UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20222023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission File Number 001-40734
AERWINS TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 86-2049355 | |
(State or
| ( Identification No.) |
| ||
| (Address of | (Zip Code) |
+813-6409-6761
(Registrant’s telephone number, including area code: (808)892-6611Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to sectionSection 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
| Title of each class |
| N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated“accelerated filer,” “smaller“smaller reporting company,” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ YesNo ☒ No ☐
AsThere were [] shares of the registrant’s common stock, $0.0001 par value per share, outstanding as of August 12, 2022, shares of Class A common stock, $0.000001 per share par value, and shares of Class B common stock, $0.000001 per share par value, were issued and outstanding, respectively.21, 2023.
PONO CAPITAL CORP
TABLE OF CONTENTS
| 2 |
PONO CAPITAL CORPCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 20,625 | $ | 337,595 | ||||
| Prepaid expenses | 54,300 | 171,837 | ||||||
| Total Current Assets | 74,925 | 509,432 | ||||||
| Marketable Securities held in Trust Account | 116,897,590 | 116,728,213 | ||||||
| Total Assets | $ | 116,972,515 | $ | 117,237,645 | ||||
LIABILITIES, REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 276,666 | $ | — | ||||
| Accrued expenses and other current liabilities | 118,752 | 125,821 | ||||||
| Income tax payable | 2,914 | — | ||||||
| Franchise tax payable | 100,000 | 120,647 | ||||||
| Sponsor Working Capital Loan | 35,000 | — | ||||||
| Total Current Liabilities | 533,332 | 246,468 | ||||||
| Deferred underwriter fee payable | 3,450,000 | 3,450,000 | ||||||
| Warrant liability | 540,975 | 4,243,039 | ||||||
| Total Non-Current Liabilities | 3,990,975 | 7,693,039 | ||||||
| Total Liabilities | 4,524,307 | 7,939,507 | ||||||
| Commitments and Contingencies (Note 6) | - | - | ||||||
| Redeemable Class A Common Stock | ||||||||
| Redeemable Class A common stock, $ par value; shares authorized; shares at redemption value of $ per share | 116,725,000 | 116,725,000 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | — | — | ||||||
| Class A common stock, $ par value; shares authorized; shares issued and outstanding (excluding shares subject to possible redemption) | 1 | 1 | ||||||
| Class B common stock, $ par value; shares authorized; shares issued and outstanding | 3 | 3 | ||||||
| Common stock value | ||||||||
| Additional paid-in capital | 139,000 | — | ||||||
| Accumulated deficit | (4,415,796 | ) | (7,426,866 | ) | ||||
| Total Stockholders’ Deficit | (4,276,792 | ) | (7,426,862 | ) | ||||
| Total Liabilities, Redeemable Class A Common Stock and Stockholders’ Deficit | $ | 116,972,515 | $ | 117,237,645 | ||||
The accompanying notesThis Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are an integral partbased on current expectations, estimates and projections about AERWINS Technologies Inc.’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the unaudited condensed consolidated financial statements.Company. The forward-looking statements in this Quarterly Report on Form 10-Q are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
| 3 |
PONO CAPITAL CORPPART I-FINANCIAL INFORMATION
CONDENSED CONSOLIDATEDITEM 1. FINANCIAL STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | For the Period from February 12, 2021 (inception) through June 30, 2021 | |||||||||||||
| Formation and operating costs | $ | 350,305 | $ | (5 | ) | $ | 758,457 | $ | 224 | |||||||
| Franchise tax expenses | 50,000 | — | 100,000 | — | ||||||||||||
| Income (Loss) from Operations | (400,305 | ) | 5 | (858,457 | ) | (224 | ) | |||||||||
| Other Income | ||||||||||||||||
| Dividends earned on marketable securities held in Trust Account | 157,623 | — | 169,377 | — | ||||||||||||
| Gain on change in fair value of Sponsor Working Capital Loan | 1,000 | — | 1,000 | — | ||||||||||||
| Change in fair value of warrant liability | 1,605,125 | — | 3,702,064 | — | ||||||||||||
