As filed with the Securities and Exchange Commission on May [__], 2023
Registration No. 333-[__]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AERWINS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
| Delaware | 3721 | 86-2049355 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
AERWINS Technologies Inc.
Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome,
Minato-ku, Tokyo, Japan 105-0011
Telephone: 813-6409-6761
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Corporate Creations Network Inc.
3411 Silverside Road Tatnall Building, Suite 104
Wilmington, DE 19810
Telephone: (302) 351-3367
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Laura Anthony, Esq.
Craig D. Linder, Esq.
Anthony L.G., PLLC
625 N. Flagler Drive, Suite 600
West Palm Beach, Florida 33401
Telephone: (561) 514-0936
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED MAY [__], 2023 |
AERWINS TECHNOLOGIES INC.
11,222,357 Shares of Common Stock for Resale by Selling Securityholder
This prospectus relates to the offer and sale from time to time of up to 11,222,357 shares of Common Stock, par value $0.000001 per share (“Common Stock”) of AERWINS Technologies Inc., a Delaware corporation (referred to herein as the “Company,” “we,” “our,” “us,” or other similar pronouns), by Lind Global Fund II LP, a Delaware limited partnership (“Lind Global” or the “Investor” or “Selling Securityholder”). These 11,222,357 shares of Common Stock are issuable by us in connection with Lind Global’s agreement to purchase from us up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock and consist of: (i) up to 2,800,000 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the outstanding principal amount of $2,520,000 issued to Lind Global dated April 12, 2023 (the “First Closing Convertible Note”); (ii) up to 1,913,390 shares of Common Stock issuable upon exercise of 1,913,390 Common Stock purchase warrants issued to Lind Global on April 12, 2023 (the “First Closing Warrants”); (iii) up to 1,866,667 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the principal amount of $1,680,000 to be issued to Lind Global (the “Second Closing Convertible Note”); (iv) up to 1,275,593 shares of Common Stock issuable upon exercise of 1,275,593 Common Stock purchase warrants to be issued to Lind Global (the “Second Closing Warrants”); (v) up to 2,000,000 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the principal amount of $1,800,000 to be issued to Lind Global (the “Third Closing Convertible Note,” together with the First Closing Convertible Note and the Second Closing Convertible Note, collectively, the “Convertible Notes”); and (vi) up to 1,366,707 shares of Common Stock issuable upon exercise of 1,366,707 Common Stock purchase warrants to be issued to Lind Global (the “Third Closing Warrants,” together with the First Closing Warrants and the Second Closing Warrants, collectively, the “Warrants”). The Convertible Notes and the Warrants are collectively referred to as the “Securities”.
The Convertible Notes have a conversion price equal to the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to conversion of the Note (the “Conversion Price”). Each of the Warrants will have an exercise period of 60 months from the date of issuance. The exercise price of the First Closing Warrants is $0.8926 per share, subject to adjustments as set forth in the warrant and the exercise price for each of the Second Closing Warrants and the Third Closing Warrants will be an amount equal to 100% of the 10-day VWAP prior to closing date for issuance of such warrants.
We sold the Securities to Lind Global pursuant to a Securities Purchase Agreement, dated April 12, 2023 (the “Purchase Agreement”), between us and Lind Global, as more fully described in this prospectus. See “The Lind Global Financing” for a description of the Purchase Agreement and the Securities and “Selling Securityholder” for additional information regarding the Selling Securityholder. The prices at which the Selling Securityholder may sell the Common Stock will be determined by the prevailing market price for the shares or in negotiated transactions.
We will not receive any of the proceeds from the sale of the Securities owned by the Selling Securityholder. We will not receive any proceeds from the conversion of the Convertible Notes, but will receive the proceeds of any cash exercise of the Warrants. See “Use of Proceeds” beginning on page 40 of this prospectus. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Securityholder will bear all commissions and discounts, if any, attributable to their sale of securities. See “Plan of Distribution” beginning on page 130 of this prospectus.
The Selling Securityholder may sell the shares of our Common Stock described in this prospectus in a number of different ways and at varying prices. The Selling Securityholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).
Our Common Stock and our redeemable warrants to purchase Common Stock (the “Public Warrants”) are listed on the Nasdaq Global Market under the symbols “AWIN” and “AWINW,” respectively. On May 9, 2023, the closing price of our Common Stock was $0.70 per share and the closing price of our Public Warrants was $0.0488 per warrant.
We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and will be subject to reduced disclosure and public reporting requirements. See “Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 40 of this prospectus.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is _____________, 2023.
TABLE OF CONTENTS
No dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or that information contained herein is correct as of any time subsequent to the date hereof.
For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the shares of our Common Stock and the distribution of this prospectus outside the United States.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Specifically, forward-looking statements may include statements relating to:
| ● | our future financial performance; | |
| ● | changes in the market for our products and services; | |
| ● | our expansion plans and opportunities; and | |
| ● | other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. |
These forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements including those described in the “Risk Factors” section beginning on page 12 and elsewhere in this prospectus.
INDUSTRY AND MARKET DATA
We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications, and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.
TRADEMARKS AND COPYRIGHTS
We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
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IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY AND A SMALLER REPORTING COMPANY
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For so long as we remain an emerging growth company, we are permitted, and currently intend, to rely on the following provisions of the JOBS Act that contain exceptions from disclosure and other requirements that otherwise are applicable to public companies and file periodic reports with the SEC. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements and selected financial data and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our periodic reports and registration statements, including this prospectus, subject to certain exceptions; | |
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”); | |
| ● | reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements, including in this prospectus; | |
| ● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; and | |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We will remain an emerging growth company until the earliest to occur of:
| ● | December 31, 2026 (the last day of the fiscal year that follows the fifth anniversary of the completion of our initial public offering); | |
| ● | the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion; | |
| ● | the date on which we are deemed to be a “large accelerated filer,” as defined in the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”); and | |
| ● | the date on which we have issued more than $1 billion in non-convertible debt over a three-year period. |
We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to holders of our Common Stock may be different than what you might receive from other public reporting companies in which you hold equity interests.
We have elected to avail ourselves of the provision of the JOBS Act that permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is $250 million or more measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is $700 million or more measured on the last business day of our second fiscal quarter.
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PROSPECTUS SUMMARY
This summary of the prospectus highlights material information concerning our business and this offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
In this prospectus, unless the context indicates otherwise, “AERWINS,” the “Company,” “we,” “our,” “ours” or “us” refer to AERWINS Technologies Inc., a Delaware corporation, and its direct and indirect subsidiaries, including, but not limited to, AERWINS, Inc., a Delaware corporation and A.L.I. Technologies Inc., a Japanese corporation. Lind Global Fund II LP is referred to herein as “Lind Global,” the “Investor,” and the “Selling Securityholder.”
This summary contains basic information about us and the offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire prospectus carefully, including the risk factors and our financial statements and the related notes to those statements included in this prospectus.
We have not authorized anyone to provide you with different information and you must not rely on any unauthorized information or representation. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus, or any sale of our Common Stock. Our business, financial condition and results of operations may have changed since the date on the front of this prospectus. We urge you to carefully read this prospectus before deciding whether to invest in any of the Common Stock being offered.
Business
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All refences in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.
Corporate History
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On August 13, 2021, we consummated an initial public offering (“Initial Public Offering”). The registration statement for the Company’s Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A Common Stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 6) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000 Units at the Initial Public Offering price to cover over-allotments, if any. Simultaneously with the consummation of the closing of the Offering, the Company consummated the private placement of an aggregate of 469,175 units (the “Placement Units”) to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”).
On August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering. A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account established for the benefit of the Company’s public stockholders. On October 8, 2021, the Class A ordinary shares and Public Warrant included in the Units began separate trading.
On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative. Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation. The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022. On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
On November 9, 2022, the Company entered into Purchase Agreements and completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement and deposited $1,150,000 into the Company’s Trust account for its public stockholders, representing $0.10 per public share, allowing the Company to extend the period of time it had to consummate its initial business combination by three months from November 11, 2022 to February 13, 2023. The Purchase Agreements and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.
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On December 31, 2022, substantially all of the assets held in the Trust Account were held in mutual funds.
No payments for our expenses were made in the offering described above directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except in connection with the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered into with our sponsor.
On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).
Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono Common Stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ Common Stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”
After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ Common Stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.
As a result of the Merger and the Business Combination, holders of Pono Common Stock automatically received Common Stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A Common Stock and shares of Class B Common Stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ Common Stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies Common Stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies Common Stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies Common Stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies Common Stock.
At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.
AERWINS, Inc. formerly named AERWINS Technologies Inc. until it changed its name to AERWINS, Inc. on January 24, 2023, was incorporated in the State of Delaware on June 9, 2022. A. L. I. Technologies Inc., a Japanese corporation and a wholly owned subsidiary of AERWINS, Inc. was established in Japan in September 2016. On August 5, 2022, pursuant to the terms of a share exchange agreement among the Company, A. L. I. Technologies, the shareholders of A. L. I. Technologies and Shuhei Komatsu, as the representative of the shareholders of A. L. I. Technologies, we issued 30,000,000 shares of AERWINS, Inc. Common Stock to the shareholders of A. L. I. Technologies in exchange for 2,006,689 shares A. L. I. Technologies’ Common Stock, representing 100% of the issued and outstanding capital stock of A. L. I. Technologies. As a result of this transaction, A. L. I. Technologies became AERWINS Inc.’s 100%-owned subsidiary and the former shareholders of A. L. I. Technologies became the owners of 100% of AERWINS, Inc. outstanding Common Stock as of August 5, 2022.
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Summary of our business
Mission
With the mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in which cars, motorcycles, and drones can fly freely. We are working in three areas: 1) manned air mobility, 2) unmanned air mobility, and 3) sharing computer power. The diagram below describes our business structure.
Overview
We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.
To realize this vision, we are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.
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Current and Planned Product and Service Status
Our current and planned product status is as follows:
| Product/Service | Launch Schedule | Delivery | Client Types | Details | ||||
| XTURISMO LTD EDITION | October-2021 | after December-2022 | Individuals. Governments | Innovative hovering bike equipped with hybrid system, software, edge computing. Products for a government are under development. | ||||
| COSMOS | Available | In 2023 | Municipalities, Local Governments | Unmanned traffic management system “UTM” in service for up to approximately 10 drones. | ||||
| COSMOS Advanced | In Development | In 2023 | Municipalities, Local Governments, and Corporations | Currently in development for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units | ||||
| Shared Computing Service | Available | Available | Corporations, Individuals | The proprietary Software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering | ||||
| Drone Service | Available | Available | Municipalities, Lobal Governments, Corporations | Using our C.O.S.M.O.S. we offer geo-survey, infrastructure inspection and pesticide spraying service to various entities |
Significant Market Opportunities
In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution. For additional information on our significant market opportunities, please see “Description of Business – Significant Market Opportunities” on page 43 of this prospectus.
Orders, Delivery and Financial Results
We are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster, etc.;
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software) and the industrial drone business, which involves the sale and development of industrial drones; and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.
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Below is a breakdown of revenues for each of these businesses.
Gross sales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmanned air mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. During the year ended December 31, 2022, gross sales totaled $5,207,490 (excluding consumption tax), consisting of $2,582,492 from shared computing, $2,524,998 from unmanned air mobility and $100,000 from consulting service. During the year ended December 31, 2022, one significant customer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.
In the future, considering regulation in each jurisdiction, we assume that the majority of XTURISMO Limited Edition sales will be in the public sector.
What Sets Us Apart. In this industry, various parties have announced their products, but our products have the following three characteristics compared to other companies. We intend to leverage these characteristics to gain market share. We believe the following characteristics set us apart in each domain.
Manned Air Mobility Domain
Ease of implementation in society
Our “XTURISMO Limited Edition” does not require aircraft category approval in Japan, as it is designed to levitate within a range of a few meters above ground effect. In Japan, it can also be used without a pilot’s license, making it a product that is easy to implement in society in Japan. In addition, given that the product is in this category in Japan, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. We believe this ease of providing insurance and after-sales service in Japan is one of the factors contributing to our competitiveness.
In Japan, through numerous conversations, the Civil Aviation Bureau of the Ministry of Land, Infrastructure, Transport and Tourism has stated that the XTURISMO LTD EDITION does not fall under Civil Aviation Law at this time, but that could change if we make certain additional modifications to the design specifications of the XTURISMO LTD EDITION. We have also received a HS Code from the Tokyo Customs office which is registered as code 95-03, where 95 is categorized as “Toys, playthings and sports equipment, and parts and accessories thereof” and subcategory 03 as “Tricycles, scooters, foot-operated vehicles and other similar wheeled toys, doll prams, dolls and other toys, scale models and other similar models for amusement (whether or not operating) and puzzles”.
Outside of Japan, we are subject to extensive legal and regulatory requirements, and are working to obtain relevant approvals and permits in the jurisdictions where we plan to sell our products. For example, we have begun the discussion with several public sectors and governments where the use can be limited to public use where the regulations may be limited. Additionally, in the US we have begun discussions with an attorney to discuss and file an application for certification from the FAA seeking the correct category for our product.
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Practical Driving Capacity
The current battery technology has limitations in terms of power and cruising time, making it difficult to achieve a practical cruising time. Our “XTURISMO Limited Edition” achieves a practical cruising time of 40 minutes by utilizing the engine for power.
Pioneer and Leader in Urban Air Mobility
The above features enable us to launch products at a very early date, even by global standards, without having to wait for the long process of obtaining airworthiness and type certification, since we believe our products will not be classified as aircrafts and our products will not be deemed to utilize technological innovation in next generation batteries. We are planning to create an entirely electronic version targeting a 2025 launch.
Unmanned Air Mobility Domain
Original Operation Management System
This technology has been patented as “an infrastructure system that communicates with air traffic control systems in the air (low altitude) and mutually or unilaterally transmits, manages, controls, authenticates, registers, and settles flight routes and various information (including the use of external data). While many drone-related companies provide solutions focused on specific fields, we believe that our strength lies in the fact that our services are comprehensive, ranging from development in other areas to operation management systems, provision of operators, and data analysis and reporting.
Computing Power Sharing Domain
Equipment optimized for those wishing to rent out computing power
The computing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietary distributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD required for blockchain and AI lending, in addition to the latest model of GPUs. The system can be used for storage in a general data center. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of receiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.
Our Strategies.
We intend to pursue the following strategies to achieve our mission:
Transformation into a Global Company
We have established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where our administrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, including the United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansion area, with a target year of 2023. We plan to establish an office, research and development (“R&D”) center, logistics, manufacturing, and marketing hub for the vehicles in the GCC region. We believe that this region will be our distribution center to Europe and Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establish an office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venture capital firm.
As such, a global headquarters for finance and marketing will be established, and the ratio of foreign employees is intended to be increased to 50% by 2024.
Extend Our Technological Leadership
We plan to continue to invest in technological innovation to cement our leadership in Air Mobility technologies and establish ourselves as the industry benchmark for Air Mobility commercial solutions. We will continue to attract talent from around the world to expand our talent pool and drive innovation.
Expand Development and Manufacturing Capabilities
We plan to expand our existing engineering and manufacturing facilities and develop new ones. We may also develop manufacturing facilities in other countries or cooperate with local manufacturing partners to fulfill orders from international customers.
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Expand Our Air Mobility Portfolio and Strengthen Our Platform
We plan to continue to expand our Air Mobility portfolio and optimize our existing Air Mobility models. We will develop future Air Mobility models for different uses. We will continue to develop our technology platform and ancillary products and services to strengthen our ability to provide end-to-end Air Mobility commercial solutions that address the needs of our customers.
Continue Commercialization and Promote Adoption
We believe that urban air mobility will be an important part of global transportation in the future. We will continue to commercialize our Air Mobility technology and solutions and promote their adoption worldwide, not only through the sale of our air mobilities, but also through offering services such as manned air mobility services and urban air logistics services. As we continue to improve the regulatory acceptance, production scale and on-the-ground infrastructure of air mobilities, we plan to pilot urban air mobility services with predetermined routes as a precursor to more flexible, on-demand services networks. We plan to work closely with partners and regulatory agencies to foster and grow the commercial Air Mobility market. In particular, we are in discussions with multiple cities around the world to establish urban air mobility services for both passengers and goods.
Explore New Monetization Opportunities
We plan to explore new monetization opportunities by leveraging our Air Mobility technology platform. For example, we may charge recurring fees for our operational and maintenance services for our air mobilities. We may also enter into revenue sharing arrangements with customers to capture greater business opportunities.
Pursue Strategic Partnerships in Production and Technology
We intend to explore and pursue suitable strategic partnerships that can strengthen our production and technological capabilities. We may co-develop new Air Mobility models in collaboration with international industry leaders.
Industry
Overview of Our Market. The industrial drone market, the computing power sharing (cloud computing) market, and leisure use market, in which we are involved, are markets that are expected to grow significantly in Japan and overseas. In addition, the technology staffing business is expected to expand into various fields, although mainly in Japan. For additional information on the industry in which we operate, please see “Description of Business – Market size by our segment” on page 47 of this prospectus.
We operate in multiple business lines that include the following:
Air Mobility Business. Our air mobility business is built on our technology platform, which is designed to develop and market Manned Air Mobility and provide Unmanned Air Mobility operating systems and solutions. In the manned air mobility business, we develop and market “XTURISMO Limited Edition” air mobility vehicle. In our unmanned air mobility business, we provide “C.O.S.M.O.S. (Flight Operation Management System),” an unmanned traffic management system and C.O.S.M.O.S. Hub (Operator Network), a system that enables quick and efficient matching of registered pilots throughout Japan with operators who place orders.
Drone Photography Business. In this line of business, we provide aerial photography, inspections and video editing services and reports.
Joint Research and Development. Utilizing our business development and engineering teams, we provide research and development services for development for a wide range of drone and artificial intelligence (AI) solutions.
Computing Power Sharing Domain – In this line of business we provide A.L.I. Albatross (our original GPU machine), a shared computing service and proprietary software technology that allows computers to efficiently utilize capability for computing and rendering.
Technology Human Resources Business Domain. Through our non-controlling interest in ASC TECH Agent Co., we are engaged in licensing software for use in companies who use blockchain and AI technology in their businesses.
Research and Development Capabilities. In the area of manned air mobility, we are engaged in R&D to improve the safety, operability, and performance of the “Xturismo Limited Edition,” and in the area of unmanned air mobility, we are engaged in R&D to improve safety, environmental friendliness, and expandability of our products.
Our Proprietary Technologies
In order to provide highly differentiated solutions in the areas of manned air mobility, unmanned air mobility, and Computing Power Sharing Domain, we are engaged in research and development in the areas listed below.
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Manufacturing, Quality Control and Supply Chain
Manufacturing. We adopt a lean and efficient production strategy across our business, focusing on effective prototyping, manufacturing, supply chain management, final assembly, integration, quality and final acceptance testing using the our Xturismo Limited Edition manufacturing procedures system.
Intellectual Property
We have significant capabilities in the areas of Air Mobilities engineering, development and design and we have developed a number of proprietary systems and technologies. Our success depends in part on our ability to protect our core technology and intellectual property. We rely on a combination of patents, patent applications, trade secrets, know-how, copyrights, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition, we have entered into confidentiality and non-disclosure agreements with our employees and business partners. The agreements we entered into with our employees provide that all software, inventions, developments, works of authorship and trade secrets created by them during the course of their employment are our property. For additional information on our intellectual property portfolio, patent rights, trademark rights and design rights, please see “Description of Business – Intellectual Property” on page 64 of this prospectus.
Government Regulation
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. For additional information on the governmental regulations affecting our business, please see “Description of Business – Government Regulation” on page 86 of this prospectus.
Organizational Structure
The following is a current organizational chart of our Company:
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Summary of Lind Global Financing
On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).
The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.
The Convertible Note issued in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).
Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”).
The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.
Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.
In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.
In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023 of $0.70 per share.
The Purchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations by each party, including our agreement to refrain from engaging in certain “Prohibited Transactions” as defined in the Purchase Agreement, to hold a special meeting of shareholders for the purpose of obtaining shareholder approval of the Transactions, certain events giving rise to a default under the Convertible Notes, obligations to use the proceeds from certain future financings to repay a portion of the principal amount of the Convertible Notes, our pledge to the Selling Securityholder of the ownership interests in our subsidiaries, a grant by us and our subsidiaries of a security interest in all of their respective assets and rights as collateral for the obligations due under the Convertible Notes, and a guaranty by our subsidiaries of our obligations under the Convertible Notes.
See “The Lind Global Financing” on page 37 for a description of the Purchase Agreement, “Selling Securityholder” on page 129 for additional information regarding the Selling Securityholder and “Plan of Distribution” on page 130 for more information about how the Selling Securityholder may sell the shares of Common Stock being registered pursuant to this prospectus.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in the “Risk Factors” section beginning on page 12 and elsewhere in this prospectus. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:
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Risks Related to the Lind Global Financing
| ● | It is not possible to predict the actual number of shares of Common Stock, if any, we will issue upon conversion of the Convertible Notes or sell upon exercise of the Warrants by the Selling Securityholder, or the actual gross proceeds resulting from exercise of those warrants; | |
| ● | Investors who buy shares of Common Stock from the Selling Securityholder at different times will likely pay different prices; and | |
| ● | We may use proceeds from issuance of the Convertible Notes sales of shares of our Common Stock upon exercise of the Warrants in ways with which you may not agree or in ways which may not yield a significant return. |
Risks Related to our Business
| ● | We have incurred, and in the future may continue to incur, net losses; | |
| ● | We are a holding company and depend upon our subsidiary AERWINS, Inc. and its operating subsidiary, A.L.I. Technologies, Inc. for our cash flows; | |
| ● | We will need additional capital, and we cannot be sure that additional financing will be available; | |
| ● | Our business performance may be adversely affected if the growth of the Air Mobility Vehicle industry slows down; | |
| ● | Our future growth depends on the demand for, and customers’ willingness to adopt, our Air Mobility Vehicles and air mobility solutions; | |
| ● | We may be unable to make timely product deliveries due to limited production capacity; | |
| ● | Our framework and conditional agreements may not result in material sales of our products; | |
| ● | We expect to have substantial customer concentration; | |
| ● | We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims; | |
| ● | If we fail to successfully develop and commercialize new products, services and technologies that are well received by customers, our operating results may be materially and adversely affected; | |
| ● | The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends; | |
| ● | The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy; | |
| ● | We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly; | |
| ● | Our or our subsidiaries’ intellectual property rights may not protect us effectively; | |
| ● | Failure to comply with laws and regulations could harm our business; | |
| ● | We are exposed to fluctuations in currency exchange rates; | |
| ● | Nasdaq may delist the Company’s securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions; | |
| ● | The market price of our Common Stock may be volatile, and you could lose all or part of your investment; and | |
| ● | As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements. |
In addition, our management has concluded that its historical recurring losses from operations and negative cash flows from operations as well as its dependence on securing private equity and other financings raise substantial doubt about its ability to continue as a going concern and the auditor of AERWINS, Inc. has included an explanatory paragraph relating to its ability to continue as a going concern in its audit report for the fiscal years ended December 31, 2022 and December 31, 2021..
Corporate Information
We are a Delaware corporation based in Tokyo, Japan and were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our principal executive offices are located at Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome, Minato-ku, Tokyo, Japan 105-0011. Our telephone number in Japan is 813-6409-6761. Our website address is www.aerwins.us The information contained on, or that can be accessed through, our website is not part of this prospectus or the registration statement of which it forms a part. We have included our website address in this prospectus solely as an inactive textual reference.
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THE OFFERING
| Securities being offered by the Selling Securityholder: | Up to 11,222,357 shares of Common Stock consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. Our Common Stock is listed on the Nasdaq Global Market under the symbol “AWIN.” Our Common Stock and Warrants are described in further detail in the section of this prospectus titled “Description of Securities.” | |
| Common Stock Outstanding Before the Offering: | 56,139,855 Shares. | |
| Common Stock Outstanding After the Offering: | Up to 67,362,212 Shares, assuming the issuance of all 11,222,357 shares offered for resale by the Selling Securityholder pursuant to this prospectus. The actual number of shares issued will vary depending on the number of shares issued upon conversion of the Convertible Notes and the number of Warrants exercised by the Selling Securityholder pursuant to the Warrants. | |
| Offering Price per Share: | The Selling Securityholder may re-sell all or a portion of the Shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. | |
| Terms of the Convertible Notes: | The per share conversion price into which the principal amount under the Convertible Notes shall be convertible into shares of Common Stock hereunder is the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to conversion of the note.
The First Closing Convertible Note matures on April 12, 2025 and the Second Closing Convertible Note and the Third Closing Convertible Note will each have a maturity date of two years from the date of issuance. | |
| Terms of the Warrants: | First Closing Warrants. Each First Closing Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.8926 per share, subject to adjustments as set forth in the Warrant.
Second Closing Warrants and Third Closing Warrants. Each Second Closing Warrant and each Third Closing Warrant entitles the holder to purchase one share of Common Stock at an exercise price equal to 100% of the 10-day VWAP prior to such closing.
Provisions Common to all of the Warrants. Each of the Warrants issued will have an exercise period of 60 months from the date of issuance. In the event that there is no effective registration statement registering the shares underlying the Warrants, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash. | |
| Use of Proceeds: | We expect to receive approximately $4,211,736 in gross proceeds assuming the cash exercise of all of the Warrants being registered hereby at the applicable exercise prices stated above. However, the Warrants may be exercised on a cashless basis, in which case we would not expect to receive any gross proceeds from the cash exercise of the Warrants. Also, we will not receive any of the proceeds from the conversion of the Convertible Notes into shares of our Common Stock nor will we receive any proceeds from the disposition and/or resale of the shares of Common Stock by the Selling Securityholder or its transferees. While we retain broad discretion on the use of proceeds, we intend to use such proceeds for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions. | |
| Nasdaq Listing: | Our Common Stock and Public Warrants are listed on Nasdaq under the symbols “AWIN” and “AWINW,” respectively. | |
| Plan of Distribution: | The Selling Securityholder may, from time to time, sell any or all of the Shares on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. For further information, see “Plan of Distribution” beginning on page 130. | |
| Risk Factors: | You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our Common Stock. |
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RISK FACTORS
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our Common Stock shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to the Convertible Notes and Warrants
It is not possible to predict the actual number of shares of Common Stock, if any, we will issue upon conversion of the Convertible Notes to the Selling Securityholder, or the actual gross proceeds resulting from exercises of the Warrants.
On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder, pursuant to which we agreed to issue to the Selling Securityholder up to three Convertible Notes in the aggregate principal amount of $6,000,000 and up to 4,555,690 Warrants to purchase 4,555,690 shares of our Common Stock.
We do not have the right to control the timing and amount of any conversions of principal under the Convertible Notes or exercises of the Warrants by the Selling Securityholder pursuant to the terms of the Warrant. The number of shares that we issue to the Selling Securityholder pursuant to the Convertible Noes and Warrants, if any, will depend upon market conditions and other factors to be determined by the Selling Securityholder. The Selling Securityholder may ultimately decide to convert none or a portion of the principal amount of the Convertible Debt or exercise none or a portion of the Warrants.
Because the conversion price of the Convertible Notes purchased by the Selling Securityholder, will fluctuate based on the market prices of our Common Stock at the time of conversion by the Selling Securityholder pursuant to the Convertible Notes, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the purchase price per share that the Selling Securityholder will effectively pay for shares of Common Stock issued upon conversion under the Convertible Notes, or the aggregate gross proceeds that we will receive from any exercises of the Warrants.
Because the market price of our Common Stock may fluctuate from time to time after the date of this prospectus and, as a result, the actual number of shares we issue to the Selling Securityholder upon conversion of the Convertible Notes and the purchase prices to be paid by the Selling Securityholder upon exercise of the Warrants, if any, also may fluctuate significantly based on the market price of our Common Stock.
The number of shares of Common Stock ultimately offered for sale by the Selling Securityholder is dependent upon the number of shares, if any, we ultimately issue upon conversion of the Convertible Notes and exercises of the Warrants, if any. However, even if the Selling Securityholder elects to convert the entire principal amount of the Convertible Notes and exercises all of the Warrants, the Selling Securityholder may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices.
Investors who buy shares of Common Stock from the Selling Securityholder at different times will likely pay different prices.
Pursuant to the terms of the Convertible Notes and Warrants, we do not have the right to control the timing and amount of any conversions under the Convertible Notes or exercises of the Warrants by the Selling Securityholder. If and when the Selling Securityholder converts any principal amounts under the Convertible Notes or exercises any of the Warrants and has acquired shares of our Common Stock, the Selling Securityholder may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices. As a result, investors who purchase shares from the Selling Securityholder in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from the Selling Securityholder in this offering as a result of future conversions under the Convertible Notes and exercises of the Warrants at prices lower than the prices such investors paid for their shares in this offering. In addition, if we issue a substantial number of shares of Common Stock to the Selling Securityholder upon conversions under the Convertible Notes or exercises of the Warrants, or if investors expect that the Selling Securityholder will convert under the Convertible Notes or exercises the Warrants, the actual issuance of shares or the mere existence of the Convertible Notes and Warrants may result in significant dilution to our current stockholders and may cause volatility in the trading price of our Common Stock and may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.
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We may use proceeds from sales of shares of our Common Stock made pursuant to the Purchase Agreement in ways with which you may not agree or in ways which may not yield a significant return.
We have broad discretion over the use of proceeds from sales of shares of our Common Stock made pursuant to the Purchase Agreement, as described in the section entitled “Use of Proceeds,” and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. In addition, the ultimate use of the net proceeds may vary from the currently intended uses. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our Common Stock.
Risks Relating to Our Business and Industry
AERWINS, Inc. has incurred net losses in the past and may do so in the future, and in the future, the Company may also incur, net losses.
For the years ended December 31, 2022 and 2021, Pono had net income of $2,732,973 and $4,585,547, respectively, and we had net operating cash outflows of $1,233,766 and $459,012, respectively. AERWINS, Inc. has incurred net losses in the past. For the years ended December 31, 2022 and 2021, AERWINS, Inc. had net losses of $14,479,819 and $14,555,670, respectively, and had net operating cash outflows of $16,865,274 and $9,876,472, respectively. We expect our costs to increase in future periods as we continue to expand our business and operations. We also expect to incur substantial costs and expenses as a result of being a public company. We cannot assure you that we will be able to generate net profits or positive operating cash flows in the future. Our ability to achieve profitability depends in large part on, among other factors, our ability to increase orders and sales of our Air Mobility Vehicles, mobility solutions and services, achieve economies of scale, establish effective pricing strategies, effectively navigate the regulatory environments in different jurisdictions, and increase operational efficiency. If we are unable to generate adequate revenues or effectively manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or subsequently maintain profitability.
We are a holding company and depend upon our subsidiary AERWINS, Inc. and its operating subsidiary, A.L.I. Technologies, Inc. for our cash flows.
We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our operating subsidiary, A.L.I. Technologies Inc., a Japanese corporation. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our operating subsidiary and its subsidiary and the payment of funds by this operating subsidiary to us in the form of dividends, distributions or otherwise. The ability of our subsidiary and its operating subsidiary to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiary and its operating subsidiary when needed could have a material adverse effect on our business, results of operations or financial condition.
We will need additional capital, and we cannot be sure that additional financing will be available.
As of and for the year ended December 31, 2022, AERWINS has incurred operating losses of $13,435,045 and retained earnings deficit of $46,451,520. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our Common Stock, and the existing stockholders may experience dilution.
A new health epidemic could significantly disrupt our operations and adversely affect our results of operations.
Our business could be significantly affected by public health epidemics that may hit Japan and/or other countries where we sell our products, such as the outbreak of coronavirus, avian influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus or other disease. For example, the severity of the current COVID-19 pandemic resulted in lock-downs, travel restrictions and quarantines imposed by governments across the world and materially affected general commercial activities on a global scale.
A COVID-19 outbreak may result in these customers ceasing purchases, canceling or reducing orders for our products or services, or failing to make payments owed to us in a timely manner or at all, which may materially and adversely impact our business and result of operations. The COVID-19 pandemic has caused, and is expected to cause in the near future, an economic downturn in many countries. Such general economic slowdown may reduce the demand for our products and services. In the international market, the pandemic has continued to significantly affect many parts of the world, including Asia, Europe and North America, where many of our customers and business partners are located. Any future outbreak of a contagious disease, and other adverse public health developments may restrict economic activities in affected regions, resulting in reduced business volume, temporary closure of our production facilities and offices or otherwise disrupt our business operations and adversely affect our results of operations.
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Our business performance may be adversely affected if the growth of the Air Mobility Vehicle industry slows down.
In the manned air mobility, unmanned air mobility, and computing power sharing domains, we have acquired various technological expertise and a global alliance network as a result of developing diverse product services utilizing various hardware and software technologies. We recognize that this trend will continue in the future. However, if the growth of the market slows down due to laws and regulations, economic trends, or changes in social awareness that restrict business in the industries in which our group is involved, and if our business does not expand accordingly, our group’s business performance may be affected.
Our future growth depends on the demand for, and customers’ willingness to adopt, our Air Mobility Vehicles and air mobility solutions.
We operate in the new and evolving Air Mobility Vehicles (“AMVs”) industry. Our business and operating results depend in large part on the acceptance of and demand for our AMVs and air mobility solutions. The success of these products and services are and will be subject to risks, including with respect to:
| ● | the extent of market reception and adoption of AMVs as transportation and logistics solutions; | |
| ● | our navigating a new and evolving regulatory environment; | |
| ● | our timely fulfillment of product orders; | |
| ● | our ability to produce safe, high-quality and cost-effective AMVs on an ongoing basis; | |
| ● | the performance of our AMVs relative to customer expectations and customers’ interest in and demand for our manned AMVs and air mobility solutions; and | |
| ● | our building a well-recognized and respected brand. |
Our failure to manage the risks described above may discourage current or potential customers from purchasing our AMVs or using our air mobility solutions, and there may be downward price pressure on our AMVs and air mobility solutions. If the market for AMVs or air mobility solutions does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be materially and adversely affected.
