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

 

RegistrationNo. 333-[__]

 

 

UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORMS-1

 

REGISTRATIONSTATEMENT
UNDER THE SECURITIES ACT OF 1933

 

AERWINSTECHNOLOGIES INC.

(Exactname 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)

 

AERWINSTechnologies Inc.

ShibaKoen 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)

 

CorporateCreations Network Inc.

3411Silverside 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)

 

Copiesto:

 

LauraAnthony, Esq.

CraigD. Linder, Esq.

AnthonyL.G., PLLC

625N. Flagler Drive, Suite 600

WestPalm Beach, Florida 33401

Telephone:(561) 514-0936

 

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

 

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

 

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

 

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

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany, 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 ☒

 

Ifan emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

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

 

 

 

Theinformation in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registrationstatement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securitiesand 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

 

AERWINSTECHNOLOGIES INC.

 

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

 

Thisprospectus 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 (“LindGlobal” or the “Investor” or “Selling Securityholder”). These 11,222,357 shares of Common Stock are issuableby us in connection with Lind Global’s agreement to purchase from us up to three secured convertible promissory notes (the “ConvertibleNotes” 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 consistof: (i) up to 2,800,000 shares of Common Stock issuable upon the conversion of a secured convertible promissory note in the outstandingprincipal amount of $2,520,000 issued to Lind Global dated April 12, 2023 (the “First Closing Convertible Note”); (ii) upto 1,913,390 shares of Common Stock issuable upon exercise of 1,913,390 Common Stock purchase warrants issued to Lind Global on April12, 2023 (the “First Closing Warrants”); (iii) up to 1,866,667 shares of Common Stock issuable upon the conversion of a securedconvertible promissory note in the principal amount of $1,680,000 to be issued to Lind Global (the “Second Closing ConvertibleNote”); (iv) up to 1,275,593 shares of Common Stock issuable upon exercise of 1,275,593 Common Stock purchase warrants to be issuedto Lind Global (the “Second Closing Warrants”); (v) up to 2,000,000 shares of Common Stock issuable upon the conversion ofa secured convertible promissory note in the principal amount of $1,800,000 to be issued to Lind Global (the “Third Closing ConvertibleNote,” together with the First Closing Convertible Note and the Second Closing Convertible Note, collectively, the “ConvertibleNotes”); and (vi) up to 1,366,707 shares of Common Stock issuable upon exercise of 1,366,707 Common Stock purchase warrants tobe 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”.

 

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

 

Wesold 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 descriptionof the Purchase Agreement and the Securities and “Selling Securityholder” for additional information regarding the SellingSecurityholder. The prices at which the Selling Securityholder may sell the Common Stock will be determined by the prevailing marketprice for the shares or in negotiated transactions.

 

Wewill not receive any of the proceeds from the sale of the Securities owned by the Selling Securityholder. We will not receive anyproceeds 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 withthe registration of these securities, including with regard to compliance with state securities or “blue sky” laws. TheSelling Securityholder will bear all commissions and discounts, if any, attributable to their sale of securities. See “Plan ofDistribution” beginning on page 130 of this prospectus.

 

TheSelling Securityholder may sell the shares of our Common Stock described in this prospectus in a number of different ways and at varyingprices. 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”).

 

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

 

Weare an “emerging growth company” and a “smaller reporting company” under the federal securities laws and willbe subject to reduced disclosure and public reporting requirements. See “Implications of Being an Emerging Growth Company and aSmaller Reporting Company.”

 

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

 

Neitherthe Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of thesesecurities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Thedate of this prospectus is _____________, 2023.

 

 

TABLEOF CONTENTS

 

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

 

Nodealer, salesperson or other individual has been authorized to give any information or to make any representation other than those containedin this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations mustnot be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offerto buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making suchoffer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neitherthe delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has beenno change in our affairs or that information contained herein is correct as of any time subsequent to the date hereof.

 

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

 

 

CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Thisprospectus 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.

 

Theseforward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts andassumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be reliedupon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statementsto 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.

 

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

 

INDUSTRYAND MARKET DATA

 

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

 

TRADEMARKSAND COPYRIGHTS

 

Weown or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporatenames, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights thatprotect the content of our products and the formulations for such products. This prospectus may also contain trademarks, service marksand 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 orendorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectusare listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rightsto our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

 

 

IMPLICATIONSOF BEING AN EMERGING GROWTH COMPANY AND A SMALLER REPORTING COMPANY

 

Wequalify 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 theJOBS Act that contain exceptions from disclosure and other requirements that otherwise are applicable to public companies and file periodicreports 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.

 

Wewill 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.

 

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

 

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

 

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

 

 

PROSPECTUSSUMMARY

 

Thissummary of the prospectus highlights material information concerning our business and this offering. This summary does not contain allof 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, beforemaking an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual resultsmay differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those setforth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

Inthis 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 GlobalFund II LP is referred to herein as “Lind Global,” the “Investor,” and the “Selling Securityholder.”

 

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

 

Wehave 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 onlybe used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate onlyas 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 urgeyou to carefully read this prospectus before deciding whether to invest in any of the Common Stock being offered.

 

Business

 

AERWINSTechnologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) togetherwith its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanesecorporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System forManaging 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.

 

CorporateHistory

 

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

 

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

 

OnAugust 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additionalUnits occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of 1,500,000 units at a priceof $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotmentOption 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 involvea public offering. A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closedon August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trustaccount established for the benefit of the Company’s public stockholders. On October 8, 2021, the Class A ordinary shares and PublicWarrant included in the Units began separate trading.

 

OnMarch 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 transactionscontemplated 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 filedwith the SEC on March 18, 2022. On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of themutual decision to terminate the Merger Agreement.

 

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

 

 

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

 

Nopayments for our expenses were made in the offering described above directly or indirectly to (i) any of our directors, officers or theirassociates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except in connectionwith the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered into withour sponsor.

 

OnFebruary 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“MergerSub”) 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 capacityas 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 “BusinessCombination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. withAERWINS, 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”).

 

Pursuantto the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “MergerConsideration”) was approximately $600 million. In connection with the Special Meeting, holders of 11,328,988 shares of Pono CommonStock sold in its initial public offering exercised their right to redeem those shares for cash prior to the redemption deadline of January25, 2023, at a price of $10.50 per share, for an aggregate payment from Pono’s trust account of approximately $118.9 million. EffectiveFebruary 3, 2023, Pono’s units ceased trading, and effective February 6, 2023, AERWINS Technologies’ Common Stock began tradingon the Nasdaq Global Market under the symbol “AWIN” and the warrants began trading on the Nasdaq Capital Market under thesymbol “AWINW.”

 

Aftertaking into account the aggregate payment in respect of the redemption, Pono’s trust account had a balance immediately prior tothe Closing of $1,795,997. Such balance in the trust account was used to pay transaction expenses and other liabilities of Pono, paycertain transaction expenses of AERWINS, Inc., with the remaining being deposited in AERWINS, Inc. cash account. In connection with theBusiness 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-Closingtrue up 90 days after the Closing.

 

Asa 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 Closingof the Business Combination, all shares of Pono owned by the Sponsor (consisting of shares of Class A Common Stock and shares of ClassB 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 AERWINSTechnologies Common Stock with substantively identical terms. As of the Closing: public stockholders owned approximately 0.3% of theoutstanding shares of AERWINS Technologies Common Stock; the Sponsor and its affiliates owned approximately 6.7% of the outstanding sharesof AERWINS Technologies Common Stock and AERWINS, Inc.’s former security holders collectively owned approximately 93.0% of theoutstanding shares of AERWINS Technologies Common Stock.

 

Atthe closing of the Merger, we issued to the former shareholders of AERWINS, an aggregate of 51,929,065 shares of Common Stock, of which1,407,878 shares are being held in escrow (the “Escrow Shares”). The Escrow Shares are subject to a post-Closing true up90 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 favorof us, the escrow agent shall distribute to us a number of shares of our Common Stock with a value equal to the adjustment amount. Ifthe adjustment is a positive adjustment in favor of AERWINS, we will issue to the former AERWINS stockholders an additional number ofshares of our Common Stock with a value equal to the adjustment amount. In addition, at the closing of the Merger, the Company issuedan 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 numberof Compensation Shares on the 180th day following the closing of the Merger (the “Measurement Date”) if the VWAP for theCommon 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 Stockover 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 theState 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 exchangefor 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 formershareholders of A. L. I. Technologies became the owners of 100% of AERWINS, Inc. outstanding Common Stock as of August 5, 2022.

 

 

Summaryof our business

 

Mission

 

Withthe mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in whichcars, 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

 

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

 

Torealize 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 zonesin 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.

 

 

 

 

Currentand Planned Product and Service Status

 

Ourcurrent 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

 

SignificantMarket Opportunities

 

Intoday’s increasingly populated and interconnected world, traditional modes of urban transportation continue to contribute to congestionand 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 MarketOpportunities” on page 43 of this prospectus.

 

Orders,Delivery and Financial Results

 

Weare 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-movezones 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.

 

 

Belowis a breakdown of revenues for each of these businesses.

 

 

Grosssales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmannedair mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. Duringthe 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 significantcustomer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.

 

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

 

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

 

MannedAir Mobility Domain

 

Easeof implementation in society

 

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

 

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

 

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

 

 

PracticalDriving Capacity

 

Thecurrent 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.