| Other Income | $ | 1,763,748 | $ | — | $ | 3,872,441 | $ | — | ||||||||
| Income (loss) before income taxes | $ | 1,363,443 | $ | 5 | $ | 3,013,984 | $ | (224 | ) | |||||||
| Income tax expense | (2,914 | ) | — | (2,914 | ) | — | ||||||||||
| Net Income (Loss) | $ | 1,360,529 | $ | 5 | $ | 3,011,070 | $ | (224 | ) | |||||||
| Weighted average shares outstanding of Class A common stock | 12,021,675 | — | 12,021,675 | — | ||||||||||||
| Basic and diluted net income per common stock | $ | 0.09 | $ | — | $ | 0.20 | $ | — | ||||||||
| Weighted average shares outstanding of Class B common stock | 2,875,000 | 2,500,000 | 2,875,000 | 1,381,215 | ||||||||||||
| Basic and diluted net income (loss) per common stock | $ | 0.09 | $ | 0.00 | $ | 0.20 | $ | (0.00 | ) | |||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.AERWINS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 35,359 | $ | 1,278,026 | ||||
| Notes receivable | - | 3,488 | ||||||
| Accounts receivable, net | 159,278 | 980,688 | ||||||
| Others receivable | 802,438 | 2,089,921 | ||||||
| Advances and prepayments to suppliers | 2,921,394 | 611,959 | ||||||
| Inventory | 1,538,563 | 2,687,092 | ||||||
| Escrow deposit | - | 575,000 | ||||||
| Total current assets | 5,457,032 | 8,226,174 | ||||||
| Long-term Assets | ||||||||
| Property and equipment, net | - | 1,390,547 | ||||||
| Intangible assets, net | - | 150,576 | ||||||
| Investment-equity method | 893,922 | 997,470 | ||||||
| Operating lease right-of-use assets | - | 693,474 | ||||||
| Long-term loans receivable | 98,294 | 107,735 | ||||||
| Other non-current assets | 184,232 | 213,370 | ||||||
| Total long-term assets | 1,176,448 | 3,553,172 | ||||||
| Total Assets | $ | 6,633,480 | $ | 11,779,346 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Short-term loans payable | $ | 207,656 | $ | - | ||||
| Short-term loans payable, related party | 692,185 | - | ||||||
| Short-term loans payable | 692,185 | - | ||||||
| Accounts payable | 6,320,552 | 3,333,675 | ||||||
| Accounts payable, related party | 312,424 | - | ||||||
| Accounts payable | 312,424 | - | ||||||
| Notes payable | 1,480,000 | - | ||||||
| Others payable | 438,883 | 230,060 | ||||||
| Accrued expenses | 863,561 | 402,036 | ||||||
| Contract liabilities | 737,980 | 1,104,582 | ||||||
| Current portion of long-term loans | 166,332 | 54,624 | ||||||
| Finance leases liabilities-current | 85,025 | 102,114 | ||||||
| Operating leases liabilities-current | 228,175 | 293,710 | ||||||
| Other current liabilities | - | 380,344 | ||||||
| Total Current Liabilities | 11,532,773 | 5,901,145 | ||||||
| Longer-term liabilities | ||||||||
| Long-term loans | 2,836,367 | 3,259,237 | ||||||
| Warrant liabilities | 1,255,795 | - | ||||||
| Derivative liability | 1,456,641 | - | ||||||
| Long-term convertible promissory note, net | 456,677 | - | ||||||
| Finance leases liabilities-non-current | 57,527 | 87,056 | ||||||
| Operating leases liabilities-non-current | 244,238 | 397,720 | ||||||
| Other long-term liabilities | 165,509 | 225,284 | ||||||
| Total long-term liabilities | 6,472,754 | 3,969,297 | ||||||
| Total Liabilities | 18,005,527 | 9,870,442 | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Common stock, par value $, shares authorized; and shares issued and outstanding, respectively* | 61 | 47 | ||||||
| Preferred stock, par value $, shares authorized; shares issued and outstanding | - | - | ||||||
| Additional Paid-in capital | 53,523,392 | 49,299,343 | ||||||
| Retained earnings (Accumulated deficiency) | (65,695,768 | ) | (46,472,904 | ) | ||||
| Treasury stock | (575,000 | ) | - | |||||
| Accumulated other comprehensive income (loss) | 1,375,268 | (917,582 | ) | |||||
| Stockholders’ Equity (Deficit) | (11,372,047 | ) | 1,908,904 | |||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 6,633,480 | $ | 11,779,346 | ||||
| * | Retrospectively restated for effect of the business combination on February 6, 2023. |
See Notes to Consolidated Financial Statements (unaudited)
| 4 |
PONO CAPITAL CORPAERWINS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - January 1, 2022 | 521,675 | $ | 1 | 2,875,000 | $ | 3 | $ | — | $ | (7,426,866 | ) | $ | (7,426,862 | ) | ||||||||||||||
| Net income | — | — | — | — | — | 1,650,541 | 1,650,541 | |||||||||||||||||||||
| Balance - March 31, 2022 | 521,675 | 1 | 2,875,000 | 3 | — | (5,776,325 | ) | (5,776,321 | ) | |||||||||||||||||||
| Proceeds received in excess of initial fair value of Sponsor Working Capital Loan | — | — | — | — | 139,000 | — | 139,000 | |||||||||||||||||||||
| Net income | — | — | — | — | — | 1,360,529 | 1,360,529 | |||||||||||||||||||||
| Balance - June 30, 2022 | 521,675 | $ | 1 | 2,875,000 | $ | 3 | $ | 139,000 | $ | (4,415,796 | ) | $ | (4,276,792 | ) | ||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance - February 12, 2021 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Issuance of Class B common stock to Sponsor | — | — | 2,875,000 | 3 | 24,997 | — | 25,000 | |||||||||||||||||||||
| Capital Contribution | — | — | — | — | 229 | — | 229 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (229 | ) | (229 | ) | |||||||||||||||||||
| Balance - March 31, 2021 | — | — | 2,875,000 | 3 | 25,226 | (229 | ) | 25,000 | ||||||||||||||||||||
| Balance | — | — | 2,875,000 | 3 | 25,226 | (229 | ) | 25,000 | ||||||||||||||||||||
| Net income | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||
| Balance - June 30, 2021 | — | $ | — | 2,875,000 | $ | 3 | $ | 25,226 | $ | (224 | ) | $ | 25,005 | |||||||||||||||
| Balance | — | $ | — | 2,875,000 | $ | 3 | $ | 25,226 | $ | (224 | ) | $ | 25,005 | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the six months ended June 30, | For the six months ended June 30, | For the three months ended June 30, | For the three months ended June 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (unaudited) | |||||||||||||||||
| Revenues | $ | 457,753 | $ | 1,934,118 | $ | 25,703 | $ | 321,171 | |||||||||
| Cost of revenues | 600,280 | 2,047,280 | 265,680 | 425,962 | |||||||||||||
| Gross profit (loss) | (142,527 | ) | (113,162 | ) | (239,977 | ) | (104,791 | ) | |||||||||
| Operating expenses: | |||||||||||||||||
| Selling expenses | 63,525 | 59,526 | 26,492 | 56,624 | |||||||||||||
| General and administrative expenses | 10,108,287 | 2,722,078 | 4,215,208 | 1,462,361 | |||||||||||||
| Research and development expenses | 6,795,396 | 4,484,102 | 4,751,800 | 2,208,964 | |||||||||||||
| Total operating expenses | 16,967,208 | 7,265,706 | 8,993,500 | 3,727,949 | |||||||||||||
| Loss from operations | (17,109,735 | ) | (7,378,868 | ) | (9,233,477 | ) | (3,832,740 | ) | |||||||||
| Other income (expenses): | |||||||||||||||||
| Interest income (expenses), net | (484,950 | ) | (13,841 | ) | (478,082 | ) | (6,375 | ) | |||||||||
| Gain(Loss) on foreign currency transaction | (10,420 | ) | 88,539 | 585 | 41,591 | ||||||||||||
| Gain(Loss) on disposal of fixed assets | (1,191 | ) | - | 18,513 | - | ||||||||||||
| Impairment on fixed assets | (1,565,853 | ) | - | (1,565,853 | ) | - | |||||||||||
| Equity in earnings of investee | (11,640 | ) | 10,736 | (17,816 | ) | (10,037 | ) | ||||||||||
| Gain on sale of investment securities | - | 451,154 | - | 451,154 | |||||||||||||
| Gain on fair value adjustments of warrant | 1,199,672 | - | 1,113,421 | - | |||||||||||||
| Gain on fair value adjustment of derivative | 595,673 | 595,673 | |||||||||||||||
| Derivative expense | (1,088,477 | ) | - | (1,088,477 | ) | - | |||||||||||
| Other income (expenses), net | 100,555 | 293,863 | (82,333 | ) | (13,409 | ) | |||||||||||
| Total other income (expenses) | (1,266,631 | ) | 830,451 | (1,504,369 | ) | 462,924 | |||||||||||
| Loss before income tax provision | (18,376,366 | ) | (6,548,417 | ) | (10,737,846 | ) | (3,369,816 | ) | |||||||||
| Income tax benefit (expense) | - | - | - | - | |||||||||||||
| Net loss | |||||||||||||||||
| Less: net loss attributable to non-controlling interest | |||||||||||||||||
| Net loss from continuing operations | (18,376,366 | ) | (6,548,417 | ) | (10,737,846 | ) | (3,369,816 | ) | |||||||||
| Discontinued operations (Note 23) | |||||||||||||||||
| Loss from discontinued operations | (846,499 | ) | (679,519 | ) | (683,474 | ) | (466,117 | ) | |||||||||
| Loss on discontinued operations | (846,499 | ) | (679,519 | ) | (683,474 | ) | (466,117 | ) | |||||||||
| Net loss | $ | (19,222,865 | ) | $ | (7,227,936 | ) | $ | (11,421,320 | ) | $ | (3,835,933 | ) | |||||
| Other comprehensive income: | |||||||||||||||||
| Foreign currency translation adjustment | 2,292,850 | (1,680,395 | ) | 2,347,977 | (1,485,139 | ) | |||||||||||
| Total comprehensive loss | $ | (16,930,015 | ) | $ | (8,908,331 | ) | $ | (9,073,343 | ) | $ | (5,321,072 | ) | |||||
| Net loss per common share from continuing operations | |||||||||||||||||
| Basic | $ | (0.33 | ) | $ | (0.15 | ) | $ | (0.19 | ) | $ | (0.08 | ) | |||||
| Diluted | $ | (0.33 | ) | $ | (0.15 | ) | $ | (0.19 | ) | $ | (0.08 | ) | |||||
| Net loss per common share from discontinued operations | |||||||||||||||||
| Basic | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||||
| Diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||||
| Weighted average common shares outstanding* | |||||||||||||||||
| Basic * | 54,957,819 | 42,712,850 | 56,871,014 | 43,509,237 | |||||||||||||
| Effect of dilutive securities * | |||||||||||||||||
| Convertible debt * | 1,742,620 | - | 3,466,090 | - | |||||||||||||
| Conversion of option warrants * | 11,197,594 | 4,291,180 | 13,102,497 | 3,612,510 | |||||||||||||
| Diluted * | 67,898,033 | 47,004,030 | 73,439,601 | 47,121,747 | |||||||||||||
| * | Retrospectively restated for effect of the business combination on February 6, 2023. |
See Notes to Consolidated Financial Statements (unaudited)
| 5 |
PONO CAPITAL CORPAERWINS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
| Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income | Totals | ||||||||||||||||||||||||||||
| Common Stock | Preferred stock | |||||||||||||||||||||||||||||||||||
| 400,000,000 authorized | 20,000,000 authorized | Additional | Retained | Accumulated | ||||||||||||||||||||||||||||||||
$0.000001 Par Value | $0.000001 Par Value | Paid-in (Registered) | Earnings (Accumulated | Treasury | Other Comprehensive | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income | Totals | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | 41,206,803 | $ | 41 | - | $ | - | $ | 32,288,699 | $ | (31,993,085 | ) | $ | - | $ | (238,057 | ) | $ | 57,598 | ||||||||||||||||||
| Corporate bond conversion | 2,034,611 | 2 | - | - | 8,399,182 | - | - | - | 8,399,184 | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | (3,392,003 | ) | - | - | (3,392,003 | ) | |||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | (195,256 | ) | (195,256 | ) | |||||||||||||||||||||||||
| Balances at March 31, 2022 (unaudited) | 43,241,414 | $ | 43 | - | $ | - | $ | 40,687,881 | $ | (35,385,088 | ) | $ | - | $ | (433,313 | ) | $ | 4,869,523 | ||||||||||||||||||
| Issuance of common stock | 1,709,541 | 2 | - | - | 2,715,194 | - | - | - | 2,715,196 | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 351,310 | 0 | - | - | 367,277 | - | - | - | 367,277 | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | (3,835,933 | ) | - | - | (3,835,933 | ) | |||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | (1,485,139 | ) | (1,485,139 | ) | |||||||||||||||||||||||||
| Balances at June 30, 2022 (unaudited) | 45,302,265 | $ | 45 | - | $ | - | $ | 43,770,352 | $ | (39,221,021 | ) | $ | - | $ | (1,918,452 | ) | $ | 2,630,924 | ||||||||||||||||||
| Common Stock | Preferred stock | |||||||||||||||||||||||||||||||||||
| 400,000,000 authorized | 20,000,000 authorized | Additional | Retained | Accumulated | ||||||||||||||||||||||||||||||||
$0.000001 Par Value | $0.000001 Par Value | Paid-in (Registered) | Earnings (Accumulated | Treasury | Other Comprehensive | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income | Totals | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | 46,929,065 | $ | 47 | - | $ | - | $ | 49,299,343 | $ | (46,472,904 | ) | $ | - | $ | (917,582 | ) | $ | 1,908,904 | ||||||||||||||||||
| Issuance of common stock prior to the closing of Business Combination | 5,000,000 | 5 | - | - | (1,156,124 | ) | - | - | - | (1,156,119 | ) | |||||||||||||||||||||||||
| Reverse recapitalization | 3,740,187 | 4 | - | - | (878,120 | ) | - | - | - | (878,116 | ) | |||||||||||||||||||||||||
| Issuance of common stock warrants for services | 413,103 | 0 | - | - | 4,338,298 | - | - | - | 4,338,298 | |||||||||||||||||||||||||||
| Acquisition of treasury stock | 57,500 | - | - | - | - | - | (575,000 | ) | - | (575,000 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,801,544 | ) | - | - | (7,801,544 | ) | |||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | (55,127 | ) | (55,127 | ) | |||||||||||||||||||||||||
| Balances at March 31, 2023 | 56,139,855 | $ | 56 | - | $ | - | $ | 51,603,397 | $ | (54,274,448 | ) | $ | (575,000 | ) | $ | (972,709 | ) | $ | (4,218,704 | ) | ||||||||||||||||
| Begining balances, value | 56,139,855 | $ | 56 | - | $ | - | $ | 51,603,397 | $ | (54,274,448 | ) | $ | (575,000 | ) | $ | (972,709 | ) | $ | (4,218,704 | ) | ||||||||||||||||
| Issuance of common stock for services | 5,269,291 | 5 | - | - | 1,919,995 | - | - | - | 1,920,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (11,421,320 | ) | - | - | (11,421,320 | ) | |||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (11,421,320 | ) | - | - | (11,421,320 | ) | |||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | 2,347,977 | 2,347,977 | ||||||||||||||||||||||||||||
| Balances at June 30, 2023 | 61,409,146 | $ | 61 | - | $ | - | $ | 53,523,392 | $ | (65,695,768 | ) | $ | (575,000 | ) | $ | 1,375,268 | $ | (11,372,047 | ) | |||||||||||||||||
| Ending balances, value | 61,409,146 | $ | 61 | - | $ | - | $ | 53,523,392 | $ | (65,695,768 | ) | $ | (575,000 | ) | $ | 1,375,268 | $ | (11,372,047 | ) | |||||||||||||||||
* Retrospectively restated for effect of the business combination on February 6, 2023.
See Notes to Consolidated Financial Statements (unaudited)
| 6 |
AERWINS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, 2022 | For the Period from February 12, 2021 (inception) through June 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 3,011,070 | $ | (224 | ) | |||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Dividends earned on marketable securities held in Trust Account | (169,377 | ) | — | |||||
| Formation costs paid by stockholder in the form of capital contribution | — | 229 | ||||||
| Change in fair value of Sponsor Working Capital Loan | (1,000 | ) | — | |||||
| Change in fair value of warrant liability | (3,702,064 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 117,537 | — | ||||||
| Accounts payable | 276,666 | — | ||||||
| Accrued expenses and other current liabilities | (7,069 | ) | — | |||||
| Income tax payable | 2,914 | — | ||||||
| Franchise tax payable | (20,647 | ) | — | |||||
| Net cash (used in) provided by operating activities | (491,970 | ) | 5 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Sponsor Working Capital Loan | 175,000 | — | ||||||
| Proceeds from issuance of Class B common stock to Sponsor | — | 25,000 | ||||||
| Net cash provided by financing activities | 175,000 | 25,000 | ||||||
| Net change in cash | (316,970 | ) | 25,005 | |||||
| Cash at the beginning of the period | 337,595 | — | ||||||
| Cash at the end of the period | $ | 20,625 | $ | 25,005 | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Deferred offering costs paid by Sponsor | $ | — | $ | 78,792 | ||||
| Prepaid costs paid by Sponsor | $ | — | $ | 10,000 | ||||
| 2023 | 2022 | |||||||
| For the Six Months ended | ||||||||
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (19,222,865 | ) | $ | (7,227,936 | ) | ||
| Net income (loss) from discontinued operations | (846,499 | ) | (679,519 | ) | ||||
| Net income (loss) from continuing operations | (18,376,366 | ) | (6,548,417 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||
| Depreciation expenses | 187,054 | 141,406 | ||||||
| Amortization expenses | 23,541 | 27,060 | ||||||
| Interest expense | 435,072 | - | ||||||
| Non-cash lease expense | 205,103 | 169,666 | ||||||
| Share-based compensation | 3,658,298 | - | ||||||
| Change in fair value of warrant liabilities | (1,199,672 | ) | - | |||||
| Change in fair value of derivative liability | (595,673 | ) | - | |||||
| Revert of bad debt expenses | 7,256 | (691 | ) | |||||
| Impairment loss | 1,565,853 | - | ||||||
| Loss on disposal of fixed assets | 1,191 | 176 | ||||||
| Gain on sale of investment securities | - | (451,154 | ) | |||||
| Equity in earnