● reviewing policies on risk assessment and risk management;
     
   ● reviewing related party transactions;
     
   ● obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes the Company’s internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and
     
   ● approving (or, as permitted, pre-approving) all audit and all permissible non-audit service to be performed by the independent registered public accounting firm.

 

Compensation Committee

 

The Company’s compensation committee consists of Messrs. Iwamura, Sayama and Yamada. The board of directors has determined each proposed member is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The chairperson of the compensation committee is Mr. Yamada. The primary purpose of the compensation committee is to discharge the responsibilities of the board of directors to oversee its compensation policies, plans and programs and to review and determine the compensation to be paid to its executive officers, directors and other senior management, as appropriate.

 

Specific responsibilities of the compensation committee include:

 

  ● reviewing and approving on an annual basis the corporate goals and objectives relevant to the Company’s Chief Executive Officer’s compensation, evaluating the Company’s Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of the Company’s Chief Executive Officer based on such evaluation;
     
   ● reviewing and approving the compensation of the Company’s other executive officers;
     
   ● reviewing and recommending to the Company’s board of directors the compensation of the Company’s directors;

 

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  ● reviewing the Company’s executive compensation policies and plans;
     
   ● reviewing and approving, or recommending that the Company’s board of directors approve, incentive compensation and equity plans, severance agreements, change-of-control protections and any other compensatory arrangements for the Company’s executive officers and other senior management, as appropriate;
     
   ● administering the Company’s incentive compensation equity-based incentive plans;
     
   ● selecting independent compensation consultants and assessing whether there are any conflicts of interest with any of the committee’s compensation advisors;
     
   ● assisting management in complying with the Company’s proxy statement and annual report disclosure requirements;
     
   ● if required, producing a report on executive compensation to be included in the Company’s annual proxy statement;
     
   ● reviewing and establishing general policies relating to compensation and benefits of the Company’s employees; and
     
   ● reviewing the Company’s overall compensation philosophy.

 

Nominating and Corporate Governance Committee

 

The Company’s nominating and corporate governance committee consists of Messrs. Iwamura, Sayama and Yamada. The board of directors has determined each proposed member is independent under Nasdaq listing standards. The chairperson of the nominating and corporate governance committee is Mr. Sayama.

 

Specific responsibilities of the nominating and corporate governance committee include:

 

  ● identifying, evaluating and selecting, or recommending that the Company’s board of directors approve, nominees for election to the Company’s board of directors;
     
   ● evaluating the performance of the Company’s board of directors and of individual directors;
     
   ● reviewing developments in corporate governance practices;
     
   ● evaluating the adequacy of the Company’s corporate governance practices and reporting;
     
   ● developing and making recommendations to the Company’s board of directors regarding corporate governance guidelines and matters.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Company’s compensation committee has ever been an officer or employee of the Company. None of the Company’s executive officers serve, or have served during the last year, as a member of the board of directors, compensation committee, or other board committee performing equivalent functions of any other entity that has one or more executive officers serving as one of our directors or on the Company’s compensation committee.

 

Code of Business Conduct and Ethics

 

On February 3, 2023, the Company adopted a new Code of Business Conduct and Ethics that applies to all of its employees, officers and directors, including its Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers including those officers responsible for financial reporting. The adoption of the Code of Business Conduct and Ethics did not relate to or result in any waiver, explicit or implicit, of any provision of the previous Code of Conduct. Any waivers under the Code of Business Conduct and Ethics will be disclosed on a Current Report on Form 8-K or as otherwise permitted by the rules of the SEC and Nasdaq.

 

Limitation on Liability and Indemnification of Officers and Directors

 

Our Amended Charter provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our Amended Charter provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the General Corporation Law of the State of Delaware.

 

On February 7, 2023, the Company entered into indemnification agreements, with each of its directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements will require the Company, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

EXECUTIVE COMPENSATION

 

Executive Compensation of the Company Prior to the Business Combination

 

None of the Company’s executive officers or directors prior to the Business Combination received any cash compensation for services rendered to the Company. None of the Company’s executive officers or directors prior to the Business Combination were granted any stock options or stock appreciation rights or any other awards under long-term incentive plans. At the closing of the Business Combination, the Company’s initial stockholders, executive officers and directors, or any of their respective affiliates prior to the Business Combination were reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.

 

Executive Compensation of AERWINS, Inc.

 

2022 Summary Compensation Table

 

The following table presents information regarding the compensation paid by A. L. I. Technologies Inc., AERWINS Inc.’s operating subsidiary, to Shuhei Komatsu, AERWINS Inc.’s former Chief Executive Officer, and Kazuo Miura, AERWINS Inc.’s Chief Product Officer, for services rendered to A. L. I. Technologies Inc. during the fiscal years ended December 31, 2022 and 2021. No other executive officers of AERWINS Inc.’s received total compensation in excess of US$100,000.

 

Name and Position  Year   Salary
($)		   Bonus
($)		   Stock
Awards
($)		   Option
Awards
($)		   Non-
Equity
Incentive
Plan
Compensation
($)		   Non-
qualified
Deferred
Compensation
Earnings
($)		   All
Other
Compensation
($)		   Total
($)		 
Shuhei Komatsu  2022    67,376    -    -    -    -        -        -    67,376 
AERWINS Inc. Former Chief Executive Officer (principal executive officer)  2021    37,326    -    -    -    -    -    -    37,326 
Kazuo Miura  2022    156,727    -    -    -    -    -    -    156,727 
AERWINS Inc. Former Chief Product Officer  2021    169,333    -    -    -    -    -    -    169,333 

 

Employment Agreements of AERWINS Inc.

 

AERWINS Inc. has not entered into any employment agreements with its executive officers since its inception.

 

Executive Compensation of the Company After the Business Combination

 

Employment Agreements

 

On February 3, 2023, the Company entered into employment agreements (the “Employment Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (Former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer). The Employment Agreements all provide for at-will employment that may be terminated by the Company for death or disability and with or without cause, by the executive with or without good reason, or mutually terminated by the parties. The Employment Agreements for Mr. Komatsu, Mr. Ito, Mr. Miura, and Mr. Okabe provide for a severance payment equal to the remaining base salary for the remaining period of the respective term of employment (each term is one (1) year) upon termination by the Company without cause or termination by such executive for good reason. The executive agreements provide for a base salary of $200,000, $200,000, $200,000 and $200,000 for Mr. Komatsu, Mr. Ito, Mr. Miura and Mr. Okabe, respectively, as well as possible annual performance bonuses and equity grants under the equity incentive plan if and when determined by the Company’s Compensation Committee.

 

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Option Award Agreements

 

On February 3, 2023, the Company entered into Option Award Agreements (the “Option Award Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (former Chief Financial Officer).

 

The Option Award Agreements grants to each of the following persons options to acquire shares of the Company’s common stock, to vest as set forth in the Option Award Agreements, as follows:

 

  ● Shuhei Komatsu - 1,525,196 options at an exercise price of $0.00015 per share of common stock
     
  ● Taiji Ito - 703,937 options at an exercise price of $0.00015 per share of common stock
     
  ● Kazuo Miura - 739,916 options at an exercise price of $0.00015 per share of common stock
     
  ● Kensuke Okabe - 469,291 options at an exercise price of $0.00015 per share of common stock

 

Equity Incentive Compensation Plan

 

At the Special Meeting of stockholders on January 27, 2023, our shareholders approved the AERWINS Technologies Inc. 2022 Equity Incentive Plan (the “Equity Incentive Plan”). Under the Equity Incentive Plan, 10,089,442 shares of common stock (the “Initial Limit”) are authorized under the Equity Incentive Plan for issuance to officers, directors, employees and consultants of the Company. As of March 31, 2023, there were no shares issued under the Equity Incentive Plan.

 

The Equity Incentive Plan allows the Company to make equity and equity-based incentive awards to officers, employees, directors and consultants of the Company. The Board anticipates that providing such persons with a direct stake in the Company will assure a closer alignment of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

 

The Initial Limit is subject to adjustment in the event of a reorganization, recapitalization, reclassification, stock split, stock dividend, reverse stock split or other similar change in the Company’s capitalization. The maximum aggregate number of shares of common stock of the Company that may be issued upon exercise of incentive stock options under the Equity Incentive Plan shall not exceed the Initial Limit, as adjusted. Shares underlying any awards under the Equity Incentive Plan that are forfeited, cancelled, held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added back to the shares available for issuance under the Equity Incentive Plan and, to the extent permitted under Section 422 of the Code and the regulations promulgated thereunder, the shares that may be issued as incentive stock options.

 

The Equity Incentive Plan contains a limitation whereby the value of all awards under the Equity Incentive Plan and all other cash compensation paid by the Company to any non-employee director may not exceed $1,000,000 for the first calendar year a non-employee director is initially appointed to the Company’s board of directors, and $750,000 in any other calendar year.

 

The Equity Incentive Plan will be administered by the Company’s compensation committee pursuant to the terms of the Equity Incentive Plan. The plan administrator, which initially will be the compensation committee of the Company, will have full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Equity Incentive Plan. The plan administrator may delegate to a committee consisting of one or more officers of the Company, including the Chief Executive Officer of the Company, the authority to awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act and not members of the delegated committee, subject to certain limitations and guidelines.

 

Persons eligible to participate in the Equity Incentive Plan will be officers, employees, non-employee directors and consultants of the Company and its subsidiaries as selected from time to time by the plan administrator in its discretion.

 

The Equity Incentive Plan permits the granting of both options to purchase common stock of the Company intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. Options granted under the Equity Incentive Plan will be non-qualified options if they fail to qualify as incentive stock options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive awards under the Equity Incentive Plan. The option exercise price of each option will be determined by the plan administrator but generally may not be less than 100% of the fair market value of the common stock of the Company on the date of grant or, in the case of an incentive stock option granted to a ten percent stockholder, 110% of such share’s fair market value. The term of each option will be fixed by the plan administrator and may not exceed ten years from the date of grant. The plan administrator will determine at what time or times each option may be exercised, including the ability to accelerate the vesting of such options.

 

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Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the plan administrator or by delivery (or attestation to the ownership) of shares of common stock of the Company that are beneficially owned by the optionee free of restrictions or were purchased in the open market. Subject to applicable law, the exercise price may also be delivered by a broker pursuant to irrevocable instructions to the broker from the optionee. In addition, the plan administrator may permit non-qualified options to be exercised using a “net exercise” arrangement that reduces the number of shares issued to the optionee by the largest whole number of shares with fair market value that does not exceed the aggregate exercise price.

 

The plan administrator may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock of the Company, or cash, equal to the value of the appreciation in the Company’s stock price over the exercise price. The exercise price generally may not be less than 100% of the fair market value of common stock of the Company on the date of grant. The term of each stock appreciation right will be fixed by the plan administrator and may not exceed ten years from the date of grant. The plan administrator will determine at what time or times each stock appreciation right may be exercised, including the ability to accelerate the vesting of such stock appreciation rights.

 

The plan administrator may award restricted shares of common stock of the Company and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified vesting period. The plan administrator may also grant shares of common stock of the Company that are free from any restrictions under the Equity Incentive Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant. The plan administrator may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock of the Company.

 

The plan administrator may grant cash-based awards under the Equity Incentive Plan to participants, subject to the achievement of certain performance goals, including continued employment with the Company.

 

The Equity Incentive Plan requires the plan administrator to make appropriate adjustments to the number of shares of common stock that are subject to the Equity Incentive Plan, to certain limits in the Equity Incentive Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events.

 

Except as set forth in a stock award agreement issued under the Equity Incentive Plan, in the event of (i) a transfer of all or substantially all of the Company’s assets, (ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or (iii) the consummation of a transaction, or series of related transactions, in which any person becomes the beneficial owner directly or indirectly, of more than 50% of Company’s then outstanding capital stock, each outstanding stock award (vested or unvested) will be treated as the plan administrator determines, which may include (a) the Company’s continuation of such outstanding stock awards (if the Company is the surviving corporation); (b) the assumption of such outstanding stock awards by the surviving corporation or its parent; (c) the substitution by the surviving corporation or its parent of new stock options or other equity awards for such stock awards; (d) the cancellation of such stock awards in exchange for a payment to the participants equal to the excess of (1) the fair market value of the shares subject to such stock awards as of the closing date of such corporate transaction over (2) the exercise price or purchase price paid or to be paid (if any) for the shares subject to the stock awards (which payment may be subject to the same conditions that apply to the consideration that will be paid to holders of shares in connection with the transaction, subject to applicable law); or (e) the opportunity for participants to exercise the stock options prior to the occurrence of the corporate transaction and the termination (for no consideration) upon the consummation of such corporate transaction of any stock options not exercised prior thereto.

 

The Equity Incentive Plan provides that a stock award may be subject to additional acceleration of vesting and exercisability upon or after a “Change in Control” (as defined in the Equity Incentive Plan) as may be provided in the award agreement for such stock award or as may be provided in any other written agreement between the Company or any affiliate and the participant, but in the absence of such provision, no such acceleration will occur.

 

Participants in the Equity Incentive Plan are responsible for the payment of any federal, state or local taxes that the Company or its subsidiaries are required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. The plan administrator may cause any tax withholding obligation of the Company or its subsidiaries to be satisfied, in whole or in part, by the applicable entity withholding from shares of common stock of the Company to be issued pursuant to an award a number of shares with an aggregate fair market value that would satisfy the withholding amount due. The plan administrator may also require any tax withholding obligation of the Company or its subsidiaries to be satisfied, in whole or in part, by an arrangement whereby a certain number of shares issued pursuant to any award are immediately sold and proceeds from such sale are remitted to the Company or its subsidiaries in an amount that would satisfy the withholding amount due.

 

The Equity Incentive Plan generally does not allow for the transfer or assignment of awards, other than by will or by the laws of descent and distribution or pursuant to a domestic relations order; however, the plan administrator may permit the transfer of non-qualified stock options by gift to an immediate family member, to trusts for the benefit of family members, or to partnerships in which such family members are the only partners.

 

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The plan administrator may amend or discontinue the Equity Incentive Plan and the plan administrator may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may materially and adversely affect rights under an award without the holder’s consent. Certain amendments to the Equity Incentive Plan will require the approval of the Company’s stockholders. Generally, without shareholder approval, (i) no amendment or modification of the Equity Incentive Plan may reduce the exercise price of any stock option or the strike price of any stock appreciation right, (ii) the plan administrator may not cancel any outstanding stock option or stock appreciation right where the fair market value of the common stock underlying such stock option or stock appreciation right is less than its exercise price and replace it with a new option or stock appreciation right, another award or cash and (iii) the plan administrator may not take any other action that is considered a “repricing” for purposes of the shareholder approval rules of the applicable securities exchange.

 

All stock awards granted under the Equity Incentive Plan will be subject to recoupment in accordance with any clawback policy that Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Company’s board may impose such other clawback, recovery or recoupment provisions in a stock award agreement as the Company’s board determines necessary or appropriate. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company.

 

No awards may be granted under the Equity Incentive Plan after the date that is ten years from the Equity Incentive Plan effective fate.

 

Director Compensation

 

Currently, non-employee directors do not receive any compensation for their services as directors. In the future, the Company expects to develop and adopt a compensation plan for all directors.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding the beneficial ownership of shares of AERWINS Technologies’ common stock as of March 31, 2023 by:

 

  ● each person known by AERWINS Technologies to be the beneficial owner of more than 5% of any class of AERWINS Technologies’ common stock;
     
  ● each of AERWINS Technologies’ officers and directors;
     
  ● all executive officers and directors of AERWINS Technologies.

 

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.

 

In the table below, percentage ownership is based on 56,139,855 shares of common stock outstanding as of March 31, 2023. The table below includes the common stock underlying the Private Placement Warrants held or to be held by our Sponsor because these securities are exercisable within sixty (60) days.

 

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. Unless otherwise noted, the business address of each of the following entities or individuals is c/o of the Company at Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome, Minato-ku, Tokyo, Japan 105-0011.

 

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Name and Address of Beneficial Owners  Number of
Shares
Beneficially
Owned		   % of Class(1) 
Directors and Executive Officers          
Daisuke Katano(2)   2,344,741    4.18%
Kensuke Okabe(3)   469,291    * 
Taiji Ito(4)   703,937    1.24%
Mike K. Sayama   15,000    * 
Steve Iwamura   15,000    * 
Marehiko Yamada   -    -%
All named executive officers and directors as a group 6 persons   3,547,969    6.19%
Greater than 5% Holders:          
Mehana Equity LLC(5)   3,989,806    7.11%
Shuhei Komatsu   15,187,425    27.05%

 

* Less than 1.0%

 

(1) Percentages are based on 56,139,855 shares of AERWINS Technologies’ common stock outstanding following the consummation of the Business Combination.
(2) Includes 90,739 shares held by DK MANAGEMENT CO., LTD over which Daisuke Katano exercises voting and dispositive control.
(3) Includes 469,291 shares of common stock underlying options held by Kensuke Okabe.
(4) Includes 703,937 shares of common stock underlying options held by Taiji Ito.
(5) Mehana Equity LLC is the record holder of the securities reported herein. Dustin Shindo, our former Chairman, is the managing member of the Sponsor. By virtue of this relationship, Mr. Shindo may be deemed to share beneficial ownership of the securities held of record by the Sponsor. Mr. Shindo disclaims any such beneficial ownership except to the extent of his pecuniary interest. These shares include (i) 391,256 shares of common stock issuable upon exercise of warrants held by Mehana Equity LLC (ii) 129,375 shares of common stock issuable upon exercise of warrants held by Mehana Capital LLC (iii) 3,296,675 shares held by Mehana Equity LLC and (iv) 172,500 shares held by Mehana Capital, LLC.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Policies and Procedures for Related Party Transactions

 

Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiary were or are a party, or in which we or our subsidiary were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

 

We recognize that transactions between us and any of our directors or executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders.

 

The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Audit Committee, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.

 

Related Party Transactions

 

The following sets forth all transactions since the beginning of the Company’s last fiscal year, January 1, 2022 as well as any currently proposed transaction in which the Company was or is to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest:

 

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Related Party Transactions Prior to the Business Combination

 

Founder Shares

 

On March 22, 2021, the Company issued an aggregate of 2,875,000 shares of Class B common stock to the Sponsor for an aggregate purchase price of $25,000 in cash. Such Class B common stock included an aggregate of up to 375,000 shares that were subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor would collectively own at least 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the initial stockholders do not purchase any Public Shares in the Initial Public Offering and excluding the Placement Units and underlying securities). The underwriters exercised the over-allotment option in full, so those shares are no longer subject to forfeiture.

 

The initial stockholders have agreed not to transfer, assign or sell any of the Class B common stock (except to certain permitted transferees) until, with respect to any of the Class B common stock, the earlier of (i) six months after the date of the consummation of a business combination, or (ii) the date on which the closing price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a business combination, with respect to the remaining any of the Class B common stock, upon six months after the date of the consummation of a business combination, or earlier, in each case, if, subsequent to a business combination, the Company consummated a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their common stock for cash, securities or other property.

 

Promissory Note - Related Party

 

On March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing and was payable on the earlier of July 31, 2021 or the completion of the Initial Public Offering. Upon IPO, the Company had borrowed $186,542 under the Note. On August 17, 2021, the outstanding balance owed under the Note was repaid in full. The Company no longer has the ability to borrow under the Note.

 

Related Party Loans

 

In order to finance transaction costs in connection with a business combination, the Sponsor agreed to provide the Company with a loan up to $1,500,000 as may be required (“Sponsor Working Capital Loans”). Such Sponsor Working Capital Loans would either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such loans may have been converted upon consummation of a business combination into additional Placement Units at a price of $10.00 per Unit. In the event that a business combination dis not close, the Company may have used a portion of proceeds held outside the Trust Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor Working Capital Loans.

 

On September 23, 2021, the Company entered into a Sponsor Working Capital Loan in the amount of up to $1,500,000. During the year ended December 31, 2022, the Company received proceeds of $960,000. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The unpaid principal balance on the Sponsor Working Capital Loan may have been convertible into units at the option of the Sponsor at a price of $10.00 per unit. The unit would have been identical to the Placement Units. Using the fair value option, the Sponsor Working Capital Loan is required to be recorded at its’ initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face value of the Sponsor Working Capital Loan and fair value at issuance are recognized as either an expense in the consolidated statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Sponsor Working Capital Loan are recognized as a non-cash gain or loss in the consolidated statement of operations. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $92,000 at initial measurement. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $150,000 at December 31, 2022.