We may be unable to make timely product deliveries due to limited production capacity.
Commercial production of our manned AMVs requires timely and adequate supply of various types of raw materials and components, as well as mass production capacity and efficient manufacturing and assembly. We have no experience in high-volume manufacturing of our AMVs. We cannot assure you that we will be able to expand our production capacity efficiently and cost-effectively, or to procure sufficient raw materials and components to meet our production volume. While we are looking into expanding our manufacturing capacity through partnerships, such partnerships may not be successful, or we may not be able to do so in a timely manner to fulfill our backlog orders. While we obtain components from multiple sources whenever possible, some of the components used in our AMVs are currently selected to be purchased from a single source to improve cost-efficiency. Disruption in the supply of components, whether or not from a single-source supplier, could temporarily disrupt commercial production of our AMVs. We may experience operational difficulties with contract manufacturers we may utilize in the future, including reductions in the availability of production capacity, failure to comply with product specifications, insufficient quality control, failure to meet production deadlines, increases in manufacturing costs and longer lead time. Any of the foregoing could result in our failure to make timely deliveries to our customers. Such failure would materially and adversely affect our business, results of operations, financial condition and prospects.
Our framework and conditional agreements may not result in material sales of our products.
We have entered into a number of long-term agreements with customers and partners relating to the sale of our manned AMVs. Some of these agreements are conditional, and our counterparty is not obligated to purchase our products unless a number of conditions are satisfied. For example, the customer may not be required to purchase our AMVs unless our AMVs achieve a number of performance milestones and it obtains required governmental approvals (for example, in the United States, from the Federal Aviation Administration, or the FAA). We have yet to achieve the performance milestones, and the customers are allowed to terminate the agreements before that happens. Further, it may be time-consuming for the customer to obtain the required approvals, if they are able to do so at all. Some other agreements are framework agreements containing sales targets, but that does not obligate our counterparties to purchase our products at all. We expect the number of orders and pre-orders we receive under these framework agreements to depend on a number of factors, including changes in the regulatory environment, customers’ acceptance of and demand for our products and services and our production capacity. For the foregoing reasons, we may not receive substantial orders from our current or potential customers. As our long-term agreements may not result in material sales of our products, our future results of operations may not scale or otherwise meet our current expectations.
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We expect to have substantial customer concentration.
Due to the short history of our business and that we have not achieved significant scale, we expect to have customer concentration. There are inherent risks whenever a large percentage of revenues are concentrated with a limited number of customers that mainly operate our AMVs in entertainment and tourism locations in Japan, rather than in broad, mainstream commercial operations. We are unable to predict the future level of demand for our services that will be generated by these customers.
Our technology platform may not perform in line with customer specifications or expectations.
Our technology platform, consisting of our AMVs, in-air operating systems and on-the-ground infrastructure, may not perform in line with customers’ expectations. For example, our AMVs may not be as easy to operate or maintain as customers expect. In addition, certain orders and pre-orders of our manned AMVs are conditioned on their meeting defined technical specifications (such as a specified cruising speed, operational range and payload capacity) according to agreed-upon delivery timetables. Future customers may also require performance specifications that we are unable to deliver. Some of these target specifications, such as those dependent on battery technology, are constrained by the pace of general technological advancement and the capabilities of our suppliers, which are largely beyond our control.
Our technology platform may contain design or manufacturing defects that result in unsatisfactory performance or require repair. Our technology platform uses a substantial amount of algorithms and software to operate. Software products are inherently complex and often contain defects and errors, especially when first introduced. While we have performed extensive internal testing on our AMV software and hardware systems, we have a limited frame of reference by which to evaluate the long-term performance of our technology platform. There can be no assurance that we will be able to detect and fix any defects in our technology platform before we and our subsidiaries sell products and services to customers.
If our technology platform is defective or otherwise fails to perform as expected or in accordance with prescribed technical specifications and timetable, our AMVs may experience accidents and we may suffer adverse publicity, order cancellations, revenue declines, delivery delays, product recalls, product liability claims, and significant warranty and other expenses. These consequences could have a material adverse impact on our business, financial condition, operating results and prospects.
Our reputation and the trading price of our common stock may be negatively affected by adverse publicity or detrimental conduct against us.
Adverse publicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation and cause the trading price of our common stock to decline and fluctuate significantly. The negative publicity and the resulting decline of the trading price of our common stock may lead to the filing of shareholder class action lawsuits against us and some of our senior executive officers, and may potentially have further severe impact on the market price of our common stock and divert management’s attention from the day-to-day operations of our company.
We may continue to be the target of adverse publicity and detrimental conduct against us, including complaints, anonymous or otherwise, to regulatory agencies regarding our operations, accounting, revenues and regulatory compliance. Additionally, allegations against us may be posted on the internet by any person or entity which identifies itself or on an anonymous basis. We and our subsidiaries may be subject to government or regulatory investigation or inquiries, or shareholder lawsuits, as a result of such third-party conduct and may be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we and our subsidiaries will be able to conclusively refute each of the allegations within a reasonable period of time or at all. Our reputation may also be negatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materially and adversely affect the trading price of our common stock.
We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growth or implement our business strategies.
Our subsidiaries have been providing air mobility solutions since September 2016. Although we have experienced growth, our historical performance may not be indicative of our future performance due to our limited operating history. We are currently commercializing our AMVs and air mobility solutions, and have a short history of accepting orders for our AMVs and delivering them to customers for testing, training and demonstration purposes. There is only a limited historical basis for making judgments on the demand for our products and services or our ability to produce and deliver AMVs and air mobility solutions, or to become profitable in the future.
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You should consider our business and future prospects in light of the risks and challenges we face as a new entrant to a nascent industry and to overseas markets, including risks and challenges associated with our ability to:
| ● | provide safe, convenient and effective air mobility solutions; | |
| ● | maintain reliable, secure, high-performance and scalable infrastructure; | |
| ● | identify suitable facilities to expand manufacturing capacity; | |
| ● | navigate the evolving and complex regulatory environment across all the markets in which we operate; | |
| ● | anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape, and adjust, manage and execute our marketing and sales activities to cater to local economic and demographic conditions, cultural differences and customer preferences across all our current and future markets; | |
| ● | successfully market our air mobility solutions; | |
| ● | improve and maintain our operational efficiency; and | |
| ● | attract, retain and motivate talented employees. |
If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected.
As our business grows, we or our subsidiaries may adjust our product and service offerings. These adjustments may not bring about expected results and may instead have a material and adverse impact on our financial condition and results of operations. Our revenue structure may continue to evolve in response to market demand. In particular, we expect the relative revenue contribution from air mobility solutions to increase in the future. Our growth is dependent on the development of such new products and services. We may not accurately identify market needs before we invest in the development of a new product or a new service. In addition, we might face difficulties or delays in the development process, which may result in losses in our market share and competitive advantages.
In pursuit of our growth strategy, we or our subsidiaries may enter into new strategic relationships to further penetrate our targeted markets. Should these relationships fail to materialize and develop into demand or orders for our products and services, or should we fail to work effectively with these companies, we may lose opportunities to generate sales growth and our business, results of operations and financial condition could be adversely affected.
We may not be successful in competing in the AMV industry.
We operate in the AMV industry and provide various mobility solutions, including air mobility (consisting of transportation and logistics and drone solutions), smart city management and aerial media solutions. Companies engaged in businesses similar to those of ours are entering the market one after another, and competition is fierce, with a wide range of products and service formats. Our policy is to continue to respond to customer needs and enhance its services. However, if these efforts do not produce the anticipated results, or if the emergence of competitors offering innovative services leads to customers leaving us, leading to a decrease in distribution and deliveries, our business and performance may be affected. However, if these efforts do not produce the anticipated results, or if the emergence of competitors offering groundbreaking services leads to customers leaving, distribution, and sales declines, the group’s business and earnings may be affected.
In addition to competing with other AMV companies, we compete with traditional industry players providing similar solutions, such as aircraft and ground transportation service providers. Many of our current and potential competitors, particularly international competitors, have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products.
We expect competition in our industry to intensify in the future in light of increased demand for alternative transportation, continuing globalization and consolidation in the global AMV industry. Factors affecting competition include, among others, ability to innovate, development speed, product quality, reliability, safety and features, pricing and customer service. Increased competition may lead to lower AMV unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, financial condition, operating results and prospects.
Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and will affect our market share. If our competitors introduce AMVs or services that are superior in quality or performance and/or lower in price compared with our offerings, we may lose existing customers or be unable to attract new customers at prices that would allow us to generate attractive rates of return on our investment, if at all.
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Any significant cybersecurity incident or disruption to our operating systems or our command-and-control centers could subject us to significant reputational, financial, legal and operational consequences.
We depend on our and our subsidiaries’ integrated operating systems and on-the-ground infrastructure to operate our products and services. Any material disruption to or slowdown of our operating systems or infrastructure could cause our AMVs to malfunction or result in outages or delays in our services, which could harm our brand and adversely affect our operating results.
Our command-and-control centers rely on our proprietary cloud database, which can store all of the data collected under our clients’ approvals. Problems with our command-and-control centers or our telecommunications network providers could adversely affect our services and products. Our telecommunications network providers could decide to cease providing services to us without adequate notice. Any change in service levels of our telecommunications network or any errors, defects, disruptions or other performance problems with our operating systems or infrastructure could harm our brand and potentially affect our user data. If changes in technology cause our operating systems or infrastructure to become obsolete, or if our operating systems or command-and-control centers are inadequate to support our growth, we could lose customers, and our business and operating results could be adversely affected.
We could be subject to breaches of security by hackers. Although we proactively employ multiple measures to defend our systems against intrusions and attacks, our measures may not prevent unauthorized access or use of sensitive data. A breach of our AMV operating systems or command-and-control systems may result in product damages, data losses and, in extreme cases, AMV accidents or hijacking of our AMVs to perform unlawful activities.
A cybersecurity breach could harm our reputation and deter our customers and potential customers from using our AMVs. In addition, any such breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines.
An accident involving an AMV provided by us or another manufacturer could harm the AMV industry.
An accident involving an AMV provided by us or another manufacturer could cause regulatory agencies around the world to tighten restrictions on the use of AMVs, particularly over-populated areas, and could cause the public to lose confidence in our products and AMVs generally. There are risks associated with autopilot, flight control, communications and other advanced technologies, and, from time to time, there have been accidents associated with these technologies. The safety of certain cutting-edge technologies depends in part on user interaction, and users may not be accustomed to using such technologies. We or our subsidiaries could face unfavorable and tightened regulatory control and intervention on the use of autopilot and other advanced technologies and be subject to liability and government scrutiny to the extent accidents associated with our autonomous navigation systems occur. Should a high-profile accident occur resulting in substantial casualty or damages, either involving our AMVs or products offered by other companies, public confidence in and regulatory attitudes toward AMVs could deteriorate. Any of the foregoing could materially and adversely affect our results of operations, financial condition and growth prospects.
We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations.
Our AMVs may not perform in line with customers’ expectations. Any product defects, accidents or any other failure of our AMVs to perform as expected could harm our reputation and result in adverse publicity, revenue loss, delivery delays and product recalls, which could harm our brand and reputation. Any product recall or lawsuit seeking significant monetary damages either in excess of or outside of our insurance coverage may have a material adverse effect on our business and financial condition. In the future, we may, voluntarily or involuntarily, initiate a recall if any of our AMVs, including any systems or components sourced from our suppliers, prove to be defective or noncompliant with applicable laws and regulations. Such recalls, whether voluntary or involuntary and whether caused by systems or components engineered or manufactured by us or our suppliers, could incur significant expenses and adversely affect our brand image in our target markets. They may also inhibit or prevent commercialization of our current and future product candidates.
We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may be exposed to significant product liability claims if our AMVs do not perform as expected or malfunction. Any defects, errors, or failures in our products or the misuse of our AMVs, operating systems and infrastructure could also result in injury, death or property damage. Our risks in this area are particularly pronounced given we have limited field experience in the operation of our AMVs. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our AMVs and business and inhibit or prevent commercialization of our current and future AMV models. Our insurance coverage might not be sufficient to cover all potential product liability claims. In addition, the same level of insurance coverage may not be available in the future at economical prices, or at all. Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and result of operations.
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We generally provide standard warranties on our AMVs. The term of a warranty is between six months to three years, depending on the product line and the specific part or component. The occurrence of any material defects in our AMVs could make us liable for damages and warranty claims. In addition, we could incur significant costs to correct any defects or other problems, including costs related to product recalls. Warranty claims may also lead to litigation. Any negative publicity related to the perceived quality of our AMVs could affect our brand image, decrease retailer, distributor and customer demand, and adversely affect our operating results and financial condition.
If we fail to successfully develop and commercialize new products, services and technologies that are well received by customers, our operating results may be materially and adversely affected.
Our future growth depends on whether we can continually develop and introduce new generations of our existing AMV product lines and update our operating systems and infrastructure with enhanced functionalities and value-added services. This is particularly important in the current industry landscape where technologies and consumer preferences evolve rapidly, which may shorten the lifecycles of our existing products. We plan to upgrade our current AMV models and introduce new models in order to continue to provide AMVs with the latest technologies. As technological advancements can be complex and costly, we could experience delays in the development and introduction of new products and services in the future.
Our ability to roll out new and innovative products and services depends on a number of factors, including significant investments in research and development, quality control of our products and services and effective management of our supply chain. We may need to devote more resources to the research and development of new or enhanced products, services and technologies, which may reduce our profitability. In addition, our research and development efforts may not yield the benefits we expect to achieve in a timely manner, or at all. To the extent that we are unable to execute our strategy of continuously introducing new and innovative products, diversifying our product portfolio and satisfying consumers’ changing preferences, we may not be able to grow our user base, and our competitive position and results of operations may be adversely affected. Even if we are able to keep up with technological changes and develop new models, our prior models may as a result become obsolete sooner than expected, potentially reducing our return on investment.
We have no experience in managing sales to multiple countries and we are subject to a variety of costs and risks due to our continued international expansion.
One of our core strategies is international expansion. We generally have less experience in marketing, selling and deploying our AMVs in markets outside Japan. International expansion will require us to invest significant capital and other resources, and our efforts may not be successful. International sales and operations are subject to risks such as:
| ● | limited brand recognition; | |
| ● | costs associated with establishing new distribution networks; | |
| ● | difficulty in finding qualified partners for overseas distribution; | |
| ● | inability to anticipate changes in local market conditions, economic landscapes, and consumers’ preferences and customs; | |
| ● | difficulties in staffing and managing foreign operations; | |
| ● | lack of familiarity with and understanding of the local legal, regulatory and policy frameworks, as well as burdens of complying with a wide variety of local laws and regulations, including those governing personal data protection and safety control; | |
| ● | political and economic instability; | |
| ● | trade restrictions; | |
| ● | differing employment laws and practices, as well as potential labor disruptions; | |
| ● | the imposition of government controls; | |
| ● | lesser degrees of intellectual property protection; | |
| ● | tariffs and customs duties and the classifications of our goods by applicable governmental bodies; and | |
| ● | a legal system subject to undue influence or corruption. |
Additionally, to export our AMVs to certain jurisdictions, we may face challenges in coordinating with both Japanese and the applicable foreign governments and regulatory authorities. If we cannot export our AMVs to such jurisdictions, our business, prospects, financial condition and operating results may be materially and adversely impacted.
The failure to manage any of these risks could negatively affect our international business and consequently our overall business and operating results. In addition, the concern over these risks may also prevent us from entering into, or marketing, selling or releasing our AMVs and mobility solutions in, certain markets.
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Our operations may be interrupted by production difficulties or delays due to mechanical failures, utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities.
Production difficulties, such as capacity constraints, mechanical and systems failures and the need for equipment upgrades, may suspend our production and/or reduce our output. There can be no assurance that we will not experience problems with our production facilities in the future or that we will be able to address any such problems in a timely manner. Problems with key equipment in one or more of our production facilities may affect our ability to produce our AMVs or cause us to incur significant expenses to repair or replace such equipment. Scheduled and unscheduled maintenance programs may affect our production output. Any of these could have a material adverse effect on our business, financial condition, results of operations and prospects.
We depend on a continuous supply of utilities, such as electricity and water, to operate our production facilities. Any disruption to the supply of electricity or other utilities may disrupt our production, or cause the deterioration or loss of our inventory. This could adversely affect our ability to fulfill our sales orders and consequently may have an adverse effect on our business and results of operations. In addition, fire, natural disasters, pandemics or extreme weather, including droughts, floods, typhoons or other storms, or excessive cold or heat, could cause power outages, fuel shortages, water shortages, damage to our production, processing or distribution facilities or disruption of transportation channels, any of which could impair or interfere with our operations. We cannot assure you that such events will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impact of such events, or to effectively respond to such events if they occur.
Our consumers may experience service failures or interruptions due to defects in the software, infrastructure, components or engineering system that compromise our products and services, or due to errors in product installation, any of which could harm our business.
Our products and services may contain undetected defects in the software, infrastructure, components or engineering system. Sophisticated software and applications, such as those adopted and offered by us, often contain “bugs” that can unexpectedly interfere with the software and applications’ intended operations. Our internet services may from time to time experience outages, service slowdowns or errors. Defects may also occur in components or processes used in our products or for our services.
There can be no assurance that we will be able to detect and fix all defects in the hardware, software and services we offer. Failure to do so could result in decreases in sales of our products and services, lost revenues, significant warranty and other expenses, decreases in customer confidence and loyalty, losing market share to our competitors, and harm to our reputation.
Our business and prospects depend significantly on our ability to build the A.L.I. Technologies brand.
Our business and prospects are heavily dependent on our ability to build, maintain and strengthen the A.L.I. Technologies brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high-quality AMVs and mobility solutions and engage with our customers as intended. In addition, we expect that our ability to develop, maintain and strengthen the A.L.I. Technologies brand will also depend heavily on the success of our user development and branding efforts. Such efforts mainly include building a community of engaged online and offline users as well as other branding initiatives, such as AMV shows and events. To promote our brand, we may be required to change our user development and branding practices, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
Our A.L.I. Technologies brand could be subject to adverse publicity if incidents related to our products occur or are perceived to have occurred, whether or not we are at fault. In particular, given the popularity of social media, including Facebook, Twitter, LinkedIn and Instagram in Japan, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidence in our brand. Furthermore, we may be affected by adverse publicity related to our manufacturing or other partners, whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions of the quality of our partners’ products and services. In addition, from time to time, our AMVs and mobility solutions are evaluated and reviewed by third parties. Any unfavorable reviews could adversely affect consumer perceptions of our AMVs and mobility solutions.
Weather and seasonality may have a material adverse effect on our operations.
Our sales of AMVs and mobility solutions may be affected by weather and seasonality. Our mobility solutions are mainly delivered outdoors. Customers may choose alternative transportation instead of our solution in severe weather conditions in consideration of safety factors, even if our AMVs are able to endure such conditions. As a result, our business, financial condition and operating results may be materially and adversely impacted by the weather conditions. Our operating results may vary from period to period due to many factors, including seasonal factors that may have an effect on the demand for our mobility solutions in the future. As a result, our quarterly results of operations and financial position at the end of a particular quarter may not necessarily be representative of the results we expect at year-end or in other quarters of a year. Our operating results would suffer if we did not achieve revenues consistent with our expectations due to seasonal demand and weather changes because many of our expenses are based on anticipated levels of annual revenues.
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Any decline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effect on our operating results.
We collaborate with various business partners to promote our AMVs and mobility solutions. There can be no guarantee that those business partners will continue to collaborate with us in the future. If we are unable to maintain good relationships with our business partners, or the business of our business partners declines, the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease.
Most of the agreements with our business partners do not prohibit them from working with our competitors or from offering competing services. If our partners change their standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continue working with us, or choose to devote more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially favorable terms, or at all, and our competitive advantages may diminish.
Safety issues or public perceptions of safety issues concerning lithium-ion batteries could have a material adverse impact on our business.
The battery packs installed on our AMVs make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.
While the battery packs used for our AMVs are designed to passively contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of our AMVs could occur, which could result in accidents, casualty or damages, and subject us to lawsuits, product recalls, or redesign efforts. Also, negative public perceptions regarding the suitability of lithium-ion cells for AMV applications or any future incident involving lithium-ion cells, even if such incident does not involve our AMVs, could seriously harm our business. In addition, we store a significant number of lithium-ion cells at our facilities. Any mishandling of battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, a safety issue or fire related to the cells could disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall.
If we fail to comply with environmental and work safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental and work safety laws and regulations. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Environmental and social laws and regulations have tended to become increasingly stringent. There has been increased global focus on environmental and social issues and it is possible that countries may potentially adopt more stringent standards or new regulations in these areas. To the extent regulatory changes occur in the future, they could result in, among other things, increased costs to our company. In addition, we may incur substantial costs in order to comply with current or future environmental and work safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
If our business partners, contractors, suppliers, sales agents, dealers or third-party logistics services providers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control.
Our reputation is sensitive to allegations of unethical business practices. We do not control the business practices of our business partners, independent contractors and suppliers, sales agents, dealers or third-party logistics services providers. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, sales agents or dealers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our suppliers, business partners, sales agent, dealers or third-party logistics services suppliers or the divergence of their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attract negative publicity, diminish our brand image and reduce demand for our AMVs and mobility solutions.
If customers modify our AMVs or operating systems, the AMVs may not operate properly, which may cause damage, create negative publicity and harm our business.
Our customers may try to modify our AMVs or operating systems for various reasons, which could compromise the performance and safety of our AMVs, as well as the safety of their passengers. During such modifications, they may use third-party parts that may not be compatible with our products. We do not test, nor do we endorse, such modification. In addition, the use of improper external cabling or unsafe charging outlets can expose our customers to injury from AMV malfunctioning. Any injuries or damages resulting from such modifications or misuses could result in adverse publicity, which would negatively affect our brand and harm our business, prospects, financial condition and operating results.
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Failure to safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results of operations.
Through our AMVs, command-and-control systems, we log information about each AMV’s use, such as charge time, battery usage, mileage and location information, in order to aid us in vehicle diagnostics, repair and maintenance, as well as to help us customize and optimize the flying experience. Images and videos captured by cameras attached to our AMVs are stored on our servers, servers of third-party cloud storage providers or other servers designated by our customers. We, therefore, process, including but not limited to collect, store, process, use, transfer, provide, disclose and delete, personal data from our users in order to better understand our users and their needs for the purpose of our content feeds recommendation. Possession and use of our users’ flying behavior and data in conducting our business may subject us to legislative and regulatory oversight in Japan and other jurisdictions, such as the European Union and the United States. For example, in January 2018, the European Union promulgated the General Data Protection Regulation to further protect fundamental rights in privacy and personal information so that members of the general public have more control over their personal information. Regulations in relevant jurisdictions may require us to obtain user consent for the collection of personal information, restrict our use of such personal information and hinder our ability to expand our user base. In the event of a data breach or other unauthorized access to our user data, we may have obligations to notify users about the incident and we may need to provide some form of remedy for the individuals affected by the incident.
Concerns or claims about our practices with regard to the processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and results of operations. In the Japanese, governmental authorities have enacted a series of laws and regulations to enhance the protection of privacy and data. We may need to adjust our business to comply with data security requirements and other laws and regulations from time to time.
As laws and regulations in Japan on the protection of privacy and data are constantly evolving, complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by such laws, regulations or obligations. Any failure on our part to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, collection, transfer, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing users from using our platform or result in investigations, fines, suspension of our app, or other penalties by government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. In addition, the interpretation and application of the aforementioned laws and regulations are often uncertain and in flux. Our practice may become inconsistent with these laws and regulations.
Our platform and internal systems depend on the ability of software and hardware developed and maintained internally and/or by third parties to store, retrieve, process and manage immense amounts of data, including personal information or other privacy-related matters. The software and hardware on which we rely may now or in the future contain, undetected programming errors, bugs, or vulnerabilities which may result in errors or compromise our ability to protect the data of our users and in turn adversely affect our business, financial condition and operation results. Any systems failure or compromise of security that results in the unauthorized access to or release of the data, photo or messaging history of our users could significantly limit the adoption of our services, as well as harm our reputation and brand, result in litigation against us, liquidation and other damages, regulatory investigations and penalties, and we could be subject to material liability. Additionally, we connect our platform with software development kit provided by third parties who may also process users’ data. The integrity of our user data also depends on their ability to secure and protect the data they process. The risk that these types of events could seriously harm our business is likely to increase as we expand the scope of services we offer and as we increase the size of our user base.
We may also become subject to laws and regulations affecting data protection, data privacy and/or information security in other jurisdictions by virtue of having users who reside in these jurisdictions, even if we do not have a physical presence there. Many jurisdictions have in the past adopted, and may in the future adopt, new laws and regulations, or amendments to existing laws and regulations, affecting data protection, data privacy and/or information security, such as the General Data Protection Regulation, or the GDPR, adopted by the European Union that became fully effective on May 25, 2018. The interpretation and application of these laws or regulations are often uncertain and in flux. We cannot guarantee you that our practice is consistent with these laws and regulations and our practice may become inconsistent with these laws and regulations, if so, we could be subject to fines and orders requiring that we change our practices, which could have an adverse effect on our business and results of operations. Complying with new data laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
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If users allege that we have improperly used, released or disclosed their personal information, we could face legal claims and reputational damage. We may incur significant expenses to comply with privacy, consumer protection and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. A major breach of our network security and systems could create serious negative consequences for our business and future prospects, including possible fines, penalties, reduced customer demand for our AMVs, and harm to our reputation and brand.
The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends.
We will need significant capital to, among other things, conduct research and development, expand our manufacturing capacity, roll out new products and solutions and provide mobility services. We may also need significant capital to maintain our existing property and equipment. Our expected sources of capital include both equity and debt financing. However, financing might not be available to us in a timely manner or on acceptable terms, or at all.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plans. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities, substantially change our current corporate structure, or even curtail or discontinue our operations.
In addition, our future capital needs and other business concerns could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute the equity interests of our shareholders. Additional indebtedness would increase our debt-service obligations and may be accompanied by covenants that would restrict our operations or our ability to pay dividends to our shareholders.
We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected.
We have entered into strategic alliances with various business partners, and may in the future enter into joint research and development agreements or co-branding agreements with third parties to further our business purpose from time to time. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the third parties and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties. If any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.
Although we currently do not have any specific acquisition plans, if appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to any required shareholders’ approval, we may also have to obtain approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable Japanese laws and regulations, which could result in delays and increased costs, and may derail our business strategy if we fail to do so. Furthermore, past and future acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
Our business could be adversely affected by trade tariffs or other trade barriers.
The United States and other countries may in the future impose tariffs on the importation of consumer products related to our business, such as AMVs. We plan to export our AMVs to the United States and other countries, including, but not limited to, the UAE and European Union. Any new tariffs on AMVs or other relevant products imposed by the United States or other countries may significantly increase our costs. It is not yet clear what impact these tariffs may have or what actions other governments, including the Japanese government, may take in retaliation. In addition, these developments could have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
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We and our subsidiaries have limited insurance coverage, which could subject us to significant costs and business disruption.
We and our subsidiaries have limited liability insurance coverage for our products and business operations. We may not be able to secure additional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful liability claim against us, our subsidiaries or its subsidiaries due to injuries or damages suffered by our users could materially and adversely affect our financial condition, results of operations and reputation. Even if unsuccessful, such a claim could cause us adverse publicity, require substantial costs to defend, and divert the time and attention of our management. In addition, we do not have any business disruption insurance. Any business disruption could result in substantial cost to us and diversion of our resources. Furthermore, Japan, the United States or any other jurisdiction relevant to our business may impose requirements for maintaining certain minimum liability or other insurance relating to the operation of AMVs. Such insurance policies could be costly, which would reduce the demand for our AMVs. Alternatively, certain insurance products that would be desirable to AMV operators may not be commercially available, which would increase the risks of operating our AMVs and also reduce the demand for them.
We are involved in litigation from time to time and, as a result, we could incur substantial judgments, fines, legal fees or other costs.
We may be the subject of complaints or litigation from customers, suppliers, employees or other third parties for various actions. The damages sought against us in some of these litigation proceedings could be substantial. We cannot assure you that we will always have meritorious defenses to the plaintiffs’ claims. While the ultimate effect of these legal actions cannot be predicted with certainty, our reputation and the result of operations could be negatively impacted. The proceedings we may be involved in from time to time, including the aforementioned bankruptcy proceedings, could incur substantial judgments, fines, legal fees or other costs and have a material adverse effect on our business, financial condition, results of operations and cash flows.
Any financial or economic crisis or perceived threat of such a crisis may materially and adversely affect our business, financial condition and results of operations.
We are subject to risks inherent in economic volatility and disruptions that may arise. For example, the global financial markets experienced significant disruptions in 2008. The recovery since then has been geographically uneven. New challenges have also emerged, including the escalation of the European sovereign debt crisis since 2011, the hostilities in the Ukraine, the end of quantitative easing by the U.S. Federal Reserve and the economic slowdown in the Eurozone in 2014. More recently, in response to inflation, central bank interest rate increases, slowing of economic growth and other factors, stock markets across the world have experienced significant volatility and downward price pressure in 2022. It is unclear whether these challenges will be contained and what effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies, including Japan’s. Economic conditions in Japan are sensitive to global economic conditions. Any prolonged slowdown in Japan’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and customer confidence and dramatic changes in business and customer behaviors.
We face risks related to natural disasters, which could significantly disrupt our operations.
We are vulnerable to natural disasters and other calamities such as typhoons, tornadoes, floods, earthquakes and other adverse weather and climate conditions. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis, and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services on our platform. In addition, the further spread of the new coronavirus may affect our performance and financial position, depending on the course of events, and we will continue to closely monitor the situation and make necessary disclosures.
If the landlords of our and our subsidiaries’ leased properties fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.
We and our subsidiaries lease all the premises used in our operations from third parties. We and our subsidiaries require the landlords’ cooperation to effectively manage the condition of such premises, buildings and facilities. In the event that the condition of the office premises, buildings and facilities deteriorates, or if any or all of our and our subsidiaries’ landlords fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.
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Because our long-term growth strategy involves expansion of our sales to customers outside Japan, our business will be susceptible to risks associated with international operations.
A component of our growth strategy involves the expansion of our operations and customer base worldwide. We plan to open international offices in the future. These international offices will focus primarily on sales, professional services and support. Our future international operations and future initiatives will involve a variety of risks, including:
| ● | difficulties in maintaining our company culture with a dispersed and distant workforce; | |
| ● | more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information; | |
| ● | the timing of our sales with our international clients and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these clients; | |
| ● | unexpected changes in regulatory requirements, taxes or trade laws; | |
| ● | differing labor regulations where labor laws are generally more advantageous to employees as compared to Japan, including deemed hourly wage and overtime regulations in these locations; | |
| ● | challenges inherent in efficiently managing an increased number of employees, including remote employees, over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; | |
| ● | difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; | |
| ● | currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; | |
| ● | global economic uncertainty caused by global political events; | |
| ● | limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; | |
| ● | limited or insufficient intellectual property protection; | |
| ● | political instability or terrorist activities; | |
| ● | likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, or of U.S. and international export control and sanctions regulations, which likelihood may increase with an increase of sales or operations in foreign jurisdictions and operations in certain industries; and | |
| ● | adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash. |
Our inexperience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to establish our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer. We continue to implement policies and procedures to facilitate our compliance with U.S. laws and regulations applicable to or arising from our international business. Inadequacies in our past or current compliance practices may increase the risk of inadvertent violations of such laws and regulations, which could lead to financial and other penalties that could damage our reputation and impose costs on us.
Our customers may fail to pay us in accordance with the terms of their agreements, at times necessitating action by us to attempt to compel payment.
If our customers fail to pay us in accordance with the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our agreements, including litigation and arbitration costs. The risk of these issues increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our results of operations, financial condition and cash flow.
We believe our success depends on continuing to invest in the growth of our worldwide operations by entering new geographic markets. If our investments in these markets are greater than anticipated, or if our customer growth or sales in these markets do not meet our expectations, our results of operations and financial condition may be adversely affected.
We believe our success depends on expanding our business into new geographic markets and attracting customers in countries other than the United States. We anticipate continuing to expand our operations worldwide and have made, and will continue to make, substantial investments and incur substantial costs as we enter new geographic markets. This includes investments in facilities, information technology investments, sales, marketing and administrative personnel and facilities. Often we must make these investments when it is still unclear whether future sales in the new market will justify the costs of these investments. In addition, these investments may be more expensive than we initially anticipate. If our investments are greater than we initially anticipate or if our customer growth or sales in these markets do not meet our expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected.
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Risks Related to Our Dependence on Third Parties
We may rely on some third-party distributors for sales, marketing and distribution activities relating to our AMVs.
Currently we do not rely on any third-party distributors for sales, marketing and distribution activities relating to our AMVs. However, some of our business partners may act as third-party distributors that sell, market and distribute our AMVs to their customers in the future. Accordingly, we may be subject to a number of risks associated with third-party distributors, including a lack of day-to-day control over the activities of third-party distributors selling or using our products and solutions; third-party distributors may terminate their arrangements with us on limited or no notice, or may change the terms of these arrangements in a manner that is unfavorable to us for reasons outside of our control; and any disagreements with our third-party distributors could lead to costly and time-consuming litigation or arbitration. If we fail to establish and maintain satisfactory relationships with our third-party distributors, we may not be able to sell, market and distribute our AMVs according to our internal budget and plans, our future revenues and market share may not grow at a pace that we expect, and we could be subject to increases in sales and marketing and other costs which would harm our results of operations and financial condition.
We rely on external suppliers for raw materials and certain key externally sourced components and parts used in the assembly of our AMVs, and have limited control over the quality of these components and parts.
