UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

 

orFor the quarterly period ended September 30, 2023

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

For the transition period from ______ to _____

Commission File Number:Number 001-40734

 

Pono Capital CorpAERWINS TECHNOLOGIES INC.

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)

 

Delaware 86-2049355

(State or other jurisdiction ofOther Jurisdiction

incorporationof Incorporation or organization)Organization)

 

(I.R.S. Employer

Identification No.)

   
643 Ilalo StreetShiba Koen Annex 6 f, Honolulu1-8, Shiba Koen 3-chome, HawaiiMinato-ku, Tokyo, Japan 96813105-0011
(Address of principal executive offices)Principal Executive Offices) (Zip Code)

+(808)813-892-66116409-6761

(Registrant’s telephone number, including area code)Telephone Number, Including Area Code)

N/ASecurities registered pursuant to Section 12(b) of the Act:

(Former name or former address and former fiscal year, if changed since last report)

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.000001 par value per shareAWINThe Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per shareAWINWThe Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer”“smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ YesNo ☒ No ☐

 

Securities registered pursuant to Section 12(b)There were 62,688,215shares of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered

Units, each consisting of one share of Class A Common Stock, three-quarters of one Redeemable Warrant

PONOUThe Nasdaq Stock Market LLC
Class A Common stock, $0.000001 par value per sharePONOThe Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per sharePONOWThe Nasdaq Stock Market LLC

As of September 24, 2021, 11,500,000 shares of Class A common stock, $0.000001 per share par value, and 2,875,000 shares of Class Bregistrant’s common stock, $0.000001 par value were issued andper share, outstanding respectively.as of November 20, 2023.

 

 

 

 

TABLE OF CONTENTS

 

Note About Forward-Looking Statements
  Page
PART I – FINANCIAL INFORMATION:1FINANCIAL INFORMATION4
   
Item 1.InterimConsolidated Financial Statements:Statements1
Condensed Balance Sheet as of June 30, 2021 (Unaudited)1
Condensed Statement of Operations for the Period from February 12, 2021 (inception) through June 30, 2021 (Unaudited)2
Condensed Statement of Changes in Stockholders’ Equity for the Period from February 12, 2021 (inception) through June 30, 2021 (Unaudited)3
Condensed Statement of Cash Flows for the Period from February 12, 2021 (inception) through June 30, 2021 (Unaudited)4
 
Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 20224
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (Unaudited)5
Consolidated Statements of Changes in Shareholders’ Equity as of September 30, 2023 and 2022 (Unaudited)6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)7
Notes to CondensedConsolidated Financial Statements (Unaudited)8
5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1626
Item 3.Quantitative and Qualitative DisclosuresDisclosure About Market Risk2039
Item 4.Controls and Procedures2139
PART II - OTHER INFORMATION:INFORMATION2139
Item 1.Legal Proceedings2139
Item 1A.Risk Factors2139
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2140
Item 3.Defaults Upon Senior Securities2240
Item 4.Mine Safety Disclosures2240
Item 5.Other Information2240
Item 6.Exhibits2240

i

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements

PONO CAPITAL CORP

CONDENSED BALANCE SHEET

June 30, 2021

(UNAUDITED)

     
ASSETS    
Current assets    
Cash $25,005 
Prepaid expenses  10,000 
Total current assets  35,005 
Non-current assets    
Deferred offering costs  78,792 
Total non-current assets  78,792 
Total assets $113,797 
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities    
Promissory note- related party $88,792 
Total current liabilities  88,792 
     
Commitments and Contingencies (Note 6)  - 
     
Stockholders’ Equity    
Preferred stock, $0.000001 par value; 1,000,000 shares authorized; NaN issued and outstanding  — 
Common stock value  - 
Class A common stock, $0.000001 par value; 100,000,000 shares authorized; NaN issued and outstanding  — 
Class B common stock, $0.000001 par value; 10,000,000 shares authorized; 2,875,000 shares issued and outstanding (1)  3 
Additional paid in capital  25,226 
Accumulated deficit  (224)
Total stockholders’ equity  25,005 
Total liabilities and stockholders’ equity $113,797 

 (1)Includes an aggregate of
375,000 shares of Class B common stock subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part.Signatures43

The accompanying notes are an integral part of these unaudited condensed financial statements

1

PONO CAPITAL CORP

CONDENSED STATEMENT OF OPERATIONS

FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021

(Unaudited)

     
Other operating expenses $(224)
Net loss $(224)
     
Weighted average shares outstanding, basic and diluted (1)  2,500,000 
Basic and diluted net loss per common share $0.00 

(1)Excludes up to an aggregate of 375,000 shares of Class B common stock subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part.

The accompanying notes are an integral part of these unaudited condensed financial statements

 

2
 

PONO CAPITAL CORP

CONDENSEDCAUTIONARY STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021

(Unaudited)REGARDING FORWARD-LOOKING STATEMENTS

 

  Shares  Amount  Shares(1)  Amount  Capital  Deficit  Equity 
  Class A  Class B  Additional     Total 
  Common Stock  Common Stock  Paid in  Accumulated  Stockholders’ 
  Shares  Amount  Shares(1)  Amount  Capital  Deficit  Equity 
                      
Balance - February 12, 2021 (inception)  —  $—   —  $—  $—  $—  $— 
Balance  —  $—   —  $—  $—  $—  $— 
Issuance of Class B Common stock to Sponsor (1)  —   —   2,875,000   3   24,997   —   25,000 
Capital contribution  —   —   —   —   229   —   229 
Net loss  —   —   —   —   —   (224)  (224)
Balance - June 30, 2021  —  $—   2,875,000  $3  $25,226  $(224) $25,005 
Balance  —  $—   2,875,000  $3  $25,226  $(224) $25,005 

(1)Includes up to an aggregate of 375,000 shares of Class B common stock subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part.

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates and projections about AERWINS Technologies Inc.’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The accompanying notesforward-looking statements in this Quarterly Report on Form 10-Q are an integral partmade on the basis of these unaudited condensed financialmanagement’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

3
 

PONO CAPITAL CORP

CONDENSED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021

(Unaudited)PART I-FINANCIAL INFORMATION

 

     
Cash flow from operating activities:    
Net loss $(224)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Formation costs paid by the Sponsor in the form of capital contribution  229 
Net cash provided by operating activities  5 
     
Cash flows from financing activities:    
Proceeds from issuance of Class B common stock to Sponsor  25,000 
Net cash provided by financing activities  25,000 
     
Net change in cash  25,005 
Cash at the beginning of the period  — 
Cash at the end of the period $25,005 
     
Supplemental disclosure of non-cash financing activities:    
Deferred offering costs paid by Sponsor $78,792 
Prepaid costs paid by Sponsor $10,000 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying notes are an integral part of these unaudited condensed financial statementsAERWINS TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEET

  September 30,  December 31, 
  2023  2022 
  (unaudited)    
ASSETS        
Current Assets:        
Cash and cash equivalents $25,174  $1,278,026 
Notes receivable  -   3,488 
Accounts receivable, net  180,193   980,688 
Others receivable  778,446   2,089,921 
Prepaid expenses  1,827,865   611,959 
Inventory  -   2,687,092 
Escrow deposit  -   575,000 
Total current assets  2,811,678   8,226,174 
         
Long-term Assets        
Property and equipment, net  -   1,390,547 
Intangible assets, net  -   150,576 
Investment-equity method  -   997,470 
Operating lease right-of-use assets  -   693,474 
Long-term loans receivable  95,031   107,735 
Other non-current assets  129,649   213,370 
Total long-term assets  224,680   3,553,172 
         
Total Assets $3,036,358  $11,779,346 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Short-term loans payable $334,604  $- 
Short-term loans payable, related party  441,929   - 
Accounts payable  5,827,219   3,333,675 
Accounts payable, related party  628,903   - 
Notes payable  1,480,000   - 
Others payable  710,965   230,060 
Accrued expenses  1,079,728   402,036 
Contract liabilities  708,810   1,104,582 
Current portion of long-term loans  160,811   54,624 
Finance leases liabilities-current  82,203   102,114 
Operating leases liabilities-current  220,602   293,710 
Other current liabilities  -   380,344 
Total Current Liabilities  11,675,774   5,901,145 
         
Longer-term liabilities        
Long-term loans  2,742,220   3,259,237 
Long-term convertible promissory note, net  997,104   - 
Derivative liability  1,581,579   - 
Finance leases liabilities-non-current  55,617   87,056 
Operating leases liabilities-non-current  236,131   397,720 
Other long-term liabilities  160,016   225,284 
Warrant liabilities  552,032   - 
Total long-term liabilities  6,324,699   3,969,297 
         
Total Liabilities  18,000,473   9,870,442 
         
Stockholders’ Equity:        
Common stock, par value $0.000001, 400,000,000 shares authorized; 62,688,215 and 46,929,065 shares issued and outstanding, respectively in September 30, 2023 and December 31, 2022*  62   47 
Preferred stock, par value $0.000001, 20,000,000 shares authorized; No shares issued and outstanding  -   - 
Additional Paid-in capital  54,092,576   49,299,343 
Retained earnings (Accumulated deficiency)  (69,560,075)  (46,472,904)
Treasury stock  (575,000)  - 
Accumulated other comprehensive income (loss)  1,078,322   (917,582)
Stockholders’ Equity (Deficit)  (14,964,115)  1,908,904 
Total Liabilities and Stockholders’ Equity (Deficit) $3,036,358  $11,779,346 

*Retrospectively restated for effect of the business combination on February 6, 2023.

See Notes to Consolidated Financial Statements (unaudited)

 

4
 

 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSAERWINS TECHNOLOGIES INC.

 

Note 1 — Description of Organization and Business OperationsCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Pono Capital Corp (the “Company”) is a blank check company incorporated in Delaware on February 12, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.

 

As of June 30, 2021, the Company had not commenced any operations. All activity for the period from February 12, 2021 (inception) through June 30, 2021 relates to the Company’s formation and the initial public offering described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering (as defined below). The Company has selected December 31 as its fiscal year end.

  

For the nine months
ended

September 30,

  For the nine months
ended
September 30,		  For the three months
ended
September 30,		  For the three months
ended
September 30,		 
  2023  2022  2023  2022 
 Unaudited 
Revenues $494,661  $2,140,871  $36,908  $206,753 
Cost of revenues  2,078,125   2,399,459   1,477,845   352,179 
Gross loss  (1,583,464)  (258,588)  (1,440,937)  (145,426)
                 
Operating expenses:                
Selling expenses  63,525   78,952   -   19,426 
General and administrative expenses  11,867,931   4,304,138   1,759,644   1,582,060 
Research and development expenses (recovery)  6,748,994   6,389,268   (46,402)  1,905,166 
Total operating expenses  18,680,450   10,772,358   1,713,242   3,506,652 
                 
Loss from operations  (20,263,914)  (11,030,946)  (3,154,179)  (3,652,078)
                 
Other income (expenses):                
Interest expenses, net  (1,145,176)  (19,540)  (660,226)  (5,699)
Gain (Loss) on foreign currency transaction  (10,179)  65,454   241   (23,087)
Gain (Loss) on disposal of fixed assets  (936)  -   255   - 
Impairment on fixed assets  (1,599,985)  -   (34,132)  - 
Equity in earnings of investee  (11,640)  4,126   -   (6,610)
Gain (loss) on sale of investment securities  -  432,980   -  (18,174)
Loss on debt extinguishment  (666,641)  -   (666,641)  - 
Gain on fair value adjustments of warrant  1,903,436   -   703,764   - 
Gain (loss) on fair value adjustments of derivative  470,735   -   (124,938)  - 
Derivative expense  (1,088,477)  -   -   - 
Other income (expenses), net  178,828   293,641   78,273   (222)
Total other income (expenses)  (1,970,035)  776,661   (703,404)  (53,792)
                 
Loss before income tax provision  (22,233,949)  (10,254,285)  (3,857,583)  (3,705,870)
                 
Income tax expense  -   (19,661)  -   (19,661)
                 
Net loss from continuing operations  (22,233,949)  (10,273,946)  (3,857,583)  (3,725,531)
                 
Discontinued operations (Note 25)                
Loss from discontinued operations  (853,223)  (1,025,120)  (6,724)  (345,601)
Loss on discontinued operations  (853,223)  (1,025,120)  (6,724)  (345,601)
                 
Net loss $(23,087,172) $(11,299,066) $(3,864,307) $(4,071,132)
                 
Other comprehensive income:                
Foreign currency translation adjustment  1,995,904   (760,659)  (296,946)  919,736 
                 
Total other comprehensive loss  1,995,904   (760,659)  (296,946)  919,736 
Total comprehensive loss $(21,091,268) $(12,059,725) $(4,161,253) $(3,151,396)
                 
Net loss per common share from continuing operations                
Basic $(0.38) $(0.23) $(0.06) $(0.08)
Anti-Diluted $(0.38) $(0.23) $(0.06) $(0.08)
                 
Net Income (loss) per common share from discontinued operations                
Basic $(0.01) $(0.02) $(0.00) $(0.01)
Anti-Diluted $(0.01) $(0.02) $(0.00) $(0.01)
                 
Weighted average common shares outstanding*                
Basic *  57,515,446   43,917,191   62,547,298   46,291,743 
Effect of dilutive securities *                
Convertible debt *  2,880,633   -   3,697,046   - 
Conversion of option warrants *  12,237,431   4,607,744   15,705,700   5,215,944 
Diluted *  72,633,510   48,524,935   81,950,044   51,507,687 

 

The Company’s sponsor is Mehana Equity LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on August 11, 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.