 

Extension Private Placements

 

If the Company anticipated that it may have not been able to consummate the initial business combination within 12 months from the date of the Initial Public Offering, the Company may, by resolution of the board if requested by the Sponsor, extend the period of time to consummate a business combination up to two times, each by an additional three months (for a total of up to 18 months to complete a business combination), subject to the Sponsor depositing additional funds into the Trust Account as set out below. Pursuant to the terms of the third amended and restated certificate of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for the Company to consummate the initial business combination to be extended, the Sponsor or its affiliates or designees, must deposit into the Trust Account $1,150,000 ($0.10 per Unit in either case), on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible business combination period of 18 months at a total payment value of $2,300,000 ($0.10 per Unit).

 

On August 10, 2022, the Company received $1,150,000 in funding from Mehana Capital, from the August Extension. Mehana Capital purchased an aggregate of 115,000 Placement Units of the Company, each unit consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on August 10, 2022.

 

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On November 9, 2022, the Company received an additional $1,150,000 in funding, of which $575,000 was from Mehana Capital and $575,000 was from AERWINS, Inc. from the November Extension. Mehana Capital purchased an additional 57,500 Placement Units and AERWINS, Inc. purchased 57,500 Placement Units, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on November 10, 2022.

 

The proceeds from the sale of the Placement Units from both the August Extension and the November Extension were added to the net proceeds from the Initial Public Offering held in the Trust Account. The Placement Units are identical to the Units sold in the Initial Public Offering, except for the Placement Warrants.

 

Administrative Support Agreement

 

The Company’s Sponsor had agreed, commencing from the date that the Company’s securities are first listed on NASDAQ through the earlier of the Company’s consummation of a business combination and its liquidation, to make available to the Company certain general and administrative services, including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay to Mehana Equity LLC, the Sponsor, $10,000 per month for these services during the 18-month period to complete a business combination. The Sponsor agreed to pay for the formation cost of $229 and waived to seek reimbursement from the Company for such cost. For the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, the Company incurred expenses of $120,000 and $47,096, respectively, under this agreement.

 

Related Party Transactions After the Business Combination

 

Employment Agreements

 

On February 3, 2023, the Company entered into employment agreements (the “Employment Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (Chief Product Officer) and Kensuke Okabe (former Chief Financial Officer). The Employment Agreements all provide for at-will employment that may be terminated by the Company for death or disability and with or without cause, by the executive with or without good reason, or mutually terminated by the parties. The Employment Agreements for Mr. Komatsu, Mr. Ito, Mr. Miura, and Mr. Okabe provide for a severance payment equal to the remaining base salary for the remaining period of the respective term of employment (each term is one (1) year) upon termination by the Company without cause or termination by such executive for good reason. The executive agreements provide for a base salary of $200,000, $200,000, $200,000 and $200,000 for Mr. Komatsu, Mr. Ito, Mr. Miura and Mr. Okabe, respectively, as well as possible annual performance bonuses and equity grants under the equity incentive plan if and when determined by the Company’s Compensation Committee.

 

Option Award Agreements

 

On February 3, 2023, the Company entered into Option Award Agreements (the “Option Award Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer).

 

The Option Award Agreements grants to each of the following persons options to acquire shares of the Company’s common stock, to vest as set forth in the Option Award Agreements, as follows:

 

 

  ● Shuhei Komatsu - 1,525,196 options at an exercise price of $0.00015 per share of common stock
     
  ● Taiji Ito - 703,937 options at an exercise price of $0.00015 per share of common stock
     
  ● Kazuo Miura - 739,916 options at an exercise price of $0.00015 per share of common stock
     
  ● Kensuke Okabe - 469,291 options at an exercise price of $0.00015 per share of common stock

 

Loan Agreement

 

On February 27, 2023, the wholly owned subsidiary of the Company’s wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“A.L.I.”) entered into a Loan Agreement with Shuhei Komatsu, the Company’s former Chief Executive Officer (the “Agreement”). The Agreement was approved by the Company’s Board of Directors on February 26, 2023 and by the Company’s Compensation Committee on February 26, 2023. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,469,400 US Dollars based on a conversion rate of $0.007347 US Dollar for each $1 yen as of February 27, 2023) (the “Loan”). The maturity date of the Loan under the Agreement is April 15, 2023 (the “Maturity Date”). The interest rate under the Agreement is 2.475% per annum (calculated on a pro rata basis for 365 days a year), and the interest period is from February 27, 2023 until the Maturity Date.

 

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If any of the following events occur while the Loan is outstanding, the Loan will become immediately due and payable together with all interest thereon: (i) if payment is suspended or bankruptcy proceedings are initiated against A.L.I., (ii) if A.L.I. initiates legal proceedings related to debt reorganization involving court intervention or when facts are recognized as having occurred that payment has been suspended, (iii) if provisional seizure, preservation seizure, seizure order, or delinquent disposition is received by A.L.I., (iv) if A.L.I. is delayed in make any payments under the Agreement, (v) if A.L.I. violates any provisions of the Agreement or (vi) upon the occurrence of any equivalent reasons requiring the preservation of the right to claim arise in addition to the foregoing. Pursuant to the Agreement, if A.L.I. does not timely repay the Loan in accordance with the terms of the Agreement, the interest rate on the Loan will increase to 14.6% per annum until the full payment is made. Under the Agreement, for any litigation arising under the Agreement, regardless of the amount or claim, the exclusive court of jurisdiction will be the Tokyo District Court.

 

DESCRIPTION OF SECURITIES

 

The following summary of the material terms of our securities is not intended to be a complete summary of the rights and preferences of such securities. We urge you to read our Fourth Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on February 3, 2023 (the “Amended Charter”), and our Amended and Restated Bylaws adopted on February 3, 2023 (the “Amended Bylaws”), copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part.

 

Authorized Capital Stock

 

Pursuant to the Amended Charter, the authorized capital stock of the Company consists of 400,000,000 shares of common stock, $0.000001 par value (the “Common Stock”), and 20,000,000 shares of undesignated preferred stock, $0.000001 par value (the “Preferred Stock”). The following description summarizes the material terms of the capital stock of the Company as set forth in the Amended Charter. Because it is only a summary, it may not contain all the information that is important to you.

 

Common Stock

 

Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Unless specified in the Amended Charter or Amended Bylaws, or as required by applicable provisions of the Delaware General Corporate Law (“DGCL”) or applicable stock exchange rules, the affirmative vote of a majority of our shares of the Common Stock that are voted is required to approve any such matter voted on by our stockholders. Our board of directors will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Our stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.

 

No shareholders of the Company holding Common Stock have any preemptive or other right to subscribe for any additional unissued or treasury shares of stock or for other securities of any class, or for rights, warrants or options to purchase stock, or for scrip, or for securities of any kind convertible into stock or carrying stock purchase warrants or privileges unless so authorized by the Company.

 

 

Preferred Stock

 

The Amended Charter provides that shares of Preferred Stock may be issued from time to time in one or more series. Our board of directors will be authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our board of directors will be able to, without stockholder approval, issue Preferred Stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the Common Stock and could have anti-takeover effects. The ability of our board of directors to issue Preferred Stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no Preferred Stock outstanding at the date hereof. Although we do not currently intend to issue any shares of Preferred Stock, we cannot assure you that we will not do so in the future.

 

Certain Anti-Takeover Provisions of Delaware Law and our Amended Charter and Amended Bylaws

 

The Company will opt out of Section 203 of the DGCL. Section 203 of the DGCL prohibits a Delaware corporation from engaging in a “business combination” with an “interested stockholder” (i.e. a stockholder owning 15% or more of company’s voting stock) for three years following the time that the “interested stockholder” becomes such, subject to certain exceptions.

 

The Amended Charter provides that our board of directors are classified into three classes of directors. As a result, in most circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings.

 

Our authorized but unissued Common Stock and Preferred Stock are available for future issuances without stockholder approval (including a specified future issuance) and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

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Exclusive Forum for Certain Lawsuits

 

The Amended Charter requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

 

Notwithstanding the Amended Charter provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, (i) the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (ii) unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder.

 

Special Meeting of Stockholders

 

The Amended Bylaws provide that special meetings of our stockholders may be called only by a majority vote of our board of directors, by our Chief Executive Officer or by our Chairman.

 

Advance Notice Requirements for Securityholder Proposals and Director Nominations

 

The Amended Bylaws provide that stockholders seeking to bring business before the Company’s annual meeting of stockholders, or to nominate candidates for election as directors at its annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be received by the company secretary at our principal executive offices not later than the close of business on the 90th day nor earlier than the opening of business on the 120th day prior to the anniversary date of the immediately preceding annual meeting of stockholders. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods contained therein. Our Amended Bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

 

SELLING SECURITYHOLDER

 

This prospectus relates to the possible offer and resale from time to time by Lind Global Fund II LP (the “Selling Securityholder”) named in the table below of any or all of the shares of Common Stock that has been or may be issued by us to the Selling Securityholder upon conversions under the Convertible Notes and exercises of the Warrants. For additional information regarding the issuance of the shares to be offered by the Selling Securityholder included in this prospectus, see section entitled “The Lind Global Financing” above. We are registering the shares of Common Stock pursuant to the provisions of the Purchase Agreement in order to permit the Selling Securityholder to offer the shares for resale from time to time. Except for the transactions contemplated by the Purchase Agreement, the Selling Securityholder has not had any material relationship with us or any of our affiliates within the past three years.

 

The table below presents information regarding the Selling Securityholder and the shares of Common Stock that it may offer from time to time upon conversions under the Convertible Notes and exercises of the Warrants under this prospectus. This table is prepared based on information supplied to us by the Selling Securityholder, and reflects holdings as of May 9, 2023. As used in this prospectus, the term “Selling Securityholder” includes the Selling Securityholder, and any donees, pledgees, transferees, or other successors-in-interest selling shares received after the date of this prospectus from the Selling Securityholder as a gift, pledge, or other non-sale related transfer. The number of shares in the column “Maximum Number of Shares of Common Stock to be Offered Pursuant to this prospectus” represents all of the shares of Common Stock that the Selling Securityholder may offer under this prospectus. The Selling Securityholder may sell some, all or none of its shares offered by this prospectus. We do not know how long the Selling Securityholder will hold the shares before selling them, and we currently have no agreements, arrangements, or understandings with the Selling Securityholder regarding the sale of any of the share.

 

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act, and includes shares of Common Stock with respect to which the Selling Securityholder have voting and investment power. With respect to the Purchase Agreement with the Selling Securityholder, because the purchase price of the shares of Common Stock issuable under the Purchase Agreement is determined on each settlement date, the number of shares that may actually be sold by us under the Purchase Agreement may be fewer than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the shares offered by the Selling Securityholder pursuant to this prospectus.

 

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   Number of Shares
of Common Stock
Owned Prior to Offering		  

Maximum Number of

Shares of

Common Stock

to be Offered

Pursuant to this

   Number of Shares
of Common Stock
Owned after Offering		 
Name of Selling Securityholder  Number   Percent(1)   Prospectus   Number (2)   Percent 
Lind Global Fund II LP (3)   -(4)   *%   11,222,357    -    -%

 

*less than 1%

 

  (1) Applicable percentage ownership is based on 56,139,855 shares of Common Stock as of May 9, 2023.

 

(2)Assumes the sale of all shares being offered pursuant to this prospectus.

 

(3)The Selling Securityholder’s principal business is that of a private investment firm. We have been advised that the Selling Securityholder is not a member of FINRA, or independent broker-dealers, and that neither the Selling Securityholder nor any of its affiliates is an affiliate or an associated person of any FINRA member or independent broker-dealer. The securities are directly owned by Lind Global. Jeff Easton is the Managing Member of The Lind Partners, LLC, which is the Investment Manager of Lind Global, and in such capacity has the right to vote and dispose of the securities held by such entity. Mr. Easton disclaims beneficial ownership over the securities listed except to the extent of his pecuniary interest therein. The address for Lind Global is 444 Madison Avenue, 41st Floor, New York, NY 10022.

 

(4)Number of shares owned prior to this offering is as of May 9, 2023. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded from the number of shares beneficially owned prior to the offering all of the shares that the Selling Securityholder may be required to purchase under the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to conditions contained in the Purchase Agreement, the satisfaction of which are entirely outside of the Selling Securityholder’s control, including the registration statement that includes this prospectus becoming and remaining effective. Furthermore, the purchases of shares of our Common Stock are subject to certain agreed upon maximum amount limitations set forth in the Purchase Agreement. Also, the Purchase Agreement prohibits us from issuing and selling any shares to the Selling Securityholder to the extent such shares, when aggregated with all other shares then beneficially owned by the Selling Securityholder, would cause the Selling Securityholder’s beneficial ownership of shares of our Common Stock to exceed 4.99% (the “Beneficial Ownership Cap”). The Purchase Agreement also prohibits us from issuing or selling shares of Common Stock under the Purchase Agreement in excess of the Exchange Cap, unless we obtain stockholder approval to do so. Neither the Beneficial Ownership Cap nor the Exchange Cap (to the extent applicable under Nasdaq rules) may be amended or waived under the Purchase Agreement.

 

PLAN OF DISTRIBUTION

 

Resale of Common Stock by Selling Securityholder

 

We are registering Common Stock offered by this prospectus on behalf of the Selling Securityholder. The Selling Securityholder, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling Common Stock received after the date of this prospectus from the Selling Securityholder as a gift, pledge, limited liability company or partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their securities on the Nasdaq Capital Markets (in the case of our Common Stock) or any other stock exchange, market or trading facility on which such securities are traded or in private transactions. The shares registered for resale in this prospectus being offered by the Selling Securityholder will be sold at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at negotiated prices.

 

The Selling Securityholder may, from time to time, sell any or all of its shares of our Common Stock on any stock exchange, market, or trading facility on which the Common Stock is traded or in private transactions. The Selling Securityholder may use any one or more of the following methods when selling the Common Stock:

 

  ● ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

 

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  ● block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

  ● purchases by a broker dealer as principal and resale by the broker dealer for its account;

 

  ● an exchange distribution in accordance with the rules of the applicable exchange;

 

  ● privately negotiated transactions;

 

  ● settlement of short sales;

 

  ● in transactions through broker dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security;

 

  ● through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

  ● a combination of any such methods of sale; or

 

  ● any other method permitted pursuant to applicable law.

 

The Selling Securityholder also may resell all or a portion of their securities in open market transactions in reliance upon Rule 144 under the Securities Act, provided that it meets the criteria and conform to the requirements of that rule.

 

The aggregate proceeds to the Selling Securityholder from the sale of the securities offered by them will be the purchase price of the security less discounts or commissions, if any. We will receive proceeds from the sale of Shares to the Selling Securityholder under the Purchase Agreement, however we will not receive any of the proceeds from the resale of securities being offered by the Selling Securityholder named herein.

 

To the extent required by the Securities Act and the rules and regulations thereunder, the Selling Securityholder and any broker-dealer participating in the distribution of the securities may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the securities is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of securities being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Securityholder and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

 

Pursuant to the terms of the Purchase Agreement, the Selling Securityholder may not engage in any short sales of the Company’s shares of Common Stock or other hedging activities. The Selling Securityholder may sell the Shares directly to market makers acting as principals and/or broker-dealers acting as agents for itself or its customers. Such broker-dealers may receive compensation in the form of discounts, concessions, or commissions from the Selling Securityholder and/or the purchasers of Shares for whom such broker-dealers may act as agents or to whom it sells as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the Shares will do so for their own account and at their own risk. It is possible that the Selling Securityholder will attempt to sell shares of the Company’s Common Stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The Selling Securityholder cannot assure that all or any of the Shares offered in this prospectus will be issued to, or sold by, the Selling Securityholder. In addition, any brokers, dealers, or agents, upon effecting the sale of any of the Shares offered in this prospectus are “underwriters” as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

Discounts, concessions, commissions, and similar selling expenses, if any, attributable to the sale of Shares will be borne by the Selling Securityholder. The Selling Securityholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the Shares if liabilities are imposed on that person under the Securities Act.

 

We are required to pay all fees and expenses incident to the registration of the shares of Common Stock. Otherwise, all discounts, commissions or fees incurred in connection with the sale of our shares of Common Stock offered hereby will be paid by the Selling Securityholder.

 

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The Selling Securityholder shall acquire the securities offered hereby in the ordinary course of its business under the Purchase Agreement and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of Common Stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of Common Stock by the Selling Securityholder. We will file a supplement to this prospectus if the Selling Securityholder enters into a material arrangement with a broker-dealer for sale of shares of Common Stock being registered. If the Selling Securityholder uses this prospectus for any sale of the shares of Common Stock, it will be subject to the Prospectus delivery requirements of the Securities Act.

 

Pursuant to a requirement by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.

 

Blue Sky Restrictions on Resale

 

In order to comply with the securities laws of some states, if applicable, our securities may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states our securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

If the Selling Securityholder wants to sell its securities under this prospectus in the United States, the Selling Securityholder will also need to comply with state securities laws, also known as “Blue Sky laws,” with regard to secondary sales. All states offer a variety of exemptions from registration for secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under Section 12(g) of the Exchange Act, or for securities of issuers that publish continuous disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s. The broker for the Selling Securityholder will be able to advise the Selling Securityholder in which states our securities are exempt from registration with that state for secondary sales.

 

Any person who purchases our securities from the Selling Securityholder offered by this prospectus who then wants to sell such securities will also have to comply with Blue Sky laws regarding secondary sales.

 

When the registration statement that includes this prospectus becomes effective, and the Selling Securityholder indicates in which state(s) such Selling Securityholder desires to sell such Selling Securityholder’s securities, we will be able to identify whether such Selling Securityholder will need to register or will be able to rely on an exemption therefrom.

 

We have advised the Selling Securityholder that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market and to the activities of the Selling Securityholder and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholder for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholder may indemnify any broker-dealer that participates in transactions involving the sale of their securities against certain liabilities, including liabilities arising under the Securities Act.

 

We are required to pay all of our fees and expenses incident to the registration of the securities covered by this prospectus, including with regard to compliance with state securities or “blue sky” laws. The registration expenses of any registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective, will be borne by the Company.

 

 

We agreed to keep this prospectus effective and to remain continuously effective for a period that will terminate upon the first date on which all shares of our Common Stock issuable upon conversion of the Convertible Notes and exercise of the Warrants may be sold without restriction, including volume or manner-of-sale restrictions, pursuant to Rule 144 or have been sold by the Selling Securityholder. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

We cannot predict the effect, if any, future sales of shares of our Common Stock, or the availability for future sale of shares of Common Stock, will have on the market price of shares of our Common Stock prevailing from time to time. The sale of substantial amounts of shares of our Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Common Stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

 

Prior to the possible offer and resale by this prospectus, we have a total of 56,139,855 shares of our Common Stock outstanding. Of these shares, approximately 34,587,883 shares are tradeable without restriction by persons other than our “affiliates”. The remaining shares are “restricted securities” within the meaning of Rule 144 under the Securities Act (“Rule 144”), and may not be sold absent registration under the Securities Act or compliance with Rule 144 thereunder or in reliance on another exemption from registration. Under the Securities Act, an “affiliate” of an issuer is a person that directly or indirectly controls, is controlled by, or is under common control with that issuer.

 

Prior to the possible offer and resale of the securities offered by this prospectus, we also have 9,188,756 Public Warrants, each exercisable for three-quarters of one share of Common Stock at a price of $11.50 per whole share. As a result of the registration provisions of the Warrant Agreement, all or a portion of these shares may be eligible for future sale without restriction.

 

Equity Plans

 

We expect to file a registration statement on Form S-8 under the Securities Act to register the offer and sale of all shares of Common Stock or securities convertible or exchangeable for shares of our Common Stock issuable under the AERWINS Technologies Inc. 2022 Equity Incentive Plan and the shares of our Common Stock registered under such registration statement will be available for resale by nonaffiliates in the public market without restriction under the Securities Act and by affiliates in the public market subject to compliance with the resale provisions of Rule 144.

 

Registration Rights

 

At the closing of the Business Combination, certain significant stockholders of AERWINS, Inc. entered into a registration rights agreement with us providing for the right to three demand registrations, piggy-back registrations and shelf registrations with respect to 50,755,240 shares of our Common Stock. These shares also may be sold under Rule 144 under the Securities Act, depending on their holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates.

 

The holders of the Public Warrants are entitled to certain demand registration rights by a majority-in-interest of the securities issued upon exercise of the Public Warrants. The Public Warrant Agreement also requires that we file with the SEC and use commercially reasonable efforts to maintain a registration statement registering the issuance of the shares of Common Stock issuable upon exercise of the Warrants. If such a registration statement is not effective at any time, warrant holders may elect to exercise their Warrants on a “cashless basis” pursuant to the terms of the Warrant Agreement.