We purchase certain key externally sourced components and raw materials, such as computers chips, batteries, motors and electronic displays, from external suppliers for use in our assembly, production and operations of AMVs. A continuous and stable supply of components and raw materials that meet our standards is crucial to our assembly, production and operations. We cannot assure you that we will be able to maintain our existing relationships with our suppliers and continue to be able to stably source key components and raw materials at reasonable prices, or at all. We have integrated our suppliers’ technologies within our products such that having to change to an alternative supplier may cause significant disruption to our operations. The supply of key components could be interrupted for any reason, or there could be significant increases in the prices of these key components. Additionally, changes in business conditions, force majeure, governmental changes and other factors beyond our control, or that we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. If any of these events occurs, our business, financial condition, results of operations and prospects may be materially and adversely affected.
We cannot guarantee that the quality of components and parts manufactured by external suppliers will be consistent and maintained at a high standard. Any defects of or quality issues with these components or any noncompliance incidents associated with these third-party suppliers could result in quality issues with our AMVs and hence compromise our brand image and results of operations. In extreme situations, we may be exposed to liabilities as a result of significant damages caused by certain components from external suppliers and we cannot assure you that we will be able to obtain sufficient insurance coverage at an acceptable cost in the future. A successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business, financial condition and operating results.
We expect to rely on third-party logistics providers to deliver our domestic sales orders and overseas orders. Inadequate third-party logistics services or failure to mitigate the risks of damage or disruption to our distribution logistics could adversely affect our business.
Our ability to transport and sell our AMVs is critical to our success across our operations. We expect to rely on third-party logistics service providers to deliver our domestic sales orders and overseas orders. Damage or disruption to our distribution logistics due to disputes, weather, natural disasters, fire, explosions, terrorism, pandemics or labor strikes could impair our ability to distribute or sell our AMVs. Inadequate third-party logistics services could also potentially disrupt our distribution and sales and compromise our business reputation. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
Risks Related to Employee Matters
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that a critical component to our success has been our company culture, which is based on transparency and personal autonomy. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow as and continue to develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.
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Our success depends on the continuing efforts of our key employees, including our senior management members and other key personnel. If we fail to hire, retain and motivate our key employees, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that our success depends substantially on the continued efforts of our key employees, including our senior management members and other qualified and key personnel. We rely on our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the relationships and reputation that members of our management and key employees have established and maintain with government personnel contribute to our ability to maintain good customer relations and to identify new business opportunities. The loss of any key personnel or our failure to attract additional talent could reduce our employee retention, disrupt our research and development activities and operations, and impair our revenue growth and competitiveness. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all, and we might lose the innovation, collaboration and focus that contribute to our business.
The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.
To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for developers with high levels of experience in designing, developing and managing AMVs and air mobility solutions, as well as for skilled information technology, marketing, sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. Also, inbound sales, marketing, services, and content management domain experts are very important to our success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a competitive hiring environment in Japan, where we are headquartered and will continue to experience a competitive hiring environment as we recruit for remote talent worldwide. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the AMVs industry, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.
Risks Related to Intellectual Property
We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our AMVs, AMV operating systems and infrastructure or their components, which could make it more difficult for us to operate our business. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights by us and our subsidiaries or otherwise assert their rights against us and our subsidiaries. Moreover, our and our subsidiaries’ applications and uses of trademarks relating to our and our subsidiaries’ design, software or artificial intelligence technologies could be found to infringe upon existing trademark ownership and rights. We or our subsidiaries may also fail to apply for key trademarks in a timely manner. We or our subsidiaries may continue to face intellectual property infringement claims in the future.
If we or our subsidiaries are determined to have infringed upon a third party’s intellectual property rights, we or our subsidiaries may be required to do one or more of the following:
| ● | cease selling, incorporating certain components into, or using AMVs or offering goods or services that incorporate or use the challenged intellectual property; | |
| ● | pay substantial damages; | |
| ● | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; | |
| ● | redesign our, our subsidiaries or its subsidiaries’ AMVs, AMV operating systems and infrastructure, components or services; or | |
| ● | establish and maintain alternative branding for our, our subsidiaries or its subsidiaries’ products and services. |
In the event of a successful claim of infringement against us or our subsidiaries and our or our subsidiaries’ failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, even if frivolous, could result in substantial costs, negative publicity and diversion of resources and management attention.
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Our or our subsidiaries’ intellectual property rights may not protect us effectively.
As of December 31, 2022, we and our subsidiaries together had 49 issued patents in Japan, 29 registered trademarks in Japan, and 21 registered copyrights in Japan in relation to our and our subsidiaries’ technologies.
We cannot assure you that our or our subsidiaries’ pending patent applications will be granted. Even if our or our subsidiaries’ applications are successful, patents may be contested, circumvented or invalidated in the future.
In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages. The claims under any patents that issue from our or our subsidiaries’ patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours or our subsidiaries’ results. It is also possible that the intellectual property rights of others could bar us or our subsidiaries from licensing and exploiting any patents that are issued from our or our subsidiaries’ pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which we and our subsidiaries have developed and are developing our technologies. These patents and patent applications might have priority over our or our subsidiaries’ patent applications and could subject our or our subsidiaries’ patent applications to invalidation. Finally, in addition to those who may claim priority, any of our or our subsidiaries’ existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
Implementation and enforcement of Japanese laws on intellectual property rights have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in Japan may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technologies is difficult and expensive. We and our subsidiaries rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our and our subsidiaries’ intellectual property rights. Despite our efforts to protect our and our subsidiaries’ proprietary rights, third parties may attempt to copy or otherwise obtain and use our or our subsidiaries’ intellectual property or seek court declarations that they do not infringe upon our or our subsidiaries’ intellectual property rights. Any unauthorized use of our or our subsidiaries’ intellectual property by third parties may adversely affect our current and future revenues and our reputation. Monitoring unauthorized use of our and our subsidiaries’ intellectual property is difficult and costly, and we cannot assure you that the steps we or our subsidiaries have taken or will take will prevent misappropriation of our and our subsidiaries’ intellectual property. From time to time, we or our subsidiaries may have to resort to litigation to enforce our and our subsidiaries’ intellectual property rights, which could result in substantial costs and diversion of our resources.
The Company may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting, and defending patents, trademarks and design rights on all of the Company’s product candidates throughout the world would be prohibitively expensive. The Company has filed (i) patent applications and/or obtained patents in Japan, United and Europe, (ii) trademark applications and/or obtained trademark in Japan, Europe, United States, United Arab Emirates, Qatar, Egypt, India, Singapore, Malaysia, Hong Kong, Macau, China, South Africa and Ethiopia and (iii) design rights application and/or obtained design rights in Japan, United States and China. Competitors may use the Company’s technologies in jurisdictions where it has not obtained patent protection to develop their own products and their products may compete with products of the Company.
If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary rights, our business, financial condition and results of operations could be materially harmed.
Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets, design rights and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, existing Japanese legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and our rights may be challenged by third parties. The laws of countries other than Japan may be even less protective of our intellectual property rights. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. Moreover, many of our employees have access to our trade secrets and other intellectual property. If one or more of these employees leave our employment to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations or financial condition could be materially harmed. From time to time, we have initiated lawsuits to protect our intellectual property and other proprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact our results of operations.
In addition, affirmatively defending our intellectual property rights and investigating whether any of our products or services violate the rights of others may entail significant expense. Our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, then the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we prevail.
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Risks Related to Government Regulation
Failure to comply with laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States.
Although we strive to comply with these laws and regulations, including Civil Aeronautics Law, Road Traffic Law, Radio Law, Product Liability Law, Worker Dispatch Law, and other laws and regulations related to our business, it is possible that regulations will be unexpectedly enacted, amended, or abolished in the future, or that planned deregulation will not proceed as planned. In such cases, if we receive some administrative sanction for violating such laws and regulations, etc., or if excessive legal restrictions are applied in the future, our activities may be restricted, which may affect our business and earnings. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.
In the jurisdictions where we and our subsidiaries plan to sell AMVs is subject to an uncertain or lengthy approval process, we cannot predict whether and when regulations will change, and any new regulations may impose onerous requirements and restrictions with which we and our subsidiaries, the AMVs and potential customers may be unable to comply. As a result, we and our subsidiaries may be limited in, or completely restricted from, growing business in the foreseeable future.
We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. As described below, in the jurisdictions relevant to us, the use and delivery of our AMVs are, and in the near future are expected to continue to be, subject to an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of AMV-related regulations and the lack of relevant precedents. For example, we are not aware of any operator having been granted all required approvals for the operation of AMVs in Japan, the United States or elsewhere. We cannot predict when these regulations will change, and any new regulations may impose onerous requirements and restrictions.
As we sell our AMV products internationally, we face challenges in quickly and sufficiently familiarizing ourselves with foreign regulatory environments and policy frameworks. If any new regulation is put in place, or a different interpretation of existing regulation is adopted, our ability to manufacture, market, sell or operate our AMVs or to advertise or deliver air mobility solutions in general may be limited or otherwise affected. Failure to comply with applicable regulations or to obtain, maintain or renew the necessary permits, licenses, registrations or certificates could cause delays in, or prevent us from, manufacturing, marketing, selling and operating our AMVs products, meeting product demand and expectations, introducing new products or expanding our service coverage, and could materially and adversely affect our operation results. If we are found to be in violation of applicable laws or regulations, we could be subject to administrative punishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our AMVs and mobility solutions are subject to safety standards, and the failure to satisfy such mandated safety standards or failure to design, manufacture and operate safe and high-performance AMVs and related operating systems and infrastructure would have a material adverse effect on our business and operating results.
Sales of our AMVs must comply with applicable standards in the market where they are sold, including standards on design, manufacturing and operation. In Japan, for example, certain components of our AMVs must pass various tests and meet criteria specified in product safety guideline issued by the Ministry of Economy, Trade and Industry in Japan. We have met the applicable requirements in the guideline and obtained approval of export with Certificate of Non-applicability. Currently, there are 193 members or contracting states in the International Civil Aviation Organization (“ICAO”), which is governed by the ICAO Council, which is composed of 36 member states including the United States. Pursuant to ICAO policy we believe that our product will not be considered an aircraft in the United States. However, the future commercial use of our product in the United States may be restricted by various regulations at the federal and state levels, as well as private regulations, such as the prohibition of private mobility near airports, which may prevent the use of our product.
Future changes in laws and regulations may also make it impossible to use our product in the ways that are currently planned. Although the United States is a member of the ICAO Council, in the United States, the FAA oversees the safety of aircraft operations in the national airspace system and has the authority to grant airworthiness certificates and related exemptions to unmanned aircraft systems. If we fail to have our AMVs satisfy applicable aerial vehicle standards in any jurisdiction where we operate, our business and operating results would be adversely affected. To achieve a high level of safety assurance, we have also established our own AMV safety standards. While we are committed to producing safe and high-quality products, there can be no assurance that our safety technology will be effective in preventing incidents related to product safety, such as accidents involving our AMVs. Failure to ensure the safe operation of our AMVs will affect our reputation and the sales of our AMVs, which will ultimately adversely affect our business operation and financial results.
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We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct our business or sell our products, including the Japanese anti-corruption laws and regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act 2010 also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. The Japanese anti-corruption laws and regulations prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection with the implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.
We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.
Risks Related to Indebtedness
Our wholly owned subsidiary’s substantial indebtedness could have important adverse consequences and adversely affect our financial condition.
Our wholly owned subsidiary AERWINS Inc. has a significant amount of indebtedness. As of December 31, 2022 and December 31, 2021, AERWINS Inc. had total indebtedness of $9,870,442 and $16,640,338, respectively.
Our level of debt could have important consequences, including making it more difficult for us to satisfy our obligations with respect to our debt, limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements, requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes, increasing our vulnerability to adverse changes in general economic, industry and competitive conditions, exposing us to the risk of increased interest rates, limiting our flexibility in planning for and reacting to changes in the industries in which we compete, placing us at a disadvantage compared to other, less leveraged competitors, increasing our cost of borrowing and hampering our ability to execute on our growth strategy.
We may be unable to generate sufficient cash flow to satisfy the significant debt service obligations of our subsidiaries, which could have a material adverse effect on our business, financial condition results of operations, and cash flows.
Our ability to make principal and interest payments on and to refinance the indebtedness of our subsidiaries will depend on our ability to generate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition, results of operations, and cash flows could be materially adversely affected.
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If we cannot generate sufficient cash flow from operations to make scheduled principal and interest payments, we may need to refinance all or a portion of the indebtedness of our subsidiaries on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of our existing or future debt agreements may also restrict us from affecting any of these alternatives. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of our indebtedness.
Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.
We and our subsidiaries may be able to incur significant additional indebtedness in the future, including off-balance sheet financings, contractual obligations and general and commercial liabilities. If new debt is added to our current debt levels, the related risks that we now face could intensify.
General Risks
Weakened global economic conditions may harm our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the AMV industry may harm us. The United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, uncertainty over the future of the Euro zone and volatility in the value of the pound sterling and the Euro, including instability surrounding Brexit. If economic conditions in key markets for our AMVs continue to remain uncertain or deteriorate further, it could adversely affect our customers’ ability or willingness to purchase our AMVs and delay prospective customers’ purchasing decisions, all of which could harm our operating results.
We are exposed to fluctuations in currency exchange rates.
We face exposure to movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions and expenses changes in the future. Furthermore, global political events, including Brexit and similar geopolitical developments, fluctuating commodity prices and trade tariff developments, have caused global economic uncertainty, which could amplify the volatility of currency fluctuations. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to predict our future results and earnings accurately. Although we may apply certain strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as we anticipate growing our business further outside of the United States, the effects of movements in currency exchange rates will increase as our transaction volume outside of the United States increases.
Our actual operating results may differ significantly from our guidance and projections.
From time to time, we may provide forward looking estimates regarding our future performance that represent management’s estimates as of a point in time. These forward-looking statements are based on projections prepared by our management.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions and conditions, some of which will change. The principal reason that we provide forward looking information is to provide a basis for our management to discuss its business outlook with stakeholders. Forward looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions of its forward-looking statements will not materialize or will vary significantly from actual results. Accordingly, our forward-looking statements are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our forward-looking statements and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance or projections in making investment decisions.
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Risks Related to Ownership of Our Securities
Nasdaq may delist the Company’s securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions.
Our securities are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future. In order to continue listing its securities on Nasdaq, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum number of holders of its securities (generally 400 public holders).
If Nasdaq delists our securities from trading on its exchange and we are not able to list its securities on another national securities exchange, we expects our securities could be quoted on an over-the-counter market. If this were to occur, the Company could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for its securities; | |
| ● | reduced liquidity for its securities; | |
| ● | a determination that the Company’s common stock is a “penny stock” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The market price of our common stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your shares of common stock at an attractive price due to a number of factors such as those listed in this Risk Factors section and the following:
| ● | results of operations that vary from the expectations of securities analysts and investors; | |
| ● | results of operations that vary from those of the Company’s competitors; | |
| ● | changes in expectations as to the Company’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors; | |
| ● | declines in the market prices of stocks generally; | |
| ● | strategic actions by the Company or its competitors; | |
| ● | announcements by the Company or its competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; | |
| ● | announcements of estimates by third parties of actual or anticipated changes in the size of the Company’s customer base or the level of customer engagement; | |
| ● | any significant change in the Company’s management; | |
| ● | changes in general economic or market conditions or trends in the Company’s industry or markets; | |
| ● | changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to the Company’s business; | |
| ● | additional shares of the Company’s securities being sold or issued into the market by the Company or any of the existing stockholders or the anticipation of such sales, including if the Company issues shares to satisfy conversions under the Convertible Notes, exercises of Warrants or restricted stock unit related tax obligations or if existing stockholders sell shares into the market when applicable “lock-up” periods end; |
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| ● | investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives; | |
| ● | the public’s response to press releases or other public announcements by the Company or third parties, including the Company’s filings with the SEC; | |
| ● | litigation involving the Company, the Company’s industry, or both, or investigations by regulators into the Company’s operations or those of the Company’s competitors; | |
| ● | guidance, if any, that the Company provides to the public, any changes in this guidance or the Company’s failure to meet this guidance; | |
| ● | the development and sustainability of an active trading market for the Company’s common stock; | |
| ● | actions by institutional or activist stockholders; | |
| ● | developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; | |
| ● | changes in accounting standards, policies, guidelines, interpretations or principles; and | |
| ● | other events or factors, including those resulting from pandemics, natural disasters, war, acts of terrorism or responses to these events. |
These broad market and industry fluctuations may adversely affect the market price of the Company’s common stock, regardless of the Company’s actual operating performance. In addition, price volatility may be greater if the public float and trading volume of the Company’s common stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If the Company was involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from the Company’s business regardless of the outcome of such litigation.
Because there are no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of the Company’s common stock at a price greater than what you paid for it.
The Company intends to retain future earnings, if any, for future operations, expansion and debt repayment, and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of the Company’s common stock will be at the sole discretion of the Company’s board of directors. The Company’s board of directors may take into account general and economic conditions, the Company’s financial condition and results of operations the Company’s available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends by the Company to its stockholders or by its subsidiaries to it and such other factors as the Company’s board of directors may deem relevant. As a result, you may not receive any return on an investment in the Company’s common stock unless you sell your common stock for a price greater than that which you paid for it.
The Company’s stockholders may experience dilution in the future.
The percentage of shares of the Company’s common stock owned by current stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that the Company may grant to its directors, officers and employees, exercise of the Company’s warrants. Such issuances may have a dilutive effect on the Company’s earnings per share, which could adversely affect the market price of the Company’s common stock.
We have no committed source of financing. Wherever possible, we may attempt to use non-cash consideration to satisfy obligations or obtain financing. Our board of directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions would result in dilution of the ownership interests of existing stockholders and may further dilute the common stock book value, and that dilution may be material.
If securities or industry analysts do not publish research or reports about our business, or they publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or publish negative views on us or our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
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As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; | |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis); | |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and | |
| ● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (iii) the end of the fiscal year during which the fifth anniversary of our initial public offering (which closed on August 13, 2021) occurs.
Until such time, however, we cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.
The company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous for the Company’s warrant holders.
The company will have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders. If and when the public warrants become redeemable by the Company, the Company may exercise its redemption right if there is a current registration statement in effect with respect to the shares of the Company’s common stock underlying such warrants. Redemption of the outstanding public warrants could force you to: (i) exercise your warrants and pay the related exercise price at a time when it may be disadvantageous for you to do so; (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price which, at the time the outstanding public warrants are called for redemption, is likely to be substantially less than the market value of your warrants.
Our securities holders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws.
Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether our common stock will be registered or exempt from registration under the laws of any state. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our common stock. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your common stock without the significant expense of state registration or qualification.
Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares.
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The Selling Securityholder may sell a large number of shares, resulting in substantial diminution to the value of shares held by existing stockholders.
Pursuant to the Purchase Agreement, we are prohibited from delivering an Advance Notice to the Selling Securityholder to the extent that the issuance of shares would cause the Selling Securityholder to beneficially own more than 4.99% of our then-outstanding shares of Common Stock. This restriction, however, does not prevent the Selling Securityholder from selling shares of Common Stock received in connection with the Purchase Agreement and then receiving additional shares of Common Stock in connection with a subsequent issuance. In this way, the Selling Securityholder could sell more than 4.99% of the outstanding shares of Common Stock in a relatively short time frame while never holding more than 4.99% at any one time. As a result, existing stockholders and new investors could experience substantial diminution in the value of their shares of Common Stock. Additionally, we do not have the right to control the timing and amount of any sales by the Selling Securityholder of the shares issued under the Purchase Agreement once we have sold them to the Selling Securityholder.
If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.
As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company. This means that the effectiveness of our financial operations may differ from our peer companies in that they may be required to obtain independent registered public accounting firm attestations as to the effectiveness of their internal controls over financial reporting and we are not. While our management will be required to attest to internal control over financial reporting and we will be required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent registered public accounting firm’s audit process in assessing the effectiveness of our internal controls over financial reporting, if obtained, would not find one or more material weaknesses or significant deficiencies. Further, once we cease to be an emerging growth company and cease to be a smaller reporting company (as described below), we will be subject to independent registered public accounting firm attestation regarding the effectiveness of our internal controls over financial reporting. Even if management finds such controls to be effective, our independent registered public accounting firm may decline to attest to the effectiveness of such internal controls and issue a qualified report.
If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.
If the benefits of any proposed acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the closing of the proposed acquisition may decline. The market values of our common stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In addition, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Our common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.”
Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future. While our common stock is not currently considered “penny stock” since it is listed on Nasdaq, if we are unable to maintain that listing and our common stock is no longer listed on Nasdaq, unless we maintain a per-share price above $5.00, our common stock will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
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Legal remedies available to an investor in “penny stocks” may include the following:
| ● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
| ● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.
We believe we will be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.
Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
| ● | had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or | |
| ● | in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or | |
| ● | in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available. |
As a smaller reporting company, we are not required to, and may not, include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares.
We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not previously incur as a private company. In addition, the Sarbanes-Oxley Act has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.
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The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an emerging growth company or a smaller reporting company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the value of our securities could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on value of our securities, and could adversely affect our ability to access the capital markets.
Anti-takeover provisions contained in our Amended Charter and Amended Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Company’s Amended Charter and Amended Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:
| ● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; | |
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; | |
| ● | the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| ● | limiting the liability of, and providing indemnification to, our directors and officers; | |
| ● | providing that a special meeting of the stockholders may only be called by a majority of the board of directors; | |
| ● | providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and | |
| ● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.
Any provision of our Amended Charter or Amended Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
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THE LIND GLOBAL FINANCING
On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrant” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).
The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.
Pursuant to the Purchase Agreement, we agreed to file a registration statement on Form S-1 (the “Registration Statement”) no later than 30 days from entry into the Purchase Agreement to register the shares of the Company’s common stock issuable upon conversion of the Convertible Note and the shares of the Company’s common stock issuable upon the exercise of the Warrants (the “Selling Securityholder Shares”). Additionally, the Company agreed that if the Company at any time determines to file a registration statement under the Securities Act of 1933, as amended (the “33 Act’) to register the offer and sale, by the Company, of common stock (other than on Form S-4 or Form S-8, an at-the-market offering, or a registration of securities solely relating to an offering and sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit plan arrangement), the Company will, as soon as reasonably practicable, give written notice to the Selling Securityholder of its intention to so register the offer and sale of common stock. Within 5 business days of the Company’s delivery of any such notice to the Selling Securityholder, the Selling Securityholder may request that the Company include the Selling Securityholder Shares in such registration.
In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023 of $0.70 per share.
Pursuant to the Purchase Agreement, we agreed, as an inducement for the Selling Securityholder to enter into the Purchase Agreement, that all of our obligations pursuant to the Purchase Agreement and the Convertible Note will be senior to all other existing indebtedness and equity of ours. Pursuant to the Purchase Agreement, we also agreed that we would not make any voluntary cash prepayments on any indebtedness at any time while any amounts are owing under the Convertible Note other than cash payments the Company is required to make pursuant to the express terms thereof existing on the date of entry into the Purchase Agreement.
Pursuant to the Purchase Agreement, the Company also agreed not to enter into any “Prohibited Transactions” without the Selling Securityholder’s prior written consent, until 30 days after the time that the Convertible Note has been repaid in full or fully converted, as applicable. The term “Prohibited Transactions” means a transaction with a third party or third parties in which the Company issues or sells (or arranges or agrees to issue or sell) (i) any debt, equity or equity-linked securities (including options or warrants) that are convertible into, exchangeable or exercisable for, or include the right to receive shares of the Company’s capital stock: (1) any debt, equity or equity-linked securities (including options or warrants) that are convertible into, exchangeable or exercisable for, or include the right to receive shares of the Company’s capital stock: (2) at a conversion, repayment, exercise or exchange rate or other price that is subject to being reset at some future date after the initial issuance of such debt, equity or equity-linked security or upon the occurrence of specified or contingent events (other than warrants that may be repriced by the Company); or (ii) any securities in a capital or debt raising transaction or series of related transactions which grant to an investor the right to receive additional securities based upon future transactions of the Company on terms more favorable than those granted to such investor in such first transaction or series of related transactions; or (iii) following the date that earlier of (i) the date the Selling Securityholder Shares may be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale or pursuant to an effective registration statement under the 1933 Act and (ii) the date that is six months following the date of entry into the Purchase Agreement. Pursuant to the Purchase Agreement, the Company also agreed that notwithstanding any other provisions in the Purchase Agreement, except for Exempted Securities, as such term is defined in the Purchase Agreement, the Company agrees not to issue any equity or debt securities, or otherwise incur any indebtedness for the period beginning on the date hereof and ending on the earlier of (i) the date that is 60 days following the date the Selling Securityholder Shares may be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale and (ii) the date that is 60 days following the date that the Selling Securityholder Shares are registered for resale under the 1933 Act.
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Pursuant to the Purchase Agreement, the Company also agreed to hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) on or before the 90th calendar day following the date of entry into the Purchase Agreement for the purpose of obtaining the shareholder approval of the transactions contemplated by the Purchase Agreement (“Shareholder Approval”). The Selling Securityholder agreed that the Selling Securityholders will not have a right to, and will not, vote any shares of common stock held by Selling Securityholder on any vote held with respect to the Shareholder Approval, and that this will remain in effect at all times until the Shareholder Approval has been obtained and regardless of whether the Company’s securities are then listed on any trading market.
The Convertible Note issued under the Purchase Agreement in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued under the Purchase Agreement in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).
The Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the Convertible Note (the “Conversion Price”). VWAP means as of any date, the price determined by the first of the following clauses that applies: (a) if the common stock is then listed or quoted on a trading market, the daily volume weighted average price of one share of common stock trading in the ordinary course of business at the applicable trading price for such date (or the nearest preceding date) on such trading market as reported by Bloomberg Financial L.P.; (b) if the common stock is not then listed on a trading market and if the common stock traded in the over the counter market, as reported by the OTCQX or OTCQB Markets, the volume weighted average price of one share of common stock for such date (or the nearest preceding date) on the OTCQX or OTCQB Markets, as reported by Bloomberg Financial L.P.; (c) if the common stock is not then listed or quoted on a trading market or on the OTCQX or OTCQB Markets and if prices for the common stock are then reported in the “Pink Sheets” published by the OTC Markets Group (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price of one share of Common Stock so reported, as reported by Bloomberg Financial L.P.; or (d) in all other cases, the fair market value of one share of common stock as determined by an independent appraiser. The Conversion Price is also subject to certain adjustments as set forth in the Convertible Note.
The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made. In that case, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.
Events of Default under the Convertible Note, include (a) any default in the payment of the principal amount or any other amounts due and payable under the Convertible Note when due, which failure has not been cured within 3 business days of the occurrence of such failure; (b) the company fails to observe or perform any other covenant, condition or agreement contained in the Convertible Note or any other transactions documents under the Purchase Agreement, which failure has not been cured within 3 business days of the occurrence of such failure; (c) the Company’s notice to the Selling Securityholder, including by way of public announcement, at any time, of its inability to comply with proper requests for conversion of this Convertible Note; (d)the Company fails to (i) timely deliver the shares of common stock as and when required in under the Convertible Note (ii) make the payment of any fees and/or liquidated damages under the Convertible Note, the Purchase Agreement or the other transaction documents which failure has not been cured within 3 business days of the occurrence of such failure; (e) default is be made in the performance or observance of any material covenant, condition or agreement contained in the Purchase Agreement or any other transaction document which failure has not been cured within 3 business days of the occurrence of such failure; (f) at any time the Company fails to have 200% of a sufficient number of shares of common stock authorized, reserved and available for issuance to satisfy the potential conversion in full of the Convertible Note or upon exercise of the Warrant; (g) any representation or warranty made by the Company, or any subsidiary in the Convertible Note, Purchase Agreement or Warrant or any other transaction document proves to false or incorrect or breached in a material respect on the date as of which made; (h)unless otherwise approved in writing in advance by the Selling Securityholder, the Company, announces an intention to pursue or consummate a change of control, or the Company negotiates, proposes or enter into any agreement, understanding or arrangement with respect to any change of control; (i) the Company or any subsidiary defaults in any payment of any amount or amounts of principal of or interest (if any) on any indebtedness the aggregate principal amount of which indebtedness is in excess of $100,000 which failure has not been cured within 3 business days of the occurrence of such failure; (j) the Company or any subsidiary (i) applies for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets; (ii) make a general assignment for the benefit of its creditors; (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors’ rights generally; (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (vi) issue a notice of bankruptcy or winding down of its operations or issue a press release regarding same; or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; (k)a proceeding or case shall be commenced in respect of the Company or any subsidiary, without its application or consent, in any court of competent jurisdiction, seeking: (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts; (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Company or any subsidiary; or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of 45 days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Company or any subsidiary or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Company or any subsidiary and shall continue undismissed, or unstayed and in effect for a period of 45 days; (l) one or more final judgments or orders for the payment of money aggregating in excess of $100,000 (or its equivalent in the relevant currency of payment) are rendered against one or more of Company or any subsidiary; (m) the failure of the Company to instruct the Transfer Agent to remove any legends from shares of common stock and issue such unlegended certificates to the Selling Securityholder within 3 trading days of the Selling Securityholder’s request so long as the Selling Securityholder has provided reasonable assurances to the Company that such shares be sold pursuant to Rule 144 or any other applicable exemption; (n) the Company’s common stock is no longer publicly traded or cease to be listed on the trading market or, after the 12 month anniversary of the date of the filing of a “Super 8-K” with respect to the closing of the transactions relating to the merger of a subsidiary of the Maker with AERWINS Technologies, Inc., which occurred on February 3, 2023, any Selling Securityholder Shares may not be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale, unless such Selling Securityholder Shares have been registered for resale under the 1933 Act and may be sold without restriction; (o) the Company proposes to or does consummate a “going private” transaction as a result of which the Common Stock will no longer be registered under Sections 12(b) or 12(g) of the 1934 Act; (p)there shall be any SEC or judicial stop trade order or trading suspension stop-order or any restriction in place with the Company’s transfer agent restricting the trading of the Company’s common Stock; (q)the Depository Trust Company places any restrictions on transactions in the common stock or the common stock is no longer tradeable through the Depository Trust Company Fast Automated Securities Transfer program; (r) the Company’s market capitalization is below $20,000,000 for ten (10) consecutive days; or (s) the occurrence of a material adverse effect in respect of the Company or subsidiaries, taken as a whole.
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Pursuant to the Convertible Note, the Company agreed that in the event that, at any time following the First Closing, the Company or its subsidiaries, issue any debt, including any subordinated debt or convertible or any equity interests, other than Exempted Securities, as such term is defined in the Purchase Agreement, in one or more transactions for aggregate proceeds of more than $5,000,000 of cash proceeds being received by the Company, unless otherwise waived in writing by and at the discretion of the Selling Securityholder, the Company will immediately utilize 20% of the proceeds of such issuance to repay the Convertible Notes issued to the Selling Securityholder pursuant to the Purchase Agreement, until there remains no outstanding and unconverted principal amount due.
Each Warrant issued under the Purchase Agreement in the First Closing and the Warrants issued under the Purchase Agreement in the Second Closing and the Third Closing will have an exercise period of 60 months from the date of issuance. The Exercise price of the Warrant issued in the First Closing is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.
In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.
The Selling Securityholders will not have the right to convert the portion of the Convertible Note or exercise the portion of the Warrant, if the Selling Securityholder together with its affiliates, would beneficially own in excess of 4.99%, of the number of shares of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.
Pursuant to the Purchase Agreement, on April 12, 2023, the Company also entered into a Security Agreement with the Selling Securityholder pursuant to which the Company agreed to grant the Selling Securityholder, a security interest in the following properties, assets and rights of the Company wherever located, whether now owned or acquired in the future, and all proceeds and products (the “Collateral”): all personal and fixture property of every kind and nature including all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents (whether tangible or electronic), accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), but excluding the Excluded Property. “Excluded Property” means (i) any property or assets to the extent that such grant of a security interest is prohibited by any law, requires a consent or approval not obtained of any Governmental Authority pursuant to such law or is prohibited by, or constitutes a breach or default under, results in the termination of, or requires any consent or approval not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any investment property or instruments, any applicable shareholder or similar agreement, but only to the extent, and for so long as, such law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is not terminated or rendered unenforceable or otherwise deemed ineffective under applicable law of any relevant jurisdiction or any other applicable law or principles of equity); (ii) any assets that are subject to a purchase money lien or capital lease constituting a permitted lien, but only to the extent the agreements relating to such purchase money lien or capital lease do not permit such assets to be subject to the security interests created hereby; (iii) all United States “intent to use” trademark applications where the grant of a security interest therein would impair the validity or enforceability of said intent to use trademark and (iv) proceeds of any Excluded Property unless such proceeds would otherwise constitute Collateral.
Pursuant to the Purchase Agreement, on April 12, 2023, the Company’s wholly owned subsidiary AERWINS, Inc. entered into a Guaranty with the Selling Securityholder. Pursuant to the Guaranty, AERWINS, Inc. agreed to guarantee the Company’s obligations owing under the Purchase Agreement, the Convertible Note, the Warrants, the Security Agreement, the Pledge Agreement and any other document or agreement executed or delivered in connection with the transactions relating to the Purchase Agreement and Convertible Note. The Guaranty applies to all debts, liabilities and obligations payable by the Company or AERWINS, Inc. to the Selling Securityholder. The obligations of the Company under the Purchase Agreement, Convertible Note and related transaction documents become immediately due and payable by AERWINS, Inc. upon default by the Company.