 

Pioneerand Leader in Urban Air Mobility

 

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

 

UnmannedAir Mobility Domain

 

OriginalOperation Management System

 

Thistechnology 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 thatour 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.

 

ComputingPower Sharing Domain

 

Equipmentoptimized for those wishing to rent out computing power

 

Thecomputing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietarydistributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD requiredfor 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-coolingperformance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record ofreceiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.

 

OurStrategies.

 

Weintend to pursue the following strategies to achieve our mission:

 

Transformationinto a Global Company

 

Wehave established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where ouradministrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, includingthe United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansionarea, 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 Europeand Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establishan office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venturecapital firm.

 

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

 

ExtendOur Technological Leadership

 

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

 

ExpandDevelopment and Manufacturing Capabilities

 

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

 

 

ExpandOur Air Mobility Portfolio and Strengthen Our Platform

 

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

 

ContinueCommercialization and Promote Adoption

 

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

 

ExploreNew Monetization Opportunities

 

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

 

PursueStrategic Partnerships in Production and Technology

 

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

 

Industry

 

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

 

Weoperate in multiple business lines that include the following:

 

AirMobility Business. Our air mobility business is built on our technology platform, which is designed to develop and market MannedAir 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. (FlightOperation Management System),” an unmanned traffic management system and C.O.S.M.O.S. Hub (Operator Network), a system that enablesquick and efficient matching of registered pilots throughout Japan with operators who place orders.

 

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

 

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

 

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

 

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

 

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

 

OurProprietary Technologies

 

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

 

 

Manufacturing,Quality Control and Supply Chain

 

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

 

IntellectualProperty

 

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

 

GovernmentRegulation

 

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

 

OrganizationalStructure

 

Thefollowing is a current organizational chart of our Company:

 

 

 

Summaryof Lind Global Financing

 

OnApril 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the SellingSecurityholder 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”).

 

Theclosings 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 saleto the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and theissuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Eventof 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 ofa Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholderof 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day followingthe 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 theConvertible 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 priceof $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 1,680,484shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The SecondClosing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the PurchaseAgreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the fundingamount being funded by the Selling Securityholder at the applicable Closing.

 

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

 

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

 

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

 

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

 

Inthe event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence ofa 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 priceof the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the paymentof any cash.

 

Inaccordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectuswith 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 ConvertibleNotes 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 Warrantswhich are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculatedthe amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes basedon 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.

 

ThePurchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations byeach party, including our agreement to refrain from engaging in certain “Prohibited Transactions” as defined in the PurchaseAgreement, to hold a special meeting of shareholders for the purpose of obtaining shareholder approval of the Transactions, certain eventsgiving rise to a default under the Convertible Notes, obligations to use the proceeds from certain future financings to repay a portionof 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 obligationsdue 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 moreinformation about how the Selling Securityholder may sell the shares of Common Stock being registered pursuant to this prospectus.

 

SummaryRisk Factors

 

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

 

 

RisksRelated 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.

 

RisksRelated 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.

 

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

 

CorporateInformation

 

Weare a Delaware corporation based in Tokyo, Japan and were originally incorporated in Delaware on February 12, 2021 under the name “PonoCapital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, assetacquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our principal executive officesare 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 thisprospectus or the registration statement of which it forms a part. We have included our website address in this prospectus solely asan inactive textual reference.

 

 

 

 

RISKFACTORS

 

Aninvestment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as theother information contained in this prospectus, including our historical financial statements and related notes included elsewhere inthis prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause materialadverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materiallyfrom 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.”

 

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

 

RisksRelated to the Convertible Notes and Warrants

 

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

 

OnApril 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder, pursuant to which we agreed to issue to the SellingSecurityholder up to three Convertible Notes in the aggregate principal amount of $6,000,000 and up to 4,555,690 Warrants to purchase4,555,690 shares of our Common Stock.

 

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

 

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

 

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

 

Thenumber of shares of Common Stock ultimately offered for sale by the Selling Securityholder is dependent upon the number of shares, ifany, we ultimately issue upon conversion of the Convertible Notes and exercises of the Warrants, if any. However, even if the SellingSecurityholder elects to convert the entire principal amount of the Convertible Notes and exercises all of the Warrants, the SellingSecurityholder 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.

 

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

 

Pursuantto the terms of the Convertible Notes and Warrants, we do not have the right to control the timing and amount of any conversions underthe Convertible Notes or exercises of the Warrants by the Selling Securityholder. If and when the Selling Securityholder converts anyprincipal amounts under the Convertible Notes or exercises any of the Warrants and has acquired shares of our Common Stock, the SellingSecurityholder 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 differentprices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomesin their investment results. Investors may experience a decline in the value of the shares they purchase from the Selling Securityholderin this offering as a result of future conversions under the Convertible Notes and exercises of the Warrants at prices lower than theprices such investors paid for their shares in this offering. In addition, if we issue a substantial number of shares of Common Stockto the Selling Securityholder upon conversions under the Convertible Notes or exercises of the Warrants, or if investors expect thatthe Selling Securityholder will convert under the Convertible Notes or exercises the Warrants, the actual issuance of shares or the mereexistence of the Convertible Notes and Warrants may result in significant dilution to our current stockholders and may cause volatilityin the trading price of our Common Stock and may make it more difficult for us to sell equity or equity-related securities in the futureat a time and at a price that we might otherwise wish to effect such sales.

 

 

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

 

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

 

RisksRelating 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.

 

Forthe years ended December 31, 2022 and 2021, Pono had net income of $2,732,973 and $4,585,547, respectively, and we had net operatingcash outflows of $1,233,766 and $459,012, respectively. AERWINS, Inc. has incurred net losses in the past. For the years ended December31, 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 andoperations. We also expect to incur substantial costs and expenses as a result of being a public company. We cannot assure you that wewill be able to generate net profits or positive operating cash flows in the future. Our ability to achieve profitability depends inlarge 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 continueto incur significant losses in the future and may not be able to achieve or subsequently maintain profitability.

 

Weare a holding company and depend upon our subsidiary AERWINS, Inc. and its operating subsidiary, A.L.I. Technologies, Inc. for our cashflows.

 

Weare 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 cashflows 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 dividendsor distributions from our subsidiary and its operating subsidiary when needed could have a material adverse effect on our business, resultsof operations or financial condition.

 

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

 

Asof 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 andcondition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to uson 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 stockholdersmay experience dilution.

 

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

 

Ourbusiness 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 governmentsacross the world and materially affected general commercial activities on a global scale.

 

ACOVID-19 outbreak may result in these customers ceasing purchases, canceling or reducing orders for our products or services, or failingto 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 economicslowdown may reduce the demand for our products and services. In the international market, the pandemic has continued to significantlyaffect 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 affectedregions, resulting in reduced business volume, temporary closure of our production facilities and offices or otherwise disrupt our businessoperations and adversely affect our results of operations.

 

 

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

 

Inthe manned air mobility, unmanned air mobility, and computing power sharing domains, we have acquired various technological expertiseand 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 businessdoes not expand accordingly, our group’s business performance may be affected.

 

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

 

Weoperate in the new and evolving Air Mobility Vehicles (“AMVs”) industry. Our business and operating results depend in largepart on the acceptance of and demand for our AMVs and air mobility solutions. The success of these products and services are and willbe 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.

 

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

 

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

 

Commercialproduction of our manned AMVs requires timely and adequate supply of various types of raw materials and components, as well as mass productioncapacity and efficient manufacturing and assembly. We have no experience in high-volume manufacturing of our AMVs. We cannot assure youthat we will be able to expand our production capacity efficiently and cost-effectively, or to procure sufficient raw materials and componentsto meet our production volume. While we are looking into expanding our manufacturing capacity through partnerships, such partnershipsmay 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 frommultiple sources whenever possible, some of the components used in our AMVs are currently selected to be purchased from a single sourceto improve cost-efficiency. Disruption in the supply of components, whether or not from a single-source supplier, could temporarily disruptcommercial 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 qualitycontrol, failure to meet production deadlines, increases in manufacturing costs and longer lead time. Any of the foregoing could resultin our failure to make timely deliveries to our customers. Such failure would materially and adversely affect our business, results ofoperations, financial condition and prospects.

 

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

 

Wehave entered into a number of long-term agreements with customers and partners relating to the sale of our manned AMVs. Some of theseagreements 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 itobtains required governmental approvals (for example, in the United States, from the Federal Aviation Administration, or the FAA). Wehave 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 areframework agreements containing sales targets, but that does not obligate our counterparties to purchase our products at all. We expectthe number of orders and pre-orders we receive under these framework agreements to depend on a number of factors, including changes inthe regulatory environment, customers’ acceptance of and demand for our products and services and our production capacity. Forthe foregoing reasons, we may not receive substantial orders from our current or potential customers. As our long-term agreements maynot result in material sales of our products, our future results of operations may not scale or otherwise meet our current expectations.

 

 

Weexpect to have substantial customer concentration.

 

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

 

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

 

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

 

Ourtechnology platform may contain design or manufacturing defects that result in unsatisfactory performance or require repair. Our technologyplatform uses a substantial amount of algorithms and software to operate. Software products are inherently complex and often containdefects and errors, especially when first introduced. While we have performed extensive internal testing on our AMV software and hardwaresystems, we have a limited frame of reference by which to evaluate the long-term performance of our technology platform. There can beno assurance that we will be able to detect and fix any defects in our technology platform before we and our subsidiaries sell productsand services to customers.