 

Lock-Up Agreements

 

In connection with the Business Combination, certain stockholders of AERWINS, Inc. and certain of AERWINS’, Inc. officers and directors (such stockholders, the “Company Holders”) holding an aggregate of 39,848,380 shares of Common Stock entered into a lock-up agreement (the “Lock-up Agreement”) pursuant to which they are contractually restricted, during the Lock-up Period (as defined below), from selling or transferring any of (i) their shares of AERWINS common stock held immediately following the closing and (ii) any of their shares of AERWINS common stock that result from converting securities held immediately following the closing (the “Lock-up Shares”). The “Lock-up Period” means the period commencing at closing and end the earliest of: (a) six months from the closing (or, in the case of Shuhei Komatsu, AERWINS’ Chief Executive Officer, thirty months from the closing), (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00.

 

The Sponsor is subject to a lock-up pursuant to a letter agreement (the “Sponsor Lock-up Agreement”), entered into at the time of the IPO (as defined below), among Pono, the Sponsor and the other parties thereto, pursuant to which the 3,569,175 shares of Common Stock held by the Sponsor are subject to a lock-up beginning on the Closing and end the earliest of: (a) six months from the Closing, (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of the Company’s common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing.

 

133
 

 

Rule 144

 

Pursuant to Rule 144 under the Securities Act (“Rule 144”), a person who has beneficially owned restricted shares of our Common Stock or our Warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been our affiliate at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.

 

Persons who have beneficially owned restricted shares of our Common Stock or our Warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:

 

  ● 1% of the total number of shares of our common stock then outstanding; and

 

  ● the average weekly reported trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

 

Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

 

Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:

 

  ● the issuer of the securities that was formerly a shell company has ceased to be a shell company;

 

  ● the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

 

  ● the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and

 

  ● at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company (which, in our case, is likely to occur one year after the filing of the “Super” Form 8-K related to the Transactions, filed on February 9, 2023).

 

As a result, the Sponsor will be able to sell its Common Stock and shares issuable upon exercise of the Warrants, as applicable, pursuant to Rule 144 without registration one year after the filing of the “Super” Form 8-K, which occurred on February 9, 2023. Absent registration under the Securities Act, other stockholders, including securityholders who received restricted securities in the Transactions, will not be permitted to sell their restricted securities under Rule 144 earlier than one year after the filing of the “Super” Form 8-K.

 

Following the consummation of the Merger, we are no longer a shell company, and so, once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.

 

LEGAL MATTERS

 

The validity of the securities offered by this prospectus will be passed upon for us by Anthony L.G., PLLC, 625 N. Flagler Drive, Suite 600, West Palm Beach, Florida 33401.

 

EXPERTS

 

The financial statements of AERWINS, Inc. (formerly named AERWINS Technologies Inc.) as of December 31, 2022 and 2021, included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of TAAD, LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.

 

The financial statements of AERWINS Technologies Inc. (formerly named Pono Capital Corp.) as of December 31, 2022 and 2021, and for the year ended 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, included in this prospectus have been audited by Marcum LLP (“Marcum”), an independent registered public accounting firm, as set forth in their report, appearing elsewhere herein, and are included in reliance on such report given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC the registration statement on Form S-1 under the Securities Act for the securities offered by this prospectus. This prospectus, which is a part of the registration statement, does not contain all of the information in the registration statement and the exhibits filed with it, portions of which have been omitted as permitted by SEC rules and regulations. For further information concerning us and the securities offered by this prospectus, we refer to the registration statement and to the exhibits filed with it. Statements contained in this prospectus as to the content of any contract or other document referred to are not necessarily complete. In each instance, we refer you to the copy of the contracts and/or other documents filed as exhibits to the registration statement.

 

Our SEC filings are available to the public on the internet at a website maintained by the SEC located at http://www.sec.gov. Those filings are also available to the public on, or accessible through, our website under the heading “Investor Relations” at www.aerwins.us. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

134
 

 

AERWINS TECHNOLOGIES INC.

INDEX TO FINANCIAL STATEMENTS

 

Consolidated Financial Statements for the years ended December 31, 2022 and December 31, 2021

 

Report of Independent Registered Public Accounting Firm(PCAOB ID: 688) F-2
Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3
Consolidated Statements of Operations for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021 F-4
Consolidated Statements of Changes in Stockholders’ Deficit for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021 F-5
Consolidated Statements of Cash Flows for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021 F-7
Notes to Consolidated Financial Statements F-8

 

AERWINS, Inc. (formerly named AERWINS Technologies Inc.) Audited Consolidated Financial Statements

 

Reports of Independent Registered Public Accountants F-34
   
Consolidated Balance Sheets as of December 31, 2022 and 2021 F-35
   
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021 F-36
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the years ended December 31, 2022 and 2021 F-37
   
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-38
   
Notes to Consolidated Financial Statements F-39

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Aerwins Technologies Inc. (f/k/a Pono Capital Corp)

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Aerwins Technologies Inc. (f/k/a Pono Capital Corp) (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum LLP

 

Marcum LLP

 

We have served as the Company’s auditor since 2021.

 

Boston, MA

March 31, 2023

 

F-2

 

 

AERWINS TECHNOLOGIES INC.

(F/K/A PONO CAPITAL CORP)

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2022   December 31, 2021 
ASSETS          
Current Assets          
Cash  $193,829   $337,595 
Prepaid expenses   25,750    171,837 
Total Current Assets   219,579    509,432 
Marketable Securities held in Trust Account   120,600,737    116,728,213 
Total Assets  $120,820,316   $117,237,645 
           
LIABILITIES, REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable  $720,507   $— 
Accrued expenses and other current liabilities   386,701    125,821 
Income tax payable   159,122    — 
Franchise tax payable   200,000    120,647 
Sponsor Working Capital Loan   150,000    — 
Total Current Liabilities   1,616,330    246,468 
Deferred underwriter fee payable   3,450,000    3,450,000 
Warrant liability   643,213    4,243,039 
Total Non-Current Liabilities   4,093,213    7,693,039 
Total Liabilities   5,709,543    7,939,507 
Commitments and Contingencies (Note 6)   -     -  
Redeemable Class A Common Stock          
Redeemable Class A common stock, $0.000001 par value; 100,000,000 shares authorized; 11,500,000 shares at redemption value of $10.45 and $10.15 per share at December 31, 2022 and 2021, respectively   120,141,615    116,725,000 
Stockholders’ Deficit          
Preferred stock, $0.000001 par value; 1,000,000 shares authorized; none issued and outstanding   —    — 
Class A common stock, $0.000001 par value; 100,000,000 shares authorized; 751,675 and 521,675 shares issued and outstanding at December 31, 2022 and 2021, respectively (excluding 11,500,000 shares subject to possible redemption)   3    1 
Class B common stock, $0.000001 par value; 10,000,000 shares authorized; 2,875,000 shares issued and outstanding   3    3 
Additional paid-in capital   —    — 
Accumulated deficit   (5,030,848)   (7,426,866)
Total Stockholders’ Deficit   (5,030,842)   (7,426,862)
Total Liabilities, Redeemable Class A Common Stock and Stockholders’ Deficit  $120,820,316   $117,237,645 

 

The accompanying notes are an integral part of these financial statements.

 

F-3

 

 

AERWINS TECHNOLOGIES INC.

(F/K/A PONO CAPITAL CORP)

CONSOLIDATED STATEMENTS OF OPERATIONS

 

         
  

For the year ended

December 31, 2022

  

For the Period from

February 12, 2021
(inception) through
December 31, 2021

 
Formation and operating costs  $2,102,272   $413,230 
Franchise tax expenses   200,000    120,647 
Loss from Operations   (2,302,272)   (533,877)
           
Other Income (Expense)          
Bank incentive   —    5 
Interest earned on marketable securities held in trust account   —    3,213 
Interest expense   (8,321)   — 
Dividends earned on marketable securities held in Trust Account   1,702,524    — 
Gain on change in fair value of Sponsor Working Capital Loan   17,400    — 
Change in fair value of warrant liability   3,612,764    5,621,902 
Offering costs allocated to warrants   —    (505,696)
Other Income   5,324,367    5,119,424 
Income before income taxes   3,022,095    4,585,547 
Income tax expense   (289,122)   — 
Net Income  $2,732,973   $4,585,547 
Weighted average shares outstanding of Class A common stock   12,083,113    5,223,819 
Basic and diluted net income per common stock  $0.18   $0.62 
Weighted average shares outstanding of Class B common stock   2,875,000    2,205,882 
Basic and diluted net income per common stock  $0.18   $0.62 

 

The accompanying notes are an integral part of these financial statements.

 

F-4

 

 

AERWINS TECHNOLOGIES INC.

(F/K/A PONO CAPITAL CORP)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEAR ENDED DECEMBER 31, 2022

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Class A Common Stock   Class B Common Stock  

Additional

Paid-in

  

Accumulated

  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance — January 1, 2022   521,675   $1    2,875,000   $3   $—   $(7,426,866)  $(7,426,862)
Proceeds received in excess of initial fair value of Sponsor Working Capital Loan   —    —    —    —    792,600    —    792,600 
Sale of Placement Units   230,000    2    —    —    2,299,998    —    2,300,000 
Initial fair value of private warrant liability   —    —    —    —    (12,938)   —    (12,938)
Remeasurement of Class A common stock to redemption amount   —    —    —    —    (3,079,660)   (336,955)   (3,416,615)
Net income   —    —    —    —    —    2,732,973    2,732,973 
Balance — December 31, 2022   751,675   $3    2,875,000   $3   $—   $(5,030,848)  $(5,030,842)

 

The accompanying notes are an integral part of these financial statements.

 

F-5

 

 

FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021

 

   Class A Common Stock   Class B Common Stock  

Additional

Paid-in

  

Accumulated

  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance — February 12, 2021 (inception)   —   $—    —   $—   $—   $—   $— 
                                    
Issuance of Class B common stock to Sponsor   —    —    2,875,000    3    24,997    —    25,000 
Capital contribution   —    —    —    —    229    —    229 
Sale of Public Units   11,500,000    12    —    —    114,999,988    —    115,000,000 
Class A Common Stock subject to possible redemption   (11,500,000)   (12)   —    —    (114,999,988)   —    (115,000,000)
Sale of Placement Units   521,675    1    —    —    5,216,749    —    5,216,750 
Initial fair value of private warrant liability   —    —    —    —    (437,816)   —    (437,816)
Remeasurement of Class A common stock to redemption amount   —    —    —    —    (16,815,322)   —    (16,815,322)
Re-classification   —    —    —    —    12,011,163    (12,011,163)   — 
Adjustment of offering cost   —    —    —    —    —    (1,250)   (1,250)
Net income   —    —    —    —    —    4,585,547    4,585,547 
Balance as of December 31, 2021   521,675   $1    2,875,000   $3   $—   $(7,426,866)  $(7,426,862)

 

The accompanying notes are an integral part of these financial statements.

 

F-6

 

 

AERWINS TECHNOLOGIES INC.

(F/K/A PONO CAPITAL CORP)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

         
  

For the year ended

December 31, 2022

  

For the Period from

February 12, 2021

(inception) through

December 31, 2021

 
Cash flows from operating activities:          
Net income  $2,732,973   $4,585,547 
Adjustments to reconcile net income to net cash used in operating activities:          
Dividends earned on marketable securities held in Trust Account   (1,702,524)     
Formation costs paid by stockholder in form of capital contribution   —    229 
Interest earned on marketable securities held in Trust Account   —    (3,213)
Offering costs allocated to warrants   —    505,696 
Interest expense   8,321    — 
Change in fair value of Sponsor Working Capital Loan   (17,400)   — 
Change in fair value of warrant liability   (3,612,764)   (5,621,902)
Changes in operating assets and liabilities:          
Prepaid expenses   146,087    (171,837)
Accounts payable   720,507    — 
Accrued expenses and other current liabilities   252,559    125,821 
Income tax payable   159,122    — 
Franchise tax payable   79,353    120,647 
Net cash used in operating activities   (1,233,766)   (459,012)
Cash flows from investing activities:          
Investment of cash into Trust Account   (2,300,000)   (116,725,000)
Proceeds from Trust Account to pay income tax   130,000    — 
Net cash used in investing activities   (2,170,000)   (116,725,000)
Cash flows from financing activities:          
Proceeds from Sponsor Working Capital Loan   960,000    — 
Proceeds from issuance of Class B common stock to Sponsor   —    25,000 
Proceeds from sale of Units, net of underwriting discount paid   —    113,050,000 
Proceeds from sale of Placement Units   2,300,000    5,216,750 
Payment of offering costs   —    (770,143)
Net cash provided by financing activities   3,260,000    117,521,607 
Net Change in Cash   (143,766)   337,595 
Cash — Beginning of period   337,595    — 
Cash — End of period  $193,829   $337,595 
Supplemental disclosure of non-cash investing and financing activities          
Remeasurement of Class A common stock to redemption amount  $3,416,615   $— 
Proceeds in excess of initial fair value of working capital loan  $792,600   $— 
Initial measurement of Placement Warrants  $12,938   $— 
Deferred underwriting fee payable  $—   $3,450,000 
Initial Classification of Class A common stock subject to redemption  $—   $116,725,000 
Proceeds from promissory note and repayment  $—   $186,542 
Supplemental cash flow information          
Cash paid for income taxes  $130,000   $— 

 

The accompanying notes are an integral part of these financial statements.

 

F-7

 

 

AERWINS TECHNOLOGIES INC. (F/K/A PONO CAPITAL CORP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

 

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS AND LIQUIDITY AND GOING CONCERN

 

Aerwins Technologies, Inc. f/k/a Pono Capital Corp (the “Company” or “Pono”) was a blank check company incorporated in Delaware on February 12, 2021  under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. The Company was an emerging growth company and, as such, the Company was subject to all of the risks associated with emerging growth companies.

 

As of December 31, 2022, the Company had not engaged in any operations nor generated any revenues. The Company’s only activities for the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering (as defined below) and identifying a target company for a Business Combination. The Company did not generate any operating revenues until after the completion of its initial Business Combination. The Company generates non-operating income in the form of investment income from the proceeds derived from the Initial Public Offering (as defined below). The Company has selected December 31 as its fiscal year end.

 

The Company’s sponsor was Mehana Equity LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering (as defined below) was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 3) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000 Units at the Initial Public Offering price to cover over-allotments, if any.

 

Simultaneously with the consummation of the closing of the Initial Public Offering, the Company consummated the private placement of an aggregate of 469,175 units (the “Placement Units”) to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”) (see Note 4).

 

Subsequently, on August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 Units at a price of $10.00 per Unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering.

 

F-8

 

 

A total of $116,725,000, comprised of the proceeds from the Initial Public Offering and the proceeds of Private Placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account (the “Trust Account”) established for the benefit of the Company’s public stockholders.

 

Transaction costs of the Initial Public Offering amounted to $6,168,893, consisting of $1,950,000 of underwriting fees, $3,450,000 of deferred underwriting fees (see Note 6) and $768,893 of other costs.

 

Following the closing of the Initial Public Offering and full exercise of underwriter’s over-allotment option, $823,378 of cash was held outside of the Trust Account available for working capital purposes. As of December 31, 2022 and December 31, 2021, the Company had $193,829 and $337,595 of cash available on the consolidated balance sheets, respectively, and a working capital deficit of $1,396,751 and a working capital surplus of $262,964, respectively.

 

The Company’s management had broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Placement Units, although substantially all of the net proceeds were intended to be applied generally toward consummating a Business Combination. NASDAQ rules provided that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the signing of a definitive agreement to enter a Business Combination. The Company would only complete a Business Combination if the post-Business Combination company owned or acquired 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There was no assurance that the Company would be able to successfully effect a Business Combination.

 

The Company provided its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company sought stockholder approval of a Business Combination at a meeting called for such purpose at which stockholders may have sought to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company would have proceeded with a Business Combination only if the Company had net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company sought stockholder approval, a majority of the outstanding shares voted were voted in favor of the Business Combination.

 

The Company had until February 13, 2023 to consummate a Business Combination. If the Company was unable to complete a Business Combination within 18 months from the closing of the IPO after the election of the Company of two separate three month extensions which, included the deposit of $1,150,000 for each three month extension, into the Trust Account, or as extended by the Company’s stockholders in accordance with the third amended and restated certificate of incorporation) from the closing of the Initial Public Offering to consummate a Business Combination (the “Combination Period”), the Company would have (i) ceased all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeemed 100% of the outstanding Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned (net of taxes payable and less interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption would have completely extinguished public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceeded to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law.

 

F-9

 

 

The underwriter had agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company did not complete a Business Combination within the Combination Period and, in such event, such amounts would have been included with the funds held in the Trust Account that would have been available to fund the redemption of the Public Shares. In the event of such distribution, it was possible that the per share value of the assets remaining available for distribution would have been less than the amount per Unit in the Trust Account (initially $10.15 per share). The Sponsor had agreed that it would have been liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company had discussed entering into a transaction agreement, reduced the amounts in the Trust Account to below $10.15 per share (whether or not the underwriters’ over-allotment option was exercised in full), except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver was deemed to be unenforceable against a third party, the Sponsor would not have been responsible to the extent of any liability for such third-party claims. The Company sought to reduce the possibility that the Sponsor would have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective target businesses or other entities with which the Company did business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

 

Termination of Old Proposed Business Combination

 

On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative.

 

Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation.

 

The Business Combination agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022.

 

On August 8, 2022, the Company and Benuvia mutually terminated the Old Merger Agreement pursuant to Section 8.1(a) of the Old Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Old Merger Agreement.

 

Business Combination

 

On September 7, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Pono, Pono Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Pono (“Merger Sub”), AERWINS Technologies Inc., a Delaware corporation (“AERWINS”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shuhei Komatsu, in his capacity as Seller Representative.

 

Pursuant to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement, which occurred on February 3, 2023 (the “Closing”), Merger Sub merged with and into AERWINS, with AERWINS continuing as the surviving corporation (the “Surviving Corporation”).

 

As consideration for the Merger, the holders of AERWINS securities collectively were entitled to receive from the Company, in the aggregate, a number of the Company’s securities with an aggregate value equal to (the “Merger Consideration”) (a) Six Hundred Million U.S. Dollars ($600,000,000), minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held by AERWINS) of AERWINS at Closing (the “Closing Net Indebtedness”), minus (c) the amount by which AERWINS’ net working capital is less than $3 million, plus (d) the amount by which AERWINS’ net working capital exceeds $3 million, minus (e) specified transaction expenses of AERWNS associated with the merger, with each AERWINS stockholder receiving, for each  share of AERWINS common stock held, a number of shares of the Company common stock equal to (i) the per share consideration, divided by (ii) $10.00. Each outstanding option or warrant to purchase AERWINS common stock was converted into the right to receive an option or warrant to purchase a number of shares of the Company common stock equal to (x) the per share consideration divided by (y) $10.00.

 

F-10

 

 

The Merger Consideration otherwise payable to AERWINS stockholders was subject to the withholding of a number of shares of the Company common stock equal to three percent (3.0%) of the Merger Consideration to be placed in escrow for post-closing adjustments (if any) to the Merger Consideration.

 

The Merger Consideration was subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness, net working capital and transaction expenses as of the closing date. If the adjustment was a negative adjustment in favor of the Company, the escrow agent shall distribute to the Company a number of shares of the Company common stock with a value equal to the absolute value of the adjustment amount. If the adjustment was a positive adjustment in favor of AERWINS, the Company will issue to the AERWINS stockholders an additional number of shares of the Company common stock with a value equal to the adjustment amount.

 

Going Concern Consideration

 

As of December 31, 2022 and December 31, 2021, the Company had $193,829 and $337,595 in cash, respectively, and a working capital deficit of $1,396,751 and a working capital surplus of $262,964, respectively. The Company incurred significant costs in pursuit of its acquisition plans. In connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASC Subtopic 205-40, Presentation of Financial Statements — Going Concern, management has determined that liquidity conditions and the mandatory business combination deadline conditions raised substantial doubt about the Company’s ability to continue as a going concern within the earlier of the Combination Period, which ended on February 13, 2023, or one year after the date that the consolidated financial statements are issued had the Business Combination not been consummated. The closing of the Business Combination on February 3, 2023 alleviated the above mentioned conditions.