Pursuant to the Purchase Agreement, on April 12, 2023, the Company entered into a Stock Pledge Agreement with the Selling Securityholder whereby, in accordance with the obligations of the Company under the Security Agreement, the Company pledged, assigned, granted a security interest in and delivered to the Selling Securityholder all of the shares of capital stock that the Company owns in its wholly owned subsidiary AERWINS, Inc. The Company also pledged (i) all payments or distributions, whether in cash, property or otherwise, at any time owing or payable to the Company on account of its interest as a shareholder in AERWINS, Inc., (ii) all of the Company’s rights and interest under the organizational documents of AERWINS, Inc., including all voting and management rights and rights to grant or withhold consents or approvals; (iii) all rights of access and inspection to and use of all books and records, including computer software and computer software programs, of AERWINS, Inc., (iv) all other rights, interests, property or claims to which the Company may be entitled in its capacity as a stockholder of AERWINS, Inc., and (v) all proceeds, income from, increases in and products of any of the foregoing. The Company further agreed not to authorize or issue any additional shares of capital stock or other interests of AERWINS, Inc. without the Selling Securityholder’s prior written consent.
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Pursuant to the Purchase Agreement, on April 12, 2023, the Company’s wholly owned subsidiary AERWINS, Inc. entered into a Guarantor Security Agreement with the Selling Securityholder. Pursuant to the Guarantor Security Agreement, AERWINS, Inc. agreed to grant the Selling Securityholder, a security interest in the following properties, assets and rights of AERWINS, Inc. (wherever located, whether now owned or acquired in the future, and all proceeds and products): all personal and fixture property of every kind and nature including all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents (whether tangible or electronic), accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), but excluding the Excluded Property (as defined in the Guarantor Security Agreement). “Excluded Property” means (i) any property or assets to the extent that such grant of a security interest is prohibited by any law, requires a consent or approval not obtained of any Governmental Authority pursuant to such law or is prohibited by, or constitutes a breach or default under, results in the termination of, or requires any consent or approval not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any investment property or instruments, any applicable shareholder or similar agreement, but only to the extent, and for so long as, such law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is not terminated or rendered unenforceable or otherwise deemed ineffective under applicable law of any relevant jurisdiction or any other applicable law or principles of equity); (ii) any assets that are subject to a purchase money lien or capital lease constituting a permitted lien, but only to the extent the agreements relating to such purchase money lien or capital lease do not permit such assets to be subject to the security interests created hereby; (iii) all United States “intent to use” trademark applications where the grant of a security interest therein would impair the validity or enforceability of said intent to use trademark and (iv) proceeds of any Excluded Property unless such proceeds would otherwise constitute collateral of AERWINS, Inc. under the Guarantor Security Agreement.
Pursuant to the Purchase Agreement, on April 12, 2023, AERWINS, Inc. entered into a Pledge Agreement with the Selling Securityholder whereby, in accordance with the obligations of AERWINS, Inc. under the Guarantor Security Agreement, AERWINS, Inc. pledged, assigned, granted a security interest in and delivered to the Selling Securityholder all of the shares of capital stock that AERWINS, Inc. owns in its wholly owned subsidiary A.L.I. Technologies, Inc. (“A.L.I.”). AERWINS, Inc. also pledged (i) all payments or distributions, whether in cash, property or otherwise, at any time owing or payable to the Company on account of its interest as a shareholder in A.L.I., (ii) all of AERWINS, Inc.’s rights and interest under the organizational documents of A.L.I., including all voting and management rights and rights to grant or withhold consents or approvals; (iii) all rights of access and inspection to and use of all books and records, including computer software and computer software programs, of A.L.I., (iv) all other rights, interests, property or claims to which AERWINS, Inc. may be entitled in its capacity as a stockholder of A.L.I., and (v) all proceeds, income from, increases in and products of any of the foregoing. AERWINS, Inc. further agreed not to authorize or issue any additional shares of capital stock or other interests of A.L.I. without the Selling Securityholder’s prior written consent.
The Company will use the proceeds from the sale of the Convertible Notes and the Warrants for general working capital purposes.
USE OF PROCEEDS
We expect to receive approximately $4,211,736 in gross proceeds assuming the cash exercise of all of the Warrants being registered hereby at the applicable exercise prices stated above. However, the Warrants may be exercised on a cashless basis, in which case we would not expect to receive any gross proceeds from the cash exercise of the Warrants. Also, we will not receive any of the proceeds from the conversion of the Convertible Notes into shares of our Common Stock nor will we receive any proceeds from the disposition and/or resale of the shares of Common Stock by the Selling Securityholder or its transferees. While we retain broad discretion on the use of proceeds, we intend to use such proceeds for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions.
The intended use of proceeds in this section takes into account the potential impacts of COVID-19.
DETERMINATION OF OFFERING PRICE
We cannot currently determine the price or prices at which the shares of Common Stock may be sold by the Selling Securityholder under this prospectus.
DIVIDEND POLICY
We have not paid any cash dividends on our Common Stock and do not currently anticipate paying cash dividends in the foreseeable future. The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our capital stock. Payment of future dividends on our Common Stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.
MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock and Public Warrants are listed on the Nasdaq Global Market under the symbols “AWIN” and “AWINW,” respectively. On May 9, 2023, the closing price of our Common Stock was $0.70 per share and the closing price of our Public Warrants was $0.0488.
Holders
As of March 31, 2023 we had approximately 78 holders of record of our Common Stock and 56,139,855 shares issued and outstanding and four holders of record of our Public Warrants and 9,188,756 warrants issued and outstanding. The number of record holders does not include beneficial owners of common stock or warrants whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
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Transfer Agent and Registrar
The Company’s transfer agent and registrar for our Common Stock and Public Warrants is Continental Stock Transfer & Trust Company located at 1 State Street, New York, NY 10004 and their telephone is (212) 509-4000.
Dividends, Common Stock and Unregistered Stock Issuances
We have not paid any cash dividends on our common or preferred stock and do not anticipate paying any such cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.
Equity Compensation Plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of March 31, 2023.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (Column A) | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A) | |||||||||
| Plans approved by our stockholders | 1,173,228 | $ | 0.00015 | 8,916,214 | ||||||||
| Plans not approved by our stockholders | N/A | N/A | N/A | |||||||||
DESCRIPTION OF BUSINESS
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All refences in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc., and this business section primarily includes information regarding the AERWINS’, Inc. business.
For additional information on the corporate history of our Company please see the section titled “Corporate History” on page 98 of this prospectus.
Mission
With the mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in which cars, motorcycles, and drones can fly freely. We are working in three areas: 1) manned air mobility, 2) unmanned air mobility, and 3) sharing computer power. The diagram below describes our business structure.
Overview
We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.
To realize this vision, we are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and
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(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.
Current and Planned Product and Service Status
Our current and planned product status is as follows:
| Product/Service | Launch Schedule | Delivery | Client Types | Details | |||||
| XTURISMO LTD EDITION | October-2021 | after December-2022 | Individuals. Governments | Innovative hovering bike equipped with hybrid system, software, edge computing. Products for a government are under development. | |||||
| COSMOS | Available | In 2023 | Municipalities, Local Governments | Unmanned traffic management system “UTM” in service for up to approximately 10 drones. | |||||
| COSMOS Advanced | In Development | In 2023 | Municipalities, Local Governments, and Corporations | Currently in development for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units | |||||
| Shared Computing Service | Available | Available | Corporations, Individuals | The proprietary Software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering | |||||
| Drone Service | Available | Available | Municipalities, Lobal Governments, Corporations | Using our C.O.S.M.O.S. we offer geo-survey, infrastructure inspection and pesticide spraying service to various entities | |||||
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Estimated Price Ranges for our Products and Services
Our current estimated price ranges for our products and services are as follows:
| Product/Service | Price Range | Client Types | Details | |||
| UAV Development | JPY 20,000,000 - JPY 40,000,000 (approximately $138,207 USD - $276,415 USD) | Corporations | Customizing drones for specific needs | |||
| Drone Inspection/Survey | JPY 200,000 - JPY 5,000,000 (approximately $1,382 USD - $34,551 USD) | Municipalities, Government, Corporations | Infrastructure inspections such as bridge, rivers, railways and geo-survey | |||
| UAV Marketing | JPY 1,500,000 - JPY 5,000,000 (approximately $10,365 USD - $34,551 USD) | Corporations | Agent agreement with manufacturers for marketing in Japan | |||
| C.O.S.M.O.S. additional development/demonstration* | JPY 5,000,000 - JPY 15,000,000 (approximately $34,551 USD - $103,655 USD) | Municipalities, Government, Corporations | Developing and customizing C.O.S.M.O.S. software for specific needs | |||
| Shared Computing Service | JPY 10,000 (approximately $69 USD) per unit/monthly | Corporations, Individuals | Sales of computing system and maintenance service | |||
| * | For C.O.S.M.O.S., in many cases, in demonstration tests with large companies and local governments, the charge is calculated for the demonstration test as a whole, rather than setting the fee for C.O.S.M.O.S. alone the setting of the amount per account is expected to be changed depending on the number of available drones and the number of operators. |
Significant Market Opportunities
In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution.
The market opportunities created by our technology are significant. According to an analysis by Frost & Sullivan, the autonomous vehicle services market is expected to grow from a mere $1.1 billion in 2019 to $202.5 billion in 2030 at a CAGR of 60.1%, facilitated by mutually beneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, we strive to continue to innovate and expand the boundaries for air-based mobility.
The sky above has always held possibilities, and we completed our first manned flight test of the XTURISMO LTD EDITION prototype 1 in 2019. The current XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. Currently we have 7 purchases total amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individuals to purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin delivery of the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed.
In the future, we are also preparing to develop new models that are electrically powered and even more compact, and to provide infrastructure such as airways and air traffic control systems in an air mobility society.
Our air mobility enables urban mobility to expand into three-dimensional space. We believe our technology will change the future of transportation, improve lives, and create new industries. The XTURISMO LTD EDITION is a full spec version ranging from high quality carbon and equipped with intensive software capability which allows manual/autonomous/remote control driving experience. Each XTURISMO LTD EDITION is built to order, and accordingly, we begin production of each specific unit when a confirmed order is received by us. Due to the cost of the XTURISMO LTD EDITION, we have decided to limit the production of the XTURISMO LTD EDITION to 200 units and target high net worth individuals as potential purchasers. Most of the parts were created exclusively for the product with small unit orders resulting in the purchase price to be relatively expensive. The price of the current XTURISMO LTD EDITION is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. We believe the price of the supply parts can be decreased if we are able to obtain more orders, and at such time we believe that we may be able to mass produce a less expensive model to facilitate safe, cost-effective, and easy-to-use air mobility solutions. Additionally, the materials can change depending on the usage omitting out unnecessary features which can also impact the final price to decrease in the future. Beginning from 2025 we plan that our EV version, the internally named project of “Speeder”, are planned to be in mass production where we intend the price to drop significantly. The Speeder is not yet in development as of now.
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We design, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide range of industries and applications, including passenger transportation, logistics, and smart city management. For example, in a project jointly with Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to control these drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be used during a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disaster by multiple vehicles flying simultaneously along the airways. Additionally, we have conducted similar service with the Ministry of Land, Infrastructure, Transport and Tourism of Japan. In the field of civil engineering surveying and infrastructure inspections, we are seeking to provide efficient services using unmanned aircraft instead of the existing methods of surveying and visual inspection using Cessna aircraft or physically done by workers. Furthermore, in the passenger sector, we develop, manufacture, sell, and operate XTURISMO LTD EDITION. Our goal is to ensure that both passengers and goods take to the skies safely and conveniently.
Orders, Delivery and Financial Results
We are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster, etc.;
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software) and the industrial drone business, which involves the sale and development of industrial drones; and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner.
Below is a breakdown of revenues for each of these businesses.
Gross sales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmanned air mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. During the year ended December 31, 2022, gross sales totaled $5,207,490 (excluding consumption tax), consisting of $2,582,492 from shared computing, $2,524,998 from unmanned air mobility and $100,000 from consulting service. During the year ended December 31, 2022, one significant customer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.
In the future, considering regulation in each jurisdiction, we assume that the majority of XTURISMO Limited Edition sales will be in the public sector.
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What Sets Us Apart
In this industry, various parties have announced their products, but our products have the following three characteristics compared to other companies. We intend to leverage these characteristics to gain market share.
We believe the following characteristics set us apart in each domain.
1) Manned Air Mobility Domain
Ease of implementation in society
Our “XTURISMO Limited Edition” does not require aircraft category approval in Japan, as it is designed to levitate within a range of a few meters above ground effect. In Japan, it can also be used without a pilot’s license, making it a product that is easy to implement in society in Japan. In addition, given that the product is in this category in Japan, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. We believe this ease of providing insurance and after-sales service in Japan is one of the factors contributing to our competitiveness.
In Japan, through numerous conversations, the Civil Aviation Bureau of the Ministry of Land, Infrastructure, Transport and Tourism has stated that the XTURISMO LTD EDITION does not fall under Civil Aviation Law at this time, but that could change if we make certain additional modifications to the design specifications of the XTURISMO LTD EDITION. We have also received a HS Code from the Tokyo Customs office which is registered as code 95-03, where 95 is categorized as “Toys, playthings and sports equipment, and parts and accessories thereof” and subcategory 03 as “Tricycles, scooters, foot-operated vehicles and other similar wheeled toys, doll prams, dolls and other toys, scale models and other similar models for amusement (whether or not operating) and puzzles”.
Outside of Japan, we are subject to extensive legal and regulatory requirements, and are working to obtain relevant approvals and permits in the jurisdictions where we plan to sell our products. For example, we have begun the discussion with several public sectors and governments where the use can be limited to public use where the regulations may be limited. Additionally, in the US we have begun discussions with an attorney to discuss and file an application for certification from the FAA seeking the correct category for our product.
Practical Driving Capacity
The current battery technology has limitations in terms of power and cruising time, making it difficult to achieve a practical cruising time. Our “XTURISMO Limited Edition” achieves a practical cruising time of 40 minutes by utilizing the engine for power.
Pioneer and Leader in Urban Air Mobility
The above features enable us to launch products at a very early date, even by global standards, without having to wait for the long process of obtaining airworthiness and type certification, since we believe our products will not be classified as aircrafts and our products will not be deemed to utilize technological innovation in next generation batteries. We are planning to create an entirely electronic version targeting a 2025 launch.
2) Unmanned Air Mobility Domain
Original Operation Management System
This technology has been patented as “an infrastructure system that communicates with air traffic control systems in the air (low altitude) and mutually or unilaterally transmits, manages, controls, authenticates, registers, and settles flight routes and various information (including the use of external data). While many drone-related companies provide solutions focused on specific fields, we believe that our strength lies in the fact that our services are comprehensive, ranging from development in other areas to operation management systems, provision of operators, and data analysis and reporting.
3) Computing Power Sharing Domain
Equipment optimized for those wishing to rent out computing power
The computing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietary distributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD required for blockchain and AI lending, in addition to the latest model of GPUs. The system can be used for storage in a general data center. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of receiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.
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Our Strategies
We intend to pursue the following strategies to achieve our mission:
Transformation into a Global Company
We have established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where our administrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, including the United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansion area, with a target year of 2023. We plan to establish an office, research and development (“R&D”) center, logistics, manufacturing, and marketing hub for the vehicles in the GCC region. We believe that this region will be our distribution center to Europe and Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establish an office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venture capital firm.
As such, a global headquarters for finance and marketing will be established, and the ratio of foreign employees is intended to be increased to 50% by 2024.
Extend Our Technological Leadership
We plan to continue to invest in technological innovation to cement our leadership in Air Mobility technologies and establish ourselves as the industry benchmark for Air Mobility commercial solutions. We will continue to attract talent from around the world to expand our talent pool and drive innovation.
Expand Development and Manufacturing Capabilities
We plan to expand our existing engineering and manufacturing facilities and develop new ones. We may also develop manufacturing facilities in other countries or cooperate with local manufacturing partners to fulfill orders from international customers.
Expand Our Air Mobility Portfolio and Strengthen Our Platform
We plan to continue to expand our Air Mobility portfolio and optimize our existing Air Mobility models. We will develop future Air Mobility models for different uses. We will continue to develop our technology platform and ancillary products and services to strengthen our ability to provide end-to-end Air Mobility commercial solutions that address the needs of our customers.
Continue Commercialization and Promote Adoption
We believe that urban air mobility will be an important part of global transportation in the future. We will continue to commercialize our Air Mobility technology and solutions and promote their adoption worldwide, not only through the sale of our air mobilities, but also through offering services such as manned air mobility services and urban air logistics services. As we continue to improve the regulatory acceptance, production scale and on-the-ground infrastructure of air mobilities, we plan to pilot urban air mobility services with predetermined routes as a precursor to more flexible, on-demand services networks. We plan to work closely with partners and regulatory agencies to foster and grow the commercial Air Mobility market. In particular, we are in discussions with multiple cities around the world to establish urban air mobility services for both passengers and goods.
Explore New Monetization Opportunities
We plan to explore new monetization opportunities by leveraging our Air Mobility technology platform. For example, we may charge recurring fees for our operational and maintenance services for our air mobilities. We may also enter into revenue sharing arrangements with customers to capture greater business opportunities.
Pursue Strategic Partnerships in Production and Technology
We intend to explore and pursue suitable strategic partnerships that can strengthen our production and technological capabilities. We may co-develop new Air Mobility models in collaboration with international industry leaders.
Industry
Overview of Our Market
The industrial drone market, the computing power sharing (cloud computing) market, and leisure use market, in which we are involved, are markets that are expected to grow significantly in Japan and overseas. In addition, the technology staffing business is expected to expand into various fields, although mainly in Japan.
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Market size by our segment
1) Manned Air Mobility
The manned air mobility industry has been the focus of much attention, with demonstration tests being conducted in many countries and a roadmap published in Japan under the leadership of the Ministry of Economy, Trade, and Industry.
According to data published by Morgan Stanley Research in 2019, the global market for manned air mobility, including hoverbikes, is expected to grow to over 150 trillion yen (approximately $1,036 billion USD) by 2040 according to long-term global forecasts. Data published by PWC in 2020 indicates that the air mobility market in Japan will grow to approximately 2.5 trillion yen (approximately $17 billion USD) by 2040. According to “Flying Cars Global Market Report 2021” published by The Business Research Company in 2021, the global market is expected to grow at a CAGR of 58.7% to 35 billion yen (approximately $241 million USD) by 2025. The report says that the key to growth will be the development of infrastructure system requirements, aircraft development, and institutional response, particularly in passenger transportation.
(Source: Flying Cars Global Market Report 2021)
The manned air mobility field in the air mobility industry, to which we belong, is expected to contribute to solving various social issues such as eliminating traffic congestion and improving productivity in cities, reducing land infrastructure costs for the approximately 20,000 marginalized villages in rural areas (remote islands and mountainous regions) in Japan, transporting people between inhabited islands, replacing helicopters, and diversifying entertainment and sightseeing, as advanced mobility that can go “wherever they want” and “whenever they want.”
The system is expected to contribute to solving a variety of social issues, such as inter-island transportation among inhabited islands, replacement of helicopters in times of disaster, and diversification of entertainment and tourism. In Japan, since the establishment of the public-private sector council for the air mobility revolution in 2018, studies for social implementation have been conducted, and many companies overseas are also working on development.
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However, there are various laws and regulations nowadays, and you cannot freely go everywhere. For this reason, we have developed a manned drone for leisure use, and as of November 2022, we are the only company in the world that actually sells such a drone.
The performance of the drone itself is limited, as it cannot fly higher than three meters and its speed cannot exceed 60 mph. This has earned it approval from the Japanese government that it is not a flying vehicle, but rather a vehicle that drives on the road, similar to a car. Of course, it cannot be driven on public roads in Japan without a license plate.
2) Unmanned Air Mobility
The market for the unmanned air mobility industry in Japan, the market utilizing drones, has been expanding against the backdrop of social issues such as labor shortages and aging infrastructure. According to the “Drone Business Research Report 2021” published by Impress Corporation in 2021, the market is expected to grow significantly from 184.1 billion yen (approximately $1,272 million USD) in 2020 to 646.8 billion yen (approximately $4,469 million USD) in 2025. Among these, the drone service market, on which we are focusing our efforts, is expected to grow from 112.8 billion yen (approximately $779 million USD) in 2020 to 436.1 billion yen approximately $3,013 million USD) in 2025. Looking at the service market by sector, the inspection sector, which we are focusing on, is expected to grow from 39.9 billion yen (approximately $275 million USD) in 2020 to 171.5 billion yen (approximately $1,185 million USD) in 2025, the logistics sector from 1.5 billion yen (approximately $10 million USD) in 2020 to 79.9 billion yen (approximately $552 million USD) in 2025, and the civil engineering and construction sector from 6.7 billion yen (approximately $46 million USD) in 2020 to 24.7 billion yen (approximately $170 million USD) in 2025.
Source: Drone Business Research Report 2021 (Impress Corporation, published in 2021)*
| * | The drone business market size consists of three components: drone airframes, services, and peripheral services. The drone airframe market refers to sales in Japan of finished commercial drones, including fixed-wing and rotary-wing drones, rover-type drones, boat-type drones, submarine-type drones, etc., and does not include military-use drones. The services market represents the sales of companies that provide drone-based services. In the case where a drone is used for only one part of a solution, sales for that part only are estimated. In addition, when public organizations or companies utilize their own drones, estimates are based on the assumption that the drone operations are outsourced to an external company. The peripheral services market includes sales of consumables such as batteries, regular maintenance costs, human resource development, and voluntary insurance. |
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Source: Drone Business Research Report 2021 (Impress Corporation, published in 2021)*
The unmanned air mobility field is attracting increasing attention as a solution to meet the needs for manpower saving and unmanned air mobility in light of the declining working population, aging infrastructure, and the spread of new coronavirus infections, which require contactless and remote access. The government’s Digital Rural City Nation concept mentions the use of drones for logistics and inspections, and large corporations are pushing for the full-scale introduction of drones for inspection, surveying, and disaster prevention. In addition, the government has set a December 2022 deadline for Level 4 (unobserved flights over populated areas), and in June 2021, the House of Councillors passed a bill to amend the Civil Aeronautics Law and enacted it into law. The implementation of the “Level 4” (unobserved flights overpopulated areas) has been steadily progressing. Once the Level 4 certification system for aircraft safety and drone operator licenses are in place, the area where drones can be used is expected to expand significantly and a large market is expected to be created. Under these circumstances, we believe that players who can execute operations as well as develop drone technology will be able to meet demand in the future, and we will work on solutions that provide integrated airframes, operation management systems, and operators.
3) Computing Power Sharing Domain
The market for GPUs suitable for advanced computing, the computing power sharing industry, is expected to grow to nearly 6 trillion yen (approximately $41 billion USD) by 2024, according to GPU market research published by Global Market Insights in 2019 (Global Market Insights, Inc., 2019), as shown in Figure 6, the market is expected to be worth $14,415 million (1.56 trillion yen) in 2019 and is expected to grow to nearly 6 trillion yen (approximately $41 billion USD) by 2024.
| * | GPU is an abbreviation for Graphics Processing Unit, which refers to an arithmetic unit or processor specialized for real-time image processing. |
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In the Computing Power Sharing Domain, demand for global computing power is booming. In the future, artificial intelligence (“AI”) and internet of things (“IoT”) are expected to develop more and more, and market conditions are expected to grow explosively. Furthermore, the market for cloud computing of computing power is also expected to expand rapidly in the future, backed by strong demand.
Our Business
Our business is built on our technology platform, which is designed to develop and market Manned Air Mobility and provide Unmanned Air Mobility operating systems and solutions. In this section, we will describe specific products and services in each area of our air mobility business.
(1) Manned air mobility business
In the manned air mobility business, we develop and market “XTURISMO Limited Edition.” To complement the single product development of the air mobility vehicle, we are aiming to appeal to a variety of purposes of use and create a product portfolio that is resistant to market fluctuations due to completely different applications: demand for solutions to social problems, including collaboration with national and local governments, and luxury demand targeting the ultra-wealthy who are resilient to recession.
XTURISMO Limited Edition
The basic specifications of the “XTURISMO Limited Edition” are as shown in Figure 1: internal combustion engine + electric drive, maximum speed of 80 km/h (approximately 50 miles per hour), dimensions of 3.7 m x 2.4 m x 1.5 m. The vehicle has been designed to meet the following requirements. Compared to other manned air mobility vehicles designed solely with electric power, this design is highly practical due to its high energy efficiency and long cruising time. The use of lightweight, tough, and non-corrosive Carbon Fiber Reinforced Polymer (“CFRP”) components for almost all airframe components significantly reduces the weight of the airframe and minimizes the drive energy. In addition, we have newly developed a control unit that controls the movement of the airframe, which is optimal for air mobility. In the future, we plan to respond to customization according to the requests of potential purchasers.
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The current XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. Currently we have 7 purchases total amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individuals to purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin delivery of the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed. The configuration and mechanism of the airframe for levitation is as follows: one gasoline engine is used to drive the two front and rear main propellers, and four batteries are used to drive the four fronts, rear, left, and right side propellers. Four batteries power the four side propellers, front, rear, left, and right, to achieve attitude control and stability. As shown in Figure 2, the main and side propellers are powered by the wind, which is rectified by ducts arranged around the propellers to create a high-pressure space between the lower fuselage and the ground, and the difference in pressure between the upper and lower fuselage is used to levitate the aircraft.
As shown in Figure 3, the names of the various sections of the aircraft and basic operations can be performed using the buttons and levers on the steering wheel.
The price is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. The vehicle is expected to be used as a disaster relief vehicle for emergencies and for hobby use on circuits, at sea, etc. For the usage of disaster relief, since Japan encounters a number of natural disasters, we have been in conversation with relevant authorities in Japan regarding situations such as earthquakes, floods and tsunamis, and the use of our products in such situations as upon the occurrence of such events the road infrastructure may be destroyed causing obstacles for emergency access. Furthermore, due to our hybrid engine system, the batteries can be used for electricity supply for disaster affected locations. For example, in a project jointly with Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to control these drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be used during a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disaster by multiple vehicles flying simultaneously along the airways.
Since its launch in October 2021, the product has received 7 purchases total amongst 3 purchasers and at least 10 inquiries for purchase in the Middle East, North America, Southeast Asia, Europe, and other regions of the world. The product is expected to be used for hobby and marine applications.
Figure2 (The mechanism of the aircraft’s levitation)
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“XTURISMO Limited Edition” Specification table (Tentative values)
| Driving force | Internal combustion engine + Electric | |
| Control | Electronic Autonomous Control/ Manual operation by crew/ Remote control | |
| Weight | About 300 kg | |
| Size | Overall length: 3.7m Full width: 2.4m Full height: 1.5m | |
| Maximum speed | 80km/ h | |
| Maximum loading capacity | 150kg |
Figure1 (The basic specifications of the “XTURISMO Limited Edition)
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Figure 3 (Name of each part - XTURISMO Limited Edition)
(2) Unmanned Air Mobility Domain
In the unmanned air mobility domain, we provide “C.O.S.M.O.S. (Flight Operation Management System),” “C.O.S.M.O.S. Hub (Operator Network),” and “Joint Research and Development”. C.O.S.M.O.S. is currently available as an unmanned traffic management system “UTM” in service for up to approximately 10 drones. We are currently developing C.O.S.M.O.S. Advanced for further implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the ability to link to manned mobility units.
C.O.S.M.O.S. (Flight Operation Management System)
C.O.S.M.O.S. is a platform technology for unmanned AMVs and air mobility, including drones, to enable more reliable planning, monitoring, and management of the health of the aircraft, operational certainty, and safety of the surrounding area and operators, which are the principles of automated unmanned AMV operations. While seamlessly connecting to the Drone Information Platform System (“DIPS”) and Flight Operation Management Integration Function (“FIMS”) defined by the Ministry of Land, Infrastructure, Transport and Tourism (“MLIT”), it visualizes safe and secure operations by realizing both “spatial management” and “flight management,” thereby accelerating the speed of social implementation of drones.
C.O.S.M.O.S. can consolidate all the information necessary for drone flight management, including not only flight route information, but also aircraft information, operator information, and national drone license information, which will begin in 2022. At the same time, during flight, the current position, supplemented by Global Positioning System (“GPS”) and Long Term Evolution (“LTE”) overhead, is projected onto map data and three dimensional (“3D”) spatial data, and the current surrounding environment is also monitored by a 360-degree camera attached to the drone. Municipalities where drones fly overhead and operators who use drones on a daily basis will be able to check this information in real time as needed, thereby realizing safe and secure operations.
The fee structure is currently being quoted on a case-by-case basis as we are in the process of conducting demonstration tests with large corporations and local governments.
Other companies have developed operation management systems, such as those developed by KDDI Corporation and NTT DoCoMo, which were also selected for NEDO’s demonstration experiment. However, we are developing functions with the highest priority on the safe and secure use of drones by local governments.
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Figure 5 (Overview of C.O.S.M.O.S. Flight Operation Management System Functions)
Figure 6 (Conception image of a control center utilizing the C.O.S.M.O.S. flight operation management system)
C.O.S.M.O.S. Hub (Operator Network)
Data on more than 100 registered pilots throughout Japan is centrally managed by the pilot operation system “C.O.S.M.O.S. Hub (Cosmos Hub)”. This system enables quick and efficient matching of registered pilots throughout Japan with operators who place orders. The system also allows for the prompt and efficient matching of registered pilots with operators throughout Japan. In addition, the system provides highly accurate safety management manuals and business etiquette training to pilots registered with the system, enabling the provision of safe, secure, and high-quality drone solutions anywhere in Japan. We have built a system that enables us to provide safe, secure, and high-quality drone solutions anywhere in Japan. For example, in the agricultural sensing area, we have a track record of providing solutions in 36 prefectures throughout Japan by 2021.
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Our fee structure is quoted on a case-by-case basis, based on the required aircraft, pilot skills, data analysis, and report generation.
Although it is difficult to compare our solutions with those offered by other companies because they are not publicly available, we can say that our nationwide network of pilots has been independently developed since early on, and our flight operation management system has only been provided on a trial basis by KDDI Corporation and NTT DoCoMo, Inc. In addition, there are no carrier-independent services that provide a set of services with their own lines.
Drone Photography Business
We also have the following website: Kusatsu.com, through which we receive orders for drone solutions provided by our unmanned air mobility business. Via this website, we receive orders for aerial photography, inspections, video editing and creating reports. The main services provided by this website are filling orders for aerial photography and movies and we mainly provide images and videos, and sometimes we also provide promotional videos including editing services. Most of the customers for these services are companies, and in fiscal year 2021 we received 95 orders through this website from a total of 42 customers, in 2022 we received 62 orders through this website from a total of 22 customers. We use our affiliated network of drone operators to provide this service. Since drone aerial photography is carried out in various regions in Japan, we provide services in cooperation with drone operators in each region so that we can render the service widely and efficiently. We outsource the work to an operator who owns the necessary equipment and possesses the skills necessary to fill each order.
Joint Research and Development
Our joint R&D with large companies is characterized by the wealth of experience of our business development team and our engineering team, and by the close collaboration between the two teams to promote the project. The business development team consists of members who have consulting experience with major manufacturers and other companies at major strategy consulting firms, and are familiar with the key points of starting up a new business in a large corporation. The engineering team, on the other hand, has many members from Japan and overseas with experience at other drone companies, etc. The team also has a wide range of areas of expertise, from drone airframe development to AI engineers who analyze information obtained from the sensors mounted on the drone. We are capable of building a wide range of drone and AI solutions. In addition, for the areas where we collaborate with many large companies based on their needs, we have established a system that enables us to achieve many results with inexpensive joint development costs by developing the base aircraft and software in-house.
For example, as shown in Figure 7, we have implemented a drone-based individual delivery system for the “Green Infrastructure Model,” a concept home for a sustainable future built at Misawa Park Tokyo (Suginami-ku, Tokyo), a home-building experience facility, with Misawa Homes Co. Ltd. and Mitsui O.S.K. Lines, Ltd. in the world’s first demonstration experiment of unmanned operation using commercially operated container vessels, as shown in Figure 8.
Our fee structure is based on an individual estimate of the necessary development details.
Although it is difficult to compare our services with those provided by other companies because the contents of our services are not disclosed to the public, we believe that we are unique in that we can promote and design projects not only from a technical perspective but also from the perspective of contributing to management by having members from major consulting firms participate in the development of the project.
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Figure 7 (Individual drone delivery system demonstration for future concept homes with Misawa Homes, Inc.)
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Figure 8 (Testing automation of mooring operations by drone with Mitsui O.S.K. Lines, Ltd.)
(3) Computing Power Sharing Domain
A.L.I. Albatross (our original GPU machine)
Our shared computing service is currently available and the proprietary software technology allows existing or newly purchased computers to efficiently utilize capability for computing and rendering. Our shared computing service is a system that provides efficient computing power through distributed processing and was initially developed primarily for the purpose of computer generated graphics and game rendering. In addition to the latest model of GPU, this equipment is optimized for those who wish to rent out computing power, with hardware equipped with CPU, memory, and Solid State Drive (“SSD”) necessary for blockchain and AI lending, and our proprietary distributed processing algorithm software. Two models are available: a box-type model that can be stored in a typical data center, and a rack-type model with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record of more than 1,000 GPU machines in storage.
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The Details of our Shared Computing System are as follows:
Additionally we have expanded our services to the deep learning area of AI, and in 2020, we participated in an AI program to analyze corona vaccines. Further, our shared computing technology is also intended for the use of the future sky road visualization. Furthermore, we have applied game rendering and computer graphics rendering technology to visualize the sky road planned to be implemented in the unmanned traffic management system for air mobility infrastructure which we are currently internally using and which is planned for external use in the future.
The fee structure consists of a monthly operation management fee for managing the operation of the GPU machines and a license fee in the form of a performance fee based on the utilization of computing power (some of which was received in the form of cryptographic assets at the request of a single purchaser of our shared computing services). Specifically, during the period of January 1, 2021 through October 31, 2022. we received an average of approximately 3.22 Ethereum tokens per calendar month (for an aggregate of 74.06 Ethereum tokens) from a single purchaser of our shared computing services. However, as of December 23, 2022, all of the aforementioned Ethereum tokens have been sold for an aggregate amount of 87,690,644 yen ($605,975 US dollars). Furthermore, other than the Ethereum tokens as described in the immediately preceding sentence, we have not in the past nor will we at any time in the future accept any payment in cryptographic assets. Additionally, our shared computing service is not used for the mining of cryptographic assets. Some external users of our shared computing system may be using it in the blockchain area, but our shared computing system is neither designed for nor endorsed for use for cryptographic asset mining purposes.