*Retrospectively restated for effect of the business combination on February 6, 2023.

 

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”)See Notes to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”).Consolidated Financial Statements (unaudited)

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.

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.

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 June 30, 2021, we have available to us $25,005 of cash on our balance sheet and a working capital deficit of $53,787.

The Company’s management has 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 are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide 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 (as defined below) (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 will only complete a Business Combination if the post-Business Combination company owns or acquires 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 is no assurance that the Company will be able to successfully effect a Business Combination.

5
 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSAERWINS TECHNOLOGIES INC.

 

Note 1 — Description of Organization and Business Operations (Continued)CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

The Company will provide 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 may seek stockholder approval of a Business Combination at a meeting called

  Shares  Amount  Shares  Amount  Capital  Deficit)  Stock  Income  Totals 
  Common Stock  Preferred stock            
  400,000,000
authorized		  20,000,000
authorized		  Additional  Retained    Accumulated    
  $0.000001
Par Value		  $0.000001
Par Value		  

Paid-in

(Registered)

  

Earnings

(Accumulated

  Treasury  

Other

Comprehensive

    
  Shares  Amount  Shares  Amount  Capital  Deficit)  Stock  Income  Totals 
                            
Balance at January 1, 2022  41,206,805  $41   -  $-  $32,288,699  $(31,993,085) $-  $(238,057) $57,598 
                                     
Corporate bond conversion  2,034,611   2   -   -   7,176,346   -   -   -   7,176,348 
                                     
Net loss  -   -   -   -   -   (3,392,003)  -   -   (3,392,003)
                                     
Other comprehensive loss  -   -   -   -   -   -   -   (195,256)  (195,256)
                                     
Balances at March 31, 2022  43,241,416  $43   -  $-  $39,465,045  $(35,385,088) $-  $(433,313) $3,646,687 
                                     
Issuance of common stock  797,474   1   -   -   2,715,195   -   -   -   2,715,196 
                                     
Issuance of common stock upon exercise of stock options  351,309   -   -   -   367,278   -   -   -   367,278 
                                     
Net loss  -   -   -   -   -   (3,835,933)  -   -   (3,835,933)
                                     
Other comprehensive loss  -   -   -   -   -   -   -   (1,485,139)  (1,485,139)
                                     
Balances at June 30, 2022  44,390,199  $44   -  $-  $42,547,518  $(39,221,021) $-  $(1,918,452) $1,408,089 
                                     
Issuance of common stock  1,852,197    2   -   -   5,683,985   -   -   -   5,683,987 
                                     
Issuance of common stock upon exercise of stock options  686,670    1   -   -   1,067,708   -   -   -   1,067,709 
                                     
Stock-based compensation                  132               132 
                                     
Net loss  -   -   -   -   -   (4,071,132)  -   -   (4,071,132)
                                     
Other comprehensive income  -   -   -   -   -   -   -   919,736   919,736 
                                     
Balances at September 30, 2022  46,929,066  $47   -  $-  $49,299,343  $(43,292,153) $-  $(998,716) $5,008,521

  Common Stock  Preferred stock            
  400,000,000
authorized		  20,000,000
authorized		  Additional  Retained    Accumulated    
  

$0.000001

Par Value

  

$0.000001

Par Value

  

Paid-in

 (Registered)

  

Earnings

(Accumulated

  Treasury  

Other

Comprehensive

    
  Shares  Amount  Shares  Amount  Capital  Deficit)  Stock  Income  Totals 
                            
Balance at January 1, 2023  46,929,065  $47   -  $-  $49,299,343  $(46,472,904) $-  $(917,582) $1,908,904 
                                     
Issuance of common stock prior to the closing of Business Combination  5,000,000   5   -   -   (1,156,124)  -   -   -   (1,156,119)
                                     
Reverse recapitalization  3,740,187   4   -   -   (878,120)  -   -   -   (878,116)
                                     
Issuance of common stock warrants for services  413,103   0   -   -   4,338,298   -   -   -   4,338,298 
                                     
Acquisition of treasury stock  57,500   -   -   -   -   -   (575,000)  -   (575,000)
                                     
Net loss  -   -   -   -   -   (7,801,544)  -   -   (7,801,544)
                                     
Other comprehensive loss  -   -   -   -   -   -   -   (55,127)  (55,127)
                                     
Balances at March 31, 2023  56,139,855  $56   -  $-  $51,603,397  $(54,274,448) $(575,000) $(972,709) $(4,218,704)
                                     
Issuance of common stock for services  5,269,291   5   -   -   1,919,995   -   -   -   1,920,000 
                                     
Net loss  -   -   -   -   -   (11,421,320)  -   -   (11,421,320)
                                     
Other comprehensive income  -   -   -   -   -   -   -   2,347,977   2,347,977 
                                     
Balances at June 30, 2023  61,409,146  $61   -  $-  $53,523,392  $(65,695,768) $(575,000) $1,375,268  $(11,372,047)
Balance  61,409,146  $61   -  $-  $53,523,392  $(65,695,768) $(575,000) $1,375,268  $(11,372,047)
                                     
Issuance of common stock for services  1,279,069   1   -   -   569,184   -   -   -   569,185 
                                     
Net loss  -   -   -   -   -   (3,864,307)  -   -   (3,864,307)
                                     
Other comprehensive loss  -   -   -   -   -   -   -   (296,946)  (296,946)
Other comprehensive income (loss)  -   -   -   -   -   -   -   (296,946)  (296,946)
                                     
Balances at September 30, 2023  62,688,215  $62   -  $-  $54,092,576  $(69,560,075) $(575,000) $1,078,322  $(14,964,115)
Balance  62,688,215  $62   -  $-  $54,092,576  $(69,560,075) $(575,000) $1,078,322  $(14,964,115)

* Retrospectively restated for such purpose at which stockholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majorityeffect of the outstanding shares voted are voted in favor of the Business Combination.business combination on February 6, 2023.

 

The Company will have until August 13, 2022 (or upSee Notes to February 11, 2023, as applicable) to consummate a Business Combination. If the Company is unable to complete a Business Combination within 12 months (or up to 18 months from the closing of this offering at the election of the Company in two separate three month extensions subject to satisfaction of certain conditions, including the deposit of up to $1,000,000, or $1,150,000 if the underwriters’ over-allotment option is exercised in full ($0.10 per unit in either case) for each three month extension, into the trust account, or as extended by the Company’s stockholders in accordance with our amended and restated certificate of incorporation) from the closing of the Offering to consummate a Business Combination (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 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 will completely extinguish 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, proceed 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.Consolidated Financial Statements (unaudited)

The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the amount per Unit in the trust account ($10.15).

The Sponsor has agreed that it will be 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 has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $10.15 per share (whether or not the underwriters’ over-allotment option is 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 Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will 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 does 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.

6
 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 1 — Description of Organization and Business Operations (Continued)

Liquidity and Management’s Plans

Prior to the completion of the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since completed its Initial Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor may provide us up to $1,500,000 under Working Capital Loans (see Note 5). Accordingly, management has since reevaluated the Company’s liquidity and financial condition and determined that sufficient capital exists to sustain operations through the earlier of the consummation of a Business Combination or one year from this filing and therefore substantial doubt has been alleviated. There is no assurance that the Company’s plans to consummate an initial Business Combination will be successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Risks and Uncertainties

Management is currently evaluating the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statement. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 2 — Summary of Significant Accounting PoliciesAERWINS TECHNOLOGIES INC.

 

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering as filed with the SEC on August 11, 2021, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on August 16, 2021. The interim results for the period ended June 30, 2021 are not necessarily indicative of the results to be expected for the period ending December 31, 2021 or for any future

periods.

Emerging Growth CompanyCONSOLIDATED STATEMENTS OF CASH FLOWS

 

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.

         
  For the Nine Months ended 
  September 30,  September 30, 
  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(23,087,172) $(11,299,066)
Net loss from discontinued operations  (853,223)  (1,025,120)
Net loss from continuing operations  (22,233,949)  (10,273,946)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:        
Depreciation expenses  182,689   186,337 
Amortization expenses  22,934   31,989 
Interest expense  1,145,165   - 
Non-cash lease expense  189,295   247,006 
Share-based compensation  5,190,773   - 
Gain on fair value adjustments of warrant  (1,903,436)  - 
Change in fair value of derivative liability  (470,735)  - 
Revert of bad debt expenses  7,088   (664)
Impairment loss  1,599,985   - 
Loss on disposal of fixed assets  936   2,894 
Gain on sale of investment securities  -   (432,980)
Loss on debt extinguishment  666,641   - 
Equity in earnings of investee  11,640   (4,126)
Derivative expense  1,088,477   - 
Write-off of inventory  1,487,493   

-

 
         
Decrease (Increase) in operating assets:        
Accounts receivable  (45,768)  (49,447)
Others Receivable  1,152,107   (39,557)
Prepaid expenses  126,564   (92,653)
Advances and prepayments to suppliers  142,528   (67,060)
Inventory  924,661   (1,000,412)
Other current assets,  -   (68,114)
Other non current assets  29,217   - 
         
Increase (Decrease) in operating liabilities:        
Accounts payable  2,783,347   106,281 
Notes payable  20,987   - 
Others payable  599,867   (134,215)
Accrued expenses  380,623   73,739 
Deferred revenue  (286,453)  616,204 
Operating lease liabilities-current  (9,426)  (64,115)
Other current liabilities  (362,922)  (31,042)
Operating lease liabilities-Non-current  (144,733)  (173,252)
Other non-current liabilities  (41,867)  (135,276)
         
Net cash used by continuing operations  (7,746,272)  (11,302,409)
Net cash used by discontinued operations  (44,011)  (790,652)
Net cash used by operating activities  (7,790,283)  (12,093,061)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of fixed assets  (20,757)  (41,416)
Purchase of intangible assets  (36,186)  (17,464)
Proceeds from disposal of investments  -   467,791 
Repayment of loans receivable  -   15,593 
Net cash provided (used) by continuing operations  (56,943)  424,504 
Net cash provided (used) by discontinued operations  (5,123)  (137,798)
Net cash (used) by investing activities  (62,066)  286,706 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from capital contribution  -   9,834,301 
Proceeds from bond  2,797,698   - 
Proceeds from loans  3,706,344   - 
Repayments to loans  (2,663,142)  (166,299)
Payments for finance leases  (40,709)  (69,288)
Proceeds from reverse recapitalization with AERWINS Inc., net  1,595,837   - 
Net cash provided by continuing operations  5,396,028   9,598,714 
Net cash provided by discontinued operations  -    
Net cash provided by financing activities  5,396,028   9,598,714 
         
Net decrease in cash and cash equivalents  (2,456,321)  (2,207,641)
Effects of exchange rates change on cash  1,203,469   (1,434,644)
Cash and cash equivalents at beginning of period  1,278,026   10,020,459 
Cash and cash equivalents at beginning of period held by discontinued operation  -   - 
Cash and cash equivalents at ending of period held by discontinued operation  -   - 
Cash and cash equivalents at end of period $25,174  $6,378,174 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid (received) during period for:        
Interest $14,094  $20,025 
Income taxes $-  $31,136 

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being requiredSee Notes 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 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.Consolidated Financial Statements (unaudited)

 

7
 

PONO CAPITAL CORP

 AERWINS TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(unaudited)

 

NoteNOTE 1 - ORGANIZATION AND 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 report on Form 10-Q to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.

Pono Capital Corp Merger

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.

The Business Combination was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). AERWINS was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of AERWINS.

On February 2, — Summary2023, 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 Significant Accounting Policies (Continued)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 which was declared effective by the Securities and Exchange Commission on January 13, 2023.

On February 3, the Company received from the Business Combination with Pono net cash of $1,595,831. The Company also assumed $25,750 in prepaid expenses, $1,432,603 in other payable, $1,580,000 in notes payable ($1,480,000 as of September 30, 2023), $643,213 in warrant liabilities. The total funds from the Business Combination $1,595,831. This amount was available to repay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows:

SCHEDULE OF BUSINESS COMBINATION

     
Cash—Pono trust and working capital cash $1,802,594 
Cash—Subscription agreement made immediately before the closing  5,000,000 
Less: transaction costs and advisory fees  5,206,763 
Total funds from the Business Combination $1,595,831 

Regarding the notes payable of $1,480,000 described above, the Company has not paid by the due date. Accordingly, the Company is regarded as in default and recognizes interest expenses of $110,157 as accrued expenses.

8

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 period ended September 30, 2023, the Company has incurred net loss from continuing operations of $22,233,949 and accumulated deficit of $69,560,075. 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 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.

Unaudited Interim Consolidated Financial Information

The accompanying interim consolidated balance sheet as of September 30, 2023, the interim consolidated statements of operations and comprehensive income (loss), consolidated statements of changes in shareholders’ equity (deficiency), and cash flows for the nine months ended September 30, 2023 and 2022 and the related notes to such interim consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2023 and the Company’s consolidated results of operations and cash flows for the nine months ended September 30, 2023 and 2022. The consolidated results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.

 

Use of Estimates

The preparation ofIn preparing the consolidated financial statements in conformity with U.S. GAAP, requiresthe 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.

Making These estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimateare based on information available as of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, whichstatements. Significant estimates required to be made by management considered in formulating its estimate, could change ininclude, but are not limited to, the near term due to one or more future confirming events. Accordingly,allowance for doubtful accounts, useful lives of property and equipment, the actualimpairment of long-lived assets, and valuation allowance of deferred tax assets. Actual results could differ significantly from those estimates.