 

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

 

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

 

Adversepublicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financialreporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation and cause the tradingprice of our common stock to decline and fluctuate significantly. The negative publicity and the resulting decline of the trading priceof 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 theday-to-day operations of our company.

 

Wemay 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 usmay be posted on the internet by any person or entity which identifies itself or on an anonymous basis. We and our subsidiaries may besubject to government or regulatory investigation or inquiries, or shareholder lawsuits, as a result of such third-party conduct andmay be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we and our subsidiarieswill be able to conclusively refute each of the allegations within a reasonable period of time or at all. Our reputation may also benegatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materiallyand adversely affect the trading price of our common stock.

 

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

 

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

 

 

Youshould consider our business and future prospects in light of the risks and challenges we face as a new entrant to a nascent industryand 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.

 

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

 

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

 

Inpursuit 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 towork effectively with these companies, we may lose opportunities to generate sales growth and our business, results of operations andfinancial condition could be adversely affected.

 

Wemay not be successful in competing in the AMV industry.

 

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

 

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

 

Weexpect competition in our industry to intensify in the future in light of increased demand for alternative transportation, continuingglobalization 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 tolower AMV unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, financialcondition, operating results and prospects.

 

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

 

 

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

 

Wedepend 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 outagesor delays in our services, which could harm our brand and adversely affect our operating results.

 

Ourcommand-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 servicesand products. Our telecommunications network providers could decide to cease providing services to us without adequate notice. Any changein service levels of our telecommunications network or any errors, defects, disruptions or other performance problems with our operatingsystems or infrastructure could harm our brand and potentially affect our user data. If changes in technology cause our operating systemsor 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.

 

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

 

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

 

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

 

Anaccident involving an AMV provided by us or another manufacturer could cause regulatory agencies around the world to tighten restrictionson 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, therehave 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 controland intervention on the use of autopilot and other advanced technologies and be subject to liability and government scrutiny to the extentaccidents associated with our autonomous navigation systems occur. Should a high-profile accident occur resulting in substantial casualtyor damages, either involving our AMVs or products offered by other companies, public confidence in and regulatory attitudes toward AMVscould deteriorate. Any of the foregoing could materially and adversely affect our results of operations, financial condition and growthprospects.

 

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

 

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

 

Wemay become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are notable to successfully defend or insure against such claims.

 

Wemay be exposed to significant product liability claims if our AMVs do not perform as expected or malfunction. Any defects, errors, orfailures in our products or the misuse of our AMVs, operating systems and infrastructure could also result in injury, death or propertydamage. Our risks in this area are particularly pronounced given we have limited field experience in the operation of our AMVs. A successfulproduct liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generatesubstantial 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 insurancecoverage 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, theclaim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impacton our business, financial condition and result of operations.

 

 

Wegenerally provide standard warranties on our AMVs. The term of a warranty is between six months to three years, depending on the productline and the specific part or component. The occurrence of any material defects in our AMVs could make us liable for damages and warrantyclaims. 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 brandimage, decrease retailer, distributor and customer demand, and adversely affect our operating results and financial condition.

 

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

 

Ourfuture growth depends on whether we can continually develop and introduce new generations of our existing AMV product lines and updateour operating systems and infrastructure with enhanced functionalities and value-added services. This is particularly important in thecurrent industry landscape where technologies and consumer preferences evolve rapidly, which may shorten the lifecycles of our existingproducts. 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 productsand services in the future.

 

Ourability to roll out new and innovative products and services depends on a number of factors, including significant investments in researchand development, quality control of our products and services and effective management of our supply chain. We may need to devote moreresources 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 theextent that we are unable to execute our strategy of continuously introducing new and innovative products, diversifying our product portfolioand satisfying consumers’ changing preferences, we may not be able to grow our user base, and our competitive position and resultsof operations may be adversely affected. Even if we are able to keep up with technological changes and develop new models, our priormodels may as a result become obsolete sooner than expected, potentially reducing our return on investment.

 

Wehave no experience in managing sales to multiple countries and we are subject to a variety of costs and risks due to our continued internationalexpansion.

Oneof our core strategies is international expansion. We generally have less experience in marketing, selling and deploying our AMVs inmarkets outside Japan. International expansion will require us to invest significant capital and other resources, and our efforts maynot 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 governmentsand regulatory authorities. If we cannot export our AMVs to such jurisdictions, our business, prospects, financial condition and operatingresults may be materially and adversely impacted.

 

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

 

 

Ouroperations 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.

 

Productiondifficulties, such as capacity constraints, mechanical and systems failures and the need for equipment upgrades, may suspend our productionand/or reduce our output. There can be no assurance that we will not experience problems with our production facilities in the futureor that we will be able to address any such problems in a timely manner. Problems with key equipment in one or more of our productionfacilities 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 onour business, financial condition, results of operations and prospects.

 

Wedepend on a continuous supply of utilities, such as electricity and water, to operate our production facilities. Any disruption to thesupply of electricity or other utilities may disrupt our production, or cause the deterioration or loss of our inventory. This couldadversely 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 excessivecold or heat, could cause power outages, fuel shortages, water shortages, damage to our production, processing or distribution facilitiesor disruption of transportation channels, any of which could impair or interfere with our operations. We cannot assure you that suchevents will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impactof such events, or to effectively respond to such events if they occur.

 

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

 

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

 

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

 

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

 

Ourbusiness and prospects are heavily dependent on our ability to build, maintain and strengthen the A.L.I. Technologies brand. If we donot continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promotingand positioning our brand will likely depend significantly on our ability to provide high-quality AMVs and mobility solutions and engagewith our customers as intended. In addition, we expect that our ability to develop, maintain and strengthen the A.L.I. Technologies brandwill also depend heavily on the success of our user development and branding efforts. Such efforts mainly include building a communityof engaged online and offline users as well as other branding initiatives, such as AMV shows and events. To promote our brand, we maybe required to change our user development and branding practices, which could result in substantially increased expenses. If we do notdevelop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adverselyimpacted.

 

OurA.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 Instagramin Japan, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidencein our brand. Furthermore, we may be affected by adverse publicity related to our manufacturing or other partners, whether or not suchpublicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affectedby perceptions of the quality of our partners’ products and services. In addition, from time to time, our AMVs and mobility solutionsare evaluated and reviewed by third parties. Any unfavorable reviews could adversely affect consumer perceptions of our AMVs and mobilitysolutions.

 

Weatherand seasonality may have a material adverse effect on our operations.

 

Oursales 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 materiallyand adversely impacted by the weather conditions. Our operating results may vary from period to period due to many factors, includingseasonal factors that may have an effect on the demand for our mobility solutions in the future. As a result, our quarterly results ofoperations and financial position at the end of a particular quarter may not necessarily be representative of the results we expect atyear-end or in other quarters of a year. Our operating results would suffer if we did not achieve revenues consistent with our expectationsdue to seasonal demand and weather changes because many of our expenses are based on anticipated levels of annual revenues.

 

 

Anydecline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effecton our operating results.

 

Wecollaborate with various business partners to promote our AMVs and mobility solutions. There can be no guarantee that those businesspartners 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 tomaintain and expand our user base may decrease.

 

Mostof 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 partnersdecide 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.

 

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

 

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

 

Whilethe battery packs used for our AMVs are designed to passively contain any single cell’s release of energy without spreading toneighboring cells, a field or testing failure of our AMVs could occur, which could result in accidents, casualty or damages, and subjectus to lawsuits, product recalls, or redesign efforts. Also, negative public perceptions regarding the suitability of lithium-ion cellsfor AMV applications or any future incident involving lithium-ion cells, even if such incident does not involve our AMVs, could seriouslyharm our business. In addition, we store a significant number of lithium-ion cells at our facilities. Any mishandling of battery cellsmay 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 potentiallya safety recall.

 

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

 

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

 

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

 

Ourreputation 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 guaranteetheir compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with childlabor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, sales agents or dealers, whichcould increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violationof labor or other laws by our suppliers, business partners, sales agent, dealers or third-party logistics services suppliers or the divergenceof their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attractnegative publicity, diminish our brand image and reduce demand for our AMVs and mobility solutions.

 

Ifcustomers modify our AMVs or operating systems, the AMVs may not operate properly, which may cause damage, create negative publicityand harm our business.

 

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

 

 

Failureto safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results ofoperations.

 

Throughour AMVs, command-and-control systems, we log information about each AMV’s use, such as charge time, battery usage, mileage andlocation information, in order to aid us in vehicle diagnostics, repair and maintenance, as well as to help us customize and optimizethe flying experience. Images and videos captured by cameras attached to our AMVs are stored on our servers, servers of third-party cloudstorage 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 theirneeds for the purpose of our content feeds recommendation. Possession and use of our users’ flying behavior and data in conductingour business may subject us to legislative and regulatory oversight in Japan and other jurisdictions, such as the European Union andthe United States. For example, in January 2018, the European Union promulgated the General Data Protection Regulation to further protectfundamental 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 ouruse of such personal information and hinder our ability to expand our user base. In the event of a data breach or other unauthorizedaccess to our user data, we may have obligations to notify users about the incident and we may need to provide some form of remedy forthe individuals affected by the incident.

 

Concernsor 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 regulationsto enhance the protection of privacy and data. We may need to adjust our business to comply with data security requirements and otherlaws and regulations from time to time.

 

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

 

Despiteour 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, regulationsor obligations. Any failure on our part to comply with applicable laws or regulations or any other obligations relating to privacy, dataprotection or information security, or any compromise of security that results in unauthorized access, collection, transfer, use or releaseof personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromisehas 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 adverselyaffect our business, financial condition and results of operations. In addition, the interpretation and application of the aforementionedlaws and regulations are often uncertain and in flux. Our practice may become inconsistent with these laws and regulations.

 

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

 

Wemay also become subject to laws and regulations affecting data protection, data privacy and/or information security in other jurisdictionsby virtue of having users who reside in these jurisdictions, even if we do not have a physical presence there. Many jurisdictions havein the past adopted, and may in the future adopt, new laws and regulations, or amendments to existing laws and regulations, affectingdata protection, data privacy and/or information security, such as the General Data Protection Regulation, or the GDPR, adopted by theEuropean Union that became fully effective on May 25, 2018. The interpretation and application of these laws or regulations are oftenuncertain and in flux. We cannot guarantee you that our practice is consistent with these laws and regulations and our practice may becomeinconsistent 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 causeus to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

 

 

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

 

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

 

Wewill need significant capital to, among other things, conduct research and development, expand our manufacturing capacity, roll out newproducts 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 manneror on acceptable terms, or at all.

 

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

 

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

 

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

 

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

 

Althoughwe 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 applicableJapanese laws and regulations, which could result in delays and increased costs, and may derail our business strategy if we fail to doso. Furthermore, past and future acquisitions and the subsequent integration of new assets and businesses into our own require significantattention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverseeffect on our business operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions couldresult in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significantgoodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquiredbusiness. Moreover, the costs of identifying and consummating acquisitions may be significant.

 

Ourbusiness could be adversely affected by trade tariffs or other trade barriers.

 

TheUnited States and other countries may in the future impose tariffs on the importation of consumer products related to our business, suchas 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 takein retaliation. In addition, these developments could have a material adverse effect on global economic conditions and the stabilityof global financial markets. Any of these factors could have a material adverse effect on our business, financial condition and resultsof operations.

 

 

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

 

Weand our subsidiaries have limited liability insurance coverage for our products and business operations. We may not be able to secureadditional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful liability claimagainst us, our subsidiaries or its subsidiaries due to injuries or damages suffered by our users could materially and adversely affectour financial condition, results of operations and reputation. Even if unsuccessful, such a claim could cause us adverse publicity, requiresubstantial costs to defend, and divert the time and attention of our management. In addition, we do not have any business disruptioninsurance. Any business disruption could result in substantial cost to us and diversion of our resources. Furthermore, Japan, the UnitedStates or any other jurisdiction relevant to our business may impose requirements for maintaining certain minimum liability or otherinsurance 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 risksof operating our AMVs and also reduce the demand for them.

 

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

 

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

 

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

 

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

 

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

 

Weare vulnerable to natural disasters and other calamities such as typhoons, tornadoes, floods, earthquakes and other adverse weather andclimate conditions. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-timebasis, and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems willbe 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 hardwareas well as adversely affect our ability to provide services on our platform. In addition, the further spread of the new coronavirus mayaffect our performance and financial position, depending on the course of events, and we will continue to closely monitor the situationand make necessary disclosures.

 

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

 

Weand 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 officepremises, buildings and facilities deteriorates, or if any or all of our and our subsidiaries’ landlords fail to properly maintainand renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially andadversely affected.

 

 

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

 

Acomponent of our growth strategy involves the expansion of our operations and customer base worldwide. We plan to open internationaloffices in the future. These international offices will focus primarily on sales, professional services and support. Our future internationaloperations 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.

 

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

 

Ourcustomers may fail to pay us in accordance with the terms of their agreements, at times necessitating action by us to attempt to compelpayment.

 

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

 

Webelieve our success depends on continuing to invest in the growth of our worldwide operations by entering new geographic markets. Ifour 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.

 

Webelieve our success depends on expanding our business into new geographic markets and attracting customers in countries other than theUnited States. We anticipate continuing to expand our operations worldwide and have made, and will continue to make, substantial investmentsand 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 futuresales in the new market will justify the costs of these investments. In addition, these investments may be more expensive than we initiallyanticipate. If our investments are greater than we initially anticipate or if our customer growth or sales in these markets do not meetour expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected.

 

 

RisksRelated to Our Dependence on Third Parties

 

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

 

Currentlywe do not rely on any third-party distributors for sales, marketing and distribution activities relating to our AMVs. However, some ofour 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 controlover the activities of third-party distributors selling or using our products and solutions; third-party distributors may terminate theirarrangements with us on limited or no notice, or may change the terms of these arrangements in a manner that is unfavorable to us forreasons outside of our control; and any disagreements with our third-party distributors could lead to costly and time-consuming litigationor arbitration. If we fail to establish and maintain satisfactory relationships with our third-party distributors, we may not be ableto sell, market and distribute our AMVs according to our internal budget and plans, our future revenues and market share may not growat a pace that we expect, and we could be subject to increases in sales and marketing and other costs which would harm our results ofoperations and financial condition.

 

Werely 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.

 

Wepurchase 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 andraw materials that meet our standards is crucial to our assembly, production and operations. We cannot assure you that we will be ableto maintain our existing relationships with our suppliers and continue to be able to stably source key components and raw materials atreasonable prices, or at all. We have integrated our suppliers’ technologies within our products such that having to change toan alternative supplier may cause significant disruption to our operations. The supply of key components could be interrupted for anyreason, 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 oursuppliers’ 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.

 

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

 

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

 

Ourability to transport and sell our AMVs is critical to our success across our operations. We expect to rely on third-party logistics serviceproviders 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 ourAMVs. Inadequate third-party logistics services could also potentially disrupt our distribution and sales and compromise our businessreputation. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage suchevents if they occur, could adversely affect our business, financial condition and results of operations, as well as require additionalresources to restore our supply chain.

 

RisksRelated to Employee Matters

 

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

 

Webelieve 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 culturecould 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 aspectsof our company culture. If we fail to maintain our company culture, our business may be adversely impacted.

 

 

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

 

Webelieve that our success depends substantially on the continued efforts of our key employees, including our senior management membersand other qualified and key personnel. We rely on our executive officers, senior management and key employees to generate business andexecute programs successfully. In addition, the relationships and reputation that members of our management and key employees have establishedand 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 anddevelopment activities and operations, and impair our revenue growth and competitiveness. If one or more of our executive officers orkey 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.

 

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

 

Toexecute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companiesfor developers with high levels of experience in designing, developing and managing AMVs and air mobility solutions, as well as for skilledinformation technology, marketing, sales and operations professionals, and we may not be successful in attracting and retaining the professionalswe need. Also, inbound sales, marketing, services, and content management domain experts are very important to our success and are difficultto replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiringand difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a competitivehiring environment in Japan, where we are headquartered and will continue to experience a competitive hiring environment as we recruitfor 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 stockoptions or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiencessignificant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnelor fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

 

RisksRelated to Intellectual Property

 

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

 

Companies,organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that wouldprevent, limit or interfere with our ability to make, use, develop, sell or market our AMVs, AMV operating systems and infrastructureor their components, which could make it more difficult for us to operate our business. Companies holding patents or other intellectualproperty rights may bring suits alleging infringement of such rights by us and our subsidiaries or otherwise assert their rights againstus 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. Weor our subsidiaries may also fail to apply for key trademarks in a timely manner. We or our subsidiaries may continue to face intellectualproperty infringement claims in the future.

 

Ifwe or our subsidiaries are determined to have infringed upon a third party’s intellectual property rights, we or our subsidiariesmay 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.

 

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

 

 

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

 

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

 

Wecannot 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.

 

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

 

Implementationand enforcement of Japanese laws on intellectual property rights have historically been deficient and ineffective. Accordingly, protectionof intellectual property rights in Japan may not be as effective as in the United States or other developed countries. Furthermore, policingunauthorized 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 obtainand 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 adverselyaffect our current and future revenues and our reputation. Monitoring unauthorized use of our and our subsidiaries’ intellectualproperty is difficult and costly, and we cannot assure you that the steps we or our subsidiaries have taken or will take will preventmisappropriation of our and our subsidiaries’ intellectual property. From time to time, we or our subsidiaries may have to resortto litigation to enforce our and our subsidiaries’ intellectual property rights, which could result in substantial costs and diversionof our resources.

 

TheCompany 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 worldwould 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 protectionto develop their own products and their products may compete with products of the Company.

 

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

 

Oursuccess depends, in large part, on our ability to protect our intellectual property and other proprietary rights. We rely primarily onpatents, trademarks, copyrights, trade secrets, design rights and unfair competition laws, as well as license agreements and other contractualprovisions, to protect our intellectual property and other proprietary rights. However, existing Japanese legal standards relating tothe validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide uswith any competitive advantages, and our rights may be challenged by third parties. The laws of countries other than Japan may be evenless protective of our intellectual property rights. Accordingly, despite our efforts, we may be unable to prevent third parties frominfringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third partiesmay 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 employmentto work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitiveposition. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations or financialcondition could be materially harmed. From time to time, we have initiated lawsuits to protect our intellectual property and other proprietaryrights. Pursuing these claims is time consuming and expensive and could adversely impact our results of operations.

 

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

 

 

RisksRelated to Government Regulation

 

Failureto comply with laws and regulations could harm our business.