In comparison with computing power services provided by other companies, the service is built by purchasing a large volume of AMD (Advanced Micro Devices, Inc.) GPUs at a low cost, so it is comparable to services lined up by AWS (Amazon Web Services), etc., which provide NVIDIA-made GPUs for enterprise use) and other services that offer NVIDIA-made enterprise GPUs.
Figure 9 (Container server that manages the operation of our original GPU machines.)
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(4) Technology Human Resources Business Domain
The technology staffing area in which our group is engaged is through our investment in ASC TECH Agent Co. In this business description, the technology human resources business is omitted.
Subsidiary
A.L.I. Technologies Co., Ltd. (Japan) is the only wholly-owned subsidiary of the AERWINS, Inc., a Delaware corporation, which is a wholly owned subsidiary of the Company(“A.L.I.”), and A.L.I. holds a 48.8% investment interest in ACS TECH Agent Co. and A.L.I. has no other current subsidiaries.
| AM1 | Software equipment sales to customers who want to optimize the use of their server systems.
Consulting and marketing support on how to use blockchain and AI for their business.
* If, as a result of the consulting and marketing support, customers wish to use shared computing, we will provide the equipment in the Computing Power Sharing Domain. | |
| AM2 | Research and development of Xturismo (Sales are planned to start in December 2022). | |
| AM3 | Consulting and planning of drone utilization for large-scale companies and government agencies.
Consulting results in the provision of services in the area of drone services, including surveys, research, inspections, and measurements. | |
| ASC | Hire construction management engineers and dispatch them to the client as a staffing service. | |
Regulatory Approvals Relating to our Air Mobilities
We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. While regulations governing this industry are evolving, currently in the jurisdictions where we sell and plan to sell our products, the commercial use of our manned air mobilities, and in some cases our unmanned air mobilities, is subject to an uncertain or lengthy approval process. In order for our customers to use our manned air mobilities, we are working on obtaining, or working closely with our customers, to obtain relevant approvals and permits in the jurisdictions where we sell and plan to sell our products. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of Air Mobility-related regulations and the lack of relevant precedents.
Our Research and Development Capabilities
In the area of manned air mobility, we are engaged in R&D to improve the safety, operability, and performance of the “Xturismo Limited Edition,” and in the area of unmanned air mobility, we are engaged in R&D to improve safety, environmental friendliness, and expandability.
The Company’s R&D activities are conducted by a staff of 24 in the manned air mobility domain and 8 in the unmanned air mobility domain, and the total amount of R&D expenses spent by the Company in FY2021 was 1,025,607 thousand yen (approximately $9,336 thousand USD) and in FY 2022 was 1,190,406 thousand yen (approximately $8,926 thousand USD). R&D activities in each domain are as follows.
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| Domain | R&D Topics | Results in FY2021 | ||
| Manned Air Mobility Domain | Safety | Airframe control algorithms for stable navigation in numerous contingencies, and airframe control algorithms to improve stability during takeoff and landing
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| Operability | Airframe design for stable operating posture, operation system for intuitive airframe operation
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| Performance upwards | Clean sound function, thrust-enhancing design, ducted propeller, air-cooling function
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| Unmanned Air Mobility Domain | Safety | Development of an operation management system to realize safe and secure drone utilization and linkage with the Ministry of Land, Infrastructure.
Transport and Tourism’s system, and development of aircraft capable of autonomous flight and collision avoidance utilizing Light Detection and Ranging (“Lidar”) Simultaneous Location and Mapping (“SLAM”) and Visual SLAM.
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| Environment | Development of drone airframe with explosion-proof performance
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| Expandability | Development of a multi-system that uses AI to analyze video acquired from drones in real time and connect it to work instructions to save manpower and improve safety. |
Our Proprietary Technologies
In order to provide highly differentiated solutions in the areas of manned air mobility, unmanned air mobility, and Computing Power Sharing Domain, we are engaged in research and development in the areas listed below.
| Field of Technology | Outline of R&D Themes | ||
| Manned/Unmanned Air Mobility | ● | Obstacle avoidance system (laser, image detection) | |
| ● | Route flight system (electromagnetic resistance, nighttime operation) | ||
| ● | Autonomous route design system (waypoint-to-waypoint, N-node) | ||
| ● | Flight system under non-GPS/gyro environment | ||
| Field of Technology | Outline of R&D Themes | ||
| ● | Remote control system under GPS environment (using First Person View (“FPV”)) | ||
| ● | Swarm control system | ||
| ● | Attitude control system (stationary in high winds) | ||
| ● | In-flight work system | ||
| ● | Visual SLAM system (inspection based on relative position) | ||
| ● | Wireless energy transmission system | ||
| Artificial Intelligence (AI) Data Analysis | ● | Individual and Behavior Recognition and Mapping Systems for Construction Operations | |
| ● | Individual and behavior recognition and mapping systems for railroad operations | ||
| ● | 360° laser 3D mapping system | ||
| ● | Defect detection system for inspections | ||
| ● | Cloud computing power provision system for the learning phase of AI | ||
| ● | Annotation system for the learning phase of AI | ||
| Block Chain | ● | Blockchain-based Air Route Authentication System | |
| ● | Blockchain-based drone control system | ||
| Decentralized Processing | ● | Management System for Distributing Tasks to Multiple GPUs | |
| * A method in which a single process is distributed to improve processing speed and reduce server load. | ● | A management system that selects the allocated GPUs according to the type of task | |
| ● | Distributed processing system for pre-rendering tasks | ||
| ● | Distributed processing system for real-time rendering tasks | ||
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Manufacturing, Quality Control and Supply Chain
Manufacturing
We adopt a lean and efficient production strategy across our business, focusing on effective prototyping, manufacturing, supply chain management, final assembly, integration, quality and final acceptance testing.
Our manufacturing procedures system as to the Xturismo Limited Edition is as follows:
Sub Assembly, manufacturing, and shipping of the Xturismo Limited Edition is done by relevant members at our facilities in Yamato, Kanagawa Prefecture, and testing is done by members at our facilities in Minobu, Yamanashi Prefecture. Assembly itself takes about one week, but it typically takes 4 months from ordering parts to delivery. The number of workers is increased or decreased depending on the production volume, but since the assembly is basically made-to-order, it is based on multi-skilled workers: 4 to 6 workers per unit. In addition, several members of quality control and production control are involved. General operation and flight tests are conducted for shipping inspection which takes 1-2 days. With regard to part suppliers, we have collaborated with Toray Carbon Magic Co., Ltd. for CFRP (Carbon Fiber Reinforced Plastics) chassis, which has a proven track record in lightweight and rigidity performance in car racing and air mobility globally. We have also collaborated with Toda Racing Co. Ltd., which has a strong track record in car racing globally, for high-efficiency drive parts. For the internal combustion engine, we are using the proven engine of Kawasaki Motors Ltd., which has a proven track record in the global motorcycle industry.
We rely on third party suppliers to manufacture aspects of our products to the following extent:
| Key Parts | Company Name | |
| Chassis (as described above) | Toray Carbon Magic Co., Ltd. | |
| Drive Gear & Shaft (as described above) | Toda Racing Co., Ltd | |
| Main Propellers | Challenge Co., Ltd | |
| Internal-combustion engine (as described above) | Kawasaki Motors, Ltd | |
| Control CPU | Renesas Electronics Corporation | |
| Embedded single board computer | NVIDIA Corporation | |
| Battery for Main | Shorai Inc. | |
| Battery for side propellers | Shenzhen Yowoo Electronic Technology Co.,Ltd | |
| Flight controller | Holyblo | |
| Japan Aviation Electronics Industry, Limited | ||
| Motor for side propellers | Jiangxi Xintuo Enterprise Co.,Ltd. | |
| Aster Co., Ltd. | ||
| Engine control unit | MoTeC Pty Ltd | |
| Front camera | Basler AG | |
| Exhaust pipe | Shinba Iron Works Corporation |
As described above, our products are manufactured and shipped at our facilities in Yamato, Kanagawa Prefecture, which is located at 1-2-11 Fukamidai, Yamato-shi, Kanagawa, and our testing processes are completed at our facilities in Minobu, Yamanashi Prefecture, which is located at 72 Misawa, Minobu-cho, Minami Koma-gun, Yamanashi.
Quality Control
Our quality control efforts focus on designing and producing products and implementing processes that will ensure high levels of safety and reliability. We have a dedicated quality control team that works with our engineering arm and our suppliers to ensure that the product designs meet safety requirements and functional specifications. Together with our supplier review committee, our quality control team also collaborates with our suppliers to ensure that their processes and systems are capable of delivering the parts and components we need at the required quality levels, on time and within budgets.
Our air mobilities are produced with strict product quality control. Our quality control team undertakes robust inspections of our production lines in accordance with internal guidelines and assessment criteria. We also conduct licensed flight tests for the air mobilities of the XTURISMO LTD EDITION prototype 1 under a variety of conditions, which we believe have shown to be an efficient and effective means for us to assess the quality and airworthiness of our products. Data and results generated from flight tests of the XTURISMO LTD EDITION prototype 1 are carefully studied and analyzed to inform any process of alteration or improvement that may follow. In conjunction with our provision of a broad range of after-sales services and assistance to our customers, our air mobilities quality control management extends beyond the point of sale as we continue tracking the performance and quality of our air mobilities.
Supply Chain and Value Chain
We adopt a strict reviewing mechanism to ensure quality and stability of our supply chain. We also aim to fully engage with our suppliers to foster long-standing and strong partnership with qualified suppliers. Our air mobilities are generally manufactured on specific orders and we have been able to effectively manage our inventory level. Historically, we have not experienced significant delays in the supply or availability of our key raw materials or components provided by our suppliers, nor have we experienced a significant price increases for raw materials or components. We do not anticipate any such delays or significant price increases in 2023. Notwithstanding, we cannot guarantee there will be no such delays or significant price increases in 2023.
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During 2020 and 2021, the Japanese Government issued four series of Declaration of Emergency (which we refer to as the “Declarations”), whereby the Japanese Government requested the closing of non-essential activities and businesses across the country as a preemptive safeguard against the COVID-19 pandemic. This adversely impacted businesses across Japan, particularly in the supply chain sector.
During the period, the COVID 19 pandemic and the Government-driven or voluntary closure of workplaces and public spaces, the general public’s reluctance or inability to commute on public transportation, shop, or enjoy outdoor leisure activities have negatively affected our business operations and liquidity position.
The first series of Declarations was in effect during the period beginning on April 7, 2020 and ending on May 25, 2020. The second series of Declarations was in effect during the period beginning on January 8, 2021 and ending on March 21, 2021. The third series of Declarations was in effect during the period beginning on April 25, 2021 and ending on June 20, 2021. The fourth series of Declarations was in effect during the period beginning on July 12, 2021 and ending on September 30, 2021. During a portion of the time periods covered by the Declarations, many prefectures were affected, including Kanagawa (the location of our manufacturing and shipping facility), Tokyo, Saitama, Chiba, Osaka, Ibaraki, Tochigi, Gunma, Shizuoka, Kyoto, Hyogo, and Fukuoka.
We have not experienced supply chain disruptions in our business since the end of the Declarations in 2021. Since the end of the Declarations in 2021, we have not had to suspend the production, purchase, sale or maintenance of certain items due to a lack of raw materials; inventory shortages; closed factories or stores; reduced headcount; or delayed projects. For certain parts for our products, such as the engines and other parts, we only have a limited number of our products that require these parts currently in production, and accordingly we have not been affected by supply chain disruptions in this regard. However, as noted above, during the years 2020 and 2021 with the COVID-19 pandemic the Japanese Government implemented a lockdowns where certain factories have been shut down resulting in delay of supply and production of our products. If a Declaration of Emergency is declared in the future, it may cause the suspension of the production, purchase, sale, or maintenance of certain items due to a lack of raw materials, inventory shortages, closed factories or stores, reduced headcount, or delayed projects. This is primarily due to the fact that we obtain all of the parts of our items from third party suppliers pursuant to contract by order arrangements, and accordingly we rely upon those suppliers to provide the requisite items at the time of our orders. If our suppliers do not have enough raw materials or if our suppliers are unable to fulfill our orders due to an absence of a long term contract with us, then we may experience a supply chain disruption as a result. However, we believe that our risk of supply chain disruption is limited since a Declaration of Emergency has not been made since 2021, we have high employee retention, and we require a low quantity of supplies for our items at this time.
We have not experienced labor shortages that have impacted our business. We have a high employee retention rate and we believe that we will be able to maintain that rate with competitive compensation. With the limited number of productions currently in place we do not face challenges in labor shortage. However, we will need to increase our labor to increase our production capability in the future. We believe that our unique position where we are entering into a new industry allows us to have access to new hires from vendors and directly by candidates internationally. Once we expand into global business, we will need to hire more employees in selected regions which we need to take necessary measures such as adopting market labor costs in various regions. We are in the process of securing third party employee outsourcing as well in order to be in a position to satisfy an increased commercialization production effort.
We have not experienced cybersecurity attacks in our supply chain, however we do have engineers with experience in the cyber security field and plan to take measures to counter any potential cybersecurity attacks in the future.
Additionally, we have not experienced higher costs due to constrained capacity or increased commodity prices or challenges sourcing materials. We believe that we would be able to absorb higher costs of parts from our suppliers since our margins are high in comparison to the total cost of the parts of our items.
We have not experienced surges or declines in consumer demand for which we are unable to adequately adjust our supply. The industry is still in its inception period starting from regulatory infrastructure and the market will likely expand in the foreseeable future. However, if we do experience a surge in consumer demand, we will be highly reliant upon our third party suppliers to provide higher quantities of parts, which we will not have control over since we do not have long term contracts with such third party suppliers. Further, we build our product after an order is placed, and accordingly a decline in consumer demand would not affect our supply.
We have not been unable to supply products at competitive prices or at all in certain regions due to export restrictions, sanctions, tariffs, trade barriers, or political or trade tensions among countries. As the XTURISMO LTD EDITION is a new product and unique, we do not see an inability to compete in the foreseeable future. We have obtained a HS Code from the Japanese Customs Office where we do not have any export restrictions. Depending on geopolitical tensions, we may be subject to sanctions, tariffs and trade barriers, however we do not have such issues with our targeted markets currently. Also, we do not have any intentions to market to sanctioned nations in order to comply with regulations of US and Japan. Furthermore, our supply chain is predominantly within Japan; therefore, we have not been exposed to supply chain risk in light of Russia’s invasion of Ukraine and accordingly have not needed to take efforts to mitigate potential impact.
The following is Delivery Schedule of our Manned Air Mobility “XTURISMO Limited Edition” and a schematic representation of our value chain. (* Some items are still in the conceptual stage.)
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After-sales Services
Our “XTURISMO Limited Edition” is based on a levitation range of a few meters above the ground effect, so it is not subject to approval for the aircraft category in Japan and can be used without a pilot’s license. In addition, given that the product is in this category, an insurance policy developed by Mitsui Sumitomo Insurance Co., Ltd. as a liability insurance policy exclusively for practical hoverbikes is attached free of charge for users in Japan. The figure on the right shows the Maintenance and Coverage Plans that we offer.
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Marketing and Sales
Marketing
We aim to promote awareness of our brand globally. Our air mobilities are marketed to customers through online events as well as offline promotional and advertising activities. We conduct online marketing through our websites, domestic and international social media, online video platforms and e-commerce platforms, among others. We organize new product launches, company milestone media events, aviation exhibitions and other offline marketing events.
Competition
We recognize that there are no new alternatives at this time, as hoverbikes and drones themselves are substitutes for existing solutions at this time. The competitive landscape for each of our business areas is as follows.
(1) Manned Air Mobility Domain
Most of the industry’s production experience in the manned air mobility domain is still in the demonstration stage, although EHang in China has produced and delivered products. Many companies are still in the research and development stage and are not disclosing their sales prices. As for hoverbikes, we believe that technological innovations in battery capacity density and power will enable competitors to develop hoverbikes that can maintain a practical cruising time even when fully electrified.
(2) Unmanned Air Mobility Domain
In the unmanned air mobility field, China’s DJI holds a large share of the global market, but from a security perspective, domestic drones are expected to increase their market share in the future. In the area of drones, various players are aiming for various technological innovations in the fields of agriculture, inspection, aerial photography, and logistics. In particular, technologies for autonomous flight and AI-based image analysis are being developed for various applications. While DJI and other companies have announced their sales prices for airframes, many companies do not announce their prices for drone solutions, which are the main focus of our company’s efforts, because many cases are quoted on an individual basis.
(3) Computing Power Sharing Domain
In the Computing Power Sharing Domain, no major companies have entered the market, and it is a decentralized market where small and medium-sized companies are developing their services, making it difficult to identify clear competitors. The three companies with the largest global production share are NVIDIA, AMD, and INTEL. This is an area where GPU makers are working to develop new models with improved computing power.
Sales prices increase and decrease according to changes in the supply-demand balance of semiconductors (GPUs, etc.), which are the main component parts.
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International Competitiveness and Barriers to Entry
(1) Manned air mobility domain
The barriers to entry in the manned air mobility domain are expected to be very high, as the Company has invested a large amount of R&D funds since 2018, and has been developing the product while applying for/obtaining patent and design rights, and has also successfully developed the product based on partnerships with several companies. In the area of manned air mobility, the launch of the “Xturismo Limited Edition,” a mobility vehicle that can travel in low altitudes within the range of ground effect, is unprecedented worldwide, and we expect it to be internationally competitive.
(2) Unmanned Air Mobility Domain
Although there are no clear barriers to entry in the unmanned air mobility area, we expect certain barriers to entry to exist, as we have been working on building an operation management system using our sky infrastructure patents and a network of drone pilots skilled in various aircraft and operations as early as 2018. (i.e., the drone operator network). In the unmanned air mobility domain, China’s DJI holds a large share of the mass-produced drone “airframe” market. However, the Japanese government has announced a policy of limiting the use of drones for operations that may hinder public safety and the maintenance of order to security-compliant drones in September 2020, and we expect a return to domestically produced drones and global expansion centered on security to increase international competitiveness.
(3) Computing Power Sharing Domain
In the Computing Power Sharing Domain, we expect a certain level of barriers to entry to exist, as we have a track record of managing the operation of many machines and working to improve capital investment and cost efficiency in farms since 2018. In the Computing Power Sharing Domain, we believe that overseas expansion will be difficult due to the high cost of electricity in Japan compared to other countries, but we expect that there will be certain barriers for overseas companies to enter the Japanese market from the perspective that providing computing power for local consumption will guarantee security.
Intellectual Property
We have significant capabilities in the areas of Air Mobilities engineering, development and design and we have developed a number of proprietary systems and technologies. Our success depends in part on our ability to protect our core technology and intellectual property. We rely on a combination of patents, patent applications, trade secrets, know-how, copyrights, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition, we have entered into confidentiality and non-disclosure agreements with our employees and business partners. The agreements we entered into with our employees provide that all software, inventions, developments, works of authorship and trade secrets created by them during the course of their employment are our property.
As of December 31, 2021, we have 72 issued or pending patents in Japan and 46 registered trademarks related to our technology in Japan. As of December 31, 2022, we have 71 issued or pending patents in Japan and 48 registered trademarks related to our technology in Japan. We intend to continue to file additional intellectual property applications related to our technology in the future. Below is an example of one of our patent initiatives.
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Our Intellectual Property Portfolio
| IP Classification | 2017 | 2018 | 2019 | 2020 | 2021 | Total | ||||||||||||||||||
| Patent Rights | 15 | 18 | 21 | 15 | 2 | 70 | ||||||||||||||||||
| Trademark Rights | 4 | 7 | 24 | 9 | 2 | 46 | ||||||||||||||||||
| Design Right | - | 3 | 2 | - | 19 | 24 | ||||||||||||||||||
| Total | 19 | 28 | 47 | 24 | 23 | 140 | ||||||||||||||||||
List of Patent Rights
Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Flying body (Acquired) | Japan | July 7, 2017 Japanese Patent Application No. 2017-133787 | August 13, 2020 No. 6749019 | July 7, 2037 | Provided is a manned flying object as a new means of movement. | |||||
FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM (Acquired) | Japan | July 31, 2017 Japanese Patent Application No. 2017-147310 | April 1, 2021 No. 6861434 | July 31, 2037 | Provided is a novel technique for guiding a flying object. | |||||
Storage device (Acquired) | Japan | September 25, 2017 Japanese Patent Application No. 2017-184212 | March 26, 2020 No. 6681861 | September 25, 2037 | Technology related to a new delivery box is provided. | |||||
DISTRIBUTED MANAGEMENT SYSTEM FOR MINING PROCESSING AND METHOD THEREOF (Acquired) | Japan | December 4, 2017 Japanese Patent Application No. 2017-232527 | April 8, 2020 No. 6688779 | December 4, 2037 | Provided are a distributed management system and a method for performing efficient mining processing. | |||||
METHOD AND SYSTEM FOR IDENTIFYING FLYING OBJECT (Acquired) | Japan | December 5, 2017 Japanese Patent Application No. 2017-232990 | February 3, 2021 No. 6832014 | December 5, 2037 | Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism. | |||||
TICKET INSPECTION METHOD AND TICKET INSPECTION SYSTEM USING BLOCKCHAIN NETWORK (Pending) | Japan | December 31, 2017 Japanese Patent Application No. 2017-255287 | - | - | Provided is a technology capable of providing the security of transaction information and the certainty of settlement. | |||||
MONITORING DEVICE, MONITORING PROGRAM, AND MONITORING SYSTEM USING FLYING OBJECT (Pending) | Japan | March 12, 2018 Japanese Patent Application No. 2018-044241 | - | - | Provided is a technology for performing a monitoring service with a plurality of flying objects in a specific area. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Monitoring system (Pending) | Japan | March 12, 2018 Japanese Patent Application No. 2018-044242 | - | - | Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism. | |||||
Flying body (Acquired) | Japan | March 19, 2018 Japanese Patent Application No. 2018-050692 | August 9, 2019 No. 6566585 | March 19, 2038 | Provided is a flying object having a new shape capable of improving flight efficiency. | |||||
Distributed machine learning system (Acquired) | Japan | June 9, 2018 Japanese Patent Application No. 2018-110761 | November 15, 2019 No. 6615946 | June 9, 2038 | Efficiently run resources that maintain a blockchain network. | |||||
FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM (Acquired) | Japan | September 17, 2018 Japanese Patent Application No. 2018-173169 | October 18, 2019 No. 6601810 | September 17, 2038 | Provided is a novel technique for guiding a flying object. | |||||
Hybrid manned vehicle (Acquired) | Japan | September 19, 2018 Japanese Patent Application No. 2018-175395 | August 19, 2020 No. 6751537 | September 19, 2038 | Provided is a manned flying object as a new means of movement. | |||||
Asset Information Registration Method (Pending) | Japan | November 19, 2018 Japanese Patent Application No. 2018-216374 | - | - | Provide a secure platform for the transaction of assets. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | November 26, 2018 Japanese Patent Application No. 2018-220342 | August 14, 2020 No. 6749612 | March 25, 2037 | Disclosed is a technology capable of improving warehouse storage efficiency for multiple types of cargo. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Pending) | Japan | November 26, 2018 Japanese Patent Application No. 2018-220341 | - | - | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Pending) | Japan | November 26, 2018 Japanese Patent Application No. 2018-220340 | - | - | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Pending) | Japan | November 26, 2018 Japanese Patent Application No. 2018-220339 | - | - | Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo. | |||||
DELIVERY METHOD AND DELIVERY SYSTEM (Pending) | Japan | November 26, 2018 Japanese Patent Application No. 2018-220343 | - | - | An object of the present invention is to provide a delivery method capable of safely delivering a package. | |||||
Flying body (Acquired) | Japan | March 27, 2019 Japanese Patent Application No. 2019-061538 | August 2, 2019 No. 6561342 | March 27, 2039 | Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger. | |||||
Flying body (Acquired) | Japan | March 27, 2019 Japanese Patent Application No. 2019-061537 | May 24, 2019 No. 6530875 | March 27, 2039 | Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger. | |||||
Flying body (Pending) | Japan | May 17, 2019 Japanese Patent Application No. 2019-094037 | - | - | Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger. | |||||
Flying body (Pending) | Japan | June 25, 2019 Japanese Patent Application No. 2019-116857 | - | - | Provided is a flying object capable of improving the driving feeling and riding comfort of a passenger. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Hybrid Manned vehicle (Pending) | Japan/PCT | August 31, 2019 PCT/JP2019/034315 | - | - | Provided is a flying object as a new means. | |||||
METHOD FOR GUIDING FLYING OBJECT, GUIDING DEVICE AND GUIDANCE SYSTEM (Pending) | Malaysia | September 17, 2019 PI2021001406 | - | - | Provided is a novel technique for guiding a flying object. | |||||
METHOD FOR GUIDING FLYING OBJECT, GUIDING DEVICE AND GUIDANCE SYSTEM (Pending) | Japan/PCT | September 17, 2019 PCT/JP2019/036309 | - | - | Provided is a novel technique for guiding a flying object. | |||||
FLYING OBJECT GUIDING METHOD, GUIDING DEVICE, AND GUIDING SYSTEM (Pending) | Japan | September 30, 2019 Japanese Patent Application No. 2019-179383 | - | - | Provided is a novel technique for guiding a flying object. | |||||
Flying Body (Hover Motorcycle CG Lower Layout) (Pending) | Japan/PCT | October 8, 2019 PCT/JP2019/039708 | - | - | Provided is a flying object capable of improving driving feeling and riding comfort. | |||||
Flying Object (Hover Bike _ Main + Front and Back Sub + Vertical Sub) (Pending) | Japan/PCT | October 8, 2019 PCT/JP2019/039710 | - | - | Provided is a flying object capable of improving driving feeling and riding comfort. | |||||
Flying Object (Hover Bike _ Operation Layout) (Pending) | Japan/PCT | October 8, 2019 PCT/JP2019/039710 | - | - | Provided is a flying object which can realize easy operation in operation. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Pending) | Japan/PCT | October 26, 2019 PCT/JP2019/042074 | - | - | Provided is a technology capable of simultaneously managing and controlling a plurality of flying objects. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | October 26, 2019 Japanese Patent Application No. 2020-522084 | January 6, 2021 No. 6820045 | October 26, 2039 | The route control control servers are communicably connected to a plurality of first flying objects via a network. | |||||
FLYING OBJECT AND BUFFER ATTACHED TO FLYING OBJECT (Pending) | Japan | October 31, 2019 Japanese Patent Application No. 2019-198649 | - | - | Provided is a flying object capable of mitigating impact at the time of collision. | |||||
Distributed machine learning system (Pending) | Japan | November 6, 2019 Japanese Patent Application No. 2019-201356 | - | - | Efficiently run resources that maintain a blockchain network. | |||||
Flight situation Management system (Pending) | Japan/PCT | November 27, 2019 PCT/JP2019/04644 | - | - | Provided is a technique capable of grasping the state of a flying object. | |||||
FLIGHT SITUATION MANAGEMENT SYSTEM, FLIGHT SITUATION MANAGEMENT METHOD, AND PROGRAM (Acquired) | Japan | November 27, 2019 Japanese Patent Application No. 2019-214478 | May 26, 2020 No. 6708867 | November 27, 2039 | The situation of the flying object can be grasped. | |||||
POWER SUPPLY DEVICE FOR FLYING OBJECT (Acquired) | Japan | November 28, 2019 Japanese Patent Application No. 2019-215435 | September 14, 2020 No. 6763588 | November 28, 2039 | Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude. | |||||
POWER SUPPLY DEVICE FOR FLYING OBJECT (Acquired) | Japan | November 28, 2019 Japanese Patent Application No. 2019-215436 | April 20, 2020 No. 6693635 | November 28, 2039 | Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude. | |||||
DISTRIBUTED MANAGEMENT SYSTEM FOR MINING PROCESSING AND METHOD THEREOF (Pending) | Japan | December 23, 2019 Japanese Patent Application No. 2019-231598 | - | - | To perform efficient mining processing. | |||||
Flying object and 99 system (Pending) | Japan/PCT | January 7, 2020 PCT/JP2020/000113 | - | - | Provided is a flying object capable of grasping the attitude of the flying object with higher accuracy. | |||||
CONTROL DEVICE FOR FLYING OBJECT AND OF FLYING OBJECT Control method (Pending) | Japan/PCT | January 7, 2020 PCT/JP2020/007269 | - | - | Provided are a flying object control device and a flying object control method wherein a passenger can easily perform a turning operation of the flying object. | |||||
Flight status control 99 system (Pending) | Japan | January 17, 2020 Japanese Patent Application No. 2020-006242 | - | - | The situation of the flying object can be grasped. | |||||
Flying body (Pending) | Japan/PCT | February 22, 2020 PCT/JP2020/007269 | - | - | Provided is a flying object capable of improving the degree of freedom of operation of the flying object while suppressing an increase in weight of the flying object. | |||||
IMAGE PROCESSING SYSTEM, PROGRAM, AND IMAGE PROCESSING METHOD (Pending) | Japan/PCT | March 9, 2020 PCT/JP2020/009993 | - | - | Provided are an image processing system, program, and image processing method wherein a game can be easily enjoyed without being affected by image processing capability. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
POWER SUPPLY DEVICE FOR FLYING OBJECT (Pending) | Japan | April 2, 2020 Japanese Patent Application No. 2020-066399 | - | - | Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude. | |||||
POWER SUPPLY DEVICE FOR FLYING OBJECT (Acquired) | Japan | April 2, 2020 Japanese Patent Application No. 2020-066400 | September 14, 2020 No. 6763592 | November 28, 2039 | Power can be supplied to a battery of a flying object even if the flying object does not land in a power supply area at a specific position and attitude. | |||||
Flying body (Pending) | Japan | May 22, 2020 Japanese Patent Application No. 2020-090142 | - | - | Provided is a manned flying object as a new means of movement. | |||||
Power engine (Pending) | Japan | May 22, 2020 Japanese Patent Application No. 2020-090141 | - | - | Provided is a manned flying object as a new means of movement. | |||||
Flying body (Pending) | Japan | May 22, 2020 Japanese Patent Application No. 2020-090140 | - | - | Provided is a manned flying object as a new means of movement. | |||||
PROCESSING UNIT MANAGEMENT SYSTEM AND PROCESSING SPACE MANAGEMENT SYSTEM (Pending) | Japan | July 27, 2020 Japanese Patent Application No. 2020-126346 | - | - | To efficiently operate a resource having processing capability. | |||||
Flying body (Acquired) | Japan | August 4, 2020 Japanese Patent Application No. 2020-132127 | August 19, 2021 No. 6931940 | July 7, 2037 | Provided is a manned flying object as a new means of movement. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | September 14, 2020 Japanese Patent Application No. 2020-153999 | June 17, 2021 No. 6899606 | March 25, 2037 | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | September 14, 2020 Japanese Patent Application No. 2020-154001 | June 17, 2021 No. 6899608 | March 25, 2037 | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | September 14, 2020 Japanese Patent Application No. 2020-154000 | June 17, 2021 No. 6899607 | March 25, 2037 | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | September 14, 2020 Japanese Patent Application No. 2020-153998 | June 17, 2021 No. 6899605 | March 25, 2037 | Provided is a technique capable of improving warehouse storage efficiency relating to a plurality of types of cargo. | |||||
METHOD AND SYSTEM FOR IDENTIFYING FLYING OBJECT (Pending) | Japan | January 18, 2021 Japanese Patent Application No. 2021-005832 | - | - | Provided are a mechanism capable of objectively ensuring the safety of a flying object and a technique for identifying the mechanism. | |||||
Manned vehicle (Acquired) | Japan | January 21, 2021 Japanese Patent Application No. 2021-008265 | January 5, 2022 No. 7002793 | September 19, 2038 | Provided is a manned flying object as a new means of movement. | |||||
INFORMATION PROCESSING DEVICE, METHOD, AND PROGRAM (Acquired) | Japan | March 18, 2021 Japanese Patent Application No. 2021-044767 | August 23, 2021 No. 6933417 | March 18, 2041 | Provided are an information processing device, a method, and a program capable of notifying that the emission amount of an environmentally hazardous substance has been offset. | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
Flying body (Acquired) | Japan | August 10, 2021 Japanese Patent Application No. 2021-130766 | January 5, 2022 No. 7002801 | July 7, 2037 | Provided is a manned flying object as a new means of movement. | |||||
Anonymization system (Pending) | Japan | November 4, 2021 Japanese Patent Application No. 2021-180042 | - | - | To improve anonymity when a service is provided by a flying object. | |||||
| Disaster Drone System Using LoRa Network (Acquired) | Japan | April 21, 2017 Japanese Patent Application No. 2017-084879 | May 25, 2018 No. 6343366 | April 21, 2037 | Disclosed is a technique for quickly collecting a wide range of information. | |||||
Using blockchain technology Delivery box system (Acquired) | Japan | August 7, 2017 Japanese Patent Application No. 2017-152734 | July 6, 2018 No. 6363278 | August 7, 2037 | Provided is a delivery method capable of safely delivering a package to a user. | |||||
Blockchain certified delivery boxes (Acquired) | Japan | September 25, 2017 Japanese Patent Application No. 2017-184212 | March 26, 2020 No. 6681861 | September 25, 2037 | Technology related to a new delivery box is provided. | |||||
Spherical drone (Acquired) | Japan | March 19, 2018 Japanese Patent Application No. 2018-050692 | August 9, 2019 No. 6566585 | March 19, 2038 | Provided is a flying object of a new shape. | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Acquired) | Japan | March 25, 2017 Japanese Patent Application No. 2017-060237 | May 11, 2018 Article 6335354 | March 25, 2037 | Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo. | |||||
Anonymization system (Pending) | Japan | July 31, 2017 Japanese Patent Application No. 2017-147311 | - | - | Anonymization System by Drone Distribution | |||||
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Name of patent right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | Contents and features | |||||