 

9

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with anCash and cash equivalents include cash on hand and deposits in banks that are unrestricted as to withdrawal or use, and which have original maturitymaturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company had $25,005 in cash and 0 cash equivalents as of June 30, 2021.less.

 

Deferred Offering CostsAccounts Receivable, net

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 for manufacturing 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. During the nine months ended September 30, 2023, inventory write-downs of $1,487,493 were recorded to reflect the decrease in anticipated net realizable value as the Company is pursuing the redesign of its hoverbike and considering strategic alternatives for the non-core operations.

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:

SCHEDULE OF ESTIMATED USEFUL LIVES OF FIXED ASSETS

Depreciation MethodUseful Life
Building and building accessoriesStraight-line method8-38 years
Office equipment and furnitureStraight-line method2-10 years
SoftwareStraight-line method5 years
Design rightStraight-line method7 years
Patent rightStraight-line method8 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).

10

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.

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.

SCHEDULE OF SUBSIDIARIES

     Percentage of Effective Ownership 
Name of Subsidiary Place of Organization  September 30, 2023  December 31, 2022 
ASC TECH Agent  Japan   0%  48.81%

Warrant Liabilities

We account for the Warrants in accordance with the guidance contained in Accounting Standards Codification (“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, we classify 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 our consolidated statements of operations. The Placement Warrants, Public Warrants, and Debt Warrants for periods where no observable traded price was available are valued using a Black Scholes model.

Share-based Compensation

We account for the share-based compensation in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 718 — “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

Convertible Promissory Notes and Derivative Instruments

 

The Company compliesaccounts for the fair value of the conversion feature in accordance with the requirementsguidance contained in ASC 815, which requires the Company to bifurcate and separately account for the conversion feature as an embedded derivative contained in the Company’s convertible promissory note. Accordingly, we account for the conversion option as an embedded derivative contained in the Company’s promissory note at fair value. The derivative liability is required to be remeasured at each reporting date and the change in fair value is recognized in our consolidated statements of operations.

11

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 ASC 340-10-S99-1economic 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 SEC Staff Accounting Bulletin (“SAB”) Topic 5A - Expenses of Offering. Offering costs consist principally of professional and registration fees incurred throughliabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet date thatdates. 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:

SCHEDULE OF FOREIGN EXCHANGE RATES

  2023  2022  2022 
  

Nine months ended September 30,

(unaudited)

  

Year ended

December 31,

 
  2023  2022  2022 
Current JPY: US$1 exchange rate  149.43   144.71   131.81 
Average JPY: US$1 exchange rate  138.14   128.26   131.46 
Foreign exchange rate  138.14   128.26   131.46 

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 the IPO. Offering costs are charged against the carrying value of Class A common stock orassets and liabilities reported on the statement of operations basedcash flows may not necessarily agree with changes in the corresponding balances on the relative value of the Class A common stock and the Warrants to the proceeds received from the Units sold upon the completion of the IPO. As of June 30, 2021, the Company had deferred offering costs of $78,792.balance sheet.

 

Income TaxesRevenue Recognition

The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” 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 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 Topic 740 prescribes a recognition threshold and a measurement attribute for the 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 June 30 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 provisionCompany recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.

To determine revenue recognition for income taxes was deemedcontracts 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 be immaterial for the period from February 12, 2021 (inception) through June 30, 2021.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.

 

812
 

 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSCost of Revenues

 

Note 2 — SummaryCost of Significant Accounting Policies (Continued)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, hosting and infrastructure costs related to the delivery of the Company’s products and services, and inventory write-down.

 

Class A Common Stock Subject to Possible RedemptionAdvertising Expenses

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 amended and restated certificate of incorporation. In accordance with 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 ($10.15 per share) at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional capital, in accumulated deficit.

 

On JuneAdvertising 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 for nine months ended September 30, 2021, as there are 2023 and 2022 (unaudited) were $063,525 shares of Class A Common Stock outstanding, and $078,952 shares of Class A Common Stock are subject to possible redemption., respectively.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of a cash account in aaccounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial institution which, at times may exceedcondition and payment practices of its customers to minimize collection risk on accounts receivable.

For the Federal depository insurance coveragenine months ended September 30, 2023, Customer A accounts for 27.7% of $the Company’s total revenues.

250,000. On June

For the nine months ended September 30, 2021,2022, Customer C and Customer D accounts for respectively 14.8% and 12% of the Company had not experienced losses on this accountCompany’s total revenues.

As of September 30, 2023, Customer A accounts for 19.6% and management believesCustomer B accounts for 70.2% of the Company is not exposed to significant risks on such account.Company’s total accounts receivable. As of December 31, 2022, Customer E, Customer F and Customer G accounts for respectively 15.1%, 16.2% and 12.8% of the Company’s total accounts receivable

For the nine months ended September 30, 2023, Vendor A and Vendor B accounts for respectively 39.4% and 16.4% of the Company’s total raw material purchases.

For the nine months ended September 30, 2022, Vendor B accounts for respectively 30.8% of the Company’s total raw material purchases.

As of December 31, 2022, Vendor A accounts for 31.2% of the Company’s total accounts payable. As of September 30, 2023, Vendor A accounts for 20.1% of the Company’s total accounts payable.

 

NetComprehensive 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.

Earnings (Loss) Per Share

 

Net incomeThe 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 stock shares outstanding forduring the reporting period. The calculation of diluted incomeDiluted earnings (loss) per share does not considerreflects the effectpotential 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 warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.Company.

 

913
 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSRelated Parties and Transactions

 

Note 2 — SummaryThe 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 Significant Accounting Policies (Continued)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.

 

Fair Value of Financial InstrumentsMeasurements

 

The Company performs fair value measurements in accordance with ASC 820. Fair value is defined as the price that would be received for sale ofto sell an asset or paid forto transfer of a liability in an orderly transaction between market participants at the measurement date. GAAPASC 820 establishes a three-tier fair value hierarchy which prioritizesthat requires an entity to maximize the use of observable inputs used inand minimize the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assetsAn asset’s 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 categorizeda liability’s categorization 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 is based onupon 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:

 

Derivative Financial Instruments

●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.

 

The Company accounts for derivative financial instruments in accordance with ASC Topic 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 statements of operations. The classification of derivative financial instruments is evaluated at the end of each reporting period.

Recent Accounting Standards

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 January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows. Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

Note 3 —Initial Public Offering

Following the closing of the Initial Public Offering and the sale of the Over-allotment Option Units, the Company sold 11,500,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of 1common stock and three-quarters of 1redeemable 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.

10

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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 Private Placement Units at a price of $10.00 per Private Placement Unit for an aggregate purchase price of $5,216,750.

The proceeds from the sale of the Placement Units will be added to the net proceeds from the 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 includes an aggregate of up to 375,000 shares that were subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Sponsor will collectively own at least 20% of the Company’s issued and outstanding shares after the Offering (assuming the initial stockholders do not purchase any Public Shares in the 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.

11

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 5 — Related Party Transactions (Continued)

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. On June 30, 2021, the Company had borrowed $88,792 under the Note. On August 17, 2021, the outstanding balance owed under the Note was repaid in full.

Related Party Loans

In order to finance transaction costs in connection with a Business Combination, the Sponsor may provide us with a loan to the Company up to $1,500,000 as may be required (“Working Capital Loans”). Such 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 Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of June 30, 2021, there were no amounts outstanding under any Working Capital Loans.

If the Company anticipates that it may not be able to consummate the initial Business Combination within 12 months, 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 Amended and Restated Certificate of Incorporation and the trust agreement to be 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 with the underwriters’ over-allotment option exercised in full ($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 with the underwriters’ over-allotment option exercised in full ($0.10 per unit). Any such payments would be made in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of a Business Combination out of the proceeds of the trust account released to it.

12

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 5 — Related Party Transactions (Continued)

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.

Note 6 — Commitments and Contingencies

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 this offering, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to our Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our 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 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 Offering.

Underwriters 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.

The underwriters were entitled to a cash underwriting discount of: (i) two percent (2.00%) of the gross proceeds of the 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 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 a rebatement of $350,000. The total cash underwriting fee is $1,950,000 and deferred underwriting fee is $3,450,000.

Right of First Refusal

For a period beginning on the closing of this offering and ending 12 months from the closing of a business combination, we have 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 of which this prospectus forms a part.

13

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 7 – Stockholders’ Equity

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 June 30, 2021, there were 0 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 June 30, 2021, there were 0 Class A common stock issued or outstanding.

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 June 30, 2021, there were 2,875,000 shares of Class B common stock issued and outstanding (includes an aggregate of 375,000 shares subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part). 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, 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 statement of operations.

Public Warrants may only be exercised for a whole number of shares. 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.

14
 

PONO CAPITAL CORP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSNOTE 4 — ACCOUNTS RECEIVABLE, NET

 

Accounts receivable, net consists of the following:

SCHEDULE OF ACCOUNTS RECEIVABLE, NET

       
  September 30,    
  

2023

(unaudited)

  

December 31,

2022

 
Accounts receivable $186,745  $980,688 
Less: allowance for doubtful accounts  (6,552)  - 
Accounts receivable, net $180,193  $980,688 

Allowance for doubtful accounts movement is as follows:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

  September 30,    
  

2023

(unaudited)

  

December 31,

2022

 
Beginning balance $-  $(739)
Change during the period  6,552   739 
Ending balance $6,552  $- 

Other receivable movement is as follows:

SCHEDULE OF OTHER RECEIVABLE

  September 30,    
  

2023

(unaudited)

  

December 31,

2022

 
Beginning balance $2,089,921  $1,034,690 
Change during the period  (1,296,676)  1,189,020 
Foreign currency translation adjustment  (14,799)  (133,789)
Ending balance $778,446  $2,089,921 

The change during the year in 2022 is mainly from increase of consumption tax receivable that has been refunded in 2023.

Note 7 – Stockholders’ Equity (Continued)NOTE 5 — PREPAID EXPENSES

SCHEDULE OF PREPAID EXPENSES

         
  

September 30, 2023

(unaudited)

  December 31,
2022		 
Prepaid expenses $1,800,826  $431,935 
Advances to Suppliers  27,039   180,024 
Total $1,827,865  $611,959 

Of the total prepaid expenses as at September 30, 2023, $1,636,703 is attributable to prepaid stock-based compensation.

NOTE 6 — INVENTORY

 

TheInventory consists of the following:

SCHEDULE OF INVENTORY

  September 30,    
  

2023

(unaudited)

  December 31,
2022		 
Raw materials $202,381  $1,533,784 
Work in progress  1,245,274   1,135,852 
Product  30,614   - 
Stored item  9,224   17,456 
Write-off of inventory  (1,487,493)  - 
Total $-  $2,687,092 

During the nine months ended September 30, 2023, inventory write-downs of $1,487,493 were recorded to reflect the decrease in anticipated net realizable value as the Company has agreed that as soon as practicable, but in no event later than 15 business days afteris pursuing the closingredesign of its initial Business Combination, it will use its commercially reasonable efforts to file withhoverbike and considering strategic alternatives for 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.non-core operations.

 

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 Window 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 the Trust Account with the 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 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.

On June 30, 2021, there are 0 Public Warrants nor Placement Warrants outstanding.

Note 8 – Subsequent Events

Management has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statement was issued. Based upon this review, other than the events included in the above notes, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statement.

15
 

Item 2. Management’s DiscussionNOTE 7 — SEGMENT INFORMATION

Management determined the Company’s operations constituted one reportable segment in accordance with ASC 280—Air mobility segment. Revenue by each service line can be found in Note 8 below.

NOTE 8 — REVENUE RECOGNITION

The Company currently generates its revenue from the following main sources:

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 Analysisa certain period of Financial Conditiontime technology service. The Company recognizes revenue from one-time equipment installation at the point in time when the installation is completed and Resultsaccepted 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 Operations.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. Revenue from Air Mobility Drone Solution is included in income from discontinued operations.

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 Project Management is included in income from discontinued operations.

Revenue from Consulting Service

The Company provided a customer with consulting service related to IPO. The company recognizes revenue from the service 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 nine months and three months ended September 30, 2023 and 2022 is as following (unaudited):

SCHEDULE OF DISAGGREGATION OF REVENUE

  2023  2022 
  Nine months ended 
  

September 30,

(unaudited)

 
  2023  2022 
Revenue from sales of Computing Equipment $-  $499,758 
Revenue from Computing Power Sharing services  138,508   1,077,061 
Revenue from Project Management for Computing Share  6,153   564,052 
Consulting service  350,000   - 
Total Revenue $494,661  $2,140,871 

  2023  2022 
  Three months ended 
  

September 30,

(unaudited)

 
  2023  2022 
Revenue from Computing Power Sharing services $36,908  $206,753 
Total Revenue $36,908  $206,753 

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For the nine months ended September 30 in 2023 and 2022 (unaudited), almost all of the revenue generated are attributed to the Company’s operation in Japan.

Revenue from Air Mobility Drone Solution and Project Management are included in income from discontinued operations.

Contract Liability

As of September 30, 2023 (unaudited) and December 31, 2022, the Company recognizes contract liability of $708,810 and $1,104,582 respectively. Contract liability primarily represents the Company’s remaining performance obligations under its service agreement at the end of the period, for which consideration has been received and revenue had not been recognized.

NOTE 9 – LOANS PAYABLE

Notes payable

On January 31, 2023, the Company promised to pay to Mahana Equity LLC, the principal sum of $1,130,000. In the case of an event of default, this note bear interest at a rate of 24% per annum until such event of default is cured. The principal amount of this Note and any accrued interest shall be payable on the earlier of raising more than $5,000,000 from Pono’s SEPA with Yorkville or as follows: (i) $300,000 on April 10, 2023 (ii) $300,000 on May 10, 2023; (iii) $300,000 on June 30, 2023; and (iv) $230,000 on July 31, 2023.

On January 31, 2023, the Company promised to pay to a third party lender the principal sum of $450,000. In the case of an event of default, this note bear interest at a rate of 24% per annum until such event of default is cured. The principal amount of this Note and any accrued interest shall be payable (the “Maturity date”) as follows (i) $100,000 on April 10, 2023 (ii) $100,000 on May 10, 2023; (iii) $100,000 on June 30, 2023; (iv) $100,000 on July 31, 2023; and (v) $50,000 on August 31, 2023.

As at September 30, 2023, the notes payable balance was $1,480,000 in default and recognized interest expenses of $110,156 as accrued expenses.

Short-term loan payable

During the nine months ended September 30, 2023, the Company received loans totaling $334,604 (JPY50,000,000) from third parties. Of these loans, $133,842 bears interest of 8% per annum and due 12 months from issue date. $200,762 bears interest of 8% per annum and due 70 days from issue date. The Company has not paid these loans by the due date. Accordingly, the Company is regarded as in default.

NOTE 10 — RELATED PARTY TRANSACTIONS

Guarantee provided by a director of A.L.I.

For the nine months ended September 30, 2023, 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 $129,598 which is calculated by the total rental fees paid during the period from January 1, 2023 to September 30, 2023 for the contracts for which guarantees were provided as of September 30, 2023. No warranty fees are paid.

Loan from a former director of Aerwins

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 $1,384,370 US Dollars based on a conversion rate of 0.0066921 US Dollar for each 1 yen as of September 30, 2023). The original maturity date of the Loan under the Agreement was April 15, 2023, and was extended to June 30, 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.

The Company recognizes $46,580 of accrued expenses. On July 19, 2023, Shuhei enforced the pledge and gained control of ASC investment (approximately 48.81% of ASC TECH Agent) due to default status. During the nine months ended September 30, 2023, the Company derecognized investment in ASC Tech agent in full, derecognized the debt to Shuhei for $227,281, and recognized loss of $666,641. As of September 30, 2023, loan balance is $441,929.

Payable to Directors of Aerwins

In the third quarter of 2023, two directors of Aerwins, Kiran Sidhu and Daisuke Katano paid some payable on behalf of the Company. Mr. Sidhu paid $425,464 in the third quarter of 2023 and the same amount is outstanding as of September 30, 2023. Mr. Katano paid $203,439 in the third quarter of 2023 and the same amount is outstanding as of September 30, 2023. The Company will pay to them at an appropriate timing in light of its financial situation.

17

NOTE 11 — PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

  September 30,    
  

2023

(unaudited)

  

December 31,

2022

 
Building $13,315  $233,869 
Accessory equipment  41,107   211,879 
Structures  5,245   47,568 
Vehicles  3,980   4,512 
Tools, furniture and fixtures  457,701   1,751,969 
Lease assets  164,836   186,871 
Property and equipment, gross  164,836   186,871 
Accumulated depreciation  (686,184)  (534,426)
Impairment  -   (511,695)
Property and equipment, net $-  $1,390,547 

Depreciation expense for nine months ended September 30, 2023 and 2022, were respectively $182,689 and $186,337.

NOTE 12 — INTANGIBLE ASSETS, NET

The components of intangible assets as of September 30, 2023 and December 31, 2022 are as follows:

SCHEDULE OF INTANGIBLE ASSETS

  September 30,    
  

2023

(unaudited)

  

December 31,

2022

 
Software $662,075  $706,320 
Design right  101,578   111,334 
Patent right  22,842   - 
Intangible assets, gross  22,842   - 
Accumulated amortization  (217,828)  (191,813)
Impairment  (568,667)  (475,265)
Intangible assets, net $-  $150,576 

Amortization expense for nine months ended September 30, 2023 and 2022, were respectively $22,934 and $31,989.

NOTE 13 — IMPAIRMENT LOSS

For the nine months ended September 30, 2023, the Company recognized impairment losses for the following assets:

SCHEDULE OF IMPAIRMENT LOSS

    
Type Impairment loss 
Building $199,601 
Accessory equipment  146,334 
Structures  37,975 
Tools, furniture and fixtures  562,650 
Operating Lease right-of-use assets  472,414 
Software  71,095 
Suspense payments  54,370 
Design right  34,132 
Patent right  21,414 
Total $1,599,985 

Because the Company continues to recognize operating losses, and the future cash flows from these assets for its business in Japan are uncertain, so it has decided to write down fixed assets in Japan, the Company recognizes impairment loss for all fixed assets in Japan. 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 quarter.

NOTE 14 — LEASES

The components of lease costs are as follows:

SCHEDULE OF LEASE COSTS

  2023  2022 
  For the Nine months Ended 
  September 30, (unaudited) 
  2023  2022 
Short-term lease costs $38,318  $686 
Finance lease costs  46,305   67,941 
Operating lease costs  173,026   99,635 
Total lease costs $257,649  $168,262 

18

As of September 30, 2023, the future maturity of lease liabilities is as follows:

SCHEDULE OF FUTURE MATURITY OF LEASE LIABILITIES

Year ending December 31, Finance
lease		  Operating
lease		 
       
2023 (nine months) $68,778  $120,549 
2024  44,488   202,050 
2025  9,135   138,568 
2026  9,135   - 
Thereafter  11,419   - 
Total lease payments  142,955   461,167 
Less: imputed interest  (5,135)  (4,434)
Total lease liabilities  137,820   456,733 
Less: current portion  (82,203)   (220,602) 
         
Non-current lease liabilities $55,617  $236,131 

The following table presents supplemental information related to the Company’s leases:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASE

  2023  2022 
  For the Nine months Ended 
  September 30, (unaudited) 
  2023  2022 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $154,159  $237,367 
Financing cash flows from finance lease $40,709  $69,288 
Weighted average remaining lease term (years)        
Finance leases  1.1   1.1 
Operating leases  0.85   1.9 
Weighted-average discount rate: (per annum)        
Finance leases  2.66%  1.71%
Operating leases  0.94   0.94 

Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The amount of security deposits as of September 30, 2023 and as of December 31, 2022 is $129,598 and $174,111 respectively.

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NOTE 15 — LONG-TERM DEBTS

The Company’s long-term loans borrowed from banks and other financial institutions, which consist of the following:

SCHEDULE OF LONG-TERM LOANS BORROWED FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

Name of Lender Original
Amount
Borrowed
(JPY)		  Loan
Duration		 Annual
Interest Rate		  

Balance as of
September 30,
2023

(unaudited)

  Balance as of
December 31,
2022		 
Mizuho Bank, Ltd.  40,000,000  1/22/2021—
1/22/2028		  0.00% $267,684  $303,467 
Mizuho Bank, Ltd.  60,000,000  1/22/2021—
1/22/2028		  0.00%  401,526   455,201 
Mizuho Bank, Ltd.  50,000,000  1/22/2021—
1/22/2028		  1.70%  334,605   379,334 
Japan Finance Corporation  50,000,000  12/29/2020—
12/31/2027		  1.11%  334,605   279,190 
Japan Finance Corporation  226,600,000  12/29/2020—
1/31/2026		  0.50%  1,564,611   1,896,669 
Aggregate outstanding principal balances            2,903,031   3,313,861 
Less: current portion            (160,811)  (54,624)
Non-current portion           $2,742,220  $3,259,237 

Interest expense for long-term debts was $14,093and $19,728 for the nine months ended September 30, 2023 and 2022 (unaudited), respectively.

NOTE 16 – CONVERTIBLE PROMISSORY NOTES, NET

On April 12, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Fund II LP (the “Investor”). Pursuant to the SPA, the Company agreed to issue to the Investor up to three secured convertible promissory notes in the aggregate principal amount of $6,000,000 for a purchase price of an aggregate of $5,000,000 and up to 5,601,613 warrants to acquire up to 5,601,613 shares of the Company’s common stock.

On April 12, 2023, the Company issued first tranche of convertible promissory note of $2,520,000 with maturity date of April 12, 2025 and no interest and issued warrant exercisable for 60 months to acquire 2,532,678 shares of common stock at $0.8926 per share. The note may convert into common shares at the option of the Holder. The conversion price is the lesser of: (i) $0.90; or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the note; provided that in no event shall the conversion price be less than $0.18176 (the “Floor Price”). Debt issuance cost of $457,304, original issue discount of $420,000 and additional discount of $1,642,696 are recognized as reduction from the principal amount of the note and will be amortized over the life of the note utilizing straight-line method.

On May 23, 2023, the Company issued second tranche of convertible promissory note of $1,680,000 with maturity date of May 23, 2025 and no interest and issued warrant exercisable for 60 months to acquire 1,568,542 shares of common stock at $0.7316 per share. The note may convert into common shares at the option of the Holder. The conversion price is the lesser of: (i) $0.90; or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the note; provided that in no event shall the conversion price be less than $0.18176 (the “Floor Price”). Debt issuance cost of $245,000, original issue discount of $280,000 and additional discount of $1,133,395 are recognized as reduction from the principal amount of the note and will be amortized over the life of the note utilizing straight-line method.

The notes consist of the following components as of September 30, 2023:

SCHEDULE OF DEBT NOTES

Principal $4,200,000 
Debt discount  (4,178,395)
Interest expense  975,499 
Net Carrying Balance at September 30, 2023 $997,104 

As of the period ended September 30, 2023, debt discount of the convertible notes consisted of following:

SCHEDULE OF DEBT DISCOUNT OF THE CONVERTIBLE NOTES

Start Date End Date 

Debt Discount At

Debt Issuance

  Amortization  Debt Discount As
of September 30,
2023		 
April 12, 2023 April 12, 2025 $2,520,000  $630,000  $1,890,000 
May 23, 2023 May 23, 2025  1,658,395   345,499   1,312,896 
Total   $4,178,395  $975,499  $3,202,896 

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NOTE 17 – DERIVATIVE LIABILITY

The derivative liability is derived from the debt conversion option features in Note 14. They were valued using Monte Carlo simulation model using assumptions detailed below. As of September 30, 2023, the derivative liability was $1,581,579. The Company recorded $470,735 gain from changes in derivative liability during the nine months ended September 30, 2023. In addition, the Company recorded $1,088,477 as excess of derivative expense at initial valuation due to the total debt discount cannot excess the face amount of the convertible note balance. The Monte Carlo simulation model with following assumptions:

SCHEDULE OF DERIVATIVE LIABILITY

Volatility124%
Risk-free rate5.182% - 5.230%
Stock price$0.12
Dividend Yield-
Expected life1.53– 1.65 years

Fair value of the derivative is summarized as below:

SCHEDULE OF FAIR VALUE OF THE DERIVATIVE

  Derivative Liability 
Balance at January 1, 2023 $- 
Additions  2,052,314 
Change in fair value  (470,735)
Ending Balance, September 30, 2023 $1,581,579 

NOTE 18 – WARRANT LIABILITY

The warrant liability is derived from warrants issued as debt warrants in Note 14, public warrants and placement warrants.

As of September 30, 2023, the total fair value of the warrant liability was $552,032.

The following table provides a reconciliation of the warrants measured at fair value using Level 1 inputs:

SCHEDULE OF RECONCILIATION OF THE WARRANTS MEASURED AT FAIR VALUE USING LEVEL 1 INPUTS

  Public warrants 
Balance at January 1, 2023 $- 
Additions  - 
Transfer from Level 2  603,750 
Change in fair value  (362,250)
Ending Balance, September 30, 2023 $241,500 

The Black-Scholes model with the following assumptions inputs:

SCHEDULE OF BLACK-SCHOLES MODEL ASSUMPTIONS INPUTS

Volatility124.00%
Risk-free rate5.18%
Stock price0.12
Expected life4.35 – 4.65 years  

The following table provides a reconciliation of the warrants measured at fair value using Level 2 inputs:

SCHEDULE OF RECONCILIATION OF THE WARRANTS MEASURED AT FAIR VALUE USING LEVEL 2 INPUTS

  Public warrants  Placement warrants  Debt warrants 
Balance at January 1, 2023 $-   -   - 
Additions  603,750   39,463   1,812,253 
Transfer to Level 1  (603,750)  -   - 
Change in fair value  -   (23,310)  (1,517,874)
Ending Balance, September 30, 2023 $-   16,153   294,379 

  Number of Shares  Weighted Average Exercise Price  Weighted Average Remaining contractual life 
Outstanding at December 31, 2022  -  $-   - 
Granted  13,109,969   8.31   4.68 
Outstanding at September 30, 2023  13,109,969  $8.31   4.68 

21

NOTE 19 — 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 three months periods ended September 30, 2023 and 2022, all taxable income (loss) of the Company is generated in Japan. 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 nine months ended September 30, 2023 and 2022.

For the nine months ended September 30, 2023 and 2022, the Company’s income tax expenses are as follows:

SCHEDULE OF COMPANY' S INCOME TAX EXPENSES

  2023  2022 
  For the Nine months Ended 
  September 30, 
  2023  2022 
Current $-  $19,661 
Deferred  -   - 
Total $-  $19,661 

A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations to the Japanese statutory tax rate for the nine months ended September 30, 2023 and 2022 is as follows:

SCHEDULE OF EFFECTIVE INCOME TAX RATES OF OPERATIONS TO THE JAPANESE STATUTORY TAX RATE

  2023  2022 
  For the Nine months Ended 
  September 30, 
  2023  2022 
Japanese statutory tax rate  34.59%  34.59%
Change in valuation allowance  (34.59)%  (34.76)%
Effective tax rate  (0.00)%  (0.17)%

For the Nine months ended September 30, 2023 and 2022 (unaudited)

The Company’s provision for income taxes for interim periods was determined using an estimate of its annual effective tax rate. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

The Company recognized income tax expense for the nine months ended September 30, 2023 and 2022, both of which were estimated corporate inhabitant taxes.

22

NOTE 20 — EQUITY METHOD

As of September 30, 2022 and 2021, the Company holds 48.81% of ASC TECH Agent. Accordingly, the Company applies equity method to its investment. For the nine months ended September 30, 2023 and 2022 (unaudited), net income from ASC TECH agent is recognized as equity in earnings of investee of $11,640 of loss and $4,126 of profit in the consolidated statements of operations and comprehensive income (loss).

During the nine months ended September 30, 2023, the Company derecognized investment in ASC Tech agent and derecognized the debt to Shuhei. Accordingly, the Company recognized loss on sale of investment securities of $666,641 which is equal to the difference between the investment carrying amount and debt settled.

NOTE 21 – SHAREHOLDERS’ DEFICIT

Aerwins was authorized to issue 400,000,000 shares of common shares, par value of $0.000001 per share, and 20,000,000 shares of preferred shares, par value of $0.000001 per share.

 

References in this report (this “Quarterly Report”)Business combination with Pono Capital Corp

On February 3, 2023, the Company consummated the Merger with Pono. On February 2, 2023, the Company entered into a Subscription Agreement with the Purchasers. In total, the number of Public Shares increased by 8,797,687 at the closing of the Business Combination.

Shares issued to service providers

The Company agreed with service providers to pay the service fees by issuing common stocks subject to the “Company,” “Ponoclosing of the business combination. After the closing of the Business Combination, the Company issued 413,103 shares of common stock for the three months ended March 31, 2023. The Company issued 5,269,291 shares to consultants who provide the Company with several services for the three months ended June 30, 2023. These share issuances are recognized as expense at the fair value of the shares at the issuance date. The Company issued 1,279,069 shares to consultants who provide the Company with several services for the three months ended September 30, 2023. The total amount of fair value of shares issued for the nine months ended September 30, 2023 was $6,827,477 and $1,636,703 is recognized as prepaid expenses.

The Company’s outstanding shares increased by 15,759,150 for the nine months ended September 30, 2023, and recognized Common stock of $15 and Additional Paid-in Capital Corp,” “our,” “us” or “we” referof $4,793,233. As of September 30, 2023, there were 62,688,215 of common shares issued. The numbers of common stocks are retrospectively presented to Pono Capital Corp. References to our “management” or our “management team” refer to our officers and directors, and referencesreflect the legal capital of post-merger AERWINS.

NOTE 22 – 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 “Sponsor” referassumed conversion of share repurchase liability to Mehana Equity, LLC. common shares related to the early exercised stock options.

The computation of basic and diluted earnings (loss) per share for the nine months and three months ended September 30, 2023 and 2022 is as follows:

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE

  2023  2022 
  For the Nine months Ended 
  

September 30,

(unaudited)

 
  2023  2022 
Loss per share – basic        
Numerator:        
Net loss from continuing operations $(22,233,949) $(10,273,946)
Net loss from discontinued operation  (853,223)  (1,025,120)
Denominator:        
Weighted average number of common shares outstanding used in calculating basic loss per share  57,515,446   43,917,191 
Denominator used for loss per share        
Loss per share from continuing operations (basic) $(0.38) $(0.23)
Loss per share from continuing operations (anti-diluted) $(0.38) $(0.23)
Loss per share from discontinued operation (basic) $(0.01) $(0.02)
Loss per share from discontinued operation (anti-diluted) $(0.01) $(0.02)

  2023  2022 
  For the Three months Ended 
  

September 30,

(unaudited)

 
  2023  2022 
Loss per share – basic        
Numerator:        
Net loss from continuing operations $(3,857,583) $(3,725,529)
Net loss from discontinued operation  (6,724)  (345,601)
Denominator:        
Weighted average number of common shares outstanding used in calculating basic loss per share  62,547,298   46,291,743 
Denominator used for loss per share        
Loss per share from continuing operations (basic) $(0.06) $(0.08)
Loss per share from continuing operations (anti-diluted) $(0.06) $(0.08)
Loss per share from discontinued operation (basic) $(0.00) $(0.01)
Loss per share from discontinued operation (anti-diluted) $(0.00) $(0.01)

Basic loss per share equals diluted loss per share because the calculation of diluted loss per share would be anti-dilutive.

23

NOTE 23 – 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 September 30, 2023, is 9.08 years.

SCHEDULE OF STOCK BASED COMPENSATION

Grant date  July 27, 2022 
Number of shares at grant date  4,142,277 
Outstanding at January 31, 2023  4,142,277 
Forfeiture  (2,969,049)
Outstanding at September 30, 2023  1,173,228 
Exercise price $0.00015 
Consideration paid to the Company at the grant date $132 

The number of shares is retrospectively presented to reflect the Business Combination with Pono.

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.

SCHEDULE OF FAIR VALUE OF THE STOCK BASED COMPENSATION

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 24 – FAIR VALUE MEASUREMENT

The estimated fair value of the Company’s financial instrument at September 30, 2023 and December 31, 2022 are set forth below. The following summary excludes cash and cash equivalents, accounts receivable, other receivable, 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 for which fair values approximate their carrying amounts.

SCHEDULE OF ESTIMATED FAIR VALUE OF THE FINANCIAL INSTRUMENT

  

Amount at

Fair Value

  Level 1  Level 2  Level 3 
September 30, 2023                
Liabilities                
Public Warrants $241,500  $241,500  $-  $- 
Placement Warrants $16,153  $-  $16,153  $- 
Debt Warrants $294,379  $-  $294,379  $- 
Subtotal: Warrant liabilities $552,032  $241,500  $310,532   - 
Derivative Liability $1,581,579  $-  $1,581,579  $- 
Liabilities fair value $1,581,579  $-  $1,581,579  $- 

The Public Warrants are classified as Level 1 in the fair value hierarchy because they valued using quoted market prices. The Placement Warrants, Debt Warrants, and Derivative Liability are classified as Level 2 in the fair value hierarchy. This classification is based on the availability of significant inputs used in the Black-Sholes model and Monte Carlo simulation, which are observable in the market.

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 Level 2 to Level 1 during the period from January 1, 2023 due to the increase of observable market activity.

24

NOTE 25 – DISCONTINUED OPERATIONS

As at September 30, 2023, to facilitate cost reduction plan, the Company has made the strategic decision to discontinue drone solution service. The results of operations in relation to the Company’s Drone solution service have been classified by the Company as discontinued operations for the nine months ended September 30, 2023 and 2022 and are shown below:

SCHEDULE OF DISCONTINUED OPERATIONS

  2023  2022  2023  2022 
  

For the nine months ended

September 30,

  

For the three months ended

September 30,

 
  2023  2022  2023  2022 
  (unaudited)  (unaudited) 
Revenues $928,388  $1,213,695  $3,183 $356,392 
Cost of revenues  745,007   971,657   9,045  246,095 
Gross profit  183,381   242,039   (5,862)  110,298 
                 
Operating expenses:                
Selling expenses  4,099   5,986   -  82 
General and administrative expenses  752,243   884,381   36,696   308,246 
Research and development expenses  167,053   402,296   -  172,560 
Total operating expenses  923,395   1,292,663   36,696   480,888 
                 
Loss from operations  (740,014)  (1,050,624)  (42,558)  (370,590)
                 
Other income (expenses):                
Interest expenses, net  (1,164)  -   -   - 
Loss on disposal of fixed assets  (9,761)  (2,894)  -   (2,718)
Impairment of fixed asset  (229,600)  -   -   - 
Other income, net  127,316   28,398   35,834  27,707 
Total other income (expenses)  (113,209)  25,504   35,834   24,989 
                 
Loss before income tax provision $(853,223) $(1,025,120) $(6,724) $(345,601)

NOTE 26 – SUBSEQUENT EVENTS

Management has performed an evaluation of subsequent events through the date of issuance of the unaudited financial statements, noting no items which require adjustment or disclosure other than those set forth in the preceding notes to the unaudited condensed financial statements.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensedour audited financial statements and the notes related thereto contained elsewherewhich are included in “Item 1. Financial Statements and Supplementary Data” of this report.Quarterly Report on Form 10-Q. 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 that involve risks and uncertainties.

Cautionaryas a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements

ThisStatements” in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A ofand “Item 1A. Risk Factors” in our Annual Report on Form 10-K (“Annual Report”) filed with the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statementsCommission (“Commission”) on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.March 31, 2023.

Overview

 

AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) through its subsidiaries is developing the XTURISMO Limited Edition Hoverbike (the “XTURISMO”). Following an evaluation of the viability of other areas of the Company’s business which it considers non-core in light of its limited working capital and desire to further enhance its core business of developing the XTURISMO Ltd. hoverbike, the Company is considering strategic alternatives for the non-core operations of its wholly owned indirect subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) including, but not limited to, possible sale or other disposition of these assets. The non-core areas of the Company’s business include the COSMOS unmanned traffic management system, including further development of advancements to this system and the shared computing service business. All references in this Quarterly Report on Form 10-Q 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 2 refer to Aerwins Technologies Inc. f/k/a Pono Capital Corp.

We are a blank check companywere originally incorporated in Delaware on February 12, 2021. We were2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, sharecapital stock exchange, asset acquisition, sharestock purchase, reorganization or similar business combination with one or more businessesbusinesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Business Combination”“Merger”). We are an emerging growth company with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and as such, we are subject to alla wholly-owned subsidiary of the risks associatedCompany, then called Pono Capital Corp., a Delaware corporation (“Pono”) with emerging growth companies.

Our sponsor isand 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 registration statement for our Initial Public Offering was declared effectiveMerger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on August 11, 2021. On August 13, 2021, we consummated our Initial Public Offering of 10,000,000 units (the “Units” and, with respectFebruary 3, 2023 when pursuant to the Class A common stock includedMerger 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 Units being offered,acquired company and AERWINS, Inc. was treated as the “Public Shares”), including 1,500,000 additional Units to cover over-allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating gross proceeds of $115 million, and incurring offering costs of $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.acquirer for financial statement reporting purposes.

 

Simultaneously withThe Business Combination occurred during the closingperiod 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 the Initial Public Offering, we consummated the private placement (“Private Placement”) of an aggregate of 469,175 units (the “Placement Units”)Company prior to the Sponsor at a priceBusiness Combination and the combined operations after the Business Combination, unless otherwise noted. For additional information on the Business Combination please see the “Explanatory Note” on page 1 of $10.00 per Placement Unit, generating total gross proceedsthis Quarterly Report on Form 10-Q. For additional information on the corporate history of $4,691,750.our Company please see the section titled “Corporate History” on page 70 of our Annual Report.

Business Overview

 

Subsequently,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, 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.2022.

 

A totalWe are developing our air mobility business with the aim of $116,725,000, comprisedcontributing to society as a global company that leads the air mobility society by continuing to develop the XTURISMO. This hoverbike is a manifestation of the proceeds fromdream of air mobility that endeavors to create an entirely new way to experience the Offeringworld, enabling users to feel the joy and the proceedspleasure of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was depositedmoving freely in a trust account established for the benefit of the Company’s public stockholders (“Trust Account”), located in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and which was invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”) until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.space. 

 

1626
 

  

Our management has broad discretion with respectTo achieve this goal, we have established a United States subsidiary in Los Angeles, California to pursue the specific applicationredesign of the net proceeds of the Initial Public Offering although substantially all of the net proceedsXTURISMO. These plans are intended to be applied generally toward consummating a Business Combination. There is no assurance that we will be ableposition the XTURISMO more favorably for wider markets, including the United States and Europe and to complete a Business Combination successfully. We must complete one or more initial Business Combinations having an aggregate fair market value of at least 80%seek certification of the assets held inXTURISMO by the Trust Account (as defined below) (excluding the deferred underwriting commissionsU.S. Federal Aviation Administration (the “FAA”). The redesign is expected to include an alternative powerplant and taxes payable on income earned on the Trust Account) at the timefuel source, airframe stabilization, use of the agreement to enter into the initial Business Combination. However, we will only completemore efficient rotors with safety features, an upgraded driver seat and enclosure, use of a Business Combination if the post-transaction company owns or acquires 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.harness-based wiring system and redesigned onboard electronic systems, among other things.

 

IfThis initiative will be led by our Executive Chairman and President, Kiran Sidhu. Mr. Sidhu plans to lead a dedicated U.S. based team that will focus on obtaining FAA approval for XTURISMO and managing necessary redesigns. Among the recent steps Mr. Sidhu has taken on this project include discussions with an FAA-certified manufacturer with expertise in helicopter system design and the identification of additional FAA-certified companies that are expected to join the project. We believe that utilizing FAA-certified companies offers an increased level of technical and engineering and financial support that will enable us to implement the enhancements to the XTURISMO and thus expand its potential to enter new markets.

Mr. Sidhu has agreed to provide the Company with up to $300,000 in working capital to launch the initial phase of this redesign initiative by way of an interest-free demand loan. He strongly believes in the potential of XTURISMO and is committed to its success and has agreed to personally provide seed financing to jump start our planned redesign.

Data from the U.S. Bureau of Labor Statistics and Indeed.com reveal that the Los Angeles metropolitan area is home to the highest number of aerospace engineers in the U.S., with over 4,000 aerospace engineers. The region potentially employs over 50,000 professionals in the aerospace and defense sector. Prominent aerospace entities like Jet Propulsion Laboratory in Pasadena, SpaceX in Hawthorne, and NASA Armstrong Flight Research Center in Palmdale are nearby, and major aerospace corporations, including Boeing, Lockheed Martin, and Raytheon, have a local presence.

Discontinued Operations

As of September 30, 2023 we discontinued providing drone photography services and joint research and development services previously provided within our unmanned air mobility business. Current estimated costs and charges to be incurred in connection with discontinuing of this portion of our drone service business are not material.

Following an evaluation of the viability of other areas of the business which we consider non-core in light of its limited working capital and desire to further enhance its core business of developing the XTURISMO hoverbike, we are unable to complete a Business Combination within the Combination Period, we will (i) cease all operations exceptconsidering strategic alternatives for the purpose of winding up, (ii) as promptly as reasonably possiblenon-core operations including, but not more than tenlimited to, possible sale or other disposition of these assets. The non-core areas of the business days thereafter, redeeminclude the Public Shares, atCOSMOS unmanned traffic management system, including further development of advancements to this system and the shared computing service business. The Company has not been able to make a per-share price, payablereasonable estimate of the results these changes will have on its business and financial statements.

27

Key Factors that Affect Our Results of Operations

Our business is affected by many factors which we discuss under the heading “Risk Factors” in cash, equal toour Annual Report on Form 10-K for the aggregate amount thenfiscal year ended December 31, 2022, filed with the Commission on deposit in the Trust Account, including interest (which interest shall be net of taxes payable and up to $70,000 of interest to pay dissolution expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject, in the case of clauses (ii) and (iii), to our obligations under Delaware law to provide for claims of creditorsMarch 31, 2023, and in all cases subject to the other requirementssubsequent filings. The following are a few of applicable law.those key factors that may affect our financial condition and results of operations:

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 and electric supply support to control the device system. Regarding software, the stability control of XTURISMO assists driving using sensor fusion surrounding the body and links with the cloud in real time through 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 solutions are all made in Japan.

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 the Gulf Cooperation Council, we have partners for creating the business in the area and will aim to raise funds which we believe will enable us to establish an office and R&D center in the area. We also expect 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, we plan to acquire human resources in various countries outside of Japan.

Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency

We are aiming to establish a highly profitable structure for the mass production of hovercrafts 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 we will seek to build an efficient production system. We also hope to sign a partnership agreement with a local government to implement hovercrafts 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 increases, 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 nine Months Ended September 30, 2023, and 2022

The following table summarizes our operating results as reflected in our statements of income during the nine months ended September 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

  For the Nine Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
REVENUE $494,661   100.0% $2,140,871   100.0% $(1,646,210)  (76.9)%
COST OF REVENUE  2,078,125   420.1%  2,399,459   112.1%  (321,334)  (13.4)%
GROSS LOSS  (1,583,464)  (320.1)%  (258,588)  (12.1)%  (1,324,876)  512.4%
Operating expenses                        
Selling expenses  63,525   12.8%  78,952   3.7%  (15,427)  (19.5)%
General and administrative expenses  11,867,931   2,399.2%  4,304,138   201%  7,563,793   175.7%
Research and development expenses  6,748,994   1,364.3%  6,389,268   298.4%  197,045   3.1%
Total operating expenses  18,680,450   3,776.4%  10,772,358   503.2%  7,745,411   71.9%
Loss from operations  (20,263,914)  (4,063.6)%  (11,030,946)  (515.3)%  (9,070,287)  82.2%
Other expenses  (1,970,035)  (398.3)%  776,661   36.3%  (2,746,696)  (353.7)%
Loss before income tax provision  (22,233,949)  (4,494.78)%  (10,254,285)  (479)%  (11,816,983)  115.2%
Income taxes expense  -   -   (19,661)  (0.9)%  19,661   (100)%
Loss from continuing operations  (22,233,949)  (4,494.78)%  (10,273,946)  (479.9)%  (11,797,322)  114.8%
Loss from discounted operations  (853,223)  (172.5)%  (1,025,120)  (47.9)%  171,897   (16.8)%
Net loss $(23,087,172)  (4,667.2)% $(11,299,066)  (527.8)% $(11,625,425)  102.9%

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Revenue

Our total revenues decreased by $1,646,210 or 76.9% to $494,661 for the nine months ended September 30, 2023 from $2,140,871 for the nine months ended September 30, 2022. The decrease in our revenues was due to a decrease in sales from shared computing business.

Cost of Revenue

Our total costs of revenues decreased by $321,334, or 13.4%, to $2,078,125 for the nine months ended September 30, 2023 from $2,399,459 for the nine months ended September 30, 2022. The decrease in our costs was attributable to the decrease of sales described above and inventory write-down.

Gross Loss

Our total gross loss increased by $1,324,876 or 512.4%, to $1,583,464 for the nine months ended September 30, 2023 from $258,588 for the nine months ended September 30, 2022. $1,487,493 of inventory write-down was included in cost of revenues in the nine months ended September 30, 2023.

Operating Expenses

The following table sets forth the breakdown of our operating expenses for the nine months ended September 30, 2023 and 2022:

  For the nine Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
REVENUE $494,661   100% $2,140,871   100.0% $(1,646,210)  (76.9)%
Operating expenses                        
Selling expenses  63,525   12.8%  78,952   3.7%  (15,427)  (19.5)%
General and administrative expenses  11,867,931   2,399.2%  4,304,138   201%  7,563,793   175.7%
Research and development expenses  6,748,994   1,364.3%  6,389,268   298.4%  197,045   3.1%
Total operating expenses $18,680,450   3,776.4%  10,772,358   503.2% $7,745,411   71.9%

General and Administrative Expenses

Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.

  For the Nine Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
Salaries and welfare $1,468,500   12.4% $1,660,748   38.6% $(192,248)  (11.6)%
Consulting and professional service fees  6,915,884   58.3%  1,538,584   35.7%  5,377,300   349.5%
Depreciation  232,132   2.%  11,877   0.3   220,255   1,854.5%
Share based payment  1,634,106   13.8%  -   n/a   1,634,106   100.0%
Rent expense  114,447   1.0%  109,098   2.5%  5,350   4.9%
Office, utility and other expenses  589,499   5.0%  319,984   7.4%  269,515   84.2%
Travel and entertainment expense  266,363   2.2%  284,293   6.6%  (17,930)  (6.3)%
Commission fees expenses  382,020   3.2%  17,650   0.4%  364,370   2,064.4%
Other expenses  264,980   2.2%  361,904   8.4%  (96,924)  (26.8)%
Total general and administrative expenses $11,867,931   100% $4,304,138   100% $7,563,793   175.7%

* Refers to the percentage of total general and administrative expenses.

Our general and administrative expenses increased by $7,563,793 or 175.7%, to $11,867,931 for the nine months ended September 30, 2023 from $4,304,138 for the nine months ended September 30, 2022, primarily attributable to Consulting and professional service fees relating to the business combination with Pono.

29

Research and development expenses

Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.

  For the nine months ended September 30, 
  2023  2022  Variance 
Research and Development Expenses Amount  % of  Amount  % of  Amount  % of 
Raw materials $3,942,836   58.6% $2,307,090   36.1% $1,635,746   70.9%
Labor expenses  566,636   8.3%  652,281   10.2%  (85,645)  (13.1)%
Outsourcing expenses  1,821,375   26.9%  2,822,207   44.2%  (1,000,832)  (35.5)%
Other expenses  418,147   6.2%  607,690   9.5%  (352,224)  (58)%
Total research and development expenses $6,748,994   100% $6,389,268   100% $197,045   3.1%

* Refers to the percentage of total research and development expenses.

Our research and development expenses increased by $197,045, or 3.1%, to $6,748,994 for the nine months ended September 30, 2023 from $6,389,268 for the nine months ended September 30, 2022, primarily attributable to the increase in raw materials cost for development of XTURISMO.

Other Income (Expenses), net

Our other income (expenses) primarily includes impairment loss of fixed assets.

Total other expense, net, decreased by $2,746,696 or 353.7% from $776,661 of income for the nine months ended September 30, 2022 to $1,970,035 of expenses for the nine months ended September 30, 2023.

Net Income (Loss) from Continuing Operations

As a result of the foregoing, we reported a net loss of $22,233,949 for the nine months ended September 30, 2023 representing a $11,797,322 or 114.8% increase from a net loss of $10,273,946 for the nine months ended September 30, 2022. All net loss is attributable to AERWINS Technologies Inc.

Comparison of Results of Operations for the three Months Ended September 30, 2023, and 2022

The following table summarizes our operating results as reflected in our statements of income during the three months ended September 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

  For the three Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
REVENUE $36,908   100.0% $206,753   100.0% $(169,845)  (82.1)%
COST OF REVENUE  1,477,845   4,004.1%  352,179   170.3%  1,125,666   319.6%
GROSS LOSS  (1,440,937)  (3,904.1)%  (145,426)  (70.3)%  (1,295,511)  890.8%
Operating expenses                        
Selling expenses  -   -%  19,426   9.4%  (19,426)  (100.0)%
General and administrative expenses  1,759,644   4,767.6%  1,582,060   765.2%  177,584   11.2%
Research and development expenses (recovery)  (46,402)  (125.7)%  1,905,166   921.5%  (1,951,568)  (102.4)%
Total operating expenses  1,713,242   4,641.9%  3,506,652   1,696.1%  (1,793,310)  (51.1)%
Income (loss) from operations  (3,154,179)  (8,546.0)%  (3,652,078)  (1,766.4)%  497,899   (13.63)%
Other expenses  (703,404)  (1,905.8)%  (53,792)  (26)%  (649,614)  1,207.7%
Income (loss) before income tax provision  (3,857,583)  (10,451.8)%  (3,705,870)  (1,792.4)%  151,713   (4.09)%
Income taxes expense (benefit)  -   -   (19,661)  (9.5)%  19,661   (100.0)%
Loss from continuing operations  (3,857,583)  (10,451.8)%  (3,725,531)  (1,801.9)%  132,052   (3.5)%
Loss from discounted operations  (6,724)  (18.2)%  (345,601)  (167.2)%  338,877   (98.1)%
Net loss  (3,864,307)  (10,470.1)%  (4,071,132)  (1,969.1)%  206,825   (5.08)%

30

Revenue

Our total revenues decreased by $169,845, or 82.1% to $36,908 for the three months ended September 30, 2023 from $206,753 for the three months ended September 30, 2022. The decrease in our revenues was mainly due to a decrease in sales from shared computing business.

Cost of Revenue

Our total costs of revenues increased by $1,125,666, or 319.6%, to $1,477,845 for the three months ended September 30, 2023 from $352,179 the three months ended September 30, 2022. The increase in our costs was attributable to $1,487,493 of inventory write-down included in cost of revenues in the three months ended September 30, 2023.

Gross Loss

Our total gross loss increased by $1,295,511, or 890.8%, to $1,440,937 of loss for the three months ended September 30, 2023 from $145,426 of loss for the three months ended September 30, 2022. $1,487,493 of inventory write-down was included in cost of revenues in the three months ended September 30, 2023.

Operating Expenses

The following table sets forth the breakdown of our operating expenses for the three months ended September 30, 2023 and 2022:

  For the three Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
REVENUE $36,908   100% $206,753   100.0% $(169,845)  (82.1)%
Operating expenses                        
Selling expenses  -   -   19,426   9.4%  (19,426)  (100.0)%
General and administrative expenses  1,759,644   4,767.6%  1,582,060   765.2%  177,584   11.2%
Research and development expenses (recovery)  (46,402)  (125.7)%  1,905,166   921.5%  (2,114,249)  (111.0)%
Total operating expenses $1,713,242   4,641.9% $3,506,652   1,696.1% $(1,956,091)  (55.8)%

General and Administrative Expenses

Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.

  For the three Months ended September 30, 
  2023  2022  Variance 
  Amount  % of  Amount  % of  Amount  % of 
Salaries and welfare $234,506   13.3% $535,648   33.9% $(301,142)  (56.2)%
Consulting and professional service fees  1,782,593   101.3%  557,296   35.2%  1,225,297   219.9%
Depreciation  232,132   13.2%  11,877   0.8%  220,255   1,854.5%
Rent expense  32,854   1.9%  36,172   2.3%  (3,318)  (9.2)%
Office, utility and other expenses (recovery)  (360,915)  (20.5)%  95,582   6.0%  (456,497)  (477.6)%
Travel and entertainment expense (recovery)  (5,200)  (0.3)%  156,065   9.9%  (161,265)  (103.3)%
Commission fees expenses  89,786   5.1%  6,464   0.4%  83,322   1,289.0%
Other expenses (income)  (246,112)  (14)%  182,956   11.6%  (429,068)  (234.5)%
Total general and administrative expenses $1,759,644   100% $1,582,060   100% $177,584   11.2%

* Refers to the percentage of total general and administrative expenses.

Our general and administrative expenses increased by $177,584, or 11.2%, to $1,759,644 for the three months ended September 30, 2023 from $1,582,060 for the three months ended September 30, 2022, primarily attributable to Share-based payment and Consulting and professional service fees relating to the business combination with Pono.

31

Research and development expenses

Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.

  For the three Months ended September 30, 
  2023  2022  Variance 
Research and Development Expenses Amount  % of  Amount  % of  Amount  % of 
Raw materials $(46,402)  100% $587,356   30.8% $(796,439)  (135.6)%
Labor expenses  -   n/a%  154,724   8.1%  (154,724)  (100)%
Outsourcing expenses  -   n/a%  902,482   47.4%  (902,482)  (100)%
Other expenses  -   n/a%  260,604   13.7%  (260,604)  (100)%
Total research and development expenses $(46,402)  n/a% $1,905,166   100% $(2,114,249)  (111)%

* Refers to the percentage of total research and development expenses.

Our research and development expenses decreased by $2,114,249, or 111%, to recovery of $46,402 for the three months ended September 30, 2023 from $ 1,905,166 for the three months ended September 30, 2022, primarily attributable to the increase in raw materials cost for development of XTURISMO.

Other Income (Expenses), net

Our other income (expenses) primarily includes impairment loss related to fixed assets.

Total other expenses, net, increased by $649,614 or 1,207.7% from $53,790 of expenses for the three months ended September 30, 2022 to $703,404 of expenses for the three months ended September 30, 2023.

Net Income (Loss) from Continuing Operations

As a result of the foregoing, we reported a net loss of $3,857,583 for the three months ended September 30, 2023 representing a $30,627 or 0.8% decrease from a net loss of $3,725,529 for the three months ended September 30, 2022. All net loss is attributable to AERWINS Technologies Inc.

Results from Discontinued Operations

As at September 30, 2023, to facilitate cost reduction plan, the Company discontinued providing drone photography services and joint research and development services previously provided within its unmanned air mobility business. The results of operations in relation to these services have been classified by the Company as discontinued operations for the nine months ended September 30, 2023 and 2022 and are shown below:

  

For the nine months ended

September 30,

  

For the three months ended

September 30,

 
  2023  2022  2023  2022 
  (unaudited)  (unaudited) 
Revenues $928,388  $1,213,695  $3,183  $356,392 
Cost of revenues  745,007   971,657   9,045   246,095 
Gross profit  183,381   242,039   (5,862)  110,298 
                 
Operating expenses:                
Selling expenses  4,099   5,986   -   82 
General and administrative expenses  752,243   884,381   36,696   308,246 
Research and development expenses  167,053   402,296   -   172,560 
Total operating expenses  923,395   1,292,663   36,696   480,888 
                 
Loss from operations  (740,014)  (1,050,624)  (42,558)  (370,590)
                 
Other income (expenses):                
Interest expenses, net  (1,164)  -   -   - 
Loss on disposal of fixed assets  (9,761)  (2,894)  -   (2,718)
Impairment of fixed asset  (229,600)  -   -   - 
Other income, net  127,316   28,398   35,834   27,707 
Total other income (expenses)  (113,209)  25,504   35,834   24,989 
                 
Loss before income tax provision $(853,223) $(1,025,120) $(6,724) $(345,601)

32

Liquidity and Capital Resources

 

As of JuneSeptember 30, 2021,2023, we had approximately $25,005$25,174 in our operating bank account,cash as compared to $1,278,026 as of December 31, 2022. We also had $180,193 in accounts receivable as of September 30, 2023 as compared to $980,688 as of December 31, 2022. Our accounts receivable primarily include balances due from services provided and aaccepted by customers. As of September 30, 2023, our working capital deficit of approximately $53,787. Our liquidity needs up to June 30, 2021 had been satisfied through the payment of $25,000 from the Sponsor to cover for certain expenses on our behalf in exchange for the issuance of the Founder Shares, the loan of approximately $88,792 from the Sponsor pursuant to a promissory note, and the proceeds from the consummation of the Private Placement not held in the Trust Account. We fully repaid the Note on August 17, 2021. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor has agreed to provide us up to $1,500,000 under Working Capital Loans (see Note 5). As of June 30, 2021, there were no amounts outstanding under any Working Capital Loan.was $8,864,096.

 

BasedIn assessing our liquidity, management monitors and analyzes our cash, our ability to raise funds and to generate sufficient revenue in the future, and our operating and capital expenditure commitments. We are looking for other sources, such as raising additional capital by issuing shares of stock, to meet our needs for cash. To that end, management is currently scrutinizing potential cost reductions among the operating expenses and other cost reductions to better align our expenses with revenues which resulted in our discontinuance as of September 30, 2023 of our drone photography services and joint research and development services previously provided within our unmanned air mobility business. Furthermore, we note that we have a history of operating losses, have not yet achieved profitable operations and expect to incur further losses. We have funded our operations primarily from equity and debt financing and shareholder loans. As of September 30, 2023, cash generated from financing activities was not sufficient to fund operations and, in particular, to fund our growth strategy in the short-term or long-term. In connection with our efforts to obtain additional working capital, we sold two Convertible Notes to Lind Global in the aggregate principal amount of $4,200,000 for an aggregate purchase price of $3,500,000 on April 12, 2023 and May 23, 2023, respectively, along with warrants to purchase 3,921,129 shares of our Common Stock and expect to close on the foregoing, management believes that we will have sufficient borrowing capacity from our Sponsor or an affiliatesale of a third Convertible Note in the principal amount of $1,800,000 for a purchase price of $1,500,000 which includes a warrant to purchase 1,680,484 shares of our Sponsor, or certainCommon Stock. See “Liquidity and Capital Resources – Recent Financing Transactions” below. The primary need for liquidity is to fund working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of our officersoperating as a public company. The ability to fund operations, to make planned capital expenditures, to execute on the development and directors to meet its needs through the earliermanufacture of the consummationXTURISMO Limited Edition Hoverbike and to repay or refinance indebtedness depends on our ability to raise funds from debt and/or equity financing which is subject to prevailing economic conditions and financial, business and other factors, some of a Business Combination or one year from this filing. Over this time period, wewhich are beyond our control. There can be no assurance that additional financing will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligenceavailable to us when needed or at all, or obtained on prospective target businesses, paying for travel expenditures, selecting the target businesscommercially reasonable terms acceptable to merge with or acquire, and structuring, negotiating and consummating the Business Combination.us.

 

Management continues to evaluateDuring the impactquarter ended September 30, 2023, one of the COVID-19 pandemicCompany’s directors, Kiran Sidhu and a former director, Daisuke Katano, paid some payables on behalf of the Company. Mr. Sidhu paid $425,464 and Mr. Katano paid $203,439. Each of these amounts remain outstanding as of September 30, 2023.

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 period ended September 30, 2023, the Company has incurred net loss from continuing operations of $22,233,949 and accumulated deficit of $69,560,075. These factors raise substantial doubt on the industryCompany’s ability to continue as a going concern.

Although the Company is attempting to commence operations and has concluded that while it is reasonably possible thatgenerate sufficient revenue, the virus could have a negative effect on our financialCompany’s cash position results of our operations and/or search for a target company, the specific impact is not readily determinable asbe 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 dateCompany 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 the financial statements.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 result frombe necessary should the outcome of this uncertainty.Company be unable to continue as a going concern.

 

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ResultsCertain Effects of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to June 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”) and identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completionFuture Sales of our business combination. We expect to generate non-operating income inCommon Stock May Have on the formExercise of interest income on cash and marketable securities held after the Initial Public Offering. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing a business combination.Warrants

 

ForSales of a substantial number of shares of our Common Stock in the periodpublic market by Lind Global and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Common Stock. The shares of our common stock issuable upon conversion of the convertible notes held by Lind Global and upon exercise of warrants it holds would represent a substantial percentage of our total outstanding Common Stock as of the date of this report, assuming the sale of all of the Convertible Notes and exercises of all Warrants. Consequently, the sale of all securities that Lind has the right to acquire could result in a significant decline in the public trading price of our Common Stock.

In the event of the exercise of any Warrants for cash, we will receive the proceeds from February 12, 2021 (inception) through June 30, 2021,such exercise. Assuming the exercise in full of all of Warrants for cash, we hadwould receive an aggregate of approximately $2,355,516, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a net loss“cashless basis,” we will not receive any proceeds upon such exercise. We intend to use the proceeds received from the exercise of $224, which consisted of formationthe Warrants, if any, for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of $229, partially offset byoperating as a bank incentivepublic company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of $5.factors including, but not limited to, market conditions. We believe the likelihood that holders of our Warrants will exercise their Warrants, and therefore the amount of cash proceeds we would receive, is dependent upon the trading price of our Common Stock, the last reported sales price for which was $0.128 per share on November 27, 2023. If the trading price of our Common Stock is less than the Warrant Exercise Prices, respectively, we expect that holders of the Warrants will not exercise them. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and we may receive no proceeds from the exercise of Warrants. We will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in our future liquidity projections, but we do not currently expect to rely on the cash exercise of Warrants to fund our operations. We instead currently expect to rely on the sources of funding described below, if available on reasonable terms or at all.

 

Contractual Obligations

Administrative Support AgreementRecent Financing Transactions

 

WeStock 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 pay the Sponsor a totalpurchase an aggregate 3,196,311 shares of $10,000 per month, commencing on the effective datecommon stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 shares of common stock of the Initial Public Offering, for office space, utilities, secretarial and administrative support services provided to membersCompany (the “Company Shares”) upon the consummation of the management team. Upon completionBusiness 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 initial Business Combination or our liquidation, we will cease paying these monthly fees.

Registration Rights

The holders(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 Founder Shares, Private Placement Warrants, Forward Purchase Securities and warrants that may be issued upon conversion of Working Capital Loans, if any, are entitled to registration rights pursuant to a registration rights agreement. These holders will be entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that we will not permit any registration statement filedsecurities under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to be registered. We will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

We 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. On August 18, 2021, the underwriters fully exercised their over-allotment option. The underwriters were entitled1933, as amended (the “Securities Act”), pursuant to an underwriting discount of two percent (2.00%) ofeffective registration filed by the gross proceeds ofCompany on Form S-4 (Registration No. 333-268625) which was declared effective by the Proposed Offering, or $2,000,000 (or up to $2,300,000 if the underwriters’ over-allotment is exercised in full). In addition, the underwriters are entitled to a deferred fee of three percent (3.00%) of the gross proceeds of the Proposed Offering, or $3,000,000 (or up to $3,450,000 if the underwriters’ over-allotment is exercised in full) upon closing of the Business Combination. 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.

Critical Accounting PoliciesSecurities 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 YA II PN, Ltd., (“YA”). The preparationCompany and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of financial statements and related disclosures in conformity with GAAP requires the Company’s management to make estimates and assumptions that affectshares of common stock, par value $0.000001 per share (the “Common Shares”) at the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities atCompany’s request any time during the 36 months following the date of the financial statements,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 income and expenseswould 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 periods reported. Actual results could materially differ from those estimates. The Company has identifiedthree consecutive trading days commencing on the followingadvance 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 its critical accounting policies:reported by Bloomberg L.P.

 

Use of Estimates —Pursuant to the SEPA, the Company is required to register all shares which YA may acquire. The preparation of condensed financial statementsCompany agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dateSEPA) registering all of the financial statementsshares of common stock that are to be offered and sold to YA pursuant to the reported amountsSEPA. 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 revenuesits shares issued and expenses duringoutstanding as of the reporting periods.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.

 

1834
 

 

Making estimates requires managementYA 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 exercise significant judgment. It is at least reasonably possible that the estimatepublic disclosure of the effectSEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of a condition, situation(i) the first day of the month next following the 36-month anniversary of the Effective Date or set of circumstances that existed at(ii) the date on which YA shall have made payment of the financial statements, which management considered in formulating its estimate, could changeAdvances (as defined in the near term dueSEPA) pursuant to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).

 

Fair Value Measurements —Lind Global Financing. Fair value is defined asOn 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 Convertible Notes in the aggregate principal amount of $6,000,000 for an aggregate purchase 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$5,000,000 and up to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priorityWarrants 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 levelspurchase 5,601,613 shares 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.Company’s Common Stock (the “Transaction”).

 

The fair valueclosings of the Company’s assetsTransaction (the “Closings and liabilities approximateseach a “Closing”) will occur in tranches (each a “Tranche”): the carrying amounts representedClosing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to Lind Global of a Warrant to acquire 2,352,678 shares of common stock and the Closing of the second Tranche (the “Second Closing) which occurred on May 23, 2023 and consisted of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to Lind Global of a Warrant to acquire 1,568,542 shares of common stock. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing and the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to Lind Global of a Warrant to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement that includes this prospectus. The Third Closing is subject to certain conditions precedent as set forth in the accompanying balance sheet, primarily duePurchase Agreement. Pursuant to their short-term nature.the Purchase Agreement, at each Closing, the Company agreed to pay Lind Global a commitment fee in an amount equal to 2.5% of the funding amount being funded by Lind Global at the applicable Closing.

 

Net loss Per ShareThe Convertible Note issued in the First Closing has a maturity date of Common Stock — Basic loss per shareApril 12, 2025, the Convertible Note issued in the Second Closing has a maturity date of common stock is computed by dividing net income (loss) applicable to common stockholders byMay 23, 2025 and the weighted average number of shares of common stock outstanding during the period. Consistent with FASB 480, shares subject to possible redemption, as well as their pro rata share of undistributed trust earnings consistent with the two-class method, have been excluded from the calculation of loss per share of common stock for the six months June 30, 2021. Such shares, if redeemed, only participate in their pro rata share of trust earnings. Diluted loss per share includes the incremental number of shares of common stockConvertible Note to be issued in the Third Closing will have a maturity date of two years from the date of issuance (the “Maturity Date”). Each Convertible Note has a conversion price equal to settle warrants,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”); provided that in no event shall the conversion price be less than $0.18176 (the “Floor Price”). The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as calculated usingset forth therein are not timely made, the treasury method. ForConvertible Note will bear interest at the period from February 12, 2021 (inception) through June 30, 2021,rate of 2% per month (prorated for partial months) until paid in full. The Company will have the Company did not have any dilutive warrants, securities or other contracts that could potentially, be exercised or converted into common stock. As a result, diluted loss per share of common stock isright to prepay the same as basic loss per share of common stock for all periods presented.Convertible Note under the terms set forth therein.

 

Derivative Financial Instruments —The Company accounts for derivative financial instruments in accordance with ASC Topic 815. For derivative financial instruments that are accounted forWarrants were issued or will be issued to Lind Global without payment of any cash consideration. Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant and Second Closing Warrant is $0.8926 per share and $0.7316 per share, respectively, subject to adjustments as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting date, with changesset forth in the fair value reported inWarrant. The exercise price for each the statements of operations. The classification of derivative financial instruments is evaluatedWarrant issued at the endThird Closing will be an amount equal to 100% of each reporting period. There were no derivative financial instruments as of June 30, 2021.the 10-day VWAP prior to such closing. For further details regarding the Transaction, see “The Lind Global Financing.”

 

Class A Common Stock Subject to Possible Redemption — We accountCash Flows for the Nine Months Ended September 30, 2023 and 2022

The following table sets forth summary of our Class A common stock subject to possible redemption in accordance withcash flows for the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Shares of conditionally redeemable Class A common stock (including 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 our control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as shareholders’ equity. 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. As of June 30, 2021, as there are no shares of Class A Common Stock outstanding, no shares of Class A Common Stock are subject to possible redemption.periods indicated:

  For the Nine Months ended
September 30,		 
  2023  2022 
  Unaudited 
Net cash used in operating activities $(7,746,272) $(11,302,409)
Net cash provided by (used in) investing activities  (56,943)  424,504 
Net cash provided by financing activities  5,396,028   9,598,714 
Net cash used in discontinued operations  (49,134)  (928,450)
Net decrease in cash and cash equivalents  (2,456,321)  (2,207,641)
Effect of exchange rate changes  1,203,469   (1,434,644)
Cash and cash equivalents, beginning of the period  1,278,026   10,020,459 
Cash and cash equivalents, end of the period $25,174  $6,378,174 

 

1935
 

 

Recent Accounting Pronouncements — Operating ActivitiesIn 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 January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows. Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

 

Net cash used in operating activities was $7,790,283 for the nine months ended September 30, 2023, primarily consisting of the following:

● Net loss of $23,087,172 for the nine months ended September 30, 2023.

● Impairment loss of $1,553,433.

● Write-off of inventory of $1,487,493.

● Decrease in Other receivable of $1,152,107.

● Increase in Accounts payable of $2,783,347.

Net cash used in operating activities was $12,093,061 for the nine months ended September 30, 2022, primarily consisting of the following:

● Net loss of $11,299,066 for the nine months ended September 30, 2022.

● Gain on sale of investment securities of $432,980.

● Increase in Other Receivable of $39,557.

● Decrease in Accounts payable of $106,281.

Investing Activities

Net cash used in investing activities amounted to $60,886 for the nine months ended September 30, 2023, and included purchase of fixed assets of $20,757, purchase of intangible assets of $36,186 and net cash provided used by discontinued operations of $5,123.

Net cash provided by investing activities amounted to $286,706 for the nine months ended September 30, 2022, and included a purchase of fixed assets of $41,416 and Proceeds from disposal of investments of $467,791.

Financing Activities

Net cash provided by financing activities amounted to $5,396,028, for the nine months ended September 30, 2023 and primarily consisted of Proceeds from bond of $2,797,698, Proceeds from loans of $3,706,344 and Proceeds from reverse recapitalization of $1,595,837.

Net cash provided by financing activities amounted to $9,598,714 for the nine months ended September 30, 2022 and primarily consisted of Proceeds from capital contribution of $9,834,301.

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 classified as finance leases.

As of September 30, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows:

Year ending December 31, Finance
lease		  Operating
lease		 
       
2023 (nine months) $68,778  $120,549 
2024  44,488   202,050 
2025  9,135   138,568 
2026  9,135   - 
Thereafter  11,419   - 
Total lease payments  142,955   461,167 
Less: imputed interest  (5,135)  (4,434)
Total lease liabilities  137,820   456,733 
Less: current portion  82,203   220,602 
Non-current lease liabilities $55,617  $236,131 

36

Long Term Debt

The Company’s long-term debts included loans borrowed from banks and other financial institutions.

As of September 30, 2023, future minimum loan payments are as follows:

Year ending December 31, Loan Payment 
2023  183,029 
2024  324,315 
2025  2,049,191 
2026  311,612 
Thereafter  177,739 
Total  3,045,886 
Less interest  43,187 
Balance as of September 30, 2023 $3,002,699 

Off-Balance Sheet Arrangements

As of June 30, 2021, weWe did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.September 30, 2023.

 

JOBS Act

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company”Critical Accounting Policies and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.Estimates

 

Additionally, weOur 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 processreported amounts of evaluating the benefits of relyingour assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the other reduceddate of the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting requirements provided byperiod. The most significant estimates and assumptions include the JOBS Act. Subjectvaluation of accounts receivable, advances to certain conditions set forth insuppliers, useful lives of property and equipment, the JOBS Act, if, as an “emerging growth company,”recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition. We continue to evaluate these estimates and assumptions that we choosebelieve to be reasonable under the circumstances. We rely on such exemptions we maythese evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not be required to, amongreadily apparent from other things, (i) providesources. Since the use of estimates is an auditor’s attestation report on our systemintegral component of internal controls overthe financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by 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 (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completionprocess, actual results could differ from those estimates. Some of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.

Item 3. Quantitative and Qualitative Disclosures About Market Riskaccounting policies require higher degrees of judgment than others in their application.

 

We are a smaller reporting companybelieve critical accounting policies as defined by Rule 12b-2disclosed in this prospectus reflect the more significant judgments and estimates used in preparation of the Exchange Act and are not required to provide the information otherwise required under this item. As of June 30, 2021, we were not subject to any market or interest rate risk. The net proceeds of the Initial Public Offering, including amounts in the Trust Account, will be invested in U.S. government securities with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act that invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.our consolidated financial statements.

 

We haveThe 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 engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respectlimited to, the market riskallowance 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 we are exposed.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.

 

2037
 

 

Item 4. Controls and ProceduresLease-Lessee

 

EvaluationIn 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 Disclosure Controlsthe contract and Procedureswhether 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.

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:

  

Nine months ended

September 30,

(unaudited)

  

Year ended

December 31,

 
  2023  2022  2022 
Current JPY: US$1 exchange rate  149.43   144.71   131.81 
Average JPY: US$1 exchange rate  138.14   128.26   131.46 

38

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended JuneSeptember 30, 2021,2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective at athe reasonable assurance level and, accordingly, provided reasonable assurancelevel. Management has determined that the informationa material weakness exists due to our late filing of certain reports required to be disclosedfiled by us in reports filed underwith the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.SEC.

 

Changes in Internal Control over Financial Reporting

 

During the most recently completed fiscal quarter ended June 30, 2021, there wasThere were no changechanges in our internal control over financial reporting that hasoccurred during the fiscal quarter ended September 30, 2023 that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHERII-OTHER INFORMATION

 

ItemITEM 1. Legal ProceedingsLEGAL PROCEEDINGS

 

None.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.

 

ItemITEM 1A. Risk FactorsRISK FACTORS

 

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus for our Initial Public Offering filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, thereThere have been no material changes to thein our risk factors from those disclosed in Part I, Item 1A. of our final prospectus for our Initial Public Offering filed with the SEC or as disclosed in our QuarterlyAnnual Report on Form 10-Q10-K for the periodyear ended June 30, 2021 filed with the SEC and declared effective by the SEC on August 11, 2021. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds

On August 13, 2021, we consummated the initial public offering of 10,000,000 units. On August 18, 2021, in connection with the underwriters’ election to fully exercise their over-allotment option, we sold an additional 1,500,000 units. The units sold in the initial public offering and the full exercise of over-allotment option sold at an offering price of $10.00 per unit, generating total gross proceeds of $115,000,000. EF Hutton, division of Benchmark Investments, Inc. acted as sole book-running manager of the initial public offering. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-257150). The Securities and Exchange Commission declared the registration statement effective on August 11, 2021.December 31, 2022.

 

2139
 

 

Simultaneously with the consummation of the initial public offering, we consummated the private placement of an aggregate of 469,175 units at a price of $10.00 per private placement unit, generating proceeds of $4,691,750. Simultaneously with the closing of the underwriters’ full exercise of the over-allotment option, we consummated the private placement of an additional 52,500 private placement units at a price of $10.00 per private placement unit, generating additional proceeds of $525,000. The issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

The private placement units are identical to the units sold in the initial public offering, except as is described in the Company’s final prospectus.

Of the gross proceeds received from the initial public offering including the over-allotment option, and the private placement units, $116,725,000 was placed in the trust account. 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.

There has been no material change in the planned use of the proceeds from the initial public offering and private placement as is described in the Company’s final prospectus related to the initial public offering.

Item 3. Defaults upon Senior SecuritiesITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

Item 4. Mine Safety Disclosures.ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

Item 5. Other Information.ITEM 4. MINE SAFETY DISCLOSURES

 

None.Not applicable.

 

Item 6. Exhibits.ITEM 5. OTHER INFORMATION

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.Not applicable.

ITEM 6. EXHIBITS

 

Exhibit
No.		Description of Exhibit
31.1
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).
2.2Amendment 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).
3.1Fourth 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).
3.2Amended 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).
 
3.3Amended and Restated Bylaws of AERWINS Technologies Inc. adopted on September 26, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K filed by AERWINS Technologies Inc. on September 29, 2023).
4.1CertificationWarrant 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).
4.2Specimen 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).
4.3Specimen 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).
4.4Specimen 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).

40

10.1+Form of Principal Executive Officer PursuantAERWINS Technologies Inc. 2022 Equity Incentive Plan (incorporated by reference to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as Adopted PursuantAnnex C to Section 302the proxy statement/prospectus which is part of the Sarbanes-Oxley ActRegistration Statement on Form S-4 filed by Pono Capital Corp. with the SEC on January 4, 2023).
10.2Form of 2002Indemnity Agreement. (incorporated by reference to Exhibit 10.2 to Form 8-K filed by AERWINS Technologies Inc. on February 9, 2023).
10.3Form 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).
10.4Form 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).
10.5Letter 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).
10.6Purchaser Support Agreement. (incorporated by reference to 10.4 to Form 8-K filed by Pono Capital Corp. with the SEC on September 7, 2022).
10.7Voting 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).
10.12Form 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).
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).
10.17Form 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).
10.18Standby 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).
10.19Joint 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).

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10.20Loan 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).
10.21Memorandum 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).
10.22Form 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).
10.23Form 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).
10.24Form 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).
10.25Form 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).
10.26Form 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).
10.27Form 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).
10.28Form 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).
10.29Form 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).
   
31.210.30 Certification of Principal Financial Officer PursuantAmendment to Securities Exchange Act Rules 13a-14(a)Senior Convertible Promissory Note First Closing Note between AERWINS Technologies, Inc. and 15(d)-14(a), as Adopted PursuantLind Global Fund II LP dated August 25, 2023 (incorporated by reference to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 10.1 to Form 8-K filed by AERWINS Technologies Inc. on August 28, 2023).
10.31Amendment to Senior Convertible Promissory Note Second Closing Note between AERWINS Technologies, Inc. and Lind Global Fund II LP dated August 25, 2023 (incorporated by reference to Exhibit 10.2 to Form 8-K filed by AERWINS Technologies Inc. on August 28, 2023).
   
31.1*Rule 13a-14(a) Certification of Principal Executive Officer.
31.2*Rule 13a-14(a) Certification of Principal Financial Officer.
32.1*Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002, of Principal Executive Officer and Principal Financial Officer.
32.2101.INS**Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSInline XBRL Instance Document
  
101.SCH101.SCH*Inline XBRL Taxonomy Extension Schema Document
  
101.CAL101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEF101.DEF*Inline XBRL Taxonomy Extension DefinitionDefinitions Linkbase Document
  
101.LAB101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104104*Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

*Filed or furnished herewith.
+Management contract or compensatory plan or arrangement.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 PONO CAPITAL CORPAERWINS TECHNOLOGIES INC.
   
Date: September 24, 2021Dated: November 28, 2023By:/s/ Dustin ShindoTaiji Ito
Name:Taiji Ito
Title:Chief Executive Officer (Principal Executive Officer)
  Dustin Shindo
Dated: November 28, 2023By:/s/ Yinshun (Sue) He
 Name:Yinshun (Sue) He
Title:Chief ExecutiveFinancial Officer (Principal Financial Officer and Principal Accounting Officer)

 

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