 

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

 

Althoughwe strive to comply with these laws and regulations, including Civil Aeronautics Law, Road Traffic Law, Radio Law, Product LiabilityLaw, Worker Dispatch Law, and other laws and regulations related to our business, it is possible that regulations will be unexpectedlyenacted, amended, or abolished in the future, or that planned deregulation will not proceed as planned. In such cases, if we receivesome 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 requirementscould subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civiland criminal penalties or injunctions.

 

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

 

Weoperate 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, subjectto an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatoryapprovals due to the nascent nature of AMV-related regulations and the lack of relevant precedents. For example, we are not aware ofany operator having been granted all required approvals for the operation of AMVs in Japan, the United States or elsewhere. We cannotpredict when these regulations will change, and any new regulations may impose onerous requirements and restrictions.

 

Aswe sell our AMV products internationally, we face challenges in quickly and sufficiently familiarizing ourselves with foreign regulatoryenvironments 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 limitedor 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 adverselyaffect our operation results. If we are found to be in violation of applicable laws or regulations, we could be subject to administrativepunishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could havea material adverse effect on our business, financial condition, results of operations and prospects.

 

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

 

Salesof our AMVs must comply with applicable standards in the market where they are sold, including standards on design, manufacturing andoperation. In Japan, for example, certain components of our AMVs must pass various tests and meet criteria specified in product safetyguideline issued by the Ministry of Economy, Trade and Industry in Japan. We have met the applicable requirements in the guideline andobtained approval of export with Certificate of Non-applicability. Currently, there are 193 members or contracting states in the InternationalCivil Aviation Organization (“ICAO”), which is governed by the ICAO Council, which is composed of 36 member states includingthe 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.

 

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

 

 

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

 

Weare subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulationsin 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 FCPAand the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, includingagents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposesof influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requirescompanies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintaina 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 governmentowned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection withthe implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, resultsof operations, financial condition and reputation.

 

Wehave direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinarycourse of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-ownedor affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process ofimplementing 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 andsimilar 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-compliancewith anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblowercomplaints, 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, financialcondition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investmentsin our shares.

 

RisksRelated to Indebtedness

 

Ourwholly owned subsidiary’s substantial indebtedness could have important adverse consequences and adversely affect our financialcondition.

 

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

 

Ourlevel of debt could have important consequences, including making it more difficult for us to satisfy our obligations with respect toour 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 insteadof other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitionsand 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 industriesin which we compete, placing us at a disadvantage compared to other, less leveraged competitors, increasing our cost of borrowing andhampering our ability to execute on our growth strategy.

 

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

 

Ourability to make principal and interest payments on and to refinance the indebtedness of our subsidiaries will depend on our ability togenerate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors thatare beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, orif 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.

 

 

Ifwe cannot generate sufficient cash flow from operations to make scheduled principal and interest payments, we may need to refinance allor a portion of the indebtedness of our subsidiaries on or before maturity, sell assets, delay capital expenditures or seek additionalequity. The terms of our existing or future debt agreements may also restrict us from affecting any of these alternatives. Any refinancingof our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrictour 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 futureliquidity. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likelyresult in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonableterms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructureour obligations on commercially reasonable terms or at all, could have a material adverse effect on our business, financial conditionand results of operations, as well as on our ability to satisfy our obligations in respect of our indebtedness.

 

Despiteour 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 describedabove.

 

Weand 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 thatwe now face could intensify.

 

GeneralRisks

 

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

 

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

 

Weare exposed to fluctuations in currency exchange rates.

 

Weface 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 materiallyfrom expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominatedtransactions 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 volatilityof currency fluctuations. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to predictour future results and earnings accurately. Although we may apply certain strategies to mitigate foreign currency risk, these strategiesmight not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoingmanagement time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as weanticipate growing our business further outside of the United States, the effects of movements in currency exchange rates will increaseas our transaction volume outside of the United States increases.

 

Ouractual operating results may differ significantly from our guidance and projections.

 

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

 

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

 

 

RisksRelated to Ownership of Our Securities

 

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

 

Oursecurities are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq inthe 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).

 

IfNasdaq delists our securities from trading on its exchange and we are not able to list its securities on another national securitiesexchange, we expects our securities could be quoted on an over-the-counter market. If this were to occur, the Company could face significantmaterial 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.

 

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

 

Thetrading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatilityoften has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell yourshares 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;

 

 

	●	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.

 

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

 

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

 

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

 

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

 

TheCompany’s stockholders may experience dilution in the future.

 

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

 

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

 

Ifsecurities 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.

 

Thetrading market for our common stock will depend in part on the research and reports that securities or industry analysts publish aboutus or our business, our market, and our competitors. We do not have any control over these analysts. If one or more of the analysts whocover us downgrade our shares or publish negative views on us or our shares, our share price would likely decline. If one or more ofthese 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.

 

 

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

 

Wequalify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptionsfrom 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.

 

Inaddition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerginggrowth 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 thereforenot be comparable to those of companies that comply with such new or revised accounting standards.

 

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

 

Untilsuch 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 theprice of our securities may be more volatile.

 

Thecompany may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous for the Company’s warrantholders.

 

Thecompany 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 $18.00per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days withina 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 currentregistration statement in effect with respect to the shares of the Company’s common stock underlying such warrants. Redemptionof the outstanding public warrants could force you to: (i) exercise your warrants and pay the related exercise price at a time when itmay be disadvantageous for you to do so; (ii) sell your warrants at the then-current market price when you might otherwise wish to holdyour 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.

 

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

 

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

 

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

 

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

 

 

TheSelling Securityholder may sell a large number of shares, resulting in substantial diminution to the value of shares held by existingstockholders.

 

Pursuantto the Purchase Agreement, we are prohibited from delivering an Advance Notice to the Selling Securityholder to the extent that the issuanceof 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 withthe Purchase Agreement and then receiving additional shares of Common Stock in connection with a subsequent issuance. In this way, theSelling Securityholder could sell more than 4.99% of the outstanding shares of Common Stock in a relatively short time frame while neverholding more than 4.99% at any one time. As a result, existing stockholders and new investors could experience substantial diminutionin the value of their shares of Common Stock. Additionally, we do not have the right to control the timing and amount of any sales bythe Selling Securityholder of the shares issued under the Purchase Agreement once we have sold them to the Selling Securityholder.

 

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

 

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

 

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

 

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

 

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

 

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

 

Inaddition, 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 operatingperformance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not bepredictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceiveto 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 abilityto obtain additional financing in the future.

 

Ourcommon stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classifiedas “penny stock.”

 

Ourcommon stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share pricebelow $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-dealersthat 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 investmentsin penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardizedrisk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer alsomust provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer andits salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’saccount, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’swritten agreement to the transaction.

 

 

Legalremedies 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.

 

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

 

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

 

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

 

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

 

Rule12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backedissuer, 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.

 

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

 

Weincur significant costs as a result of operating as a public company, and our management is required to devote substantial time to newcompliance initiatives.

 

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

 

 

TheSarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosurecontrols and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financialreporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section404 of the Sarbanes-Oxley Act. In addition, will be required to have our independent registered public accounting firm attest to theeffectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annualreport on Form 10-K following the date on which we are no longer an emerging growth company or a smaller reporting company. Our compliancewith 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 appropriatepublic company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in atimely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financialreporting that are deemed to be material weaknesses, the value of our securities could decline and we could be subject to sanctions orinvestigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

 

Ourability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accuratefinancial 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, newor enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal controlover financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on value of our securities, and could adversely affect ourability to access the capital markets.

 

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

 

TheCompany’s Amended Charter and Amended Bylaws contain provisions that could have the effect of delaying or preventing changes incontrol 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.

 

Theseprovisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directorsand management.

 

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

 

 

THELIND GLOBAL FINANCING

 

OnApril 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the SellingSecurityholder 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”).

 

Theclosings 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 saleto the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and theissuance to the Selling Securityholder of 2,532,678 Warrants to acquire 2,532,678 shares of common stock. So long as no “Eventof 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 ofa Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholderof 1,568,542 Warrants to acquire 1,568,542 shares of common stock. The Second Closing will occur on the first business day followingthe 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 theConvertible 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 priceof $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 1,680,484shares of common stock and will occur upon the effectiveness of the Registration Statement, as such term is defined below. The SecondClosing and Third Closing are subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the PurchaseAgreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the fundingamount being funded by the Selling Securityholder at the applicable Closing.

 

Pursuantto the Purchase Agreement, we agreed to file a registration statement on Form S-1 (the “Registration Statement”) no laterthan 30 days from entry into the Purchase Agreement to register the shares of the Company’s common stock issuable upon conversionof the Convertible Note and the shares of the Company’s common stock issuable upon the exercise of the Warrants (the “SellingSecurityholder Shares”). Additionally, the Company agreed that if the Company at any time determines to file a registration statementunder 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 saleto employees or directors of the Company pursuant to any employee stock plan or other employee benefit plan arrangement), the Companywill, as soon as reasonably practicable, give written notice to the Selling Securityholder of its intention to so register the offerand sale of common stock. Within 5 business days of the Company’s delivery of any such notice to the Selling Securityholder, theSelling Securityholder may request that the Company include the Selling Securityholder Shares in such registration.

 

Inaccordance with our obligations under the Purchase Agreement, we have filed the registration statement that includes this prospectuswith 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 ConvertibleNotes 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 Warrantswhich are or may be issued to the Selling Securityholder in connection with the purchase of the Convertible Notes. We have calculatedthe amount of Common Stock that we may be obligated to issue to the Selling Securityholder upon conversion of the Convertible Notes basedon 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.