DELIVERY METHOD AND DELIVERY SYSTEM (Pending) | Japan | August 25, 2017 Japanese Patent Application No. 2017-162422 | - | - | Providing delivery methods that enable safe delivery of packages | |||||
Route control CONTROL SERVERS, METHODS, SYSTEMS, AND FIRST AND SECOND FLYING OBJECTS USED THEREIN (Pending) | Japan | April 19, 2018 Japanese Patent Application No. 2018-080594 | - | - | Provided is a technique capable of improving warehouse storage efficiency with respect to a plurality of types of cargo. | |||||
DELIVERY METHOD AND DELIVERY SYSTEM (Pending) | Japan | June 28, 2018 Japanese Patent Application No. 2018-122555 | - | - | Distribution box system using blockchain | |||||
Flying body (Pending) | Japan | December 11, 2020 Japanese Patent Application No. 2021-111668 | - | - | Explosion-proof drone | |||||
CONTROL SYSTEM FOR MANNED FLYING OBJECT, TERMINAL, AND PROGRAM (Pending) | Japan | November 5, 2021 Japanese Patent Application No. 2021-181257 | - | - | Hoverbike operation status can be managed via user app, and the app can also be used to control automatic operation. | |||||
| XTURISMO Hardware (Pending) | United States | April 7, 2022 17/767054 | - | - | To improve the driving feel and ride quality of air vehicles that can carry passengers and move by surfacing from the ground. | |||||
| XTURISMO Hardware (Pending) | Europe | April 8, 2022 19948813.1 | - | - | To improve the driving feel and ride quality of air vehicles that can carry passengers and move by surfacing from the ground. | |||||
| XTURISMO Hardware (Pending) | United States | April 7, 2022 17/767055 | - | - | To improve the driving feel and ride quality of air vehicles that carry people and move from the ground to the air. | |||||
| XTURISMO Hardware (Pending) | Europe | April 8, 2022 19948841.2 | - | - | To improve the driving feel and ride quality of air vehicles that carry people and move from the ground to the air. | |||||
XTURISMO Hardware (Pending) | Japan | March 3, 2022 2022-032517 | - | - | A pair of flaps can change the direction of the airflow generated by the lift-generating part of the hoverbike. | |||||
XTURISMO Software (Pending) | Japan | March 3, 2022 2022-032977 | - | - | A plurality of lift force generating sections, arranged at a plurality of positions in a plan view of the hoverbike to generate an air flow from above to below, and an attitude control unit to control the output generated from the plurality of lift force generating sections to suppress an increase in the inclination of the hoverbike when the inclination exceeds a predetermined threshold value The posture control unit and the input unit that accepts operation information by a passenger, wherein the posture control unit changes the tilt angle of the hoverbike at which the posture control is initiated according to the operation information received at the input unit. | |||||
XTURISMO Hardware (Pending) | Japan | March 11, 2022 2021-550985 | - | - | Improved driving feel and ride comfort for hoverbike riders. | |||||
XTURIS MO Hardware (Pending) | Japan | March 11, 2022 2021-550987 | - | - | Ease of operation in hoverbike operation can be achieved. | |||||
XTURISMO Software (Pending) | Japan | April 20, 2022 2021-569620 | - | - | More accurate determination of the hoverbike’s altitude. | |||||
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List of Trademark Rights
Name of trademark right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | ||||
Speeder (Standard character) (Acquired) | EU | March 8, 2019 2019-034948 | March 25, 2019 1475983 | March 25, 2029 | ||||
Speeder (Standard character) (Pending) | India | March 25, 2019 2019-034948 | - | - | ||||
Speeder (Standard character) (Acquired) | Egypt | March 8, 2019 2019-034948 | March 25, 2019 1475983 | March 25, 2029 | ||||
Speeder (Standard character) (Pending) | Qatar | August 21, 2019 133846 | - | - | ||||
Speeder (Standard character) (Acquired) | UAE | July 31, 2019 314852 | October 13, 2019 314852 | July 31, 2029 | ||||
Speeder (Standard character) (Pending) | South Africa | July 10, 2019 2019/19118 | - | - | ||||
Speeder (Standard character) (Pending) | Ethiopia | August 8, 2019 FTM/10891/19 | - | - | ||||
Speeder (Standard character) (Pending) | Malaysia | July 23, 2019 TM2019026826 | - | - | ||||
Rendering Power Pool (Standard character) (Acquired) | EU | March 25, 2019 2019-035729 | March 25, 2019 1477187 | March 25, 2029 | ||||
Rendering Power Pool (Standard character) (Acquired) | United States | March 25, 2019 2019-035729 | March 25, 2019 6303192 | March 25, 2029 | ||||
Rendering Power Pool (Standard character) (Acquired) | United States | March 25, 2019 2019-035730 | March 25, 2019 6055618 | March 25, 2029 | ||||
Rendering Power Pool (Standard character) (Acquired) | EU | March 25, 2019 2019-035730 | March 25, 2019 1477145 | March 25, 2029 | ||||
XTURISMO (Acquired) | UAE | April 27, 2020 329186 | August 18, 2020 329186 | August 27, 2030 | ||||
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Name of trademark right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | ||||
XTURISMO (Acquired) | Hong Kong | April 2, 2020 305240178 | October 21, 2020 305240178 | April 2, 2030 | ||||
XTURISMO (Acquired) | China | January 30, 2020 1522501 | January 30, 2020 1522501 | January 30, 2030 | ||||
XTURISMO (Acquired) | Europe | January 30, 2020 1522501 | January 30, 2020 1522501 | January 30, 2030 | ||||
XTURISMO (Acquired) | United States | January 30, 2020 1522501 | January 26, 2021 6253661 | January 30, 2030 | ||||
XTURISMO (Acquired) | Singapore | January 30, 2020 1522501 | January 30, 2020 1522501 | January 30, 2030 | ||||
XTURISMO (Acquired) | Macau | April 22, 2020 N168092(022) | November 4, 2020 N168092(022) | October 14, 2027 | ||||
XTURISMO (Acquired) | Qatar | April 26, 2020 138546 | March 26, 2020 16144732 | March 25, 2030 | ||||
Drone skyway (Acquired) | Japan | November 10, 2017 2017-147756 | July 27, 2018 6065110 | July 27, 2028 | ||||
Drone highway (Acquired) | Japan | November 10, 2017 2017-147757 | July 27, 2018 6065111 | July 27, 2028 | ||||
Speeder (Acquired) | Japan | March 14, 2018 2018-030273 | November 22, 2018 6100233 | November 22, 2028 | ||||
| Speeder-one (Acquired) | Japan | March 14, 2018 2018-030274 | November 22, 2018 6100234 | November 22, 2028 | ||||
Airwing (Acquired) | Japan | March 14, 2018 2018-030275 | November 22, 2018 6100235 | November 22, 2028 | ||||
Airwing-one (Acquired) | Japan | March 14, 2018 2018-030276 | November 22, 2018 6100236 | November 22, 2028 | ||||
Aeris (Acquired) | Japan | March 19, 2018 2018-032019 | February 8, 2019 6120025 | February 8, 2029 | ||||
cloud hash lending (Acquired) | Japan | July 24, 2017 2018-094534 | July 19, 2019 6163117 | July 19, 2029 | ||||
SMARK (Acquired) | Japan | July 24, 2018 2018-094535 | February 25, 2020 6228920 | February 25, 2030 | ||||
| Aerial Lab Industrial Technologies (Acquired) | Japan | December 17, 2018 2018-154071 | October 25, 2019 6192220 | October 25, 2029 | ||||
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Name of trademark right (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | ||||
A. L. I. Technologies (Acquired) | Japan | December 17, 2018 2018-154072 | October 25, 2019 6192221 | October 25, 2029 | ||||
Rendering as a Service (Acquired) | Japan | March 7, 2019 2019-034361 | March 3, 2020 6231855 | March 3, 2030 | ||||
Speeder (Acquired) | Japan | March 7, 2019 2019-034947 | July 31, 2020 6275313 | July 31, 2030 | ||||
Air-Speeder (Acquired) | Japan | March 7, 2019 2019-034945 | August 7, 2020 6278071 | August 7, 2030 | ||||
Air-wing (Acquired) | Japan | March 7, 2019 2019-034946 | August 7, 2020 6278072 | August 7, 2030 | ||||
Sky-wing (Acquired) | Japan | March 7, 2019 2019-034944 | August 7, 2020 6278070 | August 7, 2030 | ||||
Speeder (Acquired) | Japan | March 8, 2020 2019-034948 | August 7, 2020 6278073 | August 7, 2030 | ||||
Rendering Power Pool (Acquired) | Japan | March 11, 2019 2019-035729 | February 27, 2020 6230219 | February 27, 2030 | ||||
Computing Power Pool (Acquired) | Japan | March 11, 2019 2019-035730 | February 27, 2020 6230220 | February 27, 2030 | ||||
Bullet Render (Acquired) | Japan | June 21, 2019 2019-087083 | August 27, 2020 6284895 | August 27, 2030 | ||||
A.L.I. WORKS (Acquired) | Japan | October 1, 2019 2019-128057 | October 23, 2020 6307727 | October 23, 2030 | ||||
XTurismo (Acquired) | Japan | September 10, 2019 2019-120097 | November 11, 2020 6315082 | November 11, 2030 | ||||
XTURISMO (Acquired) | Japan | November 14, 2019 2019-144396 | March 3, 2020 6232082 | March 3, 2030 | ||||
XTURISMO (Script Logo) (Acquired) | Japan | June 10, 2021 2021-072109 | January 4, 2022 6494442 | January 4, 2032 | ||||
XTURISMO (Logo) (Acquired) | Japan | June 10, 2021 2021-072110 | January 4, 2022 6494443 | January 4, 2032 | ||||
Owned Media (Pending) | Japan | November 15, 2019 2019-144976 | - | - | ||||
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List of Design Rights
Name of Design (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | ||||
Air-Mobility (Pending) | China | October 29, 2021 202130709465.5 | - | - | ||||
Air-Mobility (Pending) | United States | November 25, 2021 29/816653 | - | - | ||||
Shared Computing System (Acquired) | Japan | June 4, 2018 2018-012216 | May 10, 2019 1633188 | May 10, 2023 | ||||
Air-Mobility (Acquired) | Japan | October 3, 2018 2018-021740 | April 19, 2019 1631716 | April 19, 2023 | ||||
Air-Mobility (Acquired) | Japan | August 28, 2019 2019-019010 | April 28, 2020 1660004 | April 28, 2023 | ||||
Drone (Pending) | Japan | April 21, 2020 2020-008195 | - | - | ||||
Drone (Acquired) | Japan | January 25, 2021 2021-001399 | August 13, 2021 1693978 | August 13, 2023 | ||||
Air-Mobility (Acquired) | Japan | May 25, 2021 2021-011003 | November 17, 2021 1701536 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013462 | November 17, 2021 1701540 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013463 | November 17, 2021 1701541 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013464 | November 17, 2021 1701578 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013465 | November 17, 2021 1701542 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013466 | November 17, 2021 1701543 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013467 | November 17, 2021 1701544 | November 17, 2023 | ||||
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Name of Design (Acquired or Pending) | Country | Date of application Application Number | Date of registration Registration number | Expiration date of duration | ||||
Air-Mobility (Pending) | Japan | June 22, 2021 2021-013468 | - | - | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013469 | November 17, 2021 1701545 | November 17, 2023 | ||||
Air-Mobility (Pending) | Japan | June 22, 2021 2021-013470 | - | - | ||||
Air-Mobility (Pending) | Japan | June 22, 2021 2021-013471 | - | - | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013472 | April 25, 2022 1714229 | April 25, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013473 | November 17, 2021 1701546 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013474 | November 17, 2021 1701547 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013475 | November 17, 2021 1701548 | November 17, 2023 | ||||
Air-Mobility (Acquired) | Japan | June 22, 2021 2021-013476 | November 17, 2021 1701549 | November 17, 2023 | ||||
COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The pandemic has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. As of the date of this prospectus, the extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted.
Recent Developments
Closing of Business Combination
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).
Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono common stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ common stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”
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After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ common stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.
As a result of the Merger and the Business Combination, holders of Pono common stock automatically received common stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A common stock and shares of Class B common stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ common stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies common stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies common stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies common stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies common stock.
At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.
Lock-up Agreements
In connection with the Business Combination, certain stockholders of AERWINS, Inc. and certain of AERWINS’, Inc. officers and directors (such stockholders, the “Company Holders”) entered into a lock-up agreement (the “Lock-up Agreement”) pursuant to which they are contractually restricted, during the Lock-up Period (as defined below), from selling or transferring any of (i) their shares of AERWINS common stock held immediately following the closing and (ii) any of their shares of AERWINS common stock that result from converting securities held immediately following the closing (the “Lock-up Shares”). The “Lock-up Period” means the period commencing at closing and end the earliest of: (a) six months from the closing (or, in the case of Shuhei Komatsu, AERWINS’ Chief Executive Officer, thirty months from the closing), (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00.
The Sponsor is subject to a lock-up pursuant to a letter agreement (the “Sponsor Lock-up Agreement”), entered into at the time of the IPO (as defined below), among Pono, the Sponsor and the other parties thereto, pursuant to which the Sponsor is subject to a lock-up beginning on the Closing and end the earliest of: (a) six months from the Closing, (b) the date the Company consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of the Company’s stockholders having the right to exchange their shares of the Company’s common stock for cash, securities or other property and (c) the date on which the closing sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing; provided that 1/3 of such restricted shares shall be released from such restrictions if the closing stock price of the Company’s common stock reaches each of $13.00, $15.00, and $17.00. “IPO” means Pono’s public offering of 10,000,000 units (the “Units”) at $10.00 per Unit, generating gross proceeds of $100,000,000, which was consummated on August 13, 2021.
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Indemnification Agreements
On February 7, 2023, AERWINS Technologies entered into indemnification agreements, with each of AERWINS Technologies’ directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements will require AERWINS Technologies, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.
Non-Competition and Non-Solicitation Agreements
Following execution of the Merger Agreement, certain significant stockholders of AERWINS, Inc. entered into non-competition and non-solicitation agreements (the “Non-Competition and Non-Solicitation Agreements”), pursuant to which they agreed not to compete with Pono, AERWINS, Inc. and their respective subsidiaries during the two-year period following the Closing and, during such two-year restricted period, not to solicit employees or customers or clients of such entities. The Non-Competition and Non-Solicitation Agreements also contain customary non-disparagement and confidentiality provisions.
Registration Rights Agreements
At the closing of the Business Combination, certain significant stockholders of AERWINS, Inc. entered into a registration rights agreement with Pono providing for the right to three demand registrations, piggy-back registrations and shelf registrations with respect to the Merger Consideration shares.
Purchaser Support Agreement
Simultaneously with the execution of the Merger Agreement, the Purchaser Representative entered into a support agreement (the “Purchaser Support Agreement”) in favor of Pono and AERWINS, Inc. and their present and future successors and subsidiaries. In the Purchaser Support Agreement, the Purchaser Representative agreed to vote all equity interests in Pono in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Purchaser Support Agreement also prevents the Purchaser Representative from transferring its voting rights with respect to equity interests in Pono or otherwise transferring equity interests in Pono prior to the meeting of Pono’s stockholders to approve the Merger Agreement and related transactions, except for certain permitted transfers.
Voting Agreement
Simultaneously with the execution of the Merger Agreement, certain stockholders of AERWINS, Inc. entered into a voting agreement (the “Voting Agreement”) in favor of Pono and AERWINS, Inc. and their present and future successors and subsidiaries. In the Voting Agreement for certain stockholders of AERWINS, they each agreed to vote all of their AERWINS, Inc. stock interests in favor of the Merger Agreement and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Voting Agreement also prevents them from transferring their voting rights with respect to their AERWINS, Inc. stock or otherwise transferring their AERWINS stock prior to the AERWINS, Inc. approval of the Merger Agreement and related transactions, except for certain permitted transfers.
Executive Employment Agreements
On February 3, 2023, the Company entered into employment agreements (the “Employment Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer). The Employment Agreements all provide for at-will employment that may be terminated by the Company for death or disability and with or without cause, by the executive with or without good reason, or mutually terminated by the parties. The Employment Agreements for Mr. Komatsu, Mr. Ito, Mr. Miura, and Mr. Okabe provide for a severance payment equal to the remaining base salary for the remaining period of the respective term of employment (each term is one (1) year) upon termination by the Company without cause or termination by such executive for good reason. The executive agreements provide for a base salary of $200,000, $200,000, $200,000 and $200,000 for Mr. Komatsu, Mr. Ito, Mr. Miura and Mr. Okabe, respectively, as well as possible annual performance bonuses and equity grants under the equity incentive plan if and when determined by the Company’s Compensation Committee.
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Option Award Agreements
On February 3, 2023, the Company entered into Option Award Agreements (the “Option Award Agreements”) with executive officers: Shuhei Komatsu (former Chief Executive Officer), Taiji Ito (Global Markets Executive Officer), Kazuo Miura (former Chief Product Officer) and Kensuke Okabe (Chief Financial Officer).
The Option Award Agreements grants to each of the following persons options to acquire shares of the Company’s common stock, to vest as set forth in the Option Award Agreements, as follows:
| ● | Shuhei Komatsu - 1,525,196 options at an exercise price of $0.00015 per share of common stock |
| ● | Taiji Ito - 703,937 options at an exercise price of $0.00015 per share of common stock |
| ● | Kazuo Miura - 739,916 options at an exercise price of $0.00015 per share of common stock |
| ● | Kensuke Okabe - 469,291 options at an exercise price of $0.00015 per share of common stock |
Stock Purchase Agreement
On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate 3,196,311 shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 shares of common stock of the Company (the “Company Shares”) upon the consummation of the Business Combination in exchange for an aggregate sum of $5,000,000 (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Company Shares, and the Company Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 (Registration No. 333-268625) which was declared effective by the Securities and Exchange Commission on January 13, 2023.
Standby Equity Purchase Agreement
On January 23, 2023 (the “Effective Date”), Pono entered into a Standby Equity Purchase Agreement (the “SEPA”) with Lind Global Fund II LP, (“Lind Global”). The Company and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of the Company’s shares of common stock, par value $0.000001 per share (the “Common Shares”) at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 96% or 97% (depending on the type of notice) of the Market Price (as defined below) and would be subject to certain limitations, including that Lind Global could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. “VWAP” means, for any trading day, the daily volume weighted average price of the Common Shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.
Pursuant to the SEPA, the Company is required to register all shares which Lind Global may acquire. The Company agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to Lind Global pursuant to the SEPA. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. The Company may not issue more than 19.99% of its shares issued and outstanding as of the Effective Date without first receiving shareholder approval for such issuances, unless such additional shares may be issued consistent with the rules and regulations of the Nasdaq Stock Market. Pursuant to the SEPA, the use of proceeds from the sale of the shares by the Company to Lind Global shall be used by the Company in the manner as will be set forth in the prospectus included in the Registration Statement (and any post-effective amendment thereto) and any prospectus supplement thereto filed pursuant to the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid Lind Global II SPV, LLC, a subsidiary of Lind Global, a structuring fee in the amount of $15,000, and, on the Effective Date, the Company agreed to issue to Lind Global shares with aggregate value equal to one million dollars, as a commitment fee.
Lind Global has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our common stock during any time prior to the public disclosure of the SEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36-month anniversary of the Effective Date or (ii) the date on which the Lind Global shall have made payment of Advances (as defined in the SEPA) pursuant to the SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).
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JV Agreement
On February 6, 2023, the Company and its wholly owned subsidiary’ AERWINS, Inc., wholly owned subsidiary, A.L.I. Technologies Inc. (“ALI”) entered into a Joint Venture Agreement (the “Agreement”) with Vault Investments LLC, an investment and consulting company registered in Dubai and based in the United Arab Emirates (“U.A.E.”) which is involved in investment consultancy and fundraising services (“VAULT”). Pursuant to the Agreement, the parties agreed to set forth and define each other’s roles, responsibilities and obligations to develop the ALI business solutions in the U.A.E. and Gulf Cooperation Counsel (“GCC”) region. The GCC includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Pursuant to the Agreement, ALI and VAULT agreed to establish a new joint venture company in Dubai, U.A.E. (the “JV Entity”) which will be the official partner and supplier of the ALI business solutions and products for the UAE and GCC region.
Pursuant to the Agreement, VAULT agreed, together with its strategic partners, to start a technical and financial analysis of the XTURISMO Limited Edition product and different business solutions of ALI (the “Products”), and present it to potential investors and partners in the U.A.E. and GCC region, and to introduce potential investors, partners and clients to ALI, as well as draft contracts and negotiate fees and structure the business set up of the JV Entity as well as to draft and negotiate contracts and memorandums of understanding for the different business opportunities provided, for VAULT or its affiliated companies or companies that are referred to by VAULT to invest in the JV Entity and to select and facilitate office and factory locations.
Pursuant to the Agreement, ALI agreed to be responsible for providing any technical, financial, strategic and corporate documents to VAULT to assist with VAULT’s duties under the Agreement and further agreed to be responsible for the fee payments to VAULT under the Agreement, and be ready, willing and able to open the JV Entity in the U.A.E. with VAULT and to transfer to the JV Entity selected IP and technology (the “IP”) as a substitute of capital with the parties agreeing that the IP can be still also be used by ALI and its affiliates and for ALI to be ready, willing and able to attend any meeting, physical or virtual with VAULT to be presented to potential investors, partners of clients introduced by VAULT.
Pursuant to the Agreement, the parties also agreed to create a working group to be called the VAULT and ALI Development Committee to review, evaluate and analyze existing documents related to business opportunities, consisting of three (3) members from VAULT and three (3) members from ALI.
Pursuant to the Agreement, the parties agreed that all costs and expenses in connection with the negotiations, preparation, execution and performance under the Agreement will be borne by the JV Entity. The parties also agreed that the JV Entity will be structured to be owned 49% by ALI and 51% by VAULT, with the terms and conditions of the JV Entity to be discussed and agreed on separately between the parties and to be evidenced under a memorandum of association when forming the JV Entity.
Additionally, the parties agreed that ALI will be the sole supplier of the parts necessary to manufacture the Products and that ALI will be entitled to receive 5% of the total sales of the JV Entity as a software license fee and VAULT will be entitled to receive 5% of the total sales of the JV Entity as consulting fees.
The term of the Agreement is for a period of three (3) months after the completion of the first phase of consultancy under the Agreement, and thereafter if agreed between the parties may continue for an additional twelve (12) months from the date of which either party gives written notice of termination of the Agreement to the other party. Any disagreements under the Agreement are to be settled by an arbitration committee formed by the parties to consist of two (2) members and a chairman which will be nominated and approved by the two (2) members and by each party respectively.
Edison Award Nomination
The XTURISMO has been selected as a finalist for the 2023 Edison Awards in the AEROSPACE & FLIGHT TECHNOLOGIES field in the Air Mobility category. Finalists are selected by a peer-related voting body, made up of top executives, academics, and innovation leaders from across the globe. The gold, silver and bronze winners will be announced at the 2023 Edison Awards Gala in Fort Myers, Florida on April 20, 2023.
Loan Agreement
On February 27, 2023, the wholly owned subsidiary of the Company’s wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“A.L.I.”) entered into a Loan Agreement with Shuhei Komatsu, the Company’s former Chief Executive Officer (the “Agreement”). The Agreement was approved by the Company’s Board of Directors on February 26, 2023 and by the Company’s Compensation Committee on February 26, 2023. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,469,400 US Dollars based on a conversion rate of $0.007347 US Dollar for each $1 yen as of February 27, 2023) (the “Loan”). The maturity date of the Loan under the Agreement is April 15, 2023 (the “Maturity Date”). The interest rate under the Agreement is 2.475% per annum (calculated on a pro rata basis for 365 days a year), and the interest period is from February 27, 2023 until the Maturity Date.
If any of the following events occur while the Loan is outstanding, the Loan will become immediately due and payable together with all interest thereon: (i) if payment is suspended or bankruptcy proceedings are initiated against A.L.I., (ii) if A.L.I. initiates legal proceedings related to debt reorganization involving court intervention or when facts are recognized as having occurred that payment has been suspended, (iii) if provisional seizure, preservation seizure, seizure order, or delinquent disposition is received by A.L.I., (iv) if A.L.I. is delayed in make any payments under the Agreement, (v) if A.L.I. violates any provisions of the Agreement or (vi) upon the occurrence of any equivalent reasons requiring the preservation of the right to claim arise in addition to the foregoing. Pursuant to the Agreement, if A.L.I. does not timely repay the Loan in accordance with the terms of the Agreement, the interest rate on the Loan will increase to 14.6% per annum until the full payment is made. Under the Agreement, for any litigation arising under the Agreement, regardless of the amount or claim, the exclusive court of jurisdiction will be the Tokyo District Court.
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Summary of Lind Global Financing
On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three secured convertible promissory notes (the “Convertible Notes” and each a “Convertible Note”) in the aggregate principal amount of $6,000,000 and up to 5,601,613 warrants (the “Warrants” and each a “Warrant”) to purchase 5,601,613 shares of the Company’s common stock (the “Transaction”).
The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Event of Default,” as such term is defined in the Purchase Agreement, has occurred under the Convertible Note sold at the First Closing, the Closing of the second Tranche (the “Second Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day following the filing by the Company of its Form 10-Q for the quarter ended March 31, 2023. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing, and the Convertible Note issued at the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of 1,680,484 Warrants to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The Second Closing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.
The Convertible Note issued in the First Closing will have a maturity date of April 12, 2025, and the Convertible Note issued in the Second Closing and the Third Closing will have a maturity date of 2 years from the date of issuance (the “Maturity Date”).
Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”).
The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.
Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant is $0.8926 per share, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued in the Second Closing and the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing.
In the event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence of a Fundamental Transaction as defined in the Purchase Agreement, then the Warrants may be exercised by means of a “cashless exercise” at the holder’s option, such that the holder may use the appreciated value of the Warrants (the difference between the market price of the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the payment of any cash.
In accordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectus with the SEC to register under the Securities Act the resale by the Selling Securityholder of up to 11,222,357 shares of Common Stock, consisting of (i) the issuance by us of up to 6,666,667 shares of our Common Stock which may be issued upon the conversion of the Convertible Notes and (ii) the issuance by us of up to 4,555,690 shares of our Common Stock which may be issued upon the exercise of the Warrants which are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculated the amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes based on the quotient obtained by dividing the $6,000,000 aggregate principal amount of the Convertible Notes by the lesser of: (i) US$0.90; or (ii) 90% of the lowest single volume weighted average price during the 20 trading days prior to May 9, 2023] of $0.70 per share.
The Purchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations by each party, including our agreement to refrain from engaging in certain “Prohibited Transactions” as defined in the Purchase Agreement, to hold a special meeting of shareholders for the purpose of obtaining shareholder approval of the Transactions, certain events giving rise to a default under the Convertible Notes, obligations to use the proceeds from certain future financings to repay a portion of the principal amount of the Convertible Notes, our pledge to the Selling Securityholder of the ownership interests in our subsidiaries, a grant by us and our subsidiaries of a security interest in all of their respective assets and rights as collateral for the obligations due under the Convertible Notes, and a guaranty by our subsidiaries of our obligations under the Convertible Notes.
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Officer and Director Changes
On March 20, 2023, Shuhei Komatsu resigned from his positions as Chief Executive Officer and Director and Chairman of the Board of the Company. Mr. Komatsu previously served as the Company’s Chief Executive Officer and a Director and Chairman of the Company since February 3, 2023. Mr. Komatsu’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On March 20, 2023, the Company’s Board of Directors appointed Taiji Ito to serve as Chief Executive Officer of the Company. Mr. Ito also serves as the Company’s Global Markets Executive Officer and as a Director of the Company, and has served in such capacities since his appointment to those positions on February 3, 2023.
On March 22, 2023, the Company’s Board of Directors appointed Daisuke Katano to fill the vacancy on its Board of Directors created upon Mr. Komatsu’s resignation to serve as a Director of the Company, and on the same date also appointed Mr. Katano to serve as the Company’s Chief Operating Officer.
On March 22, 2023, the Company’s Board of Directors appointed Marehiko Yamada to serve as the Chairman of the Board of Directors. Mr. Yamada was appointed as an independent director of the Company on February 3, 2023. On March 22, 2023, the Company’s Board of Directors also appointed Dr. Sayama to serve as the Vice-Chair of the Board of Directors. Dr. Sayama was appointed as an independent director of the Company on February 3, 2023. On March 22, 2023, the Company’s Board of Directors also appointed Kensuke Okabe to serve as Secretary of the Company. Mr. Okabe was appointed as the Company’s Chief Financial Officer on February 3, 2023.
On March 22, 2023, the Company’s Board of Directors also appointed Mr. Yamada as the Chair of the Company’s Compensation Committee and appointed Mike Sayama as the Chair of the Company’s Nominating and Corporate Governance Committee. Dr. Sayama previously served as the Chair of the Company’s Compensation Committee from February 3, 2023 to March 22, 2023. Mr. Yamada previously served as the Chair of the Company’s Nominating and Corporate Governance Committee from February 3, 2023 to March 22, 2023.
On March 27, 2023, the Board approved the removal of Kazuo Miura as the Company’s Chief Product Officer. Mr. Miura served as the Company’s Chief Product Officer since his appointment to this position on February 3, 2023. Mr. Miura’s removal was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Memorandum of Understanding
On March 17, 2023, the Company entered into a Memorandum of Understanding (the “MOU”) with Outsourcing Inc. (“OSI”). Pursuant to the MOU, OSI agreed to invest up to 300,000,000 yen (approximately $2.3 million USD) (the “Investment”) in a planned joint venture (“JVC”) between the Company, either directly or through the Company’s wholly owned subsidiary AERWINS Inc., or its wholly owned subsidiary A.L.I. Technologies Inc. (“A.L.I.”) with Vault Investments LLC (“Vault”).
OSI is only required to make the Investment in the JVC, if the following conditions are met by April 30, 2023:
| (1) | The JVC is established with the investment of the Company, Vault and OSI; |
| (2) | The terms and conditions of the shareholders’ agreement or the investment agreement have been negotiated between the Company, Vault and OSI and executed (the “Definitive Agreement”); and |
| (3) | In the Definitive Agreement, Vault must be obligated to invest in the JVC. |
Pursuant to the MOU, if OSI becomes obligated to make the Investment in the JVC, the currency of the Investment and base date for the exchange rate will be determined in the Definitive Agreement.
The MOU is effective from the date of entry until April 30, 2023 (the “Term”). Pursuant to the MOU, If the Definitive Agreement is not executed by the end of the Term, OSI will not be obligated to make the Investment in the JVC. Pursuant to the MOU, all disputes in connection with the MOU will be settled by arbitration in accordance with the Commercial Arbitration Rules of the Japan Commercial Arbitration Association in Tokyo Japan.
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Effects of Inflation
AERWINS has not been affected by inflationary pressure as our parts supply has been predominantly limited to within Japan. Japan, relative to other nations, has not experienced inflationary pressures and furthermore, our production number has been limited and the price point being high allows enough cushion if the procurement cost were to be affected in the future.
Employees
Prior to the closing of the Business Combination, at December 31, 2022, the Company had three executive officers and the Company did not have any full-time employees prior to the completion of the Business Combination.
We have 103 employees as of March 31, 2023. Of these, 76 are full-time, contract, and short-time regular employees, and 27 are part-time, temporary, or other temporary employees. Since the Company operates in a single segment of the air mobility business, segment information is omitted. The average age of employees is 37.6 years old and the average length of service is 2 years. No labor union has been formed, but labor-management relations are amicable.
Our wholly owned subsidiary’s AERWINS, Inc., a Delaware corporation, wholly owned Japanese subsidiary, A.L.I. Technologies, Inc. is covered by various employee social security systems organized by the government, including health insurance, unemployment insurance, pension insurance, and medical insurance, in accordance with the laws and regulations in Japan.
We typically enter into standard employment and confidentiality agreements with our key employees. In addition, we enter into confidentiality and non-compete agreements with senior management and intellectual property assignment agreements with core technical personnel.
Our success depends on our ability to attract, retain and motivate qualified employees that share our values and vision. We believe that we maintain a good working relationship with our employees. As of the date of this prospectus, we have no material labor disputes and we believe that we maintain a good working relationship with our employees.
Facilities
Prior to the closing of the Business Combination, the Company’s executive offices were located at 643 Ilalo Street, Honolulu, Hawaii 96813 and its telephone number was (808) 892-6611. The Company agreed to pay Mehana Equity LLC, its sponsor at the time, a total of $10,000 per month for the office space, utilities and secretarial and administrative support and the use of this office location is included in such $10,000 monthly payment. For the year ended December 31, 2022, and for the period from February 12, 2021 (inception) through December 31, 2021, the Company incurred expenses of $120,000 and $47,096, respectively, under this agreement. Upon completion of our Business Combination, the Company ceased paying these monthly fees.
After the closing of the Business Combination, our headquarters is located at Shiba Koen Annex 6 f, 1-8, Shiba Koen 3-chome, Minato-ku, Tokyo, Japan 105-0011, where we lease and occupy our office space with an aggregate floor area of approximately 340 square meters from unrelated third parties under operating lease agreements. Our manufacturing and shipping facility is located at 1-2-11 Fukamidai, Yamato-shi, Kanagawa. Our testing facilities is located at 72 Misawa, Minobu-cho, Minami Koma-gun, Yamanashi.
As of the date of this prospectus we do not currently own any of our facilities. The following table shows the location of our primary leased facilities, the name of the entity leasing the building, the annual rent, approximate square footage, primary use, and lease expiration date.