 

Risks and Uncertainties

 

Management continued to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have had a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact was not readily determinable as of the date of the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Additionally, as a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of the target business with which the Company ultimately consummates a Business Combination, could have been materially and adversely affected. Further, the Company’s ability to consummate a transaction could have been dependent on the ability to raise equity and debt financing which could have been impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being available on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination was not determinable. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by publicly traded U.S. corporations and certain U.S. subsidiaries of publicly traded non-U.S. corporations beginning in 2023, with certain exceptions (the “Excise Tax”). Because the Company was a Delaware corporation and its securities traded on the Nasdaq Stock Exchange, the Company was considered a “covered corporation” within the meaning of the Inflation Reduction Act.

 

F-11

 

 

While not free from doubt, absent any further guidance from Congress or the U.S. Department of the Treasury, there was significant risk that the Excise Tax would apply to any redemptions of the Company’s common stock after December 31, 2022, including redemptions in connection with an initial Business Combination and any amendment to the third amended and restated certificate of incorporation to extend the time to consummate an initial Business Combination, unless an exemption is available. In addition, the Excise Tax may have made a transaction with us less appealing to potential business combination targets, and thus, potentially hindered our ability to enter into and consummate an initial Business Combination. Further, the application of the Excise Tax in the event of a liquidation after December 31, 2022 was uncertain, and could impact the per-share amount that would otherwise be received by our stockholders in connection with our liquidation.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC.

 

Emerging Growth Company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Significant estimates made by the Company include those pertaining to the valuation of the warrant liabilities and working capital loan.

 

F-12

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had $193,829 and $337,595 in cash as of December 31, 2022 and December 31, 2021, respectively. The Company did not have any cash equivalents as of December 31, 2022 and December 31, 2021.

 

Marketable Securities Held in Trust Account

 

As of December 31, 2022 and December 31, 2021, substantially all of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the consolidated balance sheet at fair value at the end of each reporting period. Dividends earned on investments held in the Trust Account are included in Dividends earned on marketable securities held in Trust Account in the accompanying statements of operations. At December 31, 2022 and December 31, 2021, the investments held in the Trust Account totaled $120,600,737 and $116,728,213, respectively.

 

Income Taxes

 

The Company complies with the accounting and reporting requirements of Accounting Standards Codification (“ASC”) Topic 740 — Income Taxes (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the consolidated financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

The Company’s management determined the United States is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits as of December 31, 2022 and December 31, 2021 and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. The Company’s effective tax rate from continuing operations was 9.6% for the year ended December 31, 2022, and 0.0% for the period from February 12, 2021 (inception) through December 31, 2021.

 

See Note 8 for additional information on income taxes for the periods presented.

 

Class A Common Stock Subject to Possible Redemption

 

All of the Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s third amended and restated certificate of incorporation. In accordance with ASC 480 Distinguishing Liabilities from Equity (“ASC 480”), conditionally redeemable Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001. However, the threshold in its charter would not change the nature of the underlying shares as redeemable and thus Public Shares would be required to be disclosed outside of permanent equity. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional paid-in capital, in accumulated deficit.

 

F-13

 

 

As of December 31, 2022 and December 31, 2021, 11,500,000 shares of Class A Common Stock outstanding are subject to possible redemption.

 

As of December 31, 2022 and December 31, 2021, the Class A Common Stock reflected on the consolidated balance sheets are reconciled in the following table:

 

Gross Proceeds  $115,000,000 
Less:     
Proceeds allocated to public warrants   (9,427,125)
Class A common stock issuance costs   (5,663,197)
Plus:     
Remeasurement of carrying value to redemption value   16,815,322 
Redeemable Class A Common Stock as of December 31, 2021   116,725,000 
Plus:     
Remeasurement of carrying value to redemption value   3,416,615 
Redeemable Class A Common Stock as of December 31, 2022  $120,141,615 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. As of December 31, 2022 and December 31, 2021, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

 

Net Income Per Common Share

 

Net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Therefore, the income per share calculation allocates income pro rata between Class A and Class B common stock. As a result, the calculated net income per share is the same for Class A and Class B common stock. The Company has not considered the effect of the Public Warrants (as defined in Note 3) and Placement Warrants (as defined in Note 4), to purchase an aggregate of 9,188,756 shares in the calculation of income per share, since the exercise of the warrants is contingent upon the occurrence of future events. Remeasurement associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

 

The following table reflects the calculation of basic and diluted net income per share (in dollars, except per share amounts):

 

   Class A   Class B   Class A   Class B 
   For the year ended
December 31, 2022		   For the Period from
February 12, 2021
(inception) through
December 31, 2021		 
   Class A   Class B   Class A   Class B 
Basic and diluted net income per share:                    
Numerator:                    
Net income  $2,207,686   $525,287   $3,224,096   $1,361,451 
Denominator:                    
Basic and diluted weighted average shares outstanding   12,083,113    2,875,000    5,223,819    2,205,882 
Basic and diluted net income per share  $0.18   $0.18   $0.62   $0.62 

  

F-14

 

 

Offering Costs associated with the Initial Public Offering

 

Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred, and presented as non-operating expenses in the consolidated statements of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon the completion of the Initial Public Offering.

 

Warrant Liabilities

 

The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40 Derivatives and Hedging — Contracts in Entity’s Own Equity (“ASC 815”) under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations. The Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.

 

Fair Value of Financial Instruments

 

The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. The fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

 

  ● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
  ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
  ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

 

See Note 9 for additional information on assets and liabilities measured at fair value.

 

Derivative Financial Instruments

 

The Company accounts for derivative financial instruments in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative financial instruments is evaluated at the end of each reporting period.

 

F-15

 

 

Sponsor Working Capital Loans

 

The Company accounts for the Sponsor Working Capital Loans (defined below in Note 5) under ASC 815. The Company has made the election under ASC 815-15-25 to account for the Sponsor Working Capital Loans under the fair value option. Using the fair value option, the Sponsor Working Capital Loans are required to be recorded at their initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the statement of consolidated operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Sponsor Working Capital Loan are recognized as non-cash gains or losses in the consolidated statement of operations.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its majority-owned and controlled operating subsidiary, Merger Sub, after elimination of all intercompany transactions and balances as of December 31, 2022 and December 31, 2021.

 

Recent Accounting Pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2022 using the modified retrospective method of transition. The adoption of ASU 2020-06 did not have a material impact on the financial statements as of January 1, 2022 or for the year ended December 31, 2022.

 

The Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

 

NOTE 3. INITIAL PUBLIC OFFERING

 

Following the closing of the Initial Public Offering on August 13, 2021 and the sale of the Over-allotment Option Units on August 18, 2021, the Company sold 11,500,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of one common stock and three-quarters of one redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase three-quarters of one common stock at an exercise price of $11.50 per whole share.

 

NOTE 4. PRIVATE PLACEMENT

 

Following the closing of the Initial Public Offering and the sale of the Over-allotment Option Units, the Sponsor purchased an aggregate of 521,675 Placement Units at a price of $10.00 per Placement Unit for an aggregate purchase price of $5,216,750.

 

F-16

 

 

On August 10, 2022, the Company received $1,150,000 in funding from Mehana Capital LLC (“Mehana Capital”), an affiliate of the Sponsor to extend the Combination Period for an additional three months (the “August Extension”), as described in Note 1. Mehana Capital purchased an aggregate of 115,000 Placement Units of the Company, each unit consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant (as defined below) entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share, creating proceeds to the Company of $1,150,000 which was deposited into the trust account.

 

On November 9, 2022, the Company received an additional $1,150,000 in funding, of which $575,000 was from Mehana Capital and $575,000 was from AERWINS, to further extend the Combination Period for an additional three months to February 13, 2023 (the “November Extension”), as described in Note 1. Mehana Capital purchased an additional 57,500 Placement Units and AERWINS purchased 57,500 Placement Units, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on November 10, 2022. Each unit consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant (as defined below) entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share.

 

The proceeds from the sale of the Placement Units were added to the net proceeds from the Initial Public Offering held in the Trust Account. The Placement Units are identical to the Units sold in the Initial Public Offering, except for the placement warrants (“Placement Warrants”), as described in Note 7. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

Founder Shares

 

On March 22, 2021, the Company issued an aggregate of 2,875,000 shares of Class B common stock to the Sponsor for an aggregate purchase price of $25,000 in cash. Such Class B common stock included an aggregate of up to 375,000 shares that were subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor would collectively own at least 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the initial stockholders do not purchase any Public Shares in the Initial Public Offering and excluding the Placement Units and underlying securities). The underwriters exercised the over-allotment option in full, so those shares are no longer subject to forfeiture.

 

The initial stockholders have agreed not to transfer, assign or sell any of the Class B common stock (except to certain permitted transferees) until, with respect to any of the Class B common stock, the earlier of (i) six months after the date of the consummation of a Business Combination, or (ii) the date on which the closing price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination, with respect to the remaining any of the Class B common stock, upon six months after the date of the consummation of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their common stock for cash, securities or other property.

 

Promissory Note — Related Party

 

On March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing and was payable on the earlier of July 31, 2021 or the completion of the Initial Public Offering. Upon IPO, the Company had borrowed $186,542 under the Note. On August 17, 2021, the outstanding balance owed under the Note was repaid in full. The Company no longer has the ability to borrow under the Note.

 

F-17

 

 

Related Party Loans

 

In order to finance transaction costs in connection with a Business Combination, the Sponsor may provide the Company with a loan up to $1,500,000 as may be required (“Sponsor Working Capital Loans”). Such Sponsor Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such loans may be converted upon consummation of a Business Combination into additional Placement Units at a price of $10.00 per Unit. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor Working Capital Loans.

 

On September 23, 2021, the Company entered into a Sponsor Working Capital Loan in the amount of up to $1,500,000. During the year ended December 31, 2022, the Company received proceeds of $960,000. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The unpaid principal balance on the Sponsor Working Capital Loan may be convertible into units at the option of the Sponsor at a price of $10.00 per unit. The unit would be identical to the Placement Units. Using the fair value option, the Sponsor Working Capital Loan is required to be recorded at its’ initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face value of the Sponsor Working Capital Loan and fair value at issuance are recognized as either an expense in the consolidated statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Sponsor Working Capital Loan are recognized as a non-cash gain or loss in the consolidated statement of operations. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $92,000 at initial measurement. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $150,000 at December 31, 2022.

 

Extension Private Placements

 

If the Company anticipates that it may not be able to consummate the initial Business Combination within 12 months from the date of the Initial Public Offering, the Company may, by resolution of the board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing additional funds into the Trust Account as set out below. Pursuant to the terms of the third amended and restated certificate of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees, must deposit into the Trust Account $1,150,000 ($0.10 per Unit in either case), on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible Business Combination period of 18 months at a total payment value of $2,300,000 ($0.10 per Unit).

 

On August 10, 2022, the Company received $1,150,000 in funding from Mehana Capital, from the August Extension. Mehana Capital purchased an aggregate of 115,000 Placement Units of the Company, each unit consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on August 10, 2022.

 

F-18

 

 

On November 9, 2022, the Company received an additional $1,150,000 in funding, of which $575,000 was from Mehana Capital and $575,000 was from AERWINS, from the November Extension. Mehana Capital purchased an additional 57,500 Placement Units and AERWINS purchased 57,500 Placement Units, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on November 10, 2022.

 

The proceeds from the sale of the Placement Units from both the August Extension and the November Extension were added to the net proceeds from the Initial Public Offering held in the Trust Account. The Placement Units are identical to the Units sold in the Initial Public Offering, except for the Placement Warrants, as described in Note 7. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.

 

Administrative Support Agreement

 

The Company’s Sponsor has agreed, commencing from the date that the Company’s securities are first listed on NASDAQ through the earlier of the Company’s consummation of a Business Combination and its liquidation, to make available to the Company certain general and administrative services, including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay to Mehana Equity LLC, the Sponsor, $10,000 per month for these services during the 18-month period to complete a Business Combination. The Sponsor has agreed to pay for the formation cost of $229 and waived to seek reimbursement from the Company for such cost. For the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, the Company incurred expenses of $120,000 and $47,096, respectively, under this agreement.

 

NOTE 6. COMMITMENTS

 

Registration Rights

 

The holders of the founder shares and Placement Units (including securities contained therein) and Units (including securities contained therein) that may be issued upon conversion of working capital loans, and any shares of Class A common stock issuable upon the exercise of the placement warrants and any shares of Class A common stock and warrants (and underlying Class A common stock) that may be issued upon conversion of the Units issued as part of the working capital loans and Class A common stock issuable upon conversion of the founder shares, will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the IPO, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to the Company’s Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of its initial Business Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements. Notwithstanding anything to the contrary, under FINRA Rule 5110, the underwriters and/or their designees may only make a demand registration (i) on one occasion and (ii) during the five-year period beginning on the effective date of the registration statement relating to the Initial Public Offering, and the underwriters and/or their designees may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement relating to the Initial Public Offering.

 

Underwriting Agreement

 

The Company granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to 1,500,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions.

 

F-19

 

 

The underwriters were entitled to a cash underwriting discount of: (i) two percent (2.00%) of the gross proceeds of the Initial Public Offering, or $2,300,000. In addition, the underwriters are entitled to a deferred fee of three percent (3.00%) of the gross proceeds of the Initial Public Offering upon closing of the Business Combination, or $3,450,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.

 

On August 13, 2021, the underwriter has given the Company an abatement of $350,000. The total cash underwriting fee is $1,950,000 and the deferred underwriting fee is $3,450,000.

 

Right of First Refusal

 

For a period beginning on the closing of the IPO and ending 12 months from the closing of a Business Combination, the Company has granted EF Hutton a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(g)(3)(A)(i), such right of first refusal shall not have a duration of more than three years from the effective date of the registration statement.

 

NOTE 7. STOCKHOLDERS’ DEFICIT

 

Preferred stock — The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.000001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. On December 31, 2022 and December 31, 2021, there were no preferred shares issued or outstanding.

 

Class A common stock— The Company is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.000001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. On December 31, 2022 and December 31, 2021, there were 751,675 and 521,675 shares of Class A common stock issued and outstanding, respectively, excluding 11,500,000 shares of Class A Common Stock outstanding subject to possible redemption.

 

Class B common stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.000001 per share. Holders of the Company’s Class B common stock are entitled to one vote for each share. On March 22, 2021, there were 2,875,000 shares of Class B common stock issued and outstanding and were held by the Sponsor. Effective as of April 15, 2021, the Sponsor transferred 100,000 shares of Class B common stock among the chief financial officer and the three independent directors. On December 31, 2022 and December 31, 2021, there were 2,875,000 shares of Class B common stock issued and outstanding. Shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Company’s initial Business Combination on a one-for-one basis.

 

Warrants— In accordance with the guidance contained in ASC 815-40, the warrants issued in the Initial Public Offering do not meet the criteria for equity treatment thereunder, and therefore each warrant must be recorded as a liability. The Company will classify each warrant as a liability at its fair value, with the change in fair value recognized in the Company’s consolidated statements of operations.

 

Public Warrants may only be exercised for a whole number of shares at a price of $11.50 per share, subject to adjustment. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

 

The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.

 

F-20

 

 

The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial Business Combination, it will use its commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement or a new registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s shares of Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, it may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event it does not so elect, it will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.

 

Redemption of warrants when the price per Class A common stock equals or exceeds $18.00. Once the warrants become exercisable, the Company may redeem the Public Warrants:

 

  ● in whole and not in part;
     
  ● at a price of $0.01 per warrant;
     
  ● upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period, to each warrant holder; and
     
  ● if, and only if, the closing price of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

 

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.

 

The Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

F-21

 

 

On December 31, 2022 and December 31, 2021, there were 8,625,000 Public Warrants. On December 31, 2022 and December 31, 2021, there were 563,756 and 391,256 Placement Warrants outstanding, respectively.

 

NOTE 8. INCOME TAX

 

The Company’s net deferred tax assets (liabilities) as of December 31, 2022 and December 31, 2021 are as follows: 

  

December 31,

2022

  

December 31,

2021

 
Deferred tax assets:          
Start-up costs  $311,964   $104,959 
Net operating loss carryforwards   16,627    29,828 
Total deferred tax assets   328,591    134,787 
Valuation allowance   (328,591)   (134,787)
Deferred tax liabilities:          
Unrealized gain on investments   —    — 
Total deferred tax liabilities   —    — 
Deferred tax assets, net of allowance  $—   $— 

 

The income tax provision for the year ended December 31, 2022 and the period from February 12, 2021 (inception) through December 31, 2021 consists of the following: 

  

For the Year

ended

December 31,

2022

  

For the Period

from February 12,

2021

(inception) through

December 31,

2021

 
Federal          
Current  $289,122   $— 
Deferred   (116,642)   (134,787)
State          
Current   —    — 
Deferred   (77,162)   — 
Change in valuation allowance   193,804    134,787 
Income tax provision  $289,122   $— 

 

As of December 31, 2022, the Company has US federal and Hawaii state operating loss carry forwards of $0 and $328,864, respectively.

 

In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, the change in the valuation allowance was $193,804 and $134,787, respectively.

 

F-22

 

 

A reconciliation of the federal income tax rate are as follows: 

  

For the Year

ended

December 31,

2022

  

For the Period

from February 12,

2021

(inception) through

December 31,

2021

 
Statutory federal income tax rate   21.0%   21.0%
State taxes, net of federal tax benefit   (2.6)%   0.0%
Change in fair value of derivative warrant liabilities   (25.1)%   (25.1)%
Non-deductible transaction costs   9.9%   2.3%
Change in valuation allowance   6.4%   1.8%
Income tax provision   9.6%   0.0%

 

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions and is subject to examination by these various taxing authorities.

 

NOTE 9. FAIR VALUE MEASUREMENTS

 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

Description 

Amount at

Fair Value

   Level 1   Level 2   Level 3 
December 31, 2022                    
Assets                    
Marketable securities held in Trust Account:  $120,600,737   $120,600,737   $—   $— 
Liabilities                    
Public Warrants  $603,750   $—   $603,750   $— 
Placement Warrants  $39,463   $—   $39,463   $— 
Sponsor Working Capital Loan  $150,000   $—   $—   $150,000 

 

Description 

Amount at

Fair Value

   Level 1   Level 2   Level 3 
December 31, 2021                    
Assets                    
Marketable securities held in Trust Account:  $116,728,213   $116,728,213   $—   $— 
Liabilities                    
Public Warrants  $4,052,888   $4,052,888   $—   $— 
Placement Warrants  $190,151   $—   $—   $190,151 

 

As of December 31, 2022 and December 31, 2021, assets held in the Trust Account were $120,600,737 and $116,728,213 in a mutual fund invested in U.S. Treasury Securities, respectively.

 

F-23

 

 

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the period from February 12, 2021 (inception) to December 31, 2021. During the year ended December 31, 2022, the Public Warrants transferred from a Level 1 measure to Level 2 due to minimal observable market activity. During the year ended December 31, 2022, the Private Warrants transferred from a Level 3 measure to a Level 2 measure as the fair value of the Public Warrants approximates the fair value of the Placement Warrants.

 

On October 1, 2021, the Public Warrants surpassed the 52-day threshold waiting period to be publicly traded from the effective date of the Company’s Prospectus, August 10, 2021. Once actively traded, the observable input originally qualified the liability for treatment as a Level 1 liability. As such, as of December 31, 2022 and December 31, 2021, the Company classified the Public Warrants as Level 2 (based on observed trading volume) and Level 1, respectively.

 

On April 1, 2022, the Company entered into the Sponsor Working Capital Loan. Given the potential equity component of this Sponsor Working Capital Loan, it was valued using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination, which is considered to be a Level 3 fair value measurement. As such, as of December 31, 2022, the Company classified the Sponsor Working Capital Loan as Level 3.

 

The estimated value of the Public Warrants transferred from a Level 3 measurement to a Level 1 measurement from the initial measurement through December 31, 2021 was $4,052,888, and the estimated value of the Placement Warrants transferred from a Level 3 measurement to a Level 2 measurement from the initial measurement through December 31, 2022 was $31,238, as presented in the changes in fair value of Level 3 warrant liabilities table below.