 

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

 

Pursuantto the Purchase Agreement, the Company also agreed not to enter into any “Prohibited Transactions” without the Selling Securityholder’sprior 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 orsells (or arranges or agrees to issue or sell) (i) any debt, equity or equity-linked securities (including options or warrants) thatare 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 rateor other price that is subject to being reset at some future date after the initial issuance of such debt, equity or equity-linked securityor upon the occurrence of specified or contingent events (other than warrants that may be repriced by the Company); or (ii) any securitiesin a capital or debt raising transaction or series of related transactions which grant to an investor the right to receive additionalsecurities based upon future transactions of the Company on terms more favorable than those granted to such investor in such first transactionor series of related transactions; or (iii) following the date that earlier of (i) the date the Selling Securityholder Shares may beimmediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale or pursuant to an effectiveregistration 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, exceptfor 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 60days following the date the Selling Securityholder Shares may be immediately resold under Rule 144 without restriction on the numberof shares to be sold or manner of sale and (ii) the date that is 60 days following the date that the Selling Securityholder Shares areregistered for resale under the 1933 Act.

 

 

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

 

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

 

TheConvertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest singleVWAP during the 20 Trading Days prior to conversion of the Convertible Note (the “Conversion Price”). VWAP means as of anydate, the price determined by the first of the following clauses that applies: (a) if the common stock is then listed or quoted on atrading market, the daily volume weighted average price of one share of common stock trading in the ordinary course of business at theapplicable 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 reportedby the OTCQX or OTCQB Markets, the volume weighted average price of one share of common stock for such date (or the nearest precedingdate) on the OTCQX or OTCQB Markets, as reported by Bloomberg Financial L.P.; (c) if the common stock is not then listed or quoted ona 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 recentbid price of one share of Common Stock so reported, as reported by Bloomberg Financial L.P.; or (d) in all other cases, the fair marketvalue of one share of common stock as determined by an independent appraiser. The Conversion Price is also subject to certain adjustmentsas set forth in the Convertible Note.

 

TheConvertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth thereinare 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.

 

Eventsof Default under the Convertible Note, include (a) any default in the payment of the principal amount or any other amounts due and payableunder the Convertible Note when due, which failure has not been cured within 3 business days of the occurrence of such failure; (b) thecompany fails to observe or perform any other covenant, condition or agreement contained in the Convertible Note or any other transactionsdocuments 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 complywith proper requests for conversion of this Convertible Note; (d)the Company fails to (i) timely deliver the shares of common stock asand 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 ofsuch failure; (e) default is be made in the performance or observance of any material covenant, condition or agreement contained in thePurchase Agreement or any other transaction document which failure has not been cured within 3 business days of the occurrence of suchfailure; (f) at any time the Company fails to have 200% of a sufficient number of shares of common stock authorized, reserved and availablefor issuance to satisfy the potential conversion in full of the Convertible Note or upon exercise of the Warrant; (g) any representationor warranty made by the Company, or any subsidiary in the Convertible Note, Purchase Agreement or Warrant or any other transaction documentproves to false or incorrect or breached in a material respect on the date as of which made; (h)unless otherwise approved in writingin advance by the Selling Securityholder, the Company, announces an intention to pursue or consummate a change of control, or the Companynegotiates, proposes or enter into any agreement, understanding or arrangement with respect to any change of control; (i) the Companyor any subsidiary defaults in any payment of any amount or amounts of principal of or interest (if any) on any indebtedness the aggregateprincipal amount of which indebtedness is in excess of $100,000 which failure has not been cured within 3 business days of the occurrenceof 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 generalassignment for the benefit of its creditors; (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafterin effect) or under the comparable laws of any jurisdiction (foreign or domestic); (iv) file a petition seeking to take advantage ofany 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 hereafterin effect) or under the comparable laws of any jurisdiction (foreign or domestic); (vi) issue a notice of bankruptcy or winding downof 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 itsapplication 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 likeof 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 inclause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of 45 days or any order for relief shallbe entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws ofany jurisdiction (foreign or domestic) against the Company or any subsidiary or action under the laws of any jurisdiction (foreign ordomestic) 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 inexcess 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 unlegendedcertificates to the Selling Securityholder within 3 trading days of the Selling Securityholder’s request so long as the SellingSecurityholder has provided reasonable assurances to the Company that such shares be sold pursuant to Rule 144 or any other applicableexemption; (n) the Company’s common stock is no longer publicly traded or cease to be listed on the trading market or, after the12 month anniversary of the date of the filing of a “Super 8-K” with respect to the closing of the transactions relatingto the merger of a subsidiary of the Maker with AERWINS Technologies, Inc., which occurred on February 3, 2023, any Selling SecurityholderShares may not be immediately resold under Rule 144 without restriction on the number of shares to be sold or manner of sale, unlesssuch Selling Securityholder Shares have been registered for resale under the 1933 Act and may be sold without restriction; (o) the Companyproposes to or does consummate a “going private” transaction as a result of which the Common Stock will no longer be registeredunder 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-orderor any restriction in place with the Company’s transfer agent restricting the trading of the Company’s common Stock; (q)theDepository Trust Company places any restrictions on transactions in the common stock or the common stock is no longer tradeable throughthe Depository Trust Company Fast Automated Securities Transfer program; (r) the Company’s market capitalization is below $20,000,000for ten (10) consecutive days; or (s) the occurrence of a material adverse effect in respect of the Company or subsidiaries, taken asa whole.

 

 

Pursuantto 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 termis defined in the Purchase Agreement, in one or more transactions for aggregate proceeds of more than $5,000,000 of cash proceeds beingreceived by the Company, unless otherwise waived in writing by and at the discretion of the Selling Securityholder, the Company willimmediately utilize 20% of the proceeds of such issuance to repay the Convertible Notes issued to the Selling Securityholder pursuantto the Purchase Agreement, until there remains no outstanding and unconverted principal amount due.

 

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

 

Inthe event that there is no effective registration statement registering the shares underlying the Warrants or upon the occurrence ofa 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 priceof the underlying shares of Common Stock and the exercise price of the underlying warrants) to exercise the warrants without the paymentof any cash.

 

TheSelling 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 theCompany’s common stock outstanding immediately after giving effect to such conversion or exercise.

 

Pursuantto the Purchase Agreement, on April 12, 2023, the Company also entered into a Security Agreement with the Selling Securityholder pursuantto which the Company agreed to grant the Selling Securityholder, a security interest in the following properties, assets and rights ofthe 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 evidencedby a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rightsor rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), butexcluding the Excluded Property. “Excluded Property” means (i) any property or assets to the extent that such grant of asecurity interest is prohibited by any law, requires a consent or approval not obtained of any Governmental Authority pursuant to suchlaw or is prohibited by, or constitutes a breach or default under, results in the termination of, or requires any consent or approvalnot obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, inthe case of any investment property or instruments, any applicable shareholder or similar agreement, but only to the extent, and forso long as, such law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreementproviding for such prohibition, breach, default or termination or requiring such consent is not terminated or rendered unenforceableor 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 theagreements relating to such purchase money lien or capital lease do not permit such assets to be subject to the security interests createdhereby; (iii) all United States “intent to use” trademark applications where the grant of a security interest therein wouldimpair the validity or enforceability of said intent to use trademark and (iv) proceeds of any Excluded Property unless such proceedswould otherwise constitute Collateral.

 

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

 

Pursuantto 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 interestin and delivered to the Selling Securityholder all of the shares of capital stock that the Company owns in its wholly owned subsidiaryAERWINS, Inc. The Company also pledged (i) all payments or distributions, whether in cash, property or otherwise, at any time owing orpayable to the Company on account of its interest as a shareholder in AERWINS, Inc., (ii) all of the Company’s rights and interestunder the organizational documents of AERWINS, Inc., including all voting and management rights and rights to grant or withhold consentsor approvals; (iii) all rights of access and inspection to and use of all books and records, including computer software and computersoftware programs, of AERWINS, Inc., (iv) all other rights, interests, property or claims to which the Company may be entitled in itscapacity as a stockholder of AERWINS, Inc., and (v) all proceeds, income from, increases in and products of any of the foregoing. TheCompany further agreed not to authorize or issue any additional shares of capital stock or other interests of AERWINS, Inc. without theSelling Securityholder’s prior written consent.

 

 

Pursuantto the Purchase Agreement, on April 12, 2023, the Company’s wholly owned subsidiary AERWINS, Inc. entered into a Guarantor SecurityAgreement 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 acquiredin the future, and all proceeds and products): all personal and fixture property of every kind and nature including all goods (includinginventory, 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-creditrights (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). “ExcludedProperty” means (i) any property or assets to the extent that such grant of a security interest is prohibited by any law, requiresa consent or approval not obtained of any Governmental Authority pursuant to such law or is prohibited by, or constitutes a breach ordefault 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, anyapplicable 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 terminationor requiring such consent is not terminated or rendered unenforceable or otherwise deemed ineffective under applicable law of any relevantjurisdiction or any other applicable law or principles of equity); (ii) any assets that are subject to a purchase money lien or capitallease constituting a permitted lien, but only to the extent the agreements relating to such purchase money lien or capital lease do notpermit such assets to be subject to the security interests created hereby; (iii) all United States “intent to use” trademarkapplications where the grant of a security interest therein would impair the validity or enforceability of said intent to use trademarkand (iv) proceeds of any Excluded Property unless such proceeds would otherwise constitute collateral of AERWINS, Inc. under the GuarantorSecurity Agreement.