We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate our future growth. There are no major facilities currently inactive. Annual rent below does not include consumption tax.
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Name of Firm (Location) | Name of company lending | Primary Use | Annual rent (Thousands of yen and US dollars) | Approximate Size in Square Meters | Lease Expiration Date | |||||||||||
| Head Office | ||||||||||||||||
| (Shibakoen, Minato-ku, Tokyo) | Mori Trust Co. | Head office | 16,694 yen (approximately $115.36 USD |
) | 340.64 | March 31, 2024 | ||||||||||
| Noda Firm | ||||||||||||||||
| (Noda City, Chiba Prefecture) | Amenix Co. | Data Center | 8,040 yen (approximately $55.56 USD |
) | 1,001.00 | December 13, 2024 | ||||||||||
| Hiratsuka Firm | ||||||||||||||||
| (Hiratsuka City, Kanagawa Prefecture) | Mitsuwa Chemical Co. | Data Center | 3,360 yen (approximately $23.21 USD |
) | 195.96 | August 31, 2023 | ||||||||||
| Kawaguchi Firm | ||||||||||||||||
| (Kawaguchi City, Saitama Prefecture) | Shioka Kiko Co. | Data Center | 2,880 yen | 166.16 | August 10, 2025 | |||||||||||
| Yamato Technology Center | (approximately $19.90 USD | ) | ||||||||||||||
| (Yamato City, Kanagawa Prefecture) | Omiya Warehouse Co. | R&D & Experimentation; Manufacturing; Shipping | 22,418 yen
(approximately $154.90 USD |
) | 1,273.03 | October 31, 2025 | ||||||||||
| Minobu Testing Center | ||||||||||||||||
| (Minobu City, Yamanashi Prefecture) | Minobu City | Testing Center | 1,850 yen
(approximately $12.78 USD |
) | 3,720 | April 30, 2025 | ||||||||||
Insurance
We maintain various types of insurance, employer’s liability insurance, to protect assets in the event of any accident that might cause significant losses. We also purchase insurance policies that are either legally compulsory or required by our customers. For example, we maintain third-party liability insurance for unmanned AMVs. We have civil liability insurance with coverage and conditions that our management considers appropriate. For example, we maintain product liability insurance, which covers bodily injury or property damage caused by defects in our products. We believe that our insurance coverage is adequate to cover our key assets, facilities and liabilities.
Government Regulation
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.
We operate in a new and rapidly evolving industry, which is subject to extensive legal and regulatory requirements. As described below, in the jurisdictions relevant to us, the use and delivery of our AMVs are, and in the near future are expected to continue to be, subject to an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of AMV-related regulations and the lack of relevant precedents. For example, we are not aware of any operator having been granted all required approvals for the operation of AMVs in Japan, the United States or elsewhere. We cannot predict when these regulations will change, and any new regulations may impose onerous requirements and restrictions.
As we sell our AMV products internationally, we face challenges in quickly and sufficiently familiarizing ourselves with foreign regulatory environments and policy frameworks. If any new regulation is put in place, or a different interpretation of existing regulation is adopted, our ability to manufacture, market, sell or operate our AMVs or to advertise or deliver air mobility solutions in general may be limited or otherwise affected. Failure to comply with applicable regulations or to obtain, maintain or renew the necessary permits, licenses, registrations or certificates could cause delays in, or prevent us from, manufacturing, marketing, selling and operating our AMVs products, meeting product demand and expectations, introducing new products or expanding our service coverage, and could materially and adversely affect our operation results. If we are found to be in violation of applicable laws or regulations, we could be subject to administrative punishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Sales of our AMVs must comply with applicable standards in the market where they are sold, including standards on design, manufacturing and operation. In Japan, for example, certain components of our AMVs must pass various tests and meet criteria specified in Product safety guideline issued by the Ministry of Economy, Trade and Industry in Japan. We have met the applicable requirements in the guideline and obtained approval of export with Certificate of Non-applicability. Currently, there are 193 members or contracting states in the International Civil Aviation Organization (“ICAO”), which is governed by the ICAO Council, which is composed of 36 member states including the United States. Pursuant to ICAO policy we believe that our product will not be considered an aircraft in the United States. However, the future commercial use of our product in the United States may be restricted by various regulations at the federal and state levels, as well as private regulations, such as the prohibition of private mobility near airports, which may prevent the use of our product. Future changes in laws and regulations may also make it impossible to use our product in the ways that are currently planned. Although the United States is a member of the ICAO Council, in the United States, the FAA oversees the safety of aircraft operations in the national airspace system and has the authority to grant airworthiness certificates and related exemptions to unmanned aircraft systems. If we fail to have our AMVs satisfy applicable aerial vehicle standards in any jurisdiction where we operate, our business and operating results would be adversely affected. To achieve a high level of safety assurance, we have also established our own AMV safety standards. While we are committed to producing safe and high-quality products, there can be no assurance that our safety technology will be effective in preventing incidents related to product safety, such as accidents involving our AMVs. Failure to ensure the safe operation of our AMVs will affect our reputation and the sales of our AMVs, which will ultimately adversely affect our business operation and financial results.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct our business or sell our products, including the Japanese anti-corruption laws and regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act 2010 also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. The Japanese anti-corruption laws and regulations prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection with the implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.
We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.
Japan Regulation
Our air mobility business includes the manned air mobility domain, the unmanned air mobility domain, the computing power sharing domain, and the human resource technology domain. An overview of the laws, regulations, administrative guidance, and supervisory authorities related to each of these domains is provided below. We are promoting our business in compliance with these relevant laws and regulations. At present, there are no matters that have been pointed out or guidance given by the supervisory authorities.
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Manned Air Mobility Domain
| Related Laws and Regulations | Business-related Content | Supervising
Government Agency | Qualified
Persons | |||
| Civil Aeronautics Law | The purpose of this Act is to promote the development of aviation and to promote the public welfare by providing for safe navigation of aircraft and methods to prevent obstructions arising from the navigation of aircraft, and by ensuring the proper and reasonable operation of business conducted by operating aircraft, in accordance with the provisions of the Convention on | Ministry of Land, Infrastructure, Transport and Tourism | N/A | |||
| International Civil Aviation and the standards, systems and procedures adopted as annexes thereto, and by securing the safety of transportation. The purpose of the Act is to promote the development of aviation and the public welfare by providing for the safety of aircraft navigation and methods for preventing obstructions caused by the navigation of aircraft, and by ensuring the proper and reasonable operation of businesses operating aircraft, and by promoting the convenience of users. | ||||||
| We recognize that hoverbikes are not considered aircraft under the Civil Aeronautics Law because their levitation performance is within the range of the ground effect. In the event that the same applies overseas, we will check with the relevant authorities in each country at the time of sale and proceed with our business in compliance with laws and regulations. | ||||||
| Road Traffic Law | The purpose of this law is to prevent hazards on roads, to ensure the safety and smoothness of other traffic, and to contribute to the prevention of obstacles caused by traffic on roads.
As a mobility vehicle that travels near the ground, it is expected to be subject to the Road Traffic Law when used on a road (public road) under the Road Traffic Law, in which case it will be subject to regulations under the Law. | National Police Agency | N/A | |||
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Unmanned Air Mobility Domain
| Related Laws and Regulations | Business-related Content | Supervising
Government Agency | Qualified
Persons | |||
| Civil Aeronautics Law | The purpose of this Act is to promote the development of aviation and to promote the public welfare by providing for safe navigation of aircraft and methods to prevent obstructions arising from the navigation of aircraft, and by ensuring the proper and reasonable operation of business conducted by operating aircraft, in conformity with the provisions of the Convention on International Civil Aviation and the standards, systems and procedures adopted as annexes thereto, and by securing the safety of transportation. The purpose of the Civil Aeronautics Law is to promote the development of aviation and the public welfare by providing for the safety of aircraft navigation and methods for preventing obstructions caused by aircraft navigation, and by ensuring the proper and reasonable operation of businesses that operate aircraft, and by promoting the convenience of its users. | Ministry of Land, Infrastructure, Transport and Tourism | N/A | |||
| With respect to the Civil Aeronautics Law, which regulates drone flights, we have obtained permission and approval under the Law when we fly drones in the Saiji area, which is a no-fly zone for drones, and when we fly drones without following the prescribed procedures. | ||||||
| Law Concerning the Prohibition of Flying by Small Unmanned Aircraft and Other Means | The purpose of this law is to prohibit small unmanned aircraft, etc. from flying over the National Diet Building, the Prime Minister’s Official Residence and other important national facilities, foreign diplomatic missions, defense-related facilities, airports, and areas surrounding nuclear power plants, thereby preventing danger to these important facilities and contributing to the maintenance of the central functions of the national government, good international relations, the infrastructure for the defense of Japan, and the infrastructure for national life and economic activities. The purpose of this prohibition is to prevent danger to these important facilities and thereby contribute to the maintenance of the central functions of the national government, good international relations, the foundation for the defense of Japan, and the infrastructure of the people’s lives and economic activities, as well as to public safety.
The law prohibits the flight of small unmanned aircraft, etc. over important national facilities, etc. and the surrounding area of approximately 300 meters. When we fly our drones, we are committed to flying in compliance with this law. | National Police Agency | N/A | |||
| Radio Law | The purpose of this law is to promote the public welfare by ensuring the fair and efficient use of radio waves. Depending on the radio band used for drones, qualifications and the opening of radio stations, etc., based on this law may be required. At present, this is not a requirement, but if it becomes necessary in the future, we will promote our business in compliance with the Act. | Ministry of Internal Affairs and Communications | Land Special Radio Engineer (Level 3 or above)
There is no particular requirement for the number of applicants at each location.
Amateur Radio Technician (Level 4 and above)
There is no special requirement for the number of applicants at each location. | |||
| Prefectural and Municipal Ordinances | In addition to the above, some local ordinances may impose descriptions by local governments in some areas. | Each local government | N/A | |||
There are no significant laws and regulations in the computing power sharing domain. In addition, there are no matters other than legal regulations or administrative guidance that have a significant impact on the industry that should be noted.
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UAE Regulation
In the United Arab Emirates (the “UAE”), UAE Federal Laws establish the General Civil Aviation Authority (the “GCAA”) which is the authority that governs all civil aviation activities in the UAE. The GCAA has implemented the CAR-UAM to specify the requirements to be met for civil aviation activities in the UAE as well as the grant of an Urban Air Mobility (“UAM”) operator certificate and for the continued validity of such certificate. The CAR-UAM regulations apply to aircraft with a pilot on board as well as remotely piloted aircraft. The CAR-UAM represent the minimum requirements designed to achieve an acceptable level of safety and security for urban air mobility activities in the UAE.
Under the CAR-UAM, there are three levels of compliance (i) implemented rules (“IR”) which are binding and used to specify a high and uniform level of safety and uniform conformity and compliance (ii) acceptable means of compliance (“AMC”) which serve as guidance by which the requirements contained in the IR can be met and (iii) guidance material (“GM”) which are non-binding explanatory and interpretation materials on how to achieve the requirements contained in the IRs and the AMCs. Additionally, under the CAR-UAM there are alternative means of compliance (“AMOC”) to the AMC’s and may be used by an organization to establish compliance with the CAR-UAM. In order to do so however, an organization would have to first provide the GCAA with a full description of its proposed AMOC which must include any relevant manuals and procedures and an assessment demonstrating compliance with the CAR-UAM. AMOCs can only be implemented if approved in advance by the GCAA. The CAR-UAM also provides that the International Civil Aviation Organization (“ICAO”) protocols and agreements pertaining to civil aviation and its protection, of which the UAE is a party, will only be considered complementary to the provisions of the CAR-UAM in as much as they do not contradict its provisions.
Under the IR’s an urban air mobility operation includes: (i) flights operating primarily in close proximity of populated urban areas, for the carriage by air of passengers, freight or mail, or any combination thereof for remuneration and (ii) where the aircraft used is an Urban Air Mobility Vehicle (“UAMV”), which may be operated with a pilot on-board, remotely piloted or with various degrees of autonomy. Under the CAR-UAM, no organization or person is permitted to conduct any urban air mobility operations in the UAE unless approved by the GCAA under the CAR-UAM. In order to obtain an Urban Air Mobility Operator Certificate or an amendment to an existing certificate, an applicant must demonstrate compliance with the CAR-UAM to the satisfaction of the GCAA. In order to obtain the certificate, an organization must also show to the GCAA that the granting of such a certificate is not contrary to the interests of aviation safety. The application must be submitted through the GCAA E-Service system, and must include the following documentation:
| ● | Operator’s operations manual; |
| ● | GCAA security clearance; |
| ● | Safety management system manual; |
| ● | Quality management system manual; |
| ● | Training manuals; |
| ● | Operations manual; and |
| ● | Any other documentation as requested by the GCAA. |
There are also associated fees that are required to be paid in connection with the application. If a certificate is issued, it will remain valid so long as the applicant remains in compliance with the CAR-UAM and the certificate has not been surrendered to the GCAA or suspended or revoked by the GCAA.
In order to maintain compliance under the CAR-UAM, an organization is required to grant access at any time to the GCAA to any facility, aircraft, document, record, data, procedures and any other relevant materials and must facilitate both planned and unplanned inspections and audits by the GCAA. If after any inspection, the GCAA provides a notice of non-compliance to any organization, the organization must identify the root cause of the non-compliance, define a corrective and preventative action plan acceptable to the GCAA and demonstrate the corrective action implantation to the satisfaction of the GCAA within the time period established by the GCAA. The GCAA may impose restrictions, suspend, limit or revoke a certificate if an operator cannot demonstrate its capability to implement and maintain the appropriate safety standards. Under the CAR-UAM, an operator is also required to report to the GCAA any accident, serious incident and any other occurrence as required by Safety Incident Reporting guidance available on the GCAA website. In the event of an accident or serious incident, an organization must secure all flight data and evidence relevant to the incident aircraft and provide support to the GCAA investigation.
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Under the CAR-UAM, an operator is required to establish, implement and maintain a management system that includes the following:
| ● | Clearly defined lines of responsibility and accountability throughout the operator, including a direct safety accountability of the accountable manager; |
| ● | A description of the overall philosophies and principles of the operators with regard to safety referred to as a safety policy; |
| ● | The identification of aviation safety hazards entailed by the activities of the operator, their evaluation and the management of associated risks, including taking actions to mitigate risks and verify the effectiveness of the mitigating actions; |
| ● | Maintaining personnel trained and competent to perform their assigned tasks; |
| ● | Documentation of all management system key processes, including a process of making personnel aware of their responsibilities and procedures for amending this documentation; |
| ● | A function to monitor compliance of the operator with the relevant requirements of the CAR-UAM, this monitoring must include a feedback system of findings to the accountable manager to ensure effective implementation of corrective actions as necessary; and |
| ● | Any additional requirements imposed by the GCAA. |
The management system must correspond to the size of the operators and the nature and complexity of its activities, taking into account the hazards and associated risks inherent in these activities. The organization must also appoint an accountable manager who has the authority to oversee all activities and to ensure that they can be financed and carried out in accordance with the CAR-UAM. An operator is also required to have a sufficient number of qualified personnel for its operators and has to maintain records of this as well as document the training, experience and qualifications of its personnel. An organization must also establish, implement and maintain a safety management system to ensure that the security of their facilities and personnel so as to prevent unlawful interference with the provisions of their services and that the security of operational data that they receive or produce is only accessible to authorized persons.
Pursuant to the CAR-UAM, an operator must maintain facilities allowing for the performance and management of all planned tasks and activities. Additionally, under the CAR-UAM, an operator must have in place insurance coverage to cover any liabilities related to their operations, as well as insurance covering occupants and third-party liability. Pursuant to the CAR-UAM, an operator must maintain a system of record keeping that allows for adequate storage and reliable traceability of all activities developed in a format that is acceptable to the GCAA. The records must be stored in a manner that ensures protection from damage, alteration and theft. Additionally, the organization must maintain all flight records including the date and commencement of the time of the flight, the departure and arrival destinations and landing sites, the flight duration, flight paths and altitudes as well as any instructions received from the GCAA command center. The CAR-UAM also requires that an operator keep certain documents on board for each flight, such as the certificate issued by the CAR-UAM. Additionally, pursuant to the CAR-UAM, a UAMV must be deemed to have met “airworthiness” by the GCAA before it can be operated which requires the prior inspection of the UAMV by the GCAA. Further, an operator must meet the maintenance requirements of the CAR-UAM as established by the GCAA. An operator must also comply with all air traffic services requirements, clearances and instructions of the CAR-UAM.
U.S. Regulation
The Federal Aviation Administration, or the FAA, one of several modal organizations within the Department of Transportation, or the DOT, is the regulatory agency in the United States with authority to oversee the safety of aircraft operations in the national airspace system of the United States, or the NAS. By statute, the Congress of the United States, or the US Congress, has vested the FAA with authority to regulate airspace use, management and efficiency, air traffic control, safety, navigational facilities, and aircraft. By contrast, the DOT retains regulatory control over all economic authority granted to commercial operations of aircraft (including for goods or passenger transportation for hire) within the United States. Thus, in addition to any FAA approvals and authorization required for operation of aircraft within the NAS, each aircraft operator conducting commercial operations must also be issued and hold economic authority (or an exemption) from the DOT. Unmanned aircraft systems, or UAS, are considered a category of aircraft for purposes of regulation by the FAA and the DOT. Our AAVs are classified as UAS and their operations are therefore subject to the approval by both the FAA and the DOT.
Note that the description of the regulation of UAS in the United States as provided herein reflects the regulatory landscape with respect to the approval of UAS and UAS operations current as of the date of this document. FAA’s authority, processes and methodologies for the evaluation of UAS operations in the NAS continues to rapidly evolve, and the regulation and processes described herein are subject to change.
FAA Regulation of UAS
With respect to UAS operations in the NAS, the FAA currently has the authority to promulgate and enforce restrictions regarding (i) the types of flights that may be conducted; (ii) the equipment that may be used to conduct those flights; and (iii) the training required. The regulatory framework applicable to a particular UAS operation is determined by whether (a) the UAS is used by a government agency, for commercial purposes, or as a model aircraft; and (b) whether at takeoff the UAS (including any attachments) weighs less than 55 pounds (Small UAS), or equal to or more than 55 pounds (Large UAS). Importantly, FAA currently considers AAVs to be UAS - the remote pilot requirement for UAS can be satisfied by a person who supervises an autonomous operation but who does not physically guide the aircraft. Our passenger-grade AAVs are classified as Large UAS.
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Small UAS
Small UAS can be operated for commercial purposes under the recently enacted Part 107 of Title 14 of the Code of Federal Regulations, or Part 107. Importantly, Part 107 explicitly does not permit “air carrier operations,” meaning generally the transport of property over state borders (i.e. interstate operations). However, under Part 107, property can be transported within state borders. UAS operations under Part 107 are subject to a
number of operational limitations, including, for example, that the UAS: (i) must remain within the visual line of sight of either the pilot in command or a visual observer, if any; (ii) may not be operated over persons not involved in the UAS operation; (iii) may not be operated at night, and (iv) not be operated within certain restricted airspace (e.g. airspace in close proximity to airports, public stadiums, national parks, etc.). However, §107.200 of Part 107 provides for a mechanism whereby a potential UAS operator can apply to the FAA for a waiver of some of the restrictions described in Part 107, including the restrictions listed in this paragraph. While exemptions to certain restrictions and limitation under Part 107 may be applied for and granted by FAA, Part 107 expressly provides that the beyond visual line of sight restriction cannot be waived if the purpose of the authorized operation is to transport goods.
It should also be noted that certain other restrictions do apply, and the FAA will not waive these restrictions. For example, the UAS must be operated by a pilot holding a remote pilot airman certificate. This certificate can be obtained by demonstrating aeronautical knowledge by either (i) passing an initial aeronautical knowledge test; or (ii) holding a Part 61 pilot certificate, completing a flight review once every 24 months, and completing a UAS training course. Pilots must also be at least 16 years of age and vetted by the United States Transportation Security Administration.
The FAA has also been directed by the US Congress, and is actively engaged in the rulemaking process required, to revise Part 107 to expand the scope of permissible commercial operations by Small UAS without the need to apply to the FAA for a waiver under §107.200. See “- Recent and Pending Federal Legislation and Regulation” below.
Large UAS
Large UAS can be operated in the NAS for testing purposes by obtaining authority from FAA pursuant to a special airworthiness certificate in the experimental category, or an SAC. The specific requirements and process for obtaining an SAC are described in FAA Order 8130.34D - Airworthiness Certification of Unmanned Aircraft Systems and Optionally Piloted Aircraft. If the FAA determines the proposed operation does not present an unreasonable safety risk, the FAA will issue an SAC with operating limitations applicable to the particular UAS or the proposed operation, as applicable. With respect to operational authority, it is important to note that the FAA will only grant an SAC for the purposes of research and development (R&D), showing compliance with regulations, crew training, exhibition, and/or market survey. Carrying persons or property for compensation or hire is prohibited. Thus, an SAC might be beneficial for the purposes of obtaining authority to test proposed operational concepts, but would not ultimately authorize the carriage of packages or persons for compensation.
By contrast, Large UAS can be operated in the NAS for commercial purposes by obtaining two types of authority addressed below.
First, a manufacturer must obtain a type certificate (and ultimately a production certificate and airworthiness certificate) from the FAA pursuant to 14 CRF Part 21 with respect to the UAS.
Alternatively, if the FAA will consent, the operator may obtain an exemption to all type certification and airworthiness requirements pursuant to an exemption granted under the Special Authority for Certain Unmanned Systems located in 49 U.S.C. § 44807, or a Section 44807 Exemption. By way of background, the Section 44807 Exemption grants the FAA the authority to use a risk-based approach to determine whether a UAS can operate safely in the NAS with respect to a specific proposed operation without complying with those certain airworthiness and operational requirements for which the Section 44807 Exemption is sought. As recently as December 2018, the FAA strongly encourages allowing 90 days for processing of applicable waivers and exemptions. It should also be noted here that the FAA will only grant Section 44807 exemptions for UAS under the operational control of the petitioner (person or organization). Exemptions to operate a UAS will not be granted to a UAS manufacturer unless the manufacturer intends to maintain operational control of the UAS. To receive this type of exemption, the operator must demonstrate that the applicable aircraft can be safely operated in the NAS.
Second, an operator must obtain FAA approval for a specific proposed operation, such as the provision of urban air mobility services. In general, the FAA will issue such approval in the form of a Section 44807 Exemption. To obtain a Section 44807 Exemption, an applicant must submit a description of the precise scope of operations to be conducted, the UAS the applicable petitioner intends to use, the flight and communication procedures that will be used, the safety procedures that will be implemented, and training for all personnel involved in the UAS operations.
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Lastly, in addition to the authority obtained pursuant to either an SAC or a Section 44807 Exemption, petitioners pursuing authority to either test a UAS or operate a UAS commercially must also obtain authority from the FAA to conduct operations in specific airspace within the NAS. All petitioners who are granted either a SAC or a Section 44807 Exemption by the FAA also simultaneously receive a Blanket Certificate of Authorization, or the Blanket COA. This Blanket COA gives an operator the authority to operate Small UAS under daytime Visual Flight Rule conditions at specific altitudes (such as below 400 feet) and outside of certain distances from airports and heliports. Blanket COAs are valid for a set period of time, typically two years. Operators holding either a SAC or a Section 44807 Exemption, and seeking to conduct operations which have been approved by the FAA, but which are in airspace that is outside of the limited scope permitted by the Blanket COA, such as operations above 400 feet, by Large UAS or within close proximity to an airport or other controlled or restricted airspace, will need to apply to the FAA for a Standard Certificate of Authorization, or the Standard COA. The provision of air mobility solutions does not fall within the permitted scope of the Blanket COA and will require a Standard COA alongside an SAC or a Section 44807 Exemption, as applicable.
The process and requirements for submitting a petition to the FAA in order to obtain a Standard COA are set forth in FAA Joint Order 7200.23A: Unmanned Aircraft Systems (UAS) Operations in the National Airspace System (NAS), or the Joint Order. According to the Joint Order, electronic applications should be submitted at least 60 business days before the proposed start of UAS operations requiring a Standard COA. The proponent must submit an application for a Standard COA using the online application system. Waiver processing times will vary depending on the complexity of the request. The Standard COA will typically describe the airspace and geographic location in which the proposed operations are permitted, as well as the duration of its effectiveness, which is commonly two years.
Registration
Both Small UAS and Large UAS operating in the NAS must be registered with the FAA. Operators of UAS conducting flights under Part 107 can register their UAS through the FAA’s “FAADroneZone” website. Operators of Large UAS can register their UAS by filing FAA Form 8050-1 with the FAA.
Airspace Considerations
Within the NAS, the FAA has created two categories of airspace: regulatory and non-regulatory, and each category can be further classified into four types: controlled, uncontrolled, special use, and other airspace. The categories and types of airspace are dictated by the complexity or density of aircraft movements, nature of the operations conducted within the airspace, the level of safety required, and national and public interest. The permissibility of UAS operations and the regulations that apply vary with respect to each category and type of airspace.
UAS Traffic Management
The FAA, the National Aeronautics and Space Administration, or NASA, and other federal partner agencies are collaborating on two related efforts to create and fully implement a framework to manage UAS operations in the NAS. First, the FAA and NASA are developing the Unmanned Aircraft System Traffic Management, which is a “traffic management” ecosystem for UAS operations that is separate from, but complementary to, the FAA’s Air Traffic Management system. Research and testing will identify airspace operations requirements to enable safe visual and beyond visual line-of-sight UAS flights in low-altitude airspace.
As part of this effort, the FAA has developed an internet-based platform known as the Low Altitude Authorization and Notification Capability, or the LAANC. The purpose of the LAANC platform is to automate and thus expedite the process for UAS operators to both notify the FAA of flights within five miles of an airport and submit requests to obtain FAA authorization to fly in restricted classes of airspace. This platform, which is already partially implemented, will ultimately enable the FAA to more rapidly issue requested authorizations and waivers.
UAS Test Sites
In response to direction from the US Congress in the FAA Modernization and Reform Act of 2012, the FAA ultimately selected seven applicants to establish Test Sites to support UAS integration into the NAS. While they are not the mandatory experimental sites for UAS commercial operators, the Test Sites provide an avenue and a venue to conduct more advanced UAS research and test operational concepts. Data and other information related to the operation of UAS generated by the Test Sites will ultimately enable the FAA to develop regulations and operational procedures for future commercial and civil use of the NAS.
Each Test Site has established relationships with the FAA and an existing facility or location that can host the testing of proposed UAS operations. Each Test Site has established credibility with the FAA and may prove helpful in facilitating and expediting the FAA’s validation and evaluation of any data produced during testing.
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UAS Integration Pilot Program
The DOT first announced the creation of the UAS Integration Pilot Program (IPP) in October 2017 consistent with a Presidential Memorandum directing the DOT to create the program. The IPP objectives include accelerating the safe integration of low altitude operations of UAS into the NAS by testing and validating new concepts with respect to beyond visual line of sight operations in a controlled environment, focusing on detect and avoid technologies, command and control links, navigation, weather and human factors. In particular, the DOT has explained that the FAA will use the data provided by the IPP “to advance the overall state of the industry, including the development of enabling regulations that will increase other types of routine UAS operations, such as: (1) beyond line-of-sight flights; (2) operations over people; and (3) package delivery. Consistent with this direction, the FAA has indicated that it will rely on the IPP to provide data and insight on expanded UAS operations that will help the agency continue its regulatory agenda to allow expanded operations through incremental rulemakings.
DOT Regulatory Overview
In order to engage directly or indirectly in air transportation, and in addition to the FAA authority described above, each UAS operator is required to hold economic authority granted by the DOT, either in the form of a “certificate of public convenience and necessity” or in the form of an exemption from the certificate requirement. Air transportation includes transportation of property by aircraft for compensation across state boundaries.
In May 2018, the DOT announced procedures to streamline the grant of economic authority to UAS operators proposing to deliver “goods” as an “air taxi.” Under these simplified procedures, UAS operators seeking goods delivery authority must: (1) be a U.S. citizen; (2) maintain liability insurance as required by FAA rules; and (3) register with the DOT. As of the date of this prospectus, the DOT has not pronounced any guidance regarding UAS-based passenger transportation for compensation.
Federal Communications Commission (FCC)
The FCC governs and regulates radio frequency spectrum. Both the ground-based control transmitter and the airborne video transmitter of UAS come under FCC regulation. Any petition for exemption submitted to the FAA must also describe the radio frequency spectrum used for control of the UAS and associated equipment that is part of the UAS, such as sensors, cameras, and whether it complies with FCC or other appropriate government oversight agency requirements. Thus, before submitting any petition to the FAA, an applicant should ensure that its UAS use certified radio frequencies in the proper strength as specified by the FCC. Furthermore, the security of the communication links between the ground station and the AAV shall be ensured so that unauthorized persons are prevented from gaining control of the AAVs.
State/Local Law
Though the FAA establishes the applicable rules and regulations with respect to the operation of UAS in the NAS, operators must still comply with state and local laws regarding privacy and public safety. As an example of the type of law that must be followed, in June 2018 the Colorado legislature passed, and the governor signed, HB18-1314 prohibiting a UAS operator from “knowingly” obstructing a peace officer, firefighter, or emergency medical services provider in the performance of their duties. Other state and local entities may try to regulate takeoff and landing areas, noise abatement and other aspects of operating UAS within their jurisdictions. Many of these state and local laws or regulations may however be in conflict with the federal laws and regulations which govern all operations of aircraft (and therefore UAS) in the NAS, and, therefore may be unenforceable in whole or in part.
Recent and Pending Federal Legislation and Regulation
The FAA has continued to develop regulations to expand the scope of permitted UAS operations in the NAS. The FAA has made public two draft documents according to the announcement by U.S. Secretary of Transportation Elaine L. Chao on January 15, 2019, which were published in the Federal Register on February 13, 2019. The first of these documents is a draft notice of a proposed rulemaking that would significantly expand the scope of permitted commercial UAS operations under Part 107 by allowing operations at night and over people without first obtaining a waiver from the FAA. In the second, the FAA published an Advance Notice of Proposed Rulemaking on the “Safe and Secure Operations of Small Unmanned Aircraft Systems.” Additionally, the 2018 Act specifically required the FAA to release new regulations authorizing for-profit package delivery by Small UAS on or before October 4, 2019, but the FAA has yet to promulgate such regulations as of the date of this prospectus. The 2018 Act also provided that while the new rules are pending, UAS operators may avail themselves of existing processes to obtain authority for the delivery of goods, which presumably includes the air taxi exemption process, as described above, that the DOT is currently using for UAS. Finally, please note that the FAA has recently announced that its remote identification rulemaking for UAS, originally scheduled for publication in July 2019, will now be published in December 2019.
In 2018, H.R. 7395 attempted to facilitate the delivery of medical supplies by UAS for the purposes of improving medical care for rural populations and for patients in need of immediate attention. Although this bill did not ultimately become law in 2018, it is possible that similar legislation may be introduced in the future.
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Import of AAVs into the United States
In general, the importation of our AAVs into the United States should comply with the normal importation and customs procedures, while some unique aspect of the AAVs may require additional analysis and/or licenses, such as the AAVs containing banned or otherwise restricted materials or technology or constituting a product that could be considered as munitions, etc.
European Regulation
European Union Regulation Related to UAS
The main regulation of the European Union, or the EU, in the field of aviation is Regulation (EU) 2018/1139, which is generally referred to as the Basic Regulation by the European Union Aviation Safety Agency, or EASA. It was adopted by the European Parliament and the European Council on July 4, 2018 and entered into force on September 11, 2018. It repealed and replaced the previous Basic Regulation, Regulation (EC) No 216/2008.
Under the previous Basic Regulation, civil UAS with an operating mass of no more than 150 kg were regulated by each EU member state. On December 22, 2017, the member states endorsed an agreement reached with the European Parliament for the revision of the previous Basic Regulation, extending the competence of the EU to all UAS, except those used for state operations, such as military, customs, police and firefighting, and defining the essential requirements to ensure the safety of UAS. The agreement led to the adoption of the current Basic Regulation. The current Basic Regulation includes a new mandate for EASA in the domain of UAS and urban air mobility. It enables EASA to prepare rules for all sizes of civil UAS and harmonize standards for the commercial market across Europe.
Pursuant to the Basic Regulation, the European Commission published a delegated act, Regulation (EU) 2019/945, and an implementing act, Regulation (EU) 2019/947, on June 11, 2019. These regulations aim to protect the safety and privacy of EU citizens while enabling the free circulation of UAS and a level playing field within the EU. They include technical as well as operational requirements for UAS. Both regulations entered into force on July 1, 2019, although Regulation (EU) 2019/947 will not become applicable until July 1, 2020 to give member states and operators time to prepare for and implement it.
With the recent regulations described above, the EU has established a regulatory framework that divides UAS operations into three categories according to the level of risks involved: “open,” “specific,” and “certified.”
The “Open” Category
Operations in the “open” category are those considered to impose low safety risks. To be classified in the “open” category, operations must meet certain technical requirements, including, among others:
| ● | the unmanned aircraft must have a maximum take-off mass, or MTOM, of less than 25 kg; |
| ● | the remote pilot must ensure that the unmanned aircraft is kept at a safe distance from people and that it is not flown over assemblies of people; |
| ● | with limited exceptions, the remote pilot must keep the unmanned aircraft in visual line of slight, or VLOS, at all times; |
| ● | the unmanned aircraft is generally required to be maintained within 120 meters from the closest point of the surface of the earth; and |
| ● | the unmanned aircraft may not carry dangerous goods or drop any material. |
If UAS operations fall into the “open” category, they can be conducted without any operational authorization.
The “Specific” Category
Operations in the “specific” category are those considered to impose medium safety risks. When operations do not meet the requirements to be classified in the “open” or the “certified” category (described below), they fall into the “specific” category.