 

   Warrants   Working Capital
Loans		 
Fair value as of February 12, 2021 (inception)  $—   $— 
Initial measurement on August 13, 2021 (Level 3)   9,864,941    — 
Change in fair value   (5,621,902)   — 
Transfer to Level 1   (4,052,888)   — 
Fair value as of December 31, 2021  $190,151   $            — 

 

F-24

 

 

   Warrants   Working Capital
Loans		 
Fair value as of December 31, 2021  $190,151   $— 
Initial measurement of draw on Sponsor Working Capital Loan on April 1, 2022   —    23,000 
Initial measurement of draw on Sponsor Working Capital Loan on May 24, 2022   —    13,000 
Change in fair value of Placement Warrants through June 30, 2022   (166,676)   — 
Initial measurement of draw on Sponsor Working Capital Loan on July 16, 2022   —    7,000 
Initial measurement of draw on Sponsor Working Capital Loan on August 8, 2022   —    13,600 
Initial measurement of Placement Warrants issued on August 10, 2022   7,763    — 
Initial measurement of draw on Sponsor Working Capital Loan on September 12, 2022   —    35,400 
Transfer to Level 2 of Placement Warrants at September 30, 2022   (31,238)   — 
Initial measurement of draw on Sponsor Working Capital Loan on October 27, 2022   —    33,000 
Initial measurement of draw on Sponsor Working Capital Loan on December 13, 2022   —    42,400 
Change in fair value of Sponsor Working Capital Loan   —    (17,400)
Fair value as of December 31, 2022  $—   $150,000 

 

The Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte-Carlo Simulation. As of December 31, 2022 and December 31, 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 2 measurement due to minimal observable market activity and a Level 1 measurement due to the use of an observable market quote in an active market, respectively.

 

The Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that are not actively traded, which at December 31, 2022 included the Placement Warrants. The estimated fair value of the derivative Placement Warrant liabilities as of December 31, 2021 was determined using Level 3 inputs. Inherent in a binomial Monte-Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs of the Placement Warrants as of their measurement dates:

 

  

As of

December 31, 2021

 
Stock price  $9.97 
Strike price  $11.50 
Term (in years)         5.6 
Post-Merger Period Volatility   9.5%
Risk-free rate   1.3%
Dividend yield   —%
Probability of completing a Business Combination   90.0%
Fair value of warrants  $0.49 

 

F-25

 

 

The Sponsor Working Capital Loan was valued using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination, which is considered to be a Level 3 fair value measurement. The estimated fair value of each draw of the Sponsor Working Capital Loan was based on the following significant inputs:

 

    As of
December 31,
2022		     As of
December 13,
2022 (Initial
Measurement)		     As of
October 27,
2022 (Initial
Measurement)		     As of
September 12,
2022 (Initial
Measurement)		     As of
August 8,
2022 (Initial
Measurement)		     As of July 16,
2022 (Initial
Measurement)		     As of May 24,
2022 (Initial
Measurement)		     As of April 1,
2022 (Initial
Measurement)		  
Unit price   $ 10.40     $ 10.29     $ 10.23     $ 10.12     $ 10.10     $ 10.10     $ 10.08     $ 10.38  
Conversion price   $ 10.00     $ 10.00     $ 10.00     $ 10.00     $ 10.00     $ 10.00     $ 10.00     $ 10.00  
Expected term     0.1       0.2       0.3       0.2       0.3       0.3       0.4       0.5  
Unit volatility     12.6 %     7.8 %     9.2 %     5.2 %     1.4 %     5.9 %     5.5 %     14.0 %
Dividend yield     — %     — %     — %     — %     — %     — %     — %     — %
Risk free rate     4.2 %     4.1 %     4.2 %     2.9 %     2.7 %     2.5 %     1.2 %     1.1 %
Discount rate     6.2 %     6.1 %     6.4 %     5.7 %     6.3 %     8.5 %     5.0 %     4.4 %
Probability of completing initial Business Combination     15 %     15 %     15 %     20 %     16 %     20.0 %     20 %     20 %
Fair value of Sponsor Working Capital Loan   $ 150,000     $ 42,400     $ 33,000     $ 35,400     $ 13,600     $ 7,000     $ 13,000     $ 23,000  

 

The Company recognized a gain in connection with changes in the fair value of warrant liabilities of $3,612,764 and $5,621,902 in the consolidated statements of operations during the year ended December 31, 2022 and for the period from February 12, 2021 (inception) through December 31, 2021, respectively. The Company recognized a gain on the change in fair value of Sponsor Working Capital Loan of $17,400 in the consolidated statement of operations for the year ended December 31, 2022. The aggregate amount by which the cash proceeds from the draws on the Sponsor Working Capital Loan was in excess of the fair value on the initial measurement dates of $792,600 is reflected as a contribution to additional paid-in capital during the year ended December 31, 2022.

 

F-26

 

 

NOTE 10. SUBSEQUENT EVENTS

 

Management has evaluated subsequent events and transactions that occurred after the consolidated balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, other than those subsequent events described below, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

 

On January 19, 2023, the parties to the Merger Agreement entered into that certain Amendment No. 1 to Agreement and Plan of Merger (the “Amendment”), which provides that instead of seven (7) directors to be appointed to the Company’s board of directors upon the closing of the Business Combination, the parties will appoint five (5) directors to the board of directors.

 

On January 24, 2023, the Company transferred $159,122 of interest income from the Trust Account to its operating account in order to pay income taxes.

 

On January 27, 2023, the Company drew $170,000 from the Sponsor Working Capital Loan with the Sponsor.

 

On January 27, 2023 at 10:00 a.m. Pacific Time, the Company held a Special Meeting of Stockholders (the “Pono Special Meeting”) at which the Company’s stockholders voted on and approved the following proposals, as set forth below, each of which is described in detail in the definitive proxy statement (the “Proxy Statement”) filed with the SEC on January 4, 2023, which was first mailed by the Company to its stockholders on or about January 5, 2023.

 

To approve and adopt the Merger Agreement, by and among the Company, Merger Sub, AERWINS, the representative of the stockholders of the Company named therein, and the representative of the stockholders of AERWINS named therein, and approve the transactions contemplated thereby, including the merger of Merger Sub with and into AERWINS continuing as the surviving corporation and a wholly-owned subsidiary of Pono.

 

To provide that the name of the Company shall be changed to “AERWINS Technologies Inc.”

 

To remove and change certain provisions in the Company’s third amended and restated certificate of incorporation related to the Company’s status as a special purpose acquisition company, including but not limited to the deletion of Article IX of the Company’s third amended and restated certificate of incorporation in its entirety.

 

Conditioned upon the approval of Proposals 2 and 3, to approve the proposed fourth amended and restated certificate of incorporation, which includes the approval of all other changes in the proposed fourth amended and restated certificate of incorporation in connection with replacing the existing third amended and restated certificate of incorporation with the proposed fourth amended and restated certificate of incorporation as of the effective time.

 

To consider and vote upon a proposal to elect seven (7) directors to serve on the board of directors effective from the consummation of the Business Combination until the 2023 annual meeting of stockholders and until their respective successors are duly elected and qualified.

 

To consider and vote upon a proposal to adopt the AERWINS Technologies Inc. Equity Incentive Plan (the “Equity Incentive Plan”), and the issuance of common stock equal to 15% of the fully diluted and as converted amount of common stock to be outstanding immediately following consummation of the Business Combination, if such plan is approved in accordance with this incentive plan proposal. Under the Equity Incentive Plan, 10,089,442 shares of common stock were authorized.

 

To consider and vote upon a proposal to approve, for purposes of complying with Nasdaq Listing Rule 5635, the issuance of up to 60,000,000 newly issued shares of common stock in the Business Combination, which amount will be determined as described in more detail in the accompanying proxy statement/prospectus.

 

F-27

 

 

To consider and vote upon a proposal to adjourn the Pono Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Pono Special Meeting, there are not sufficient votes to approve the Business Combination proposal, the charter amendment proposals, the director election proposal, the incentive plan proposal, or the Nasdaq proposal.

 

Pursuant to the Merger Agreement, at the closing of the Merger Agreement and the transactions contemplated by the Merger Agreement, which occurred on February 3, 2023, Merger Sub merged with and into AERWINS, Inc., with AERWINS, Inc. continuing as the surviving corporation.

 

On February 3, 2023, following the approval at the Pono Special Meeting, Merger Sub, consummated a merger (the “Merger”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), pursuant the Merger Agreement, by and among the Company, Merger Sub, AERWINS, the Sponsor in its capacity as the representative of the stockholders of the Company, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS (“Seller Representative”). Accordingly, the Merger Agreement was adopted, and the Merger and other transactions contemplated thereby were approved and completed. At the closing on February 3, 2023 of the Business Combination pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS with AERWINS surviving the Merger as a wholly-owned subsidiary of the Company, and the Company changed its name to “AERWINS Technologies Inc.” The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, The Company was treated as the acquired company and AERWINS, Inc. was treated as the acquirer for financial statement reporting purposes.

 

Lock-up Agreements

 

In connection with the Business Combination, certain stockholders of AERWINS and certain of AERWINS’ officers and directors (such stockholders, the “Company Holders”) entered into a lock-up agreement (the “Lock-up Agreement”) pursuant to which they will be contractually restricted, during the Lock-up Period (as defined below), from selling or transferring any of (i) their shares of AERWINS common stock held immediately following the Closing and (ii) any of their shares of AERWINS common stock that result from converting securities held immediately following the Closing (the “Lock-up Shares”). The “Lock-up Period” means the period commencing at Closing and end the earliest of: (a) six months from the Closing (or, in the case of Shuhei Komatsu, AERWINS’ Chief Executive Officer, thirty months from the Closing), (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00.

 

 The Sponsor is subject to a lock-up pursuant to a letter agreement (the “Sponsor Lock-up Agreement”), entered into at the time of the Initial Public Offering, among the Company, the Sponsor and the other parties thereto, pursuant to which the Sponsor is subject to a lock-up beginning on the Closing and end the earliest of: (a) six months from the Closing, (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of the Company’s common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $ 12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00.

 

F-28

 

 

Indemnification Agreements

 

On February 7, 2023, AERWINS entered into indemnification agreements, with each of AERWINS directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements will require AERWINS, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

Non-Competition and Non-Solicitation Agreements

 

Following execution of the Merger Agreement, certain significant stockholders of AERWINS entered into non-competition and non-solicitation agreements (the “Non-Competition and Non-Solicitation Agreements”), pursuant to which they agreed not to compete with the Company, AERWINS and their respective subsidiaries during the two-year period following the Closing and, during such two-year restricted period, not to solicit employees or customers or clients of such entities. The Non-Competition and Non-Solicitation Agreements also contain customary non-disparagement and confidentiality provisions.

 

Purchaser Support Agreement

 

Simultaneously with the execution of the Merger Agreement, the Purchaser Representative entered into a support agreement (the “Purchaser Support Agreement”) in favor of the Company and AERWINS and their present and future successors and subsidiaries. In the Purchaser Support Agreement, the Purchaser Representative agreed to vote all equity interests in the Company in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Purchaser Support Agreement also prevents the Purchaser Representative from transferring its voting rights with respect to equity interests in the Company or otherwise transferring equity interests in the Company prior to the meeting of the Company’s stockholders to approve the Merger Agreement and related transactions, except for certain permitted transfers.

 

Voting Agreement

 

Simultaneously with the execution of the Merger Agreement, certain stockholders of AERWINS entered into a voting agreement (the “Voting Agreement”) in favor of the Company and AERWINS and their present and future successors and subsidiaries. In the Voting Agreement for certain stockholders of AERWINS, they each agreed to vote all of their AERWINS stock interests in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Voting Agreement also prevents them from transferring their voting rights with respect to their AERWINS stock or otherwise transferring their AERWINS stock prior to the AERWINS approval of the Merger Agreement and related transactions, except for certain permitted transfers.

 

Executive Employment Agreements

 

On February 3, 2023, the Company entered into employment agreements (the “Employment Agreements”) with executive officers: Shuhei Komatsu (Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (Chief Product Officer) and Kensuke Okabe (Chief Financial Officer).

 

The Employment Agreements all provide for at-will employment that may be terminated by the Company for death or disability and with or without cause, by the executive with or without good reason, or mutually terminated by the parties. The Employment Agreements for Mr. Komatsu, Mr. Ito, Mr. Miura, and Mr. Okabe provide for a severance payment equal to the remaining base salary for the remaining period of the respective term of employment (each term is one (1) year) upon termination by the Company without cause or termination by such executive for good reason. The executive agreements provide for a base salary of $200,000, $200,000, $200,000 and $200,000 for Mr. Komatsu, Mr. Ito, Mr. Miura and Mr. Okabe, respectively, as well as possible annual performance bonuses and equity grants under the equity incentive plan if and when determined by the Company’s Compensation Committee.

 

F-29

 

 

Option Award Agreements

 

On February 3, 2023, the Company entered into option award agreements (the “Option Award Agreements”) with executive officers: Shuhei Komatsu (Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (Chief Product Officer) and Kensuke Okabe (Chief Financial Officer).

 

The Option Award Agreements grants to each of the following persons options to acquire shares of the Company’s common stock, to vest as set forth in the Option Award Agreements, as follows:

 

  ● Shuhei Komatsu — 1,525,196 options at an exercise price of $0.00015 per share of common stock
     
  ● Taiji Ito — 703,937 options at an exercise price of $0.00015 per share of common stock
   
  ● Kazuo Miura — 739,916 options at an exercise price of $0.00015 per share of common stock
     
  ● Kensuke Okabe — 469,291 options at an exercise price of $0.00015 per share of common stock

 

Stock Purchase Agreement

 

On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate 3,196,311 shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 Public Shares upon the consummation of the Business Combination in exchange for an aggregate sum of $5,000,000 (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Public Shares, and the Public Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 (Registration No. 333-268625) which was declared effective by the Securities and Exchange Commission on January 13, 2023.

 

Standby Equity Purchase Agreement

 

On January 23, 2023 (the “Effective Date”), the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd., (“YA”). The Company and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of the Company’s Public Shares at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 96% or 97% (depending on the type of notice) of the Market Price (as defined below) and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. “VWAP” means, for any trading day, the daily volume weighted average price of the Common Shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.

 

Pursuant to the SEPA, the Company is required to register all shares which YA may acquire. The Company agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to YA pursuant to the SEPA. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. The Company may not issue more than 19.99% of its shares issued and outstanding as of the Effective Date without first receiving shareholder approval for such issuances, unless such additional shares may be issued consistent with the rules and regulations of the Nasdaq Stock Market. Pursuant to the SEPA, the use of proceeds from the sale of the shares by the Company to YA shall be used by the Company in the manner as will be set forth in the prospectus included in the Registration Statement (and any post-effective amendment thereto) and any prospectus supplement thereto filed pursuant to the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid YA Global II SPV, LLC, a subsidiary of YA, a structuring fee in the amount of $15,000, and, on the Effective Date, the Company agreed to issue to YA shares with aggregate value equal to one million dollars, as a commitment fee.

 

F-30

 

 

YA has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our common stock during any time prior to the public disclosure of the SEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the

 

36-month anniversary of the Effective Date or (ii) the date on which the YA shall have made payment of Advances (as defined in the SEPA) pursuant to the SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).

 

Pursuant to the terms of the Merger Agreement, the Merger Consideration was approximately $600 million. In connection with the Pono Special Meeting, holders of 11,328,988 shares of the Company’s common stock sold in its Initial Public Offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from the Company’s trust account of approximately $118.9 million. Effective February 3, 2023, the Company’s units ceased trading, and effective February 6, 2023, AERWINS’ common stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”

 

After taking into account the aggregate payment in respect of the redemption, the Company’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of the Company, pay certain transaction expenses of AERWINS, with the remaining being deposited in AERWINS cash account.

 

In connection with the Business Combination, a warrant holder of AERWINS received 469,291 shares of AERWINS common stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.

 

At the closing of the Business Combination, AERWINS issued an aggregate of 150,000 shares of common stock to Boustead Securities, LLC, in partial satisfaction of fees due to them in connection with the Business Combination. Boustead Securities, LLC represented that, it is an institutional “accredited investor” as defined in Rule 501(a)(3) of Regulation D under the Securities Act. The securities were issued and sold by AERWINS to Boustead Securities, LLC in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

 

As of the Closing: public stockholders own approximately 0.3% of the outstanding shares of AERWINS common stock; the Sponsor and its affiliates own approximately 6.7% of the outstanding shares of AERWINS common stock and AERWINS’s former security holders collectively own approximately 93.0% of the outstanding shares of AERWINS common stock.

 

On February 6, 2023, AERWINS Technologies Inc., entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with Vault Investments LLC, an investment and consulting company registered in Dubai and based in the United Arab Emirates (“U.A.E.”) which is involved in investment consultancy and fundraising services (“VAULT”). Pursuant to the Joint Venture Agreement, the parties agreed to set forth and define each other’s roles, responsibilities and obligations to develop the ALI business solutions in the U.A.E. and Gulf Cooperation Counsel (“GCC”) region. The GCC includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Pursuant to the Joint Venture Agreement, ALI and VAULT agreed to establish a new joint venture company in Dubai, U.A.E. (the “JV Entity”) which will be the official partner and supplier of the ALI business solutions and products for the UAE and GCC region.

 

F-31

 

 

Pursuant to the Joint Venture Agreement, VAULT agreed, together with its strategic partners, to start a technical and financial analysis of the XTURISMO Limited Edition product and different business solutions of ALI (the “Products”), and present it to potential investors and partners in the U.A.E. and GCC region, and to introduce potential investors, partners and clients to ALI, as well as draft contracts and negotiate fees and structure the business set up of the JV Entity as well as to draft and negotiate contracts and memorandums of understanding for the different business opportunities provided, for VAULT or its affiliated companies or companies that are referred to by VAULT to invest in the JV Entity and to select and facilitate office and factory locations.

 

Pursuant to the Joint Venture Agreement, ALI agreed to be responsible for providing any technical, financial, strategic and corporate documents to VAULT to assist with VAULT’s duties under the Joint Venture Agreement and further agreed to be responsible for the fee payments to VAULT under the Joint Venture Agreement, and be ready, willing and able to open the JV Entity in the U.A.E. with VAULT and to transfer to the JV Entity selected IP and technology (the “IP”) as a substitute of capital with the parties agreeing that the IP can be still also be used by ALI and its affiliates and for ALI to be ready, willing and able to attend any meeting, physical or virtual with VAULT to be presented to potential investors, partners of clients introduced by VAULT.

 

Pursuant to the Joint Venture Agreement, the parties also agreed to create a working group to be called the VAULT and ALI Development Committee to review, evaluate and analyze existing documents related to business opportunities, consisting of three (3) members from VAULT and three (3) members from ALI.

 

Pursuant to the Joint Venture Agreement, the parties agreed that all costs and expenses in connection with the negotiations, preparation, execution and performance under the Joint Venture Agreement will be borne by the JV Entity. The parties also agreed that the JV Entity will be structured to be owned 49% by ALI and 51% by VAULT, with the terms and conditions of the JV Entity to be discussed and agreed on separately between the parties and to be evidenced under a memorandum of association when forming the JV Entity.

 

Additionally, the parties agreed that ALI will be the sole supplier of the parts necessary to manufacture the Products and that ALI will be entitled to receive 5% of the total sales of the JV Entity as a software license fee and VAULT will be entitled to receive 5% of the total sales of the JV Entity as consulting fees.

 

The term of the Joint Venture Agreement is for a period of three (3) months after the completion of the first phase of consultancy under the Joint Venture Agreement, and thereafter if agreed between the parties may continue for an additional twelve (12) months from the date of which either party gives written notice of termination of the Joint Venture Agreement to the other party. Any disagreements under the Joint Venture Agreement are to be settled by an arbitration committee formed by the parties to consist of two (2) members and a chairman which will be nominated and approved by the two (2) members and by each party respectively.

 

On February 27, 2023, AERWINS Technologies Inc., entered into a loan agreement with Shuhei Komatsu, the Company’s Chief Executive Officer (the “Loan Agreement”). The Loan Agreement was approved by AERWINS Technologies Inc.’s Board of Directors and Compensation Committee on February 26, 2023.

 

Pursuant to the Loan Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,469,400 US Dollars based on a conversion rate of $0.007347 US Dollar for each $1 yen as of February 27, 2023) (the “Loan”). The maturity date of the Loan under the Loan Agreement is April 15, 2023 (the “Maturity Date”). The interest rate under the Agreement is 2.475% per annum (calculated on a pro rata basis for 365 days a year), and the interest period is from February 27, 2023 until the Maturity Date.

 

If any of the following events occur while the Loan is outstanding, the Loan will become immediately due and payable together with all interest thereon: (i) if payment is suspended or bankruptcy proceedings are initiated against A.L.I., (ii) if A.L.I. initiates legal proceedings related to debt reorganization involving court intervention or when facts are recognized as having occurred that payment has been suspended, (iii) if provisional seizure, preservation seizure, seizure order, or delinquent disposition is received by A.L.I., (iv) if A.L.I. is delayed in make any payments under the Loan Agreement, (v) if A.L.I. violates any provisions of the Loan Agreement or (vi) upon the occurrence of any equivalent reasons requiring the preservation of the right to claim arise in addition to the foregoing.