 

Pursuantto 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, granteda security interest in and delivered to the Selling Securityholder all of the shares of capital stock that AERWINS, Inc. owns in itswholly 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 managementrights 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 whichAERWINS, Inc. may be entitled in its capacity as a stockholder of A.L.I., and (v) all proceeds, income from, increases in and productsof any of the foregoing. AERWINS, Inc. further agreed not to authorize or issue any additional shares of capital stock or other interestsof A.L.I. without the Selling Securityholder’s prior written consent.

 

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

 

USEOF PROCEEDS

 

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

 

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

 

DETERMINATIONOF OFFERING PRICE

 

Wecannot currently determine the price or prices at which the shares of Common Stock may be sold by the Selling Securityholder under thisprospectus.

 

DIVIDENDPOLICY

 

Wehave 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 dividendsor make other distributions on our capital stock. Payment of future dividends on our Common Stock, if any, will be at the discretionof our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financialcondition, 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.

 

MARKETPRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

OurCommon 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 Warrantswas $0.0488.

 

Holders

 

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

 

 

TransferAgent and Registrar

 

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

 

Dividends,Common Stock and Unregistered Stock Issuances

 

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

 

EquityCompensation Plans

 

Thefollowing table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as wellas 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

 

DESCRIPTIONOF BUSINESS

 

AERWINSTechnologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) togetherwith its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanesecorporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System forManaging 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.

 

Wewere originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisitioncompany, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similarbusiness 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”) anda 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 September7, 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 representativeof the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“SellerRepresentative”). 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. survivingthe Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the businessof the Company became the business of AERWINS, Inc., and this business section primarily includes information regarding the AERWINS’,Inc. business.

 

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

 

Mission

 

Withthe mission of “Transforming society from the sky down,” we aim to realize an “Air Mobility Society” in whichcars, 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

 

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

 

Torealize 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 zonesin 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.

 

 

 

Currentand Planned Product and Service Status

 

Ourcurrent 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

 

 

EstimatedPrice Ranges for our Products and Services

 

Ourcurrent 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.

 

SignificantMarket Opportunities

 

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

 

Themarket opportunities created by our technology are significant. According to an analysis by Frost & Sullivan, the autonomous vehicleservices 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 mutuallybeneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, westrive to continue to innovate and expand the boundaries for air-based mobility.

 

Thesky 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 purchasestotal amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individualsto purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin deliveryof the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed.

 

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

 

Ourair 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 equippedwith intensive software capability which allows manual/autonomous/remote control driving experience. Each XTURISMO LTD EDITION is builtto order, and accordingly, we begin production of each specific unit when a confirmed order is received by us. Due to the cost of theXTURISMO LTD EDITION, we have decided to limit the production of the XTURISMO LTD EDITION to 200 units and target high net worth individualsas potential purchasers. Most of the parts were created exclusively for the product with small unit orders resulting in the purchaseprice to be relatively expensive. The price of the current XTURISMO LTD EDITION is 77.7 million yen ($550,000 USD) per unit (includinginsurance and installation program) in Japan. We believe the price of the supply parts can be decreased if we are able to obtain moreorders, and at such time we believe that we may be able to mass produce a less expensive model to facilitate safe, cost-effective, andeasy-to-use air mobility solutions. Additionally, the materials can change depending on the usage omitting out unnecessary features whichcan also impact the final price to decrease in the future. Beginning from 2025 we plan that our EV version, the internally named projectof “Speeder”, are planned to be in mass production where we intend the price to drop significantly. The Speeder is not yetin development as of now.

 

 

Wedesign, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide rangeof industries and applications, including passenger transportation, logistics, and smart city management. For example, in a project jointlywith Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situationusing unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to controlthese drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be usedduring a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver suppliesneeded in times of disaster by multiple vehicles flying simultaneously along the airways. Additionally, we have conducted similar servicewith the Ministry of Land, Infrastructure, Transport and Tourism of Japan. In the field of civil engineering surveying and infrastructureinspections, we are seeking to provide efficient services using unmanned aircraft instead of the existing methods of surveying and visualinspection 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

 

Weare 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-movezones 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.

 

Belowis a breakdown of revenues for each of these businesses.

 

 

 

Grosssales in 2021 totaled $7,830,130 (excluding consumption tax), consisting of $5,218,538 from shared computing and $2,329,487 from unmannedair mobility. In 2021, one significant customer was H.I.F. Corporation, which accounted for 17.2% of the total sales in 2021. Duringthe 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 significantcustomer which was OKMUMA DRONE Co., Ltd, which accounted for 14.9% of the total sales during the year ended December 31, 2022.

 

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

 

 

WhatSets Us Apart

 

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

 

Webelieve the following characteristics set us apart in each domain.

 

1)Manned Air Mobility Domain

 

Easeof implementation in society

 

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

 

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

 

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

 

PracticalDriving Capacity

 

Thecurrent 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.

 

Pioneerand Leader in Urban Air Mobility

 

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

 

2)Unmanned Air Mobility Domain

 

OriginalOperation Management System

 

Thistechnology 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 thatour 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

 

Equipmentoptimized for those wishing to rent out computing power

 

Thecomputing power sharing service that we offer is optimized equipment for those who wish to utilize computing power, with our proprietarydistributed processing algorithm software and shared global computing platform on hardware equipped with the CPU, memory, and SSD requiredfor 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-coolingperformance. These machines can be stored at our or our partner’s centers. We currently have five centers with a track record ofreceiving over 1,000 GPU machines. We will continue to generate revenue by operating our current centers on a stable basis.

 

 

OurStrategies

 

Weintend to pursue the following strategies to achieve our mission:

 

Transformationinto a Global Company

 

Wehave established three key business areas with the aim of transforming ourselves into a global company. The first is Japan, where ouradministrative, software, and design bases are located. The second is the Gulf Cooperation Council (“GCC”) region, includingthe United Arab Emirates (“UAE”), Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. UAE will be our first overseas expansionarea, 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 Europeand Asia. Third is the United States (“U.S.”), where we are considering expansion after 2023. In the U.S., we plan to establishan office and R&D center specializing in software. For this purpose, we are considering a capital alliance with a reputable venturecapital firm.

 

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

 

ExtendOur Technological Leadership

 

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

 

ExpandDevelopment and Manufacturing Capabilities

 

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

 

ExpandOur Air Mobility Portfolio and Strengthen Our Platform

 

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

 

ContinueCommercialization and Promote Adoption

 

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

 

ExploreNew Monetization Opportunities

 

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

 

PursueStrategic Partnerships in Production and Technology

 

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

 

Industry

 

Overviewof Our Market

 

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

 

 

Marketsize by our segment

 

1)Manned Air Mobility

 

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

 

Accordingto data published by Morgan Stanley Research in 2019, the global market for manned air mobility, including hoverbikes, is expected togrow to over 150 trillion yen (approximately $1,036 billion USD) by 2040 according to long-term global forecasts. Data published by PWCin 2020 indicates that the air mobility market in Japan will grow to approximately 2.5 trillion yen (approximately $17 billion USD) by2040. According to “Flying Cars Global Market Report 2021” published by The Business Research Company in 2021, the globalmarket 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 keyto growth will be the development of infrastructure system requirements, aircraft development, and institutional response, particularlyin passenger transportation.

 

 

 

(Source:Flying Cars Global Market Report 2021)

 

Themanned air mobility field in the air mobility industry, to which we belong, is expected to contribute to solving various social issuessuch as eliminating traffic congestion and improving productivity in cities, reducing land infrastructure costs for the approximately20,000 marginalized villages in rural areas (remote islands and mountainous regions) in Japan, transporting people between inhabitedislands, replacing helicopters, and diversifying entertainment and sightseeing, as advanced mobility that can go “wherever theywant” and “whenever they want.”

 

Thesystem 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 establishmentof 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.

 

 

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

 

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

 

2)Unmanned Air Mobility

 

Themarket for the unmanned air mobility industry in Japan, the market utilizing drones, has been expanding against the backdrop of socialissues such as labor shortages and aging infrastructure. According to the “Drone Business Research Report 2021” publishedby 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 focusingour efforts, is expected to grow from 112.8 billion yen (approximately $779 million USD) in 2020 to 436.1 billion yen approximately $3,013million USD) in 2025. Looking at the service market by sector, the inspection sector, which we are focusing on, is expected to grow from39.9 billion yen (approximately $275 million USD) in 2020 to 171.5 billion yen (approximately $1,185 million USD) in 2025, the logisticssector from 1.5 billion yen (approximately $10 million USD) in 2020 to 79.9 billion yen (approximately $552 million USD) in 2025, andthe 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.

 

 

 

 

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

 

Theunmanned air mobility field is attracting increasing attention as a solution to meet the needs for manpower saving and unmanned air mobilityin light of the declining working population, aging infrastructure, and the spread of new coronavirus infections, which require contactlessand 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 ofCouncillors 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 anddrone operator licenses are in place, the area where drones can be used is expected to expand significantly and a large market is expectedto be created. Under these circumstances, we believe that players who can execute operations as well as develop drone technology willbe 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

 

Themarket 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 tonearly 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.

 

 

 

 

Inthe 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.

 

OurBusiness

 

Ourbusiness is built on our technology platform, which is designed to develop and market Manned Air Mobility and provide Unmanned Air Mobilityoperating 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

 

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

 

 

XTURISMOLimited Edition

 

Thebasic 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 meetthe following requirements. Compared to other manned air mobility vehicles designed solely with electric power, this design is highlypractical due to its high energy efficiency and long cruising time. The use of lightweight, tough, and non-corrosive Carbon Fiber ReinforcedPolymer (“CFRP”) components for almost all airframe components significantly reduces the weight of the airframe and minimizesthe drive energy. In addition, we have newly developed a control unit that controls the movement of the airframe, which is optimal forair mobility. In the future, we plan to respond to customization according to the requests of potential purchasers.

 

 

Thecurrent XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. Currently we have 7 purchasestotal amongst 3 purchasers and at least 10 inquiries to proceed for purchase agreements from Government agencies, corporations and individualsto purchase where we will be conducting flight demonstrations, flight training and inspections before delivery. We plan to begin deliveryof the current XTURISMO LTD EDITION in the middle of 2023 for the purchases that have already been confirmed. The configuration and mechanismof the airframe for levitation is as follows: one gasoline engine is used to drive the two front and rear main propellers, and four batteriesare 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.

 

Asshown in Figure 3, the names of the various sections of the aircraft and basic operations can be performed using the buttons and leverson the steering wheel.

 

Theprice is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. The vehicle is expected tobe used as a disaster relief vehicle for emergencies and for hobby use on circuits, at sea, etc. For the usage of disaster relief, sinceJapan encounters a number of natural disasters, we have been in conversation with relevant authorities in Japan regarding situationssuch as earthquakes, floods and tsunamis, and the use of our products in such situations as upon the occurrence of such events the roadinfrastructure may be destroyed causing obstacles for emergency access. Furthermore, due to our hybrid engine system, the batteries canbe used for electricity supply for disaster affected locations. For example, in a project jointly with Yamanashi prefecture located ina mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from threedifferent 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 werethen used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disasterby multiple vehicles flying simultaneously along the airways.

 

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

 

 

Figure2(The mechanism of the aircraft’s levitation)

 

 

“XTURISMOLimited 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)

 

 

 

 

Figure3 (Name of each part - XTURISMO Limited Edition)

 

(2)Unmanned Air Mobility Domain

 

Inthe 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 trafficmanagement system “UTM” in service for up to approximately 10 drones. We are currently developing C.O.S.M.O.S. Advanced forfurther implementation into the air mobility sector, including the ability to monitor an increased number of drones, as well as the abilityto 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 managementof the health of the aircraft, operational certainty, and safety of the surrounding area and operators, which are the principles of automatedunmanned AMV operations. While seamlessly connecting to the Drone Information Platform System (“DIPS”) and Flight OperationManagement 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,” therebyaccelerating 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 aircraftinformation, 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 monitoredby a 360-degree camera attached to the drone. Municipalities where drones fly overhead and operators who use drones on a daily basiswill be able to check this information in real time as needed, thereby realizing safe and secure operations.

 

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

 

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

 

 

 

Figure5 (Overview of C.O.S.M.O.S. Flight Operation Management System Functions)

 

 

Figure6 (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)

 

Dataon more than 100 registered pilots throughout Japan is centrally managed by the pilot operation system “C.O.S.M.O.S. Hub (CosmosHub)”. 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 systemprovides highly accurate safety management manuals and business etiquette training to pilots registered with the system, enabling theprovision 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 ofproviding solutions in 36 prefectures throughout Japan by 2021.

 

 

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

 

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

 

DronePhotography Business

 

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

 

JointResearch and Development

 

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

 

Forexample, 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 MisawaHomes Co. Ltd. and Mitsui O.S.K. Lines, Ltd. in the world’s first demonstration experiment of unmanned operation using commerciallyoperated container vessels, as shown in Figure 8.

 

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

 

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

 

 

Figure7 (Individual drone delivery system demonstration for future concept homes with Misawa Homes, Inc.)

 

 

 

 

Figure8 (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)

 

Ourshared computing service is currently available and the proprietary software technology allows existing or newly purchased computersto efficiently utilize capability for computing and rendering. Our shared computing service is a system that provides efficient computingpower 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 equippedwith CPU, memory, and Solid State Drive (“SSD”) necessary for blockchain and AI lending, and our proprietary distributedprocessing algorithm software. Two models are available: a box-type model that can be stored in a typical data center, and a rack-typemodel with excellent air-cooling performance. These machines can be stored at our or our partner’s centers. We currently have fivecenters with a track record of more than 1,000 GPU machines in storage.

 

 

TheDetails of our Shared Computing System are as follows:

 

 

Additionallywe 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 appliedgame rendering and computer graphics rendering technology to visualize the sky road planned to be implemented in the unmanned trafficmanagement system for air mobility infrastructure which we are currently internally using and which is planned for external use in thefuture.

 

Thefee structure consists of a monthly operation management fee for managing the operation of the GPU machines and a license fee in theform of a performance fee based on the utilization of computing power (some of which was received in the form of cryptographic assetsat the request of a single purchaser of our shared computing services). Specifically, during the period of January 1, 2021 through October31, 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 tokenshave been sold for an aggregate amount of 87,690,644 yen ($605,975 US dollars). Furthermore, other than the Ethereum tokens as describedin the immediately preceding sentence, we have not in the past nor will we at any time in the future accept any payment in cryptographicassets. Additionally, our shared computing service is not used for the mining of cryptographic assets. Some external users of our sharedcomputing system may be using it in the blockchain area, but our shared computing system is neither designed for nor endorsed for usefor cryptographic asset mining purposes.

 

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

 

 

Figure9 (Container server that manages the operation of our original GPU machines.)

 

 

(4)Technology Human Resources Business Domain

 

Thetechnology 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 ownedsubsidiary 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 noother 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.

 

RegulatoryApprovals Relating to our Air Mobilities

 

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

 

OurResearch and Development Capabilities

 

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

 

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

 

 

Domain		R&D Topics		Results in FY2021
Manned Air Mobility Domain		Safety		Airframe control algorithms for stable navigation in numerous contingencies, and airframe control algorithms to improve stability during takeoff and landing
		Operability		Airframe design for stable operating posture, operation system for intuitive airframe operation
		Performance upwards		Clean sound function, thrust-enhancing design, ducted propeller, air-cooling function
Unmanned Air Mobility Domain		Safety		Development of an operation management system to realize safe and secure drone utilization and linkage with the Ministry of Land, Infrastructure.   Transport and Tourism’s system, and development of aircraft capable of autonomous flight and collision avoidance utilizing Light Detection and Ranging (“Lidar”) Simultaneous Location and Mapping (“SLAM”) and Visual SLAM.
		Environment		Development of drone airframe with explosion-proof performance
		Expandability		Development of a multi-system that uses AI to analyze video acquired from drones in real time and connect it to work instructions to save manpower and improve safety.

 

OurProprietary Technologies

 

Inorder to provide highly differentiated solutions in the areas of manned air mobility, unmanned air mobility, and Computing Power SharingDomain, 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

 

 

Manufacturing,Quality Control and Supply Chain

 

Manufacturing

 

Weadopt 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.

 

Ourmanufacturing procedures system as to the Xturismo Limited Edition is as follows:

 

 

 

SubAssembly, manufacturing, and shipping of the Xturismo Limited Edition is done by relevant members at our facilities in Yamato, KanagawaPrefecture, and testing is done by members at our facilities in Minobu, Yamanashi Prefecture. Assembly itself takes about one week, butit typically takes 4 months from ordering parts to delivery. The number of workers is increased or decreased depending on the productionvolume, 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 shippinginspection which takes 1-2 days. With regard to part suppliers, we have collaborated with Toray Carbon Magic Co., Ltd. for CFRP (CarbonFiber Reinforced Plastics) chassis, which has a proven track record in lightweight and rigidity performance in car racing and air mobilityglobally. We have also collaborated with Toda Racing Co. Ltd., which has a strong track record in car racing globally, for high-efficiencydrive parts. For the internal combustion engine, we are using the proven engine of Kawasaki Motors Ltd., which has a proven track recordin the global motorcycle industry.

 

Werely 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

 

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

 

QualityControl

 

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

 

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

 

SupplyChain and Value Chain

 

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

 

 

During2020 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 safeguardagainst the COVID-19 pandemic. This adversely impacted businesses across Japan, particularly in the supply chain sector.

 

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

 

Thefirst series of Declarations was in effect during the period beginning on April 7, 2020 and ending on May 25, 2020. The second seriesof Declarations was in effect during the period beginning on January 8, 2021 and ending on March 21, 2021. The third series of Declarationswas in effect during the period beginning on April 25, 2021 and ending on June 20, 2021. The fourth series of Declarations was in effectduring 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.

 

Wehave not experienced supply chain disruptions in our business since the end of the Declarations in 2021. Since the end of the Declarationsin 2021, we have not had to suspend the production, purchase, sale or maintenance of certain items due to a lack of raw materials; inventoryshortages; closed factories or stores; reduced headcount; or delayed projects. For certain parts for our products, such as the enginesand other parts, we only have a limited number of our products that require these parts currently in production, and accordingly we havenot been affected by supply chain disruptions in this regard. However, as noted above, during the years 2020 and 2021 with the COVID-19pandemic the Japanese Government implemented a lockdowns where certain factories have been shut down resulting in delay of supply andproduction of our products. If a Declaration of Emergency is declared in the future, it may cause the suspension of the production, purchase,sale