For operations falling into the “specific” category, a UAS operator is generally required to obtain an operational authorization from the competent authority in the EU member state where it is registered. To apply for such authorization, the operator must perform a risk assessment and submit it together with the application, including adequate mitigating measures. Ground risks that must be considered include, among others, VLOS or beyond visual line of sight, or BVLOS, population density of the overflown areas, flying over an assembly of people, and the dimension characteristics of the unmanned aircraft. Air risks that must be considered include, among others, the airspace volume used for the operation, the class of the airspace, and the impact on other air traffic and air traffic management. If the competent authority considers the operational risks are adequately mitigated, it shall issue an operational authorization.
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However, for operations that comply with certain defined standard scenarios, the operator does not need to obtain an operational authorization, but only needs to submit an operational declaration of such compliance to the competent authority of the member state. EASA is expected to publish guidance material and a proposal for two standard scenarios (urban VLOS and rural BVLOS) in October 2019.
In addition, UAS operators meeting certain requirements are eligible to apply for a light UAS operator certificate, or LUC. These requirements include, among others, maintaining a safety management system corresponding to the size of the organization, to the nature and complexity of its activities, taking into account the hazards and associated risks inherent in these activities. If an LUC is granted, the holder will not be required to apply for an operational authorization or submit an operational declaration for operations falling into the “specific” category.
The “Certified” Category
Operations in the “certified” category are those considered to impose higher safety risks than the other categories. The design, production and maintenance of UAS shall be certified if the UAS
| ● | has a characteristic dimension of three meters or more, and is designed to be operated over assemblies of people; |
| ● | is designed for transporting people; or |
| ● | is designed for the purpose of transporting dangerous goods and requiring a high level of robustness to mitigate the risks for third parties in case of accident. |
If the UAS is certified pursuant to the criteria above and the operation does involve flying over assemblies of people, the transport of people or carriage of dangerous goods that may result in high risk for third parties in case of accident, then the operation falls into the “certified” category. In addition, UAS operations shall be classified as “certified” if the competent authority, in evaluating an application for operational authorization for operations in the “specific” category, considers that the risk of the operation cannot be adequately mitigated without the certification of the UAS and of the UAS operator and, where applicable, without the licensing of the remote pilot.
For operations falling into the “certified” category, classical aviation rules apply. In other words, the UAS involved are treated similarly as manned aircraft. They are certified for their airworthiness and have more stringent operational restrictions. The processing time for applications for approvals under classical aviation rules varies among the EU member states. EASA plans to develop amendments to the existing regulations applicable to manned aviation for UAS operations in the “certified” category. The future EASA rules are expected to provide all the requirements to allow UAS operations with comparable procedures applied today to manned aircraft without increasing the level of risk to third parties on the ground and in the air.
Registration of UAS and UAS Operators
Under Regulation (EU) 2019/947, which will become applicable from July 1, 2020, EU member states shall establish and maintain accurate registration systems for UAS whose design is subject to certification and for UAS operators whose operations may present a risk to safety, security, privacy, and protection of personal data or environment. In addition, UAS operators must also register themselves when operating in the “specific” category and, if certain types of unmanned aircraft are used, in the “open” category.
In registration of UAS whose design is subject to certification, information solicited include the manufacturer’s name, the manufacturer’s designation of the unmanned aircraft, the unmanned aircraft’s serial number, and the name and contact information of the person under whose name the unmanned aircraft is registered. The owner of an unmanned aircraft whose design is subject to certification shall register the unmanned aircraft. An unmanned aircraft cannot be registered in more than one member state at a time.
In registration of UAS operators, information solicited include names and identification information, contact information, an insurance policy number if required by law, a confirmation by legal persons as to the competency of operational personnel, and, as applicable, operational authorizations, LUCs, or operational declarations with confirmation by the competent authority. UAS operators shall register themselves in the member state where they have their residence for natural persons or where they have their principal place of business for legal persons. A UAS operator cannot be registered in more than one member state at a time.
Norwegian Regulation Related to UAS
Norway is not an EU member state. However, as a member of the European Economic Area, Norway implements relevant EU legislation in its domestic regulations. Norway is also an EASA member state.
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Before July 1, 2020, UAS operations in Norway are governed by the Act of 11 June 1993 No 101 on aviation, or the Norwegian Aviation Act, and the Regulation on aircraft that do not have a pilot on board etc. (“Forskrift om luftfartøy som ikke har fører om bord mv.”), or the Norwegian UAS Regulation. Under the Norwegian UAS Regulation, UAS undertakings are divided into three categories, RO 1, RO 2 and RO 3.
An RO 1 undertaking is an undertaking in which aircraft with an MTOM of up to 2.5 kg and a maximum speed of up to 60 knots will be operated exclusively within VLOS during daylight hours and subject to fixed safety distances. RO 1 operators must notify the Civil Aviation Authority - Norway, or CAA Norway, before starting up any new undertaking. Such notification shall contain information about the undertaking’s name, address and contact information, as well as information about the type of aircraft that will be used.
An RO 2 undertaking is an undertaking in which aircraft with an MTOM of up to 25 kg and a maximum speed of up to 80 knots will be used for VLOS or extended visual line of sight, or EVLOS, operations during daylight hours and subject to fixed safety distances. RO 2 operators must obtain a license from CAA Norway before starting up an undertaking. The application must be accompanied by a risk analysis and an operations manual.
An RO 3 undertaking is an undertaking in which the aircraft a) have an MTOM of 25 kg or more, or b) have a maximum speed of over 80 knots, or c) is operated by a turbine engine, or d) will be used for BVLOS operations at altitudes of more than 120 meters, or e) will operate in controlled airspace at altitudes of more than 120 meters, or f) will operate over or in the vicinity of crowds of people with certain exceptions for aircraft with an MTOM of 250 grams or less. RO 3 operators must obtain a license from the CAA Norway before starting up an undertaking. The application must be accompanied by a risk analysis and an operations manual.
The operator may only use aircraft or systems approved by CAA Norway for the relevant type of operation. The operator must document the aircraft’s airworthiness. The application must be accompanied by documentation of the system design, control system, type of components, technical safety systems and completed test programs that show that the aircraft and system can carry out the relevant type of operation. CAA Norway may recognize aircraft, systems and components approved or certified by other aviation authorities. Based on a consultation with CAA Norway, in general the processing time for applications for approval for RO 3 operators is four weeks provided that all required documentation is included in the application.
The goal of the CAA Norway is to implement the new EU UAS regulations, including Regulation (EU) 2019/945 and Regulation (EU) 2019/947, in Norway from July 1, 2020. CAA Norway estimates that the new set of rules will not limit the scope of drone operations in Norway, but there will be new and additional requirements for registration, documentation and competence for operators. The new EU rules will replace the categories of RO 1, RO 2 and RO 3. Registered operators will however be able to operate under these categories until July 1, 2021.
Organizational Structure
The following is a current organizational chart of our Company:
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Corporate History
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On August 13, 2021, we consummated an initial public offering (“Initial Public Offering”). The registration statement for the Company’s Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 6) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000 Units at the Initial Public Offering price to cover over-allotments, if any. Simultaneously with the consummation of the closing of the Offering, the Company consummated the private placement of an aggregate of 469,175 units (the “Placement Units”) to the Sponsor at a price of $10.00 per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”).
On August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering. A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account established for the benefit of the Company’s public stockholders. On October 8, 2021, the Class A ordinary shares and Public Warrant included in the Units began separate trading.
On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative. Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation. The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022. On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
On November 9, 2022, the Company entered into Purchase Agreements and completed the private sale of an aggregate of 115,000 Placement Units at a purchase price of $10.00 per Placement Unit in a private placement and deposited $1,150,000 into the Company’s Trust account for its public stockholders, representing $0.10 per public share, allowing the Company to extend the period of time it had to consummate its initial business combination by three months from November 11, 2022 to February 13, 2023. The Purchase Agreements and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.
On December 31, 2022, substantially all of the assets held in the Trust Account were held in mutual funds.
No payments for our expenses were made in the offering described above directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except in connection with the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered into with our sponsor.
On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. (the “Company,” “we,” “us, “our” “AERWINS,” or “AERWINS Technologies”).
Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono common stock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January 25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. Effective February 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ common stock began trading on the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under the symbol “AWINW.”
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After taking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior to the Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, pay certain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with the Business Combination, a warrant holder of AERWINS, Inc. received a warrant to purchase 469,291 shares of AERWINS Technologies’ common stock as Merger Consideration as set forth in the Merger Agreement. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.
As a result of the Merger and the Business Combination, holders of Pono common stock automatically received common stock of AERWINS Technologies, and holders of Pono warrants automatically received warrants of AERWINS Technologies with substantively identical terms. At the Closing of the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A common stock and shares of Class B common stock), which we refer to as the founder shares, automatically converted into an equal number of shares of AERWINS Technologies’ common stock, and Private Placement Warrants held by the Sponsor, automatically converted into warrants to purchase one share of AERWINS Technologies common stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of the outstanding shares of AERWINS Technologies common stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding shares of AERWINS Technologies common stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of the outstanding shares of AERWINS Technologies common stock.
At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.
AERWINS, Inc. formerly named AERWINS Technologies Inc. until it changed its name to AERWINS, Inc. on January 24, 2023, was incorporated in the State of Delaware on June 9, 2022. A. L. I. Technologies Inc., a Japanese corporation and a wholly owned subsidiary of AERWINS, Inc. was established in Japan in September 2016. On August 5, 2022, pursuant to the terms of a share exchange agreement among the Company, A. L. I. Technologies, the shareholders of A. L. I. Technologies and Shuhei Komatsu, as the representative of the shareholders of A. L. I. Technologies, we issued 30,000,000 shares of AERWINS, Inc. common stock to the shareholders of A. L. I. Technologies in exchange for 2,006,689 shares A. L. I. Technologies’ common stock, representing 100% of the issued and outstanding capital stock of A. L. I. Technologies. As a result of this transaction, A. L. I. Technologies became AERWINS Inc.’s 100%-owned subsidiary and the former shareholders of A. L. I. Technologies became the owners of 100% of AERWINS, Inc. outstanding common stock as of August 5, 2022.
LEGAL PROCEEDINGS
From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AERWINS Technology Inc., formerly Pono Capital Corp. (the “Company”) is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination. The following unaudited pro forma condensed combined financial information presents the combination of the financial information of AERWINS, Inc., formerly AERWINS Technologies, Inc. (“AERWINS”) adjusted to give effect to the Business Combination. The following unaudited pro forma condensed consolidated combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”
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Immediately before the Business Combination, the Company was a blank check company incorporated on February 12, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
AERWINS is developing a manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through impassable zones in times of disaster, etc., and unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft, operators, operation management, and other software); and the computing power sharing domain, which provides services such as blockchain verification and AI algorithm generation in a fast, inexpensive, and safe manner. AERWINS is headquartered in Tokyo, Japan.
The unaudited pro forma condensed combined balance sheet as of December 31, 2022 combines the historical audited balance sheet of the Company as of December 31, 2022 with the historical audited consolidated balance sheet of AERWINS as of December 31, 2022, giving effect to the Business Combination as if they had been consummated on December 31, 2022.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 combines the historical audited statement of operations of the Company for the year ended December 31, 2022 with the historical audited consolidated statement of operations of AERWINS for the year ended December 31, 2022, giving effect to the Business Combination as if they had been consummated on January 1, 2022, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information was derived from, and should be read in conjunction with, the following historical financial statements and the accompanying notes, which are included elsewhere in this prospectus:
● The historical audited consolidated financial statements of the Company as of and for the year ended December 31, 2022; and
● The historical audited consolidated financial statements of AERWINS as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations of AERWINS for the year ended December 31, 2022.
The foregoing historical financial statements have been prepared in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information has been prepared based on the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma condensed combined financial information. The pro forma adjustments reflect transaction accounting adjustments related to the Business Combination, which is discussed in further detail below. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to represent the Company’s consolidated results of operations or the consolidated financial position that would actually have occurred had the Business Combination been consummated on the dates assumed or to project the Company’s consolidated results of operations or consolidated financial position for any future date or period.
The unaudited pro forma condensed combined financial information should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and other financial information included elsewhere in this prospectus.
These unaudited pro forma condensed combined and consolidated financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Business Combination and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined and consolidated financial information.
The pro forma adjustments giving effect to the Business Combination and related transactions are summarized below, and are discussed further in the footnotes to these unaudited pro forma condensed combined and consolidated financial statements:
| ● | the consummation of the Business Combination and reclassification of cash held in Pono’s Trust Account to cash and cash equivalents, net of redemptions (see below); and |
| ● | the accounting for deferred offering costs and transaction costs incurred by both Pono and AERWINS. |
Prior to the Closing, Pono’s public stockholders holding 11,328,988 shares of Class A common stock elected to redeem such shares.
The following summarizes the pro forma ownership of common stock of AERWINS following the Business Combination and related transactions:
| Number of Shares | Percentage of Outstanding Shares | |||||||
| Aerwins Stockholders | 51,986,565 | 93.3 | % | |||||
| Pono Public Stockholders | 171,012 | 0.3 | % | |||||
| Pono Sponsor and affiliates | 3,569,175 | 6.4 | % | |||||
| Pro forma common stock at December 31, 2022 | 55,726,752 | 100.0 | % | |||||
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PRO FORMA CONDENSED COMBINED AND CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2022
| Pono Capital Corp (Historical) | Aerwins Technologies, Inc. (Historical) | Transaction Accounting Adjustments | Pro Forma Combined | ||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | 193,829 | $ | 1,278,026 | $ | 1,130,000 | A | $ | 4,744,568 | ||||||||
| 1,795,997 | C | ||||||||||||||||
| — | — | 5,000,000 | D | — | |||||||||||||
| — | — | 5,321 | E | — | |||||||||||||
| — | — | (4,658,605 | ) | F | — | ||||||||||||
| Notes receivable | — | 3,488 | 3,488 | ||||||||||||||
| Accounts receivable, net | — | 980,688 | — | 980,688 | |||||||||||||
| Other receivable | — | 2,089,921 | (5,321 | ) | E | 2,084,600 | |||||||||||
| Inventory | — | 2,687,092 | — | 2,687,092 | |||||||||||||
| Escrow deposit | — | 575,000 | — | 575,000 | |||||||||||||
| Prepaid expenses and other current assets | 25,750 | 611,959 | — | 637,709 | |||||||||||||
| Total current assets | 219,579 | 8,226,174 | 3,267,392 | 11,713,145 | |||||||||||||
| Investments held in Trust Account | 120,600,737 | — | (118,804,740 | ) | B | — | |||||||||||
| (1,795,997 | ) | C | |||||||||||||||
| Equity method investments | — | 997,470 | — | 997,470 | |||||||||||||
| Operating lease right-of-use assets | — | 693,474 | — | 693,474 | |||||||||||||
| Property and equipment, net | — | 1,390,547 | — | 1,390,547 | |||||||||||||
| Intangible assets, net | — | 150,576 | — | 150,576 | |||||||||||||
| Other assets | — | 213,370 | — | 213,370 | |||||||||||||
| Other long term receivables | — | 107,735 | — | 107,735 | |||||||||||||
| Total assets | $ | 120,820,316 | $ | 11,779,346 | $ | (117,333,345 | ) | $ | 15,266,317 | ||||||||
| LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | 720,507 | $ | 3,333,675 | $ | (448,618 | ) | F | $ | 3,605,564 | |||||||
| Others payable | — | 230,060 | — | 230,060 | |||||||||||||
| Accrued expenses and other current liabilities | 386,701 | 402,036 | (401,920 | ) | F | 386,817 | |||||||||||
| Income tax payable | 159,122 | — | — | 159,122 | |||||||||||||
| Franchise tax payable | 200,000 | — | — | 200,000 | |||||||||||||
| Contract liabilities | — | 1,104,582 | — | 1,104,582 | |||||||||||||
| Notes Payable—current | — | — | 1,580,000 | A | 1,580,000 | ||||||||||||
| Other current liabilities | — | 380,344 | — | 380,344 | |||||||||||||
| Current portion of long-term liabilities | — | 54,624 | — | 54,624 | |||||||||||||
| Finance leases liabilities-current | — | 102,114 | — | 102,114 | |||||||||||||
| Operating leases liabilities-current | — | 293,710 | — | 293,710 | |||||||||||||
| Sponsor working capital loan | 150,000 | — | — | 150,000 | |||||||||||||
| Total current liabilities | 1,616,330 | 5,901,145 | 729,462 | 8,246,937 | |||||||||||||
| Long-term loans | — | 3,259,237 | — | 3,259,237 | |||||||||||||
| Corporate bond | — | — | — | — | |||||||||||||
| Finance leases liabilities-non-current | — | 87,056 | — | 87,056 | |||||||||||||
| Operating leases liabilities-non-current | — | 397,720 | — | 397,720 | |||||||||||||
| Other long term liabilities | — | 225,284 | — | 225,284 | |||||||||||||
| Deferred underwriting fee payable | 3,450,000 | — | (450,000 | ) | A | — | |||||||||||
| (3,000,000 | ) | F | |||||||||||||||
| Warrant liabilities | 643,213 | — | — | 643,213 | |||||||||||||
| Total liabilities | 5,709,543 | 9,870,442 | (2,720,538 | ) | 12,859,447 | ||||||||||||
| Class A common stock subject to possible redemption | 120,141,615 | — | (118,804,740 | ) | B | — | |||||||||||
| (1,336,875 | ) | G | |||||||||||||||
| Stockholders’ equity (deficit) | |||||||||||||||||
| Preferred stock | — | — | — | — | |||||||||||||
| Common stock | 6 | 3,000 | 3 | D | 56 | ||||||||||||
| (2,953 | ) | H | |||||||||||||||
| Additional paid-in capital | — | 49,296,390 | 4,999,997 | D | 50,067,698 | ||||||||||||
| (537,669 | ) | F | |||||||||||||||
| — | — | 1,336,875 | G | — | |||||||||||||
| — | — | 2,953 | H | — | |||||||||||||
| — | — | (5,030,848 | ) | I | — | ||||||||||||
| (Accumulated deficit) retained earnings | (5,030,848 | ) | (46,472,904 | ) | (270,398 | ) | F | (46,743,302 | ) | ||||||||
| — | — | 5,030,848 | I | — | |||||||||||||
| Accumulated other comprehensive loss | — | (917,582 | ) | — | (917,582 | ) | |||||||||||
| Total stockholders’ equity (deficit) | (5,030,842 | ) | 1,908,904 | 5,528,808 | 2,406,870 | ||||||||||||
| Total liabilities, temporary equity, and stockholders’ equity | $ | 120,820,316 | $ | 11,779,346 | $ | (117,333,345 | ) | $ | 15,266,317 | ||||||||
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PRO FORMA CONDENSED COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
| Pono Capital (Historical) | Aerwins Technologies, Inc. (Historical) | Transaction Accounting Adjustments | Pro Forma Combined | ||||||||||||||
| Revenues | $ | — | $ | 5,207,490 | $ | — | $ | 5,207,490 | |||||||||
| Cost of Sales | — | 5,070,507 | — | 5,070,507 | |||||||||||||
| Gross Profit | — | 136,983 | — | 136,983 | |||||||||||||
| Operating costs | |||||||||||||||||
| Formation and operations | 2,102,272 | — | — | 2,102,272 | |||||||||||||
| Franchise tax expense | 200,000 | — | — | 200,000 | |||||||||||||
| Selling expenses | — | 90,654 | — | 90,654 | |||||||||||||
| General and administrative expenses | — | 7,212,327 | 270,398 | AA | 7,482,725 | ||||||||||||
| Research and development expenses | — | 8,926,205 | — | 8,926,205 | |||||||||||||
| Total operating costs | 2,302,272 | 16,229,186 | 270,398 | 18,801,856 | |||||||||||||
| Operating loss | (2,302,272 | ) | (16,092,203 | ) | (270,398 | ) | (18,664,873 | ) | |||||||||
| Other income (expense), net | |||||||||||||||||
| Interest Income | (8,321 | ) | — | — | (8,321 | ) | |||||||||||
| Dividends earned on marketable securities held in Trust Account | 1,702,524 | — | (1,702,524 | ) | BB | — | |||||||||||
| Interest expense | — | (25,065 | ) | — | (25,065 | ) | |||||||||||
| Gain on foreign currency transaction | — | 60,533 | — | 60,533 | |||||||||||||
| Loss on disposal of fixed assets | — | (9,316 | ) | — | (9,316 | ) | |||||||||||
| Impairment on fixed assets | — | (511,695 | ) | — | (511,695 | ) | |||||||||||
| Equity in earnings of investee | — | (16,964 | ) | — | (16,964 | ) | |||||||||||
| Gain on sale of investment securities | — | 1,801,660 | — | 1,801,660 | |||||||||||||
| Other income | — | 314,774 | — | 314,774 | |||||||||||||
| Loss on change in fair value of Sponsor Working Capital Loan | 17,400 | — | — | 17,400 | |||||||||||||
| Change in fair value of warrant liabilities | 3,612,764 | — | — | 3,612,764 | |||||||||||||
| Total other income (expense), net | 5,324,367 | 1,613,927 | (1,702,524 | ) | 5,235,770 | ||||||||||||
| Income (loss) from operations before income taxes | 3,022,095 | (14,478,276 | ) | (1,972,922 | ) | (13,429,103 | ) | ||||||||||
| Income tax expense | (289,122 | ) | (1,543 | ) | — | (290,665 | ) | ||||||||||
| Net income (loss) from continuing operations | 2,732,973 | (14,479,819 | ) | (1,972,922 | ) | (13,719,768 | ) | ||||||||||
| Other comprehensive income | |||||||||||||||||
| Foreign currency translation adjustment | — | (679,525 | ) | — | (679,525 | ) | |||||||||||
| Total comprehensive income (loss) | $ | 2,732,973 | $ | (15,159,344 | ) | $ | (1,972,922 | ) | $ | (14,399,293 | ) | ||||||
| Net income (loss) per share (Note 4): | |||||||||||||||||
| Weighted average shares outstanding of Class A common stock | 12,083,113 | — | — | ||||||||||||||
| Basic and diluted net income per common stock | $ | 0.18 | — | — | |||||||||||||
| Weighted average shares outstanding of Class B common stock | 2,875,000 | — | — | ||||||||||||||
| Basic and diluted net income per common stock | $ | 0.18 | — | — | |||||||||||||
| Weighted average shares outstanding—basic | — | 28,565,198 | 55,726,752 | ||||||||||||||
| Weighted average shares outstanding—diluted | — | 31,427,684 | 55,726,752 | ||||||||||||||
| Net loss per share—basic | — | $ | (0.51 | ) | $ | (0.25 | ) | ||||||||||
| Net loss per share—diluted | — | $ | (0.51 | ) | $ | (0.25 | ) | ||||||||||
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NOTES TO PRO FORMA CONDENSED COMBINED AND CONSOLIDATED FINANCIAL INFORMATION
Note 1. Basis of Presentation
The Business Combination has been accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, Pono has been treated as the “accounting acquiree” and AERWINS as the “accounting acquirer” for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination has been treated as the equivalent of AERWINS issuing shares for the net assets of Pono, followed by a recapitalization. The net assets of Pono will be stated at historical cost. Operations prior to the Business Combination will be those of AERWINS.
The unaudited pro forma condensed combined and consolidated balance sheet as of December 31, 2022 assumes that the Business Combination and related transactions occurred on December 31, 2022. The unaudited pro forma condensed combined and consolidated statement of operations for the year ended December 31, 2022 gives pro forma effect to the Business Combination and related transactions as if they had occurred on January 1, 2022. These periods are presented on the basis that AERWINS is the acquirer for accounting purposes.
The pro forma adjustments reflecting the consummation of the Business Combination and related transactions are based on certain currently available information and certain assumptions and methodologies that Aerwins believes are reasonable under the circumstances. The unaudited condensed combined and consolidated pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. Aerwins believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and related transactions based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined and consolidated financial information.
The unaudited pro forma condensed combined and consolidated financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. The unaudited pro forma condensed combined and consolidated financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination and related transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of Pono and AERWINS.
Note 2. Accounting Policies and Reclassifications
Upon consummation of the Business Combination, management performed a comprehensive review of the two entities’ accounting policies. As a result of the review, management did not identify any differences between the accounting policies of the two entities that would have a material impact on the unaudited pro forma condensed consolidated combined financial information. As a result, the unaudited pro forma condensed consolidated combined financial information does not assume any differences in accounting policies.
As part of the preparation of these unaudited pro forma condensed combined and consolidated financial statements, certain reclassifications were made to align Pono’ financial statement presentation with that of AERWINS.
Note 3. Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Financial Information
The unaudited pro forma condensed combined and consolidated financial information has been prepared to illustrate the effect of the Business Combination and related transactions and has been prepared for informational purposes only.
The following unaudited pro forma condensed combined and consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Aerwins has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined and consolidated financial information. Pono and AERWINS have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
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The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined and consolidated statement of operations are based upon the number of shares of AERWINS’ common stock outstanding, assuming the Business Combination and related transactions occurred on January 1, 2022.
Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Balance Sheet
The adjustments included in the unaudited pro forma condensed combined and consolidated balance sheet as of December 31, 2022 are as follows:
| A. | Reflects the issuance of two promissory notes to Pono Captial Corp. prior to the closing of the Business Combination. On January 31, 2023, Pono Captial Corp. entered into promissory note agreements in the amounts of $1,130,000 and $450,000 between Mehana Equity LLC and EF Hutton, respectively. | |
| B. | Reflects the redemption of 11,328,988 Pono Public Shares for aggregate redemption payments of $119.0 million, inclusive of $0.2 million in accrued interest, allocated to New Pono common stock and additional paid-in capital using par value $0.0001 per share and a redemption price of $10.50 per share. | |
| C. | Reflects the reclassification of $1.8 million of investments held in the Trust Account to cash and cash equivalents that becomes available at closing of the Business Combination. |
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| D. | Represents the proceeds from the issuance of 3,196,311 Escrow Shares per the Escrow Agreement entered into in connection with the closing of the Business Combination (as previously defined) for an aggregate of $5.0 million. | |
| E. | Represents the receivables of $5,321 and outstanding to shareholders of AERWINS subject to collection pursuant to the Merger Agreement. | |
| F. | Represents AERWINS’ transaction costs of $0.5 million, and Pono’s transactions costs of $4.4 million inclusive of advisory, banking, printing, legal and accounting fees that are expensed as a part of the Business Combination, deferred underwriting fees and equity issuance costs that are capitalized into additional paid-in capital. Of the transaction costs, $3.5 million has been incurred and reflected in the historical financial statements of Pono, $0.6 million has been recorded in accounts payable, $0.4 million has been recorded in accrued expenses and $0.2 million in transaction costs already paid in the historical financial statements and reflected in the transaction accounting adjustments in the unaudited condensed combined and consolidated balance sheet. | |
| G. | Reflects the reclassification of Pono’ Class A common stock subject to possible redemption into permanent equity. | |
| H. | Represents the issuance of Pono’s common stock at a par value of $0.000001 to AERWINS shareholders as consideration for the Business Combination. | |
| I. | Reflects the reclassification of Pono’ historical accumulated deficit into additional paid-in capital as part of the reverse recapitalization. |
Adjustments to Unaudited Pro Forma Condensed Combined and Consolidated Statement of Operations
The pro forma adjustments included in the unaudited pro forma condensed combined and consolidated statement of operations for the year ended December 31, 2022 are as follows:
| AA. | Reflects estimated non-recurring transaction costs not already reflected in the historical financial statements of approximately $0.3 million as if incurred on January 1, 2022, the date the Business Combination occurred for the purposes of the unaudited pro forma condensed combined and consolidated statement of operations. |
| BB. | Reflects elimination of investment income on the Trust Account. |
Note 4. Net Loss per Share
Net loss per share was calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2022. As the Business Combination is being reflected as if it had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entirety of all periods presented.
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| For the Year Ended December 31, 2022 (1) | For the Year Ended December 31, 2021 (1) | |||||||
| Numerator: | ||||||||
| Pro forma net loss | $ | (13,719,768 | ) | $ | (10,215,085 | ) | ||
| Denominator: | ||||||||
| Weighted average shares outstanding—basic and diluted(2) | 55,726,752 | 55,726,752 | ||||||
| Net loss per share: | ||||||||
| Basic and diluted | $ | (0.25 | ) | $ | (0.18 | ) | ||
| (1) | Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information.” |
| (2) | The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive and/or issuance or vesting of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the periods presented. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of AERWINS, Inc.’s (formerly named AERWINS Technologies, Inc.) financial condition and results of operations should be read in conjunction with its audited consolidated financial statements and the notes related thereto which are included elsewhere in this prospectus. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “ Risk Factors” and elsewhere in this prospectus.
Overview
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” or “us”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All references in this prospectus to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI, except that references to the “Company” “we,” “us,” or “Pono” in this Item 7 refer to Aerwins Technologies Inc. f/k/a Pono Capital Corp.
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Pono Capital Corp was treated as the acquired company and AERWINS, Inc. was treated as the acquirer for financial statement reporting purposes.
At the closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which 1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up 90 days after the Closing based on confirmed amounts of the Closing Net Indebtedness of AERWINS, the Net Working Capital of AERWINS, and certain Transaction Expenses, each of which are defined in the Merger Agreement. If the adjustment is a negative adjustment in favor of us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number of shares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issued an aggregate of 150,000 shares of Common Stock (the “Compensation Shares”) to Boustead Securities, LLC (“Boustead”), in partial satisfaction of fees due to them in connection with the Merger. In addition, Boustead is entitled to an increase in the number of Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for the Common Stock during over the five trading days prior to the Measurement Date is less than $10.00 per share (the “Adjustment”). The number of shares of Common Stock subject to the Adjustment is equal to (1) $1,500,000 divided by the average VWAP of the Common Stock over the five trading days prior to the Measurement Date, minus (2) the number of Compensation Shares.
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The Business Combination is a subsequent event that occurred after the periods for which the financial information herein is presented. The financial information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the historical operations of AERWINS prior to the Business Combination, unless otherwise noted. For additional information on the Business Combination please see the section titled “Recent Developments” on page 78 of this prospectus. For additional information on the corporate history of our Company please see the section titled “Corporate History” on page 98 of this prospectus.
Business Overview
We were incorporated in the State of Delaware on June 9, 2022. We conduct business activities principally through our 100%-owned subsidiary, A. L. I. Technologies Inc., a Japanese corporation (“A. L. I. Technologies”), which was established in Japan in September 2016 and was acquired by us in August, 2022.
The acquisition of A. L. I. Technologies was accounted for as a recapitalization among entities under common control since the same controlling shareholders controlled all these entities before and after the transaction. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.
We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.
To realize this vision, we are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster,
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI.
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Significant Market Opportunities
In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestion and pollution, and they are largely confined to land-based infrastructure. Mobility for the future requires a revolutionary solution.
The market opportunities created by our technology are significant. According to an analysis by Frost & Sullivan, the autonomous vehicle services market is expected to grow from a mere $1.1 billion in 2019 to $202.5 billion in 2030 at a CAGR of 60.1%, facilitated by mutually beneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, we strive to continue to innovate and expand the boundaries for air-based mobility.
The sky above has always held possibilities, and we have already completed our first manned flight test with a test aircraft in 2019, and our business is progressing well since then. We plan to work with business partners, mainly in the Middle East area, for additional development, production and sales to realize products that can be utilized in the Middle East area. In the future, we are also preparing to develop new models that are electrically powered and even more compact, and to provide infrastructure such as airways and air traffic control systems in an air mobility society.
We are one step closer to making safe, cost-effective, and easy-to-use air mobility solutions a reality. Our air mobility enables urban mobility to expand into three-dimensional space. We believe our technology will change the future of transportation, improve lives, and create new industries.
We design, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide range of industries and applications, including passenger transportation, logistics, and smart city management. Our goal is to ensure that both passengers and goods take to the skies safely and conveniently.
Orders, Delivery and Financial Results
We are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster;
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI.
For the fiscal years ended December 31, 2022 and 2021, we generated revenues of $5,270,490 and $7,830,130, respectively, from continuing operations, and reported net loss of $14,479,819 and net loss of $14,527,021, respectively from continuing operations, and cash flows used in operating activities of $16,865,274 and $10,119,103, respectively. As noted in our consolidated financial statements, as of December 31, 2022, we had an accumulated deficit of $46,472,904.
Key Factors that Affect Our Results of Operations
We believe the following key factors may affect our financial condition and results of operations:
Our Ability to Strength Our Competitive Advantages
Our results of operations rely on our purported product superiority. Both hardware and software technologies are key factors intended to strengthen our competitive advantages. Regarding hardware, we developed air mobility CFRP material for XTURISMO which reduced the weight of the open propeller and its body. CFRP is also easy to process and corresponds to various designs, and has strong resistance to dust and salt air. We also developed an original body and steering wheel which enables a driver to drive manually easier. The original hybrid engine has high power generation with low revolution with electric supply support to control system device. Regarding software, the stability control of XTURISMO assists driving by sensor fusion surrounding the body and links with cloud real time with encrypted driving and control data communication. Also, C.O.S.M.O.S., the air traffic control platform connects with each hoverbike and provides flight and network management. These hardware and software are all made in Japan.
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Our Ability to Expand International Market
We are seeking to promote global expansion using partnerships, and our ability to succeed in this endeavor will affect our results of operations. Especially in Gulf Cooperation Council, we have partners for creating the business in the area and will raise fund which we believe enables the Company to establish an office and R&D center in the area and we also intend that the area can be a distribution, manufacturing and marketing hub for the vehicles. After that or at the same time, we plan to expand sales channels to other regions including the United States. Also, in order to facilitate such global expansion, the Company plans to acquire human resources in various countries, and the Company intends that by 2024, over 50% of its employees will be non-Japanese.
Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency
We are aiming to establish a highly profitable structure for a mass production of hoverbikes by using a fable