 

F-32

 

 

Pursuant to the Agreement, if A.L.I. does not timely repay the Loan in accordance with the terms of the Loan Agreement, the interest rate on the Loan will increase to 14.6% per annum until the full payment is made. Under the Loan Agreement, for any litigation arising under the Loan Agreement, regardless of the amount or claim, the exclusive court of jurisdiction will be the Tokyo District Court.

 

On March 20, 2023, Shuhei Komatsu resigned from his positions as Chief Executive Officer and Director and Chairman of the Board of AERWINS Technologies Inc. Mr. Komatsu previously served as AERWINS Technologies Inc.’s Chief Executive Officer and a Director and Chairman of AERWINS Technologies Inc. since February 3, 2023.

 

On March 20, 2023, AERWINS Technologies Inc.’s Board of Directors appointed Taiji Ito to serve as Chief Executive Officer of AERWINS Technologies Inc. Mr. Ito also serves as AERWINS Technologies Inc.’s Global Markets Executive Officer and as a Director of AERWINS Technologies Inc., and has served in such capacities since his appointment to those positions on February 3, 2023.

 

On March 22, 2023, AERWINS Technologies Inc.’s Board of Directors appointed Daisuke Katano to fill the vacancy on its Board of Directors created upon Mr. Komatsu’s resignation to serve as a Director of AERWINS Technologies Inc., and on the same date also appointed Mr. Katano to serve as AERWINS Technologies Inc.’s Chief Operating Officer.

 

On March 22, 2023, AERWINS Technologies Inc.’s Board of Directors appointed Marehiko Yamada to serve as the Chairman of the Board of Directors. Mr. Yamada was appointed as an independent director of AERWINS Technologies Inc. on February 3, 2023. On March 22, 2023, AERWINS Technologies Inc.’s Board of Directors also appointed Mike Sayama to serve as the Vice-Chair of the Board of Directors. Dr. Sayama was appointed as an independent director of AERWINS Technologies Inc. on February 3, 2023. On March 22, 2023, AERWINS Technologies Inc.’s Board of Directors also appointed Kensuke Okabe to serve as Secretary of AERWINS Technologies Inc. Mr. Okabe was appointed as AERWINS Technologies Inc.’s Chief Financial Officer on February 3, 2023.

 

On March 17, 2023, AERWINS Technologies Inc., entered into a Memorandum of Understanding (the “MOU”) with Outsourcing Inc. (“OSI”). Pursuant to the MOU, OSI agreed to invest up to 300,000,000 yen (approximately $2.3 million USD) (the “Investment”) in a planned joint venture (“JVC”) between AERWINS Technologies Inc., either directly or through A.L.I. Technologies Inc. with Vault Investments LLC (“Vault”).

 

OSI is only required to make the Investment in the JVC, if the following conditions are met by April 30, 2023:

 

  1) The JVC is established with the investment of AERWINS Technologies Inc., Vault and OSI;

 

  2) The terms and conditions of the shareholders’ agreement or the investment agreement have been negotiated between AERWINS Technologies Inc., Vault and OSI and executed (the “Definitive Agreement”); and

 

  3) In the Definitive Agreement, Vault must be obligated to invest in the JVC.

 

Pursuant to the MOU, if OSI becomes obligated to make the Investment in the JVC, the currency of the Investment and base date for the exchange rate will be determined in the Definitive Agreement.

 

The MOU is effective from the date of entry until April 30, 2023 (the “Term”). Pursuant to the MOU, If the Definitive Agreement is not executed by the end of the Term, OSI will not be obligated to make the Investment in the JVC. Pursuant to the MOU, all disputes in connection with the MOU will be settled by arbitration in accordance with the Commercial Arbitration Rules of the Japan Commercial Arbitration Association in Tokyo Japan.

 

F-33

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Aerwins Inc. and subsidiaries (formerly known as AERWINS Technologies Inc.)

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Aerwins Inc. and subsidiaries (formerly known as AERWINS Technologies Inc.) (“the Company”) as of December 31, 2022 and 2021 and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ TAAD LLP

 

We have served as the Company’s auditor since 2022.

 

Diamond Bar, California

 

April 27, 2023

 

F-34

 

 

AERWINS INC. (formerly known as AERWINS Technologies Inc.)

 

CONSOLIDATED BALANCE SHEET

 

   December 31,   December 31, 
   2022   2021 
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,278,026   $10,020,459 
Notes receivable   3,488    — 
Accounts receivable, net   980,688    725,287 
Others receivable   2,089,921    1,034,690 
Advances and prepayments to suppliers   611,959    419,146 
Inventory   2,687,092    240,859 
Escrow deposit   575,000    — 
Total current assets   8,226,174    12,440,441 
Long-term Assets          
Property and equipment, net   1,390,547    1,446,898 
Intangible assets, net   150,576    203,618 
Investment-equity method   997,470    1,059,966 
Operating lease right-of-use assets   693,474    1,130,480 
Long-term loans receivable   107,735    140,666 
Investment securities   —    39,556 
Other non-current assets   213,370    236,311 
Total long-term assets   3,553,172    4,257,495 
Total Assets  $11,779,346   $16,697,936 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
Accounts payable   3,333,675    2,433,663 
Others payable   230,060    219,574 
Accrued expenses   402,036    415,935 
Contract liability   1,104,582    228,304 
Current portion of long-term loans   54,624    195,624 
Finance leases liabilities-current   102,114    104,729 
Operating leases liabilities-current   293,710    434,409 
Other current liabilities   380,344    347,313 
Total Current Liabilities   5,901,145    4,379,551 
Longer-term liabilities          
Long-term loans   3,259,237    3,792,654 
Convertible bond   —    7,176,348 
Finance leases liabilities-non-current   87,056    147,745 
Operating leases liabilities-non-current   397,720    685,335 
Other long-term liabilities   225,284    458,705 
Total long-term liabilities   3,969,297    12,260,787 
Total Liabilities   9,870,442    16,640,338 
Stockholders’ Equity:          
Common stock, par value $0.0001, 200,000,000 shares authorized; 30,000,000 shares and 26,341,974 shares issued and outstanding respectively in 2022 and 2021   3,000    2,634 
Preferred stock, par value $0.001, 20,000,000 shares authorized; No shares issued and outstanding   —    — 
Additional paid-in capital   49,296,390    32,286,106 
Accumulated deficit   (46,472,904)   (31,993,085)
Accumulated other comprehensive loss   (917,582)   (238,057)
Stockholders’ Equity   1,908,904    57,598 
Total Liabilities and Stockholders’ Equity  $11,779,346   $16,697,936 

 

See Notes to Consolidated Financial Statements

 

F-35

 

 

AERWINS INC. (formerly known as AERWINS Technologies Inc.)

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

  

For the year ended

December 31,

  

For the year ended

December 31,

 
   2022   2021 
Revenues  $5,207,490   $7,830,130 
Cost of revenues   5,070,507    6,433,913 
Gross profit   136,983    1,396,217 
Operating expenses:          
Selling expenses   90,654    259,799 
General and administrative expenses   7,212,327    5,839,433 
Research and development expenses   8,926,205    9,335,977 
Total operating expenses   16,229,186    15,435,209 
Loss from operations   (16,092,203)   (14,038,992)
Other income (expenses):          
Interest income (expenses), net   (25,065)   (36,763)
Gain(Loss) on foreign currency transaction   60,533    912 
Gain(Loss) on disposal of fixed assets   (9,316)   (6,919)
Impairment on fixed assets   (511,695)   — 
Commission fees   —    (910,391)
Equity in loss of investee   (16,964)   — 
Gain on sale of investment securities   1,801,660    — 
Gain on disposal of business   —    580,177 
Other income (expenses), net   314,774    (115,045)
Total other income (expenses)   1,613,927    (488,029)
Loss before income tax provision   (14,478,276)   (14,527,021)
Income tax benefit (expense)   (1,543)   — 
Net loss   (14,479,819)   (14,527,021)
Less: net loss attributable to non-controlling interest   —    — 
Net loss from continuing operations   (14,479,819)   (14,527,021)
Discontinued operations (Note 17)          
Income from discontinued operations   —    228,836 
Loss on disposal of discontinued operations   —    (215,116)
Income tax expense   —    (42,369)
Loss on discontinued operations   —    (28,649)
Net loss  $(14,479,819)  $(14,555,670)
Other comprehensive income:          
Foreign currency translation adjustment   (679,525)   (679,996)
Total comprehensive loss  $(15,159,344)  $(15,235,666)
Net loss per common share from continuing operations          
Basic  $(0.51)  $(0.55)
Diluted  $(0.51)  $(0.55)
Net Income (loss) per common share from discontinued operations          
Basic  $—   $(0.00)
Diluted  $—   $(0.00)
Weighted average common shares outstanding*          
Basic   28,565,198    26,341,974 
Effect of dilutive securities          
Conversion of option warrants   2,862,486    2,606,895 
Diluted   31,427,684    28,948,869 

 

See Notes to Consolidated Financial Statements

 

F-36

 

 

AERWINS INC. (formerly known as AERWINS Technologies Inc.)

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

  

Common Stock

200,000,000 authorized

  

Preferred stock

20,000,000 authorized

  

Additional

Paid-in

  

Retained

Earnings

  

Accumulated

Other

     
   $0.0001 Par Value   $0.0001 Par Value   (Registered)   (Accumulated   Comprehensive     
   Shares   Amount   Shares   Amount   Capital   Deficit)   Income   Totals 
Balance at January 1, 2021*   26,341,974   $2,634    —   $—   $32,286,106   $(17,437,415)  $438,939   $15,290,264 
Net loss   —    —    —    —    —    (14,555,670)   —    (14,555,670)
Other comprehensive loss   —    —    —    —    —    —    (676,996)   (676,996)
Balances at December 31, 2021   26,341,974   $2,634    —   $—   $32,286,106   $(31,993,085)  $(238,057)  $57,598 
Corporate bond conversion   1,300,650    130    —    —    7,176,218    —    —    7,176,348 
Issuance of common stock   1,693,835    170    —    —    8,399,014    —    —    8,399,184 
Issuance of common stock upon exercise of stock options   663,541    66    —    —    1,434,920    —    —    1,434,986 
Stock-based compensation   —    —    —    —    132    —    —    132 
Net loss   —    —    —    —    —    (14,479,819)   —    (14,479,819)
Other comprehensive loss   —    —    —    —    —    —    (679,525)   (679,525)
Balances at December 31, 2022   30,000,000   $3,000    —   $—   $49,296,390   $(46,472,904)  $(917,582)  $1,908,904 

 

* Retrospectively restated for effect of share issuances on August 5, 2022.

 

F-37

 

 

AERWINS INC. (formerly known as AERWINS Technologies Inc.)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Year ended 
   December 31,   December 31, 
   2022   2,021 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(14,479,819)  $(14,555,670)
Net loss from discontinued operations   —    (28,649)
Net loss from continuing operations   (14,479,819)   (14,527,021)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:          
Depreciation expenses   327,576    193,812 
Amortization expenses   51,813    60,906 
Non-cash lease expense   295,078    498,159 
Revert of bad debt expenses   (647)   (39,283)
Impairment loss   511,695    — 
Loss on disposal of fixed assets   9,316    6,919 
Gain on sale of investment securities   (1,801,660)   — 
Equity in earnings of investee   16,964    — 
Gain on disposal of a business   —    (580,177)
Loss on disposal of a subsidiary   —    215,116 
Decrease (Increase) in operating assets:          
Accounts receivable   (350,739)   3,289,638 
Others Receivable   (550,876)   (278,455)
Prepaid expenses   (305,795)   13,203 
Advances and prepayments to suppliers   59,412    (5,600)
Inventory   (2,483,254)   591,728 
Increase (Decrease) in operating liabilities:          
Accounts payable   1,210,467    126,017 
Others payable   65,586    6,992 
Accrued expenses   38,713    (40,429)
Deferred revenue   907,517    84,745 
Operating lease liabilities-current   (86,087)   (53,201)
Other current liabilities   77,082    442,255 
Operating lease liabilities-Non-current   (201,634)   (451,663)
Other non-current liabilities   (175,982)   327,236 
Net cash used by continuing operating activities   (16,865,274)   (10,119,103)
Net cash provided by discontinued operations   —    242,631 
Net cash used by operating activities   (16,865,274)   (9,876,472)
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of fixed assets   (950,500)   (866,862)
Purchase of intangible assets   (24,403)   (268,504)
Proceeds from disposal of subsidiary   —    473,123 
Proceeds from disposal of a business   —    819,352 
Deposit in escrow   (575,000)   — 
Proceeds from disposal of investments   1,189,725    — 
Repayment of loans receivable   15,214    136,194 
Net cash provided (used) by continuing operations   (344,964)   293,303 
Net cash provided (used) by discontinued operations   —    (12,699)
Net cash (used) by investing activities   (344,964)   280,604 
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from capital contribution (Net of issuance cost)   9,834,302    — 
Proceeds from bond   —    7,524,383 
Proceeds from loans   —    1,165,937 
Repayments to loans   (171,384)   (2,262,294)
Payments for finance leases   (83,799)   (47,979)
Net cash provided by continuing operations   9,579,119    6,380,047 
Net cash used by discontinued operations   —    (68,462)
Net cash provided by financing activities   9,579,119    6,311,585 
Net decrease in cash and cash equivalents   (7,631,119)   (3,284,283)
Effects of exchange rates change on cash   (1,111,314)   (1,603,633)
Cash and cash equivalents at beginning of period   10,020,459    14,619,164 
Cash and cash equivalents at beginning of period held by discontinued operation   —    289,211 
Cash and cash equivalents at end of period  $1,278,026   $10,020,459 
Supplemental Disclosures of Cash Flow Information:          
Cash paid (received) during year for:          
Interest  $25,539   $35,407 
Income taxes  $31,136   $23,133 

 

See Notes to Consolidated Financial Statements

 

F-38

 

 

AERWINS INC. (formerly known as AERWINS Technologies Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Aerwins Technologies Inc. (“Aerwins” or the “Company”), a holding company, was incorporated under the laws of the State of Delaware on June 7, 2022. Aerwins Technologies Inc. changed its name to Aerwins, Inc. on January 24, 2023.

 

On August 5, 2022, Aerwins executed a Share Exchange Agreement with all shareholders of A.L.I. Technologies Inc. (“A.L.I.”), a company that was incorporated in Japan in September 2016. Pursuant to the terms of the Share Exchange Agreement, Aerwins issued 30,000,000 shares of its common shares to the shareholders of A.L.I. in exchange for 2,006,689 common shares issued by A.L.I., representing 100% of A.L.I.’s outstanding common shares. As a result, A.L.I. becomes a wholly owned operating subsidiary of Aerwins.

 

The share exchange has been accounted for as a reverse recapitalization rather than a business combination since the shareholders of A.L.I. own a majority of the outstanding shares of Aerwins’s common stock immediately following the share exchange and there was not a change of control. The consolidation of Aerwins and its subsidiary has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the earliest period presented in the accompanying consolidated financial statements. Consequently, the assets and liabilities and the historical operations that were reflected in the consolidated financial statements for periods prior to the share exchange were those of A.L.I. and its subsidiaries and were recorded at the historical cost basis. After completion of the share exchange, Aerwins’s consolidated financial statements included the assets and liabilities of both Aerwins and A.L.I., the historical operations of A.L.I. and its subsidiaries, and the operations of Aerwins from the closing date of the share exchange.

 

On September 20, 2018, A.L.I. acquired 100% equity ownership of A.L.I. Works (ALIW), which was incorporated in Japan on July 11, 2016, and is engaged in the business of managing web media and providing video production services.

 

On November 26, 2019, A.L.I. acquired 100% equity ownership of ASC HR Agent Inc. (currently ASC TECH Agent Co.), which was incorporated in Japan on December 1, 2014, and is engaged in the business of providing technology resources services. Management determined the Company’s operations constituted two reportable segments in accordance with ASC 280—Air mobility segment and Technology HR outsourcing segment. On December 29, 2021, the board of A.L.I. decided to dispose 51% equity ownership of ASC TECH Agent, and the transaction was completed on December 30, 2021. The Technology HR outsourcing segment is classified as discontinued operations on the consolidated statements of operations and comprehensive income (loss). As a result, the Company does not identify a segment, and therefore, segment information is not disclosed in the notes.

 

Aerwins, via its wholly owned operating subsidiary, A.L.I., and its subsidiaries, is engaged in the business of developing and providing air mobility domain, comprehensive computing solution, and technology human resources services in Japan. Aerwins, A.L.I. and its subsidiaries are hereafter referred to as Aerwins.

 

NOTE 2 - GOING CONCERN

 

The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of and for the year ended December 31, 2022, the Company has incurred operating losses of $16,092,203 and accumulated deficit of $46,472,904. These factors raise substantial doubt on the Company’s ability to continue as a going concern.

 

Although the Company is attempting to commence operations and generate sufficient revenue, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of debt, or a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of debt, or a public or private offering. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

 

Name of Subsidiary  Place of Organization  Percentage of Effective Ownership 
      2022   2021 
ASC TECH Agent  Japan   48.81%   48.81%
ALIW  Japan   100%   100%

 

F-39

 

 

Use of Estimates

 

In preparing the consolidated financial statements in conformity with U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment, the impairment of long-lived assets, and valuation allowance of deferred tax assets. Actual results could differ from those estimates.

 

COVID-19

 

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. The Company may experience customer losses, including due to bankruptcy or customers ceasing operations, which may result in delays in collections or an inability to collect accounts receivable from these customers. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or an adjustment to the carrying value of the Company’s assets or liabilities.

 

Reclassification

 

Certain classification has been made to the prior year financial statements to conform to the current year presentation. Income tax of $31,136 for the year ended December 31, 2021, has been reclassified to General and administrative expenses. The reclassification had no impact on previously reported net loss or accumulated deficit.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and deposits in banks that are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

 

Accounts Receivable

 

Accounts receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.

 

Inventories

 

Inventories consist principally of raw materials used for rendering computing sharing services and work in progress mainly of hoverbikes. Work in progress represents the costs incurred to date on unfinished products or services. The costs recognized as work in progress include direct materials, direct labor, and overhead costs that are directly attributable to the production of the unfinished product or service. Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method for merchandise. Net realizable value is calculated at estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Loss from inventories written down to net realizable value should be recognized whenever the utility of goods is impaired by damage, deterioration, obsolescence, changes in price levels, or other causes. When inventories have been written down below cost, the reduced amount is to be considered the cost for subsequent accounting purposes.

 

F-40

 

 

Fixed assets

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives, as more details follow:

 

     Depreciation Method    Useful Life
Building and building accessories    Straight-line method    8-38 years
Office equipment and furniture    Straight-line method    2-10 years
Software    Straight-line method    5 years
Design right    Straight-line method    7 years

 

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income (loss).

 

Lease-Lessee

 

In accordance with the Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.

 

The Company leases office facilities, office equipment and furniture, and a vehicle, which are classified as operating leases and leases containers, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheet.

 

The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. All operating lease right-of-use assets are reviewed for impairment annually.

 

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

 

The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less.

 

Impairment of Long-Lived Assets

 

Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.

 

F-41

 

 

Equity Method

 

We apply the equity method to an investment in unconsolidated entities over which we have the ability to exercise significant influence. We initially record our investments based on the acquisition cost. Under the equity method, the carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the investment.

 

Foreign Currency Translation

 

The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.

 

The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes in shareholders’ deficit.

 

Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:

 

  

December 31,

2022

  

December 31,

2021

 
Current JPY: US$1 exchange rate   131.81    115.17 
Average JPY: US$1 exchange rate   131.46    109.84 

 

Consolidated Statements of Cash Flows

 

In accordance with FASB ASC 830-230, “Statement of Cash Flows”, cash flows from the Company’s operations are calculated based upon the functional currency. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.

 

To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value and net of a value-added tax (“Consumption Tax”). The Consumption Tax on sales is calculated at 10% of gross sales.

 

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.

 

F-42

 

 

Cost of Revenues

 

Cost of revenues primarily consists of salaries and related expenses (e.g. bonuses, employee benefits, and payroll taxes) for personnel directly involved in the delivery of services and products directly to customers. Cost of revenues also includes royalty/license payments to vendors, and hosting and infrastructure costs related to the delivery of the Company’s products and services.

 

Advertising Expenses

 

Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and products, and costs of direct advertising, and are included in selling expenses. The Company expenses advertising costs as incurred, in accordance with the ASC 720-35, “Advertising Costs”. The advertising expenses were $90,654 and $259,799 for the years ended December 31, 2022 and 2021, respectively.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

 

For the year ended December 31, 2022, Customer A and Customer B accounts for respectively 14.9% and 8.0% of the Company’s total revenues. For the year ended December 31, 2021, Customer C and Customer D accounts for respectively 17.2% and 10.5% of the Company’s total revenues

 

As of December 31, 2022, Customer E, Customer F and Customer G accounts for respectively 16.2%, 15.1% and 12.8% of the Company’s total accounts receivable. As of December 31, 2021, Customer H, Customer I and Customer J accounts for respectively 26.3%, 20.4% and 13.3% of the Company’s total accounts receivable.

 

For the year ended December 31, 2022, Vendor A and F accounts for 29.6% and 12.2% of the Company’s total raw material purchases. For the year ended December 31, 2021, Vendor A accounts for 32.1% of the Company’s total raw material purchases.

 

As of December 31, 2022, Vendor A, Vendor B and Vendor C account for respectively 20.1%, 7.8% and 6.0% of the Company’s total accounts payable. As of December 31, 2021, Vendor D, Vendor E and Vendor B account for respectively 21.4%, 16.9% and 14.4% of the Company’s total accounts payable.

 

Comprehensive Income or Loss

 

ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive loss, as presented in the accompanying consolidated statements of changes in shareholders’ deficit, consists of changes in unrealized gains and losses on foreign currency translation.

 

F-43

 

 

Earnings (Loss) Per Share

 

The Company computes basic and diluted earnings (loss) per share in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share reflects the potential dilution that could occur if stock options and other commitments to issue common shares were exercised or equity awards vest resulting in the issuance of common shares that could share in the earnings (loss) of the Company.

 

Related Parties and Transactions

 

The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, “Related Party Disclosures” and other relevant ASC standards.

 

Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

Income Taxes

 

Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

The Company follows ASC 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

 

Under the provisions of ASC 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations.

 

F-44

 

 

Fair Value Measurements

 

The Company performs fair value measurements in accordance with ASC 820. Fair value is defined as the price 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. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

 

  ● Level 1: quoted prices in active markets for identical assets or liabilities;

 

  ● Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or

 

  ● Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

 

As of December 31, 2022 and 2021, the carrying values of cash and cash equivalents, accounts receivable, other receivable, escrow deposit, short-term loans payable, accounts payable, accrued expenses, contract liability, current portion of long-term debts, current operating and finance lease liabilities and other current liabilities approximated their fair values reported in the consolidated balance sheets mainly due to the short-term maturities of these instruments.

 

NOTE 4 - ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLE

 

Accounts receivable, net consists of the following:

 

   December 31,   December 31, 
   2022   2021 
Accounts receivable  $980,688   $726,026 
Less: allowance for doubtful accounts   —    (739)
Accounts receivable, net  $980,688   $725,287 

 

Allowance for doubtful accounts movement is as follows:

 

   December 31,   December 31, 
   2022   2021 
Beginning balance  $(739)  $(42,640)
Change during the year   739    39,284 
Foreign currency translation adjustment   —    2,617 
Ending balance  $—   $(739)

 

Other receivable movement is as follows:

 

   December 31,   December 31, 
   2022   2021 
Beginning balance  $1,034,690    696,465 
Change during the year   1,189,020    236,054 
Foreign currency translation adjustment   (133,789)   102,171 
Ending balance  $2,089,921   $1,034,690 

 

F-45

 

 

The change during the year in 2022 is mainly from increase of consumption tax receivable that will be refunded in the next fiscal year.

 

NOTE 5 - INVENTORY

 

Inventory consists of the following:

 

   For the Years Ended
December 31,		 
   2022   2021 
Raw materials  $1,533,784   $155,866 
Work in progress   1,135,852    69,339 
Stored item   17,456    15,654 
Total  $2,687,092   $240,859 

 

NOTE 6 - SEGMENT INFORMATION

 

Management determined the Company’s operations constituted two reportable segments in accordance with ASC 280—Air mobility segment and Technology HR outsourcing segment. On December 29, 2021, the board of A.L.I. decided to dispose 51% equity ownership of ASC TECH Agent, and the transaction was completed on December 30, 2021. The Technology HR outsourcing segment is classified as discontinued operations on the consolidated statements of operations and comprehensive income (loss). As a result, the Company does not identify a segment, and therefore, segment information is not disclosed in the notes.

 

NOTE 7 - REVENUE RECOGNITION

 

The Company currently generates its revenue from the following main sources:

 

Revenue from Sales of Computing Equipment

 

Revenues from the sale of equipment are recognized at the point in time when obligations under the terms of a contract with our customer are satisfied and control has been transferred to the customer. For equipment placements that require us to install the product at the customer location, revenue is normally recognized when the equipment has been delivered and installed at the customer location. Sales of customer installable products are recognized upon shipment or receipt by the customer according to the customer’s shipping terms.

 

Revenue from Computing Power Sharing services with Equipment Installation

 

The Company provides customers with computing power sharing services with equipment installation, which includes a one-time equipment installation and a certain period of time technology service. The Company recognizes revenue from one-time equipment installation at the point in time when the installation is completed and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Computing Power Sharing services without Equipment Installation

 

The Company also provides customers with computing power sharing services without equipment installation, which includes a one-time platform set up without equipment installation, and a certain period of time technology service. The Company recognizes revenue from one-time platform set up at the point in time when the platform is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Air Mobility Drone Solution

 

The Company provides customers with air mobility drone solution, which includes UAS (Unmanned Aircraft Systems) main equipment, laser scanner, software package, camera system, etc. The solution includes a one-time system set up and a certain period of time technology service. The Company recognizes revenue from one-time system set up at the point in time when the system is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.

 

F-46

 

 

Revenue from Project Management

 

The Company provides customers with project management, which includes project planning and implementation, and providing needed technology human resources, such as construction engineers and software engineers for various projects. The Company recognizes revenue from project management over time when the service is rendered and accepted by the customer, normally monthly.

 

Revenue from Outsourcing Service

 

The Company provides customers with outsourcing service of temporary staffing for construction or technology industries. The Company recognizes revenue from outsourcing over time as the service is rendered, normally monthly.

 

Disaggregation of Revenue

 

The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the years ended December 31, 2022 and 2021 is as following:

 

   For the Years Ended
December 31,		 
   2022   2021 
Revenue from Project Management  $1,727,601   $1,507,409 
Revenue from Computing Power Sharing services   1,092,012    2,166,953 
Revenue from Sales of Computing Equipment   894,736    879,164 
Revenue from Air Mobility Drone Solution   797,396    822,078 
Revenue from Project Management for Computing Share   595,745    2,172,421 
Other   100,000    282,105 
Total Revenue  $5,207,490   $7,830,130 

 

* 1 Revenue from Outsourcing Service is included in income from discontinued operations.

 

As of December 31, 2022 and 2021, and for the years then ended, almost all of the revenue generated are attributed to the Company’s operation in Japan.

 

Contract Liability

 

As of December 31, 2022 and 2021, the Company recognizes contract liability of $1,104,582 and $228,304 respectively. Contract liability primarily represents the Company’s remaining performance obligations under its service agreement at the end of the year, for which consideration has been received and revenue had not been recognized.

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Guarantee provided by a director of A.L.I.

 

For the year ended December 31, 2022, the Company received a debt guarantee from the Representative Director of A.L.I. Daisuke Katano for a particular building lease agreement. The transaction amount is $ 25,559 which is calculated by the total rental fees paid during the period from January 1, 2022 to December 31, 2022 for the contracts for which guarantees were provided as of December 31, 2022. No warranty fees are paid.

 

F-47

 

 

NOTE 9 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

   December 31,   December 31, 
   2022   2021 
Building  $233,869   $206,683 
Accessory equipment   211,879    220,661 
Structures   47,568      
Vehicles   4,512    5,164 
Tools, furniture, and fixtures   1,751,969    1,595,895 
Lease assets   186,871    291,743 
Construction in process   —    44,604 
Accumulated depreciation and impairment   (1,046,121)   (917,853)
Property and equipment, net  $1,390,547   $1,446,898 

 

Depreciation expense was $327,576 and $193,812 for the years ended December 31, 2022 and 2021, respectively.

 

The Company specifies as the minimum unit each farm and service for the shared computing business, and each location for other businesses. For the year ended December 31, 2022, the Company recorded impairment loss of $511,695 as described in Note 16.

 

NOTE 10 - INTANGIBLE ASSETS, NET

 

The components of intangible assets as of December 31. 2022 and 2021 are as follows:

 

   December 31,   December 31, 
   2022   2021 
Software  $706,320   $788,921 
Design right   111,334    127,420 
Accumulated amortization   (667,078)   (712,723)
Intangible assets, net  $150,576   $203,618 

 

Amortization expense was $51,813 and $60,696 for the years ended December 31, 2022 and 2021, respectively.

 

NOTE 11 - DEPOSIT IN ESCROW

 

Contribution to Pono Capital Corp

 

On November 9, 2022, the Company deposited $575,000 into the trust account of Pono Capital Corp to further extend the period from the closing of Pono Capital Corp’s initial public offering to consummate a business combination for an additional three months to February 13, 2023. The Company received 57,500 Placement Units.

 

NOTE 12 - LEASES

 

The Company has entered into new lease for testing facilities in Minobu City in 2022, which were classified as operating leases.

 

The components of lease costs are as follows:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Short-term lease costs  $1,088   $1,202 
Finance lease costs   97,500    53,425 
Operating lease costs   403,086    542,982 
Total lease costs  $501,674   $597,609 

 

F-48

 

 

The following table presents supplemental information related to the Company’s leases:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases   287,721    504,864 
Financing cash flows from finance lease   83,799    47,979 
Weighted average remaining lease term (years)          
Finance leases   1.9    1. 8 
Operating leases   1.7    2.4 
Weighted-average discount rate: (per annum)          
Finance leases   0.80%   1.71%
Operating leases   0.94%   0.94%

 

As of December 31, 2022, the future maturity of lease liabilities is as follows:

 

Year ending December 31,  Finance lease   Operating lease 
2023  $105,775   $298,580 
2024   54,888    244,125 
2025   11.271    157,099 
2026   11,271    — 
Thereafter   14,088    — 
Total lease payments   197,293    699,804 
Less: imputed interest   (8,123)   (8,374)
Total lease liabilities   189,170    691,430 
Less: current portion   102,114    293,710 
Non-current lease liabilities  $87,056   $397,720 

 

Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amounted to $174,111 and $196,628 as of December 31, 2022 and 2021, respectively.

 

NOTE 13 - CONVERTIBLE BOND

 

On December 28, 2021, the Company issued a convertible bond of 870,000 thousand yen (approximately $7,554,050). The Company incurred 43,500 thousand yen (approximately $377,702) of debt issuance costs relating to the issuance. After deducting the issuance costs, the Company recognizes the convertible bond as a non-current liability at $7,176,348 as of December 31, 2021.

 

The convertible bond bears no interest. The convertible bond matures on December 28, 2024, unless earlier repurchased, redeemed or converted into the Company’s stock.

 

The holder of the corporate bond has 29 units of the right to convert the convertible bond to the Company’s stock. Each unit can be converted to 3,000 shares of the company with the exercise price per unit of 30,000 thousand yen (approximately $260,484). The holder is not required to pay additional consideration when exercising the stock acquisition right because the holder contributes the bond in exchange for the shares when exercising the stock acquisition right.

 

The Company adopted ASU 2020-06 and analyzed the conversion option in the convertible bond for derivative accounting treatment under ASC 815, and determined that the instrument does not qualify for derivative accounting.

 

F-49

 

 

On March 1, 2022, all of the convertible debt was converted to 87,000 shares of A.L.I.’s common stock (Aerwins shares of 1,300,650).

 

NOTE 14 - LONG-TERM DEBTS

 

The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions, which consist of the following:

 

Name of Financial Institutions  Original
Amount
Borrowed
(JPY)		   Loan
Duration		  Annual
Interest
Rate		   Balance as of
December 31,
2022		   Balance as of
December 31,
2021		 
Mizuho Bank, Ltd.   40,000,000   1/22/2021—1/22/2028   0.00%   303,467    347,313 
Mizuho Bank, Ltd.   60,000,000   1/22/2021—1/22/2028   0.00%   455,201    520,969 
Mizuho Bank, Ltd.   50,000,000   1/22/2021—1/22/2028   1.70%   379,334    434,141 
Japan Finance Corporation   50,000,000   12/29/2020—12/31/2027   1.11%   279,190    382,044 
Japan Finance Corporation   250,000,000   12/29/2020—1/31/2026   0.50%   1,896,669    2,170,703 
Sumitomo Mitsui Banking Corporation   80,000,000   7/26/2019—7/26/2022   0.83%   —    133,108 
Aggregate outstanding principal balances                3,313,861    3,988,278 
Less: current portion                (54,624)   (195,624)
Non-current portion               $3,259,237   $3,792,654 

 

Interest expense for long-term debts was $19,341 and $34,607 for the years ended December 31, 2022 and 2021, respectively.

 

As of December 31, 2022, future minimum loan payments are as follows:

 

   Loan 
Year ending December 31, 2022  Payment 
2023  $77,930 
2024   332,900 
2025   354,339 
2026   2,240,117 
2027   341,942 
Thereafter   23,352 
Total   3,370,580 
Less interest   56,719 
Balance as of December 31, 2022   3,313,861 

 

F-50

 

 

NOTE 15 - INCOME TAXES

 

United States

 

Aerwins Technologies Inc. is a holding company registered in the State of Delaware incorporated in June 2022. The U.S. federal income tax rate is 21%.

 

Japan

 

The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the years ended December 31, 2022 and 2021, all taxable income (loss) of the Company is generated in Japan. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority.

 

Income taxes in Japan applicable to the Company are imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately 34.59% for the years ended December 31, 2022 and 2021.

 

For the years ended December 31, 2022 and 2021, the Company’s income tax expenses are as follows:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Current  $1,543   $— 
Deferred   —    — 
Total  $1,543   $— 

 

A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations to the Japanese statutory tax rate for the years ended December 31, 2022 and 2021 is as follows:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Japanese statutory tax rate   34.59%   34.59%
Change in valuation allowance   (34.59)%   (34.59)%
Other   (0.01)   — 
Effective tax rate   (0.01)%   (0.00)%

 

The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2022 and 2021 are presented below:

 

   December 31,   December 31, 
   2022   2021 
Deferred tax assets          
Bonus allowance  $131,209   $120,133 
Impairment loss   321,764    269,079 
Bad debt allowance   102,587    117,664 
Net operating loss carryforward   14,041,559    10,543,029 
Other   26,589    77,262 
Subtotal   14,623,708    11,127,167 
Less valuation allowance   (14,623,708)   (11,118,711)
Total deferred tax assets  $—   $8,457 
Deferred tax liabilities   —    — 
Excess depreciation   —    (8,457)
Total deferred tax liabilities   —    (8,457)
Net deferred tax assets   —    — 

 

F-51

 

 

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies. The Company determined it was not more-likely-than-not that the deferred tax assets will be realized.

 

The company has net operating loss carryforwards for tax purposes of $40,610,168. The company does not recognize deferred tax assets for the net operating loss and the operating loss carryforwards for tax purposes expire as follows:

 

2023-2028  $156,870 
2029-2033   40,453,298 
2034-   — 
Total   40,610,168 

 

Uncertain tax positions

 

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2022 and 2021, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest or penalties tax for the years ended December 31, 2022 and 2021. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2022. The Company’s Japan subsidiary income tax return filed for the tax years ending from December 31, 2018 through December May 31, 2022 are subject to examination by the relevant taxing authorities.

 

NOTE 16 - IMPAIRMENT LOSS

 

For year ended December 31, 2022, the Company recognized impairment losses for the following asset groups.

 

Location  Primary Use  Type  Impairment
loss		 
Kanagawa  Hiratsuka Farm  Accessory equipment   1,584 
Niigata  Yuzawa Farm  Tools, furniture and fixtures   432,327 
Chiba  Noda Farm  Tools, furniture and fixtures   1,184 
Saitama  Kawaguchi Farm  Accessory equipment   1,408 
Fukushima  Sirakawa  Tools, furniture and fixtures   72,979 
Tokyo  Shiba Koen annex  Accessory equipment   2,214 
Total         511,695 

 

The Company specifies as the minimum unit each farm and service for the shared computing business, and each location for other businesses. For the year ended December 31, 2022, the Company reduced the book value of the groups of assets above to the recoverable amount because operating profit from the groups of assets continued to be negative. The Company recognized the reduction as impairment in the line item of impairment on fixed assets. The Company reduces the book value to zero and recognizes the amount as impairment because the future cash flows from these assets were uncertain at the end of this fiscal year.

 

F-52

 

 

For year ended December 31, 2021, the Company did not recognize impairment losses for fixed assets.

 

NOTE 17 - DISCONTINUED OPERATION

 

On December 30, 2021, the Company transferred its shares of ASC TECH Agent to Yamada Incentive Limited Business LLC, a third party, for $886,255. As a result of the transfer, the ratio of voting rights held by the Company changed from 100% to 48.81%, and accordingly ASC TECH Agent was excluded from the scope of consolidation and the Company used equity method to record its investment therein after the transfer.

 

The following table summarizes the carrying value of the assets and liabilities disposed of ASC TECH Agent at the closing date of disposal. The excess of the carrying value of the net assets disposed over the selling price was recorded as loss from disposal of subsidiary.

 

   Amount 
Cash  $413,132 
Accounts receivable   782,355 
Other current assets   88,077 
Fixed assets (net)   29,318 
Operating Lease Right-of-use Assets   194,912 
Goodwill   1,615,932 
Other non-current assets   468,566 
Accrued liabilities and other payables   (1,236,043)
Other current liabilities   (132,724)
Non-current liabilities   (62,188)
Selling price   886,255 
Remaining amount of share   1,059,966 
Loss on disposal  $215,116 

 

Net income from operations of discontinued subsidiary for the years ended December 31, 2021 consist of following. For the year ended December 31, 2022, net income from ASC TECH agent is recognized as equity in loss of investee of $16,964 in the consolidated statements of operations and comprehensive income (loss).

 

  

For the year
ended

December 31,

 
   2021 
Revenues  $6,368,247 
Cost of revenues   4,938,521 
Gross profit   1,429,726 
Operating expenses   1,266,450 
Income from operations   163,276 
Other Income (loss)   65,560 
Provision for income tax (benefit) expenses   42,369 
Net income   186,467 

 

NOTE 18 – DISPOSAL OF BUSINESS AND INVESTMENT SECURITIES

 

On September 21, 2021, the Company disposed of the whole of Zeroboard business including share of A.L.I. Energy, which is engaged in the business of computing sharing. Since the disposal does not represents a strategic shift, the disposal of Zeroboard business is not considered as a discontinued operation, pursuant to ASC 205-20-45-1B.

 

The difference of $580,177 between the cash consideration of $910,391 and the carrying amount of net assets of Zeroboard business of $330,214 was recorded as gain on disposal included into the consolidated statements of operations in 2021.

 

F-53

 

 

On December 22, 2022, the Company disposed of Zeroboard shares at $1,379,992. The company recognized profit of $1,379,302 as gain on sale of investment securities.

 

On June 30, 2022, the Company disposed of Liberaware shares at $456,414. The company recognized profit of $422,358 as gain on sale of investment securities.

 

NOTE 19 – SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

Aerwins was authorized to issue 200,000,000 shares of common shares, par value of $0.0001 per share, and 20,000,000 shares of preferred shares, par value of $0.0001 per share.

 

Common stock issuance

 

On May 31, 2022, A.L.I. issued 33,100 shares of common stocks (Aerwins shares of 494,845) at 10,250 Yen (approximately $79.75) per share for an aggregate of 339,275,000 Yen (approximately $2,639,656) of proceeds in a private placement.

 

On June 30, 2022, A.L.I. issued 1,000 shares of common stocks (Aerwins shares of 14,950) at 10,250 Yen (approximately $75.54) per share for an aggregate of 10,250,000 Yen (approximately $ 75,540) of proceeds in a private placement.

 

On July 29, 2022, A.L.I. issued 40,200 shares of common stocks (Aerwins shares of 600,990) at 10,250 Yen (approximately $75.30) per share for an aggregate of 412,050,000 Yen (approximately $3,027,108) of proceeds in a private placement.

 

On July 31, 2022, A.L.I. issued 39,000 shares of common stocks (Aerwins shares of 583,050) at 10,250 Yen (approximately $75.30) per share for an aggregate of 399,750,000 Yen (approximately $2,936,747) of proceeds in a private placement.

 

Issuance costs related to the above common stock issuance were 35,896,589 Yen (approximately $279,868).

 

Exercise of stock acquisition rights

 

On June 29, 2022, 22 of stock acquisition rights were exercised to purchase 22 shares of A.L.I.’s common stock (Aerwins shares of 329) at 5,000 Yen (approximately $36.63) per share for an aggregate of 110,000 Yen (approximately $806).

 

On June 30, 2022, 15,000 of stock acquisition rights were exercised to purchase 15,000 shares of A.L.I.’s common stock (Aerwins shares of 224,250) at 3,307 Yen (approximately $24.37) per share for an aggregate of 49,605,000 Yen (approximately $365,576).

 

On July 19, 2022, 3,500 of stock acquisition rights were exercised to purchase 3,500 shares of A.L.I.’s common stock (Aerwins shares of 52,325) at 5,000 Yen (approximately $36.25) per share for an aggregate of 17,500,000 Yen (approximately $126,867).

 

On July 27, 2022, 25,862 of stock acquisition rights were exercised to purchase 25,862 shares of A.L.I.’s common stock (Aerwins shares of 386,637) at 5,000 Yen (approximately $36.41) per share for an aggregate of 129,310,000 Yen (approximately $941,737).

 

On September 14, 2022, the Company decided to acquire all outstanding stock acquisition rights issued by A.L.I. without consideration and cancelled them.

 

On July 21, 2022, A.L.I. issued common stock in exchange for preferred stock at a ratio of one share of common stock to one share of preferred stock. A.L.I. issued aggregate of 462,055 shares of common stock to exchange for 81,527 shares of Type A preferred stock, 60,478 shares of Type B preferred stock, 20,000 shares of Type C preferred stock, 300,000 shares of Type D preferred stock. No preferred shares were issued by Aerwins and outstanding as of September 30, 2022 (unaudited), and December 31, 2021.

 

F-54

 

 

On August 5, 2022, Aerwins issued 30,000,000 shares of its common shares to the shareholders of A.L.I. in exchange for 2,006,689 shares of common shares issued by A.L.I., representing 100% of A.L.I.’s outstanding common shares. Under this share exchange, Aerwins is the legal acquirer. However, the share exchange has been accounted for as a recapitalization because Aerwins did not constitute a business. The consolidation of Aerwins and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the earliest presented in the accompanying consolidated financial statements.

 

The Company issued new shares of 3,658,026 for the year ended in December 31, 2022, and recognized Common stock of $365 and Additional Paid-in Capital of $17,010,152. As of December 31, 2022, there were 30,000,000 of common shares issued. The numbers of common shares are retrospectively presented and A.L.I.’s legal capital is adjusted to reflect the legal capital of Aerwins.

 

No preferred shares were issued by Aerwins and outstanding as of December 31, 2022 and 2021.

 

NOTE 20 – EARNINGS (LOSS) PER SHARE

 

Basic earnings (loss) per share is calculated on the basis of weighted-average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect of stock options. Dilutive common shares are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options (also see NOTE 21).

 

The computation of basic and diluted earnings (loss) per share for the years ended December 31, 2022 and 2021 is as follows:

 

   For the Years Ended 
   December 31, 
   2022   2021 
Loss per share – basic          
Numerator:          
Net loss from continuing operations  $(14,479,819)  $(14,527,021)
Net income (loss) from discontinued operations   —    (28,649)
Denominator:          
Weighted average number of common shares outstanding used in calculating basic earnings (loss) per share   28,565,198    26,341,974 
Denominator used for earnings (loss) per share          
Earnings (loss) per share from continuing operations- basic  $(0.51)  $(0.55)
Earnings (loss) per share from discontinued operations - basic   —    (0.00)

 

Diluted basis loss per share are not disclosed because of no dilution.

 

F-55

 

 

NOTE 21 – STOCK ACQUISITION RIGHTS

 

A.L.I. issued the following stock acquisition rights to its directors and employees.

 

    1st   2nd   3rd  4th   5th   6th   7th   8th
Grant date   March 31, 2017     July 11, 2018      July 11, 2018     October 17, 2018    March 14, 2019     March 13, 2019     March 14, 2019     December 29, 2020 
Number of shares at grant date   150,000    15,000    45,000    10,000    67,000    5,750    27,000    5,000 
Outstanding at December 31, 2020   5,000    15,000    42,450    7,500    67,000    5,750    27,000    5,000 
Forfeited   —    —    (11,500)   —    (3,900)   (4,500)   —    — 
Outstanding at December 31, 2021   5,000    15,000    30,950    7,500    64,100    1,250    27,000    5,000 
Exercised   —    (15,000)   —    —    (3,522)   —    (25,862)   — 
Forfeited   (5,000)   —    (30,950)   (7,500)   (60,578)   (1,250)   (1,138)   (5,000)
Outstanding at December 31, 2022   —    —    —    —    —    —    —    — 
Exercise price (JPY)   900    3,307    1,800    3,500    5,000    5,000    5,000    10,000 
    (Approximately $6.82)     (Approximately $13.65)    (Approximately $13.65)    (Approximately $26.55)    (Approximately $37.93)    (Approximately $37.93)    (Approximately $37.93)    (Approximately $75.86) 

 

The company does not recognize expenses from the stock acquisition rights because the Company determined that the compensation expenses are immaterial. On September 14, 2022, the Company decided to acquire all the stock acquisition rights without consideration and to cancel them.

 

NOTE 22 – STOCK-BASED COMPENSATION

 

On July 27, 2022, Aerwins issued stock options to certain directors of the Company which can be exercised for a total of 2,648,000 shares of the Company’s common stock with an exercise price of $0.00015 per share and a vesting period shall commence on the first business day following the occurrence of going public (the “Trigger Date”), and thereafter (i) one third of the option shall vest on the three months anniversary of the Trigger Date, (ii) one third of the option shall vest on the fifteen month anniversary of the Trigger Date; and (iii) the remaining one third of the option shall vest on the twenty seven month anniversary of the Trigger Date. The remaining weighted average contractual life as of December 31, 2022, is 9.58 years.

 

Grant date   July 27, 2022 
Number of shares at grant date   2,648,000 
Outstanding at December 31, 2022   2,648,000 
Exercise price  $0.00015 
Consideration paid to the Company  $132 

 

The Company estimated the fair value of the stock-based compensation at $0.00005 using the Binomial Option Pricing Model with the following assumption inputs.

 

Exercise period   5 years 
Share price on the issuance date  $0.0001 
Volatility   64.22%
Expected dividend rate   0%
Risk-free interest rate   2.88%

 

NOTE 23 - SUBSEQUENT EVENTS

 

On February 3, 2023, following the approval at the special meeting of the shareholders of Pono Capital Corp, Pono Merger Sub, Inc., a wholly-owned subsidiary of Pono Capital Corp consummated a merger with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.) pursuant to an agreement and plan of merger. At the closing on February 3, 2023 of the business combination, Pono Merger Sub merged with and into AERWINS with AERWINS surviving the merger as a wholly-owned subsidiary of Pono Capital Corp, and Pono Capital Corp changed its name to “AERWINS Technologies Inc.”

 

On February 27, 2023, the Company’s wholly owned subsidiary in Japan, A.L.I. Technologies, entered into a loan agreement with Shuhei Komatsu, the Company’s Chief Executive Officer. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,469,400 US Dollars based on a conversion rate of $0.007347 US Dollar for each $1 yen as of February 27, 2023). The maturity date of the loan is April 15, 2023. The interest rate under the agreement is 2.475% per annum, and the interest period is from February 27, 2023 until the maturity date. The Company has paid 100,000,000 yen (approximately $734,700) as of April 27, 2023.

 

F-56

 

  

AERWINS TECHNOLOGIES INC.

 

Up to 11,222,357 Shares of Common Stock for Resale by Selling Securityholder

 

PROSPECTUS

 

_____________, 2023

 

Until ____________, 2023 (the 40th day after the date of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 
 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with the registration of the Selling Securityholder’ shares of Common Stock. All amounts shown are estimates except for the SEC registration fee.

 

Type  Amount 
SEC Registration Fee  $865.69 
Legal Fees and Expenses   50,000.00 
Accounting Fees and Expenses   20,000.00 
Printing and engraving expenses   5,000.00 
Total Expenses  $75,865.69 

 

Item 14. Indemnification of Directors and Officers.

 

Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is a party or who is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.

 

Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

Section 145 of the DGCL further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and the indemnification provided for by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators. Section 145 also empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify such person against such liabilities under Section 145.

 

Section 102(b)(7) of the DGCL provides that a corporation’s certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

 

 
 

 

Our Amended Charter provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our Amended Charter provides that our directors will not be personally liable for monetary damages to us or our stockholders for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.

 

We have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our Amended Charter. Our Amended Charter also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification.

 

We purchased a policy of directors’ and officers’ liability insurance that insures its officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.

 

Our indemnification obligations may discourage stockholders from bringing a lawsuit against its officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions.

 

We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.

 

Insofar as indemnification by us for liabilities arising under the Exchange Act may be permitted to our directors, officers and controlling persons pursuant to provisions of the Amended Charter and Amended Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Exchange Act and will be governed by the final adjudication of such issue.

 

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

 

Item 15. Recent Sales of Unregistered Securities.

 

The following is a summary of transactions by us since February 12, 2021 (date of inception) involving unregistered issuances of our common equity securities. Included are new issues, securities issued in exchange for property, services or other securities, securities issued upon conversion from our other share classes and new securities resulting from the modification of outstanding securities. We issued all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), or Regulation D or Regulation S promulgated thereunder.

 

On July 29, 2022, the Company entered into a Private Placement Unit Purchase Agreement, dated August 10, 2022, between the Company and Mehana Capital LLC (“Mehana Capital”), pursuant to which Mehana Capital purchased an aggregate of 115,000 placement units, each consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share (the “Placement Units”), creating proceeds to the Company of $1,150,000 to be deposited into trust. Pursuant to the Private Placement Unit Purchase Agreement, on August 10, 2022, the Company completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement (the “Private Placement”) intended to be exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Act.

 

 
 

 

On November 9, 2022, the Company entered into a Private Placement Unit Purchase Agreement (the “Mehana Agreement”), dated November 9, 2022, between the Company and Mehana Capital LLC (“Mehana Capital”) an affiliate of the Sponsor, pursuant to which Mehana Capital purchased an aggregate of 57,500 placement units, each consists of one share of Class A common stock, $0.000001 par value per share, and three-quarters of one warrant, each whole Placement Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share (the “Placement Units”), creating proceeds to the Company of $575,000 to be deposited into trust. On November 9, 2022, the Company entered into a Private Placement Unit Purchase Agreement (the “AERWINS Agreement”, and together with the Mehana Agreement, the “Purchase Agreements”), dated November 9, 2022, between the Company and AERWINS, Inc., previously named AERWINS Technologies, Inc., (“AERWINS”) pursuant to which AERWINS purchased an aggregate of 57,500 Placement Units, creating proceeds to the Company of $575,000 to be deposited into trust. Pursuant to the Purchase Agreements, the Company completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement (the “Private Placement”) intended to be exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Act.

 

On January 23, 2023 (the “Effective Date”), the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd., a Delaware limited partnership (“YA”), pursuant to which, among others things, the Company issued 263,103 shares of Common Stock to YA as a commitment fee. In the SEPA, YA represented that, among other things, it is an institutional “accredited investor” as defined in Rule 501(a)(3) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). The Common Stock issued as the commitment fee to YA is in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

 

At the closing of the Business Combination, the Company issued an aggregate of 150,000 shares of common stock to Boustead Securities, LLC, in partial satisfaction of fees due to them in connection with the Business Combination. Boustead Securities, LLC represented that, it is an institutional “accredited investor” as defined in Rule 501(a)(3) of Regulation D under the Securities Act. The securities were issued and sold by the Company to Boustead Securities, LLC in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

 

At the closing of the Business Combination, a warrant holder of AERWINS, Inc. received warrants to purchase 469,291 shares of the Company’s common stock. The securities were issued by the Company in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

 

On April 12, 2023, we entered into the Purchase Agreement with Lind Global Fund II LP (“Lind Global”) pursuant to which we agreed to issue to Lind Global up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).

 

The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of this Registration Statement. Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”). Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing. The securities were issued by the Company in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

 

Item 16. Exhibits and Financial Statement Schedules

 

(a) Exhibits. The list of exhibits preceding the signature page of this registration statement is incorporated herein by reference.
   
(b) Financial Statement Schedules. None.

 

 
 

 

Item 17. Undertakings

 

(a) The undersigned registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(5) That, for the purpose of determining any liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

  (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

  (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

  (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(6) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

 

(7) That every prospectus: (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(8) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the undersigned pursuant to the foregoing provisions, or otherwise, the undersigned has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the undersigned of expenses incurred or paid by a director, officer or controlling person of the undersigned in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the undersigned will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

(b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into this prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

 

(c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

 

 
 

 

EXHIBIT INDEX

 

Exhibit
No.		   Description
   
2.1†   Agreement and Plan of Merger, dated September 7, 2022, by and among Pono Capital Corp., Pono Merger Sub, Inc. and AERWINS Technologies Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed by Pono Capital Corp. with the SEC on September 7, 2022).
   
2.2   Amendment No. 1 to the Agreement and Plan of Merger, dated January 19, 2023, by and among the Pono Capital Corp., Mehana Equity LLC, as Purchaser Representative, AERWINS Inc. and Shuhei Komatsu, as Seller Representative (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Pono Capital Corp. with the SEC on January 19, 2023).
   
3.1   Fourth Amended and Restated Certificate of Incorporation of AERWINS Technologies Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
3.2   Amended and Restated Bylaws of AERWINS Technologies Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
4.1   Warrant Agreement, dated August 10, 2021, by and between Pono Capital Corp. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K, filed by Pono Capital Corp. on August 16, 2021).
   
4.2   Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1, filed by Pono Capital Corp. on July 8, 2021).
   
4.3   Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1, filed by Pono Capital Corp. on July 8, 2021).

 

II-1
 

 

4.4   Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1, filed by Pono Capital Corp. with the SEC on July 8, 2021).
     
5.1*   Opinion of Anthony L.G., PLLC
   
10.1+   Form of AERWINS Technologies Inc. 2022 Equity Incentive Plan (incorporated by reference to Annex C to the proxy statement/prospectus which is part of the Registration Statement on Form S-4 filed by Pono Capital Corp. with the SEC on January 4, 2023).
   
10.2   Form of Indemnity Agreement. (incorporated by reference to Exhibit 10.2 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.3   Form of Registration Rights Agreement by certain AERWINS equity holders (included as Exhibit E to Annex A to the proxy statement/prospectus which is part of the Registration Statement on Form S-4 filed by Pono Capital Corp. with the SEC on January 4, 2023).
   
10.4   Form of Lockup by certain AERWINS equity holders (included as Exhibit C to Annex A to the proxy statement/prospectus which is part of the Registration Statement on Form S-4 filed by Pono Capital Corp. with the SEC on January 4, 2023).
   
10.5   Letter Agreement, dated August 10, 2021, by and among Pono Capital Corp., its officers, directors, and Mehana Equity LLC (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K, filed by Pono Capital Corp. on August 16, 2021).
   
10.6   Purchaser Support Agreement. (incorporated by reference to 10.4 to Form 8-K filed by Pono Capital Corp. with the SEC on September 7, 2022).
   
10.7   Voting Agreement. (incorporated by reference to Exhibit 10.5 to Form 8-K filed by Pono Capital Corp. with the SEC on September 7, 2022).
   
10.8+   Employment Agreement between AERWINS Technologies Inc. and Shuhei Komatsu, dated February 3, 2023. (incorporated by reference to Exhibit 10.8 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.9+   Employment Agreement between AERWINS Technologies Inc. and Taiji Ito, dated February 3, 2023. (incorporated by reference to Exhibit 10.9 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.10+   Employment Agreement between AERWINS Technologies Inc. and Kazuo Miura, dated February 3, 2023. (incorporated by reference to Exhibit 10.10 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.11+   Employment Agreement between AERWINS Technologies Inc. and Kensuke Okabe, dated February 3, 2023. (incorporated by reference to Exhibit 10.11 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.12   Form of Non-Competition and Non-Solicitation Agreement (included as Exhibit D to Annex A to the proxy statement/prospectus which is part of the Registration Statement on Form S-4 filed by Pono Capital Corp. with the SEC on January 4, 2023).
   
10.13+   Option Award Agreement between AERWINS Technologies Inc. and Shuhei Komatsu, dated February 3, 2023. (incorporated by reference to Exhibit 10.13 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
   
10.14+   Option Award Agreement between AERWINS Technologies Inc. and Taiji Ito, dated February 3, 2023. (incorporated by reference to Exhibit 10.14 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).

 

10.15+   Option Award Agreement between AERWINS Technologies Inc. and Kazuo Miura, dated February 3, 2023. (incorporated by reference to Exhibit 10.15 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).

 

II-2
 

 

10.16+   Option Award Agreement between AERWINS Technologies Inc. and Kensuke Okabe, dated February 3, 2023. (incorporated by reference to Exhibit 10.16 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
     
10.17   Form of Subscription Agreement dated February 2, 2023. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on February 3, 2023).
     
10.18   Standby Equity Purchase Agreement dated January 23, 2023 with YA II PN, Ltd. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by Pono Capital Corp. on January 23, 2023).
     
10.19   Joint Venture Agreement between A.L.I. Technologies Inc. and Vault Investments LLC dated February 6, 2023. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
     
10.20   Loan Agreement between A.L.I. Technologies Inc. and Shuhei Komatsu dated February 27, 2023. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on March 2, 2023).
     
10.21   Memorandum of Understanding with Outsourcing Inc. dated March 17, 2023. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on March 23, 2023).
     
10.22   Form of Securities Purchase Agreement dated April 12, 2023 (incorporated by reference to Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.23   Form of Secured Convertible Promissory Note dated April 12, 2023 (incorporated by reference to Exhibit 10.2 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.24   Form of Warrant dated April 12, 2023 (incorporated by reference to Exhibit 10.3 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.25   Form of Security Agreement dated April 12, 2023 (incorporated by reference to Exhibit 10.4 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.26   Form of Subsidiary Guaranty for AERWINS, Inc. dated April 12, 2023 (incorporated by reference to Exhibit 10.5 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.27   Form of Pledge Agreement for AERWINS, Inc. dated April 12, 2023 (incorporated by reference to Exhibit 10.6 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.28   Form of Pledge Agreement for A.L.I. Technologies Inc. dated April 12, 2023 (incorporated by reference to Exhibit 10.7 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
10.29   Form of Guarantor Security Agreement with AERWINS, Inc. dated April 12, 2023 (incorporated by reference to Exhibit 10.8 to Form 8-K filed by AERWINS Technologies Inc. on April 13, 2023).
     
14.1   Code of Ethics. (incorporated by reference to Exhibit 14.1 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
     
21.1   Subsidiaries of the Registrant. (incorporated by reference to Exhibit 21.1 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
     
23.1*   Consent of Marcum LLP
     
23.2*   Consent of TAAD, LLP
     
23.3*   Consent of Anthony L.G., PLLC (included on Exhibit 5.1)
     
24.1*   Power of attorney
     
107*   Registration Fee Table

 

* Filed herewith.
+ Management contract or compensatory plan or arrangement.

 

II-3
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the metropolitan prefecture of Tokyo, Japan, on May 12, 2023.

 

AERWINS TECHNOLOGIES INC.  
     
By: /s/ Taiji Ito  
Name: Taiji Ito  
Title:

Chief Executive Officer

(principal executive officer)

  

 

POWER OF ATTORNEY

 

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Taiji Ito as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities held on May 12, 2023.

 

Name   Position    
         
/s/ Taiji Ito   Chief Executive Officer and Director    
Taiji Ito   (Principal Executive Officer)    
         
/s/ Kensuke Okabe  

Chief Financial Officer and Director

    
Kensuke Okabe   (Principal Financial Officer and Principal Accounting Officer)    
         
/s/ Daisuke Katano   Director    
Daisuke Katano        
         
/s/ Steve Iwamura   Director    
Steve Iwamura        
         
/s/ Mike Sayama   Director    
Mike Sayama        
         
/s/ Marehiko Yamada   Director    
Marehiko Yamada        

 

II-4

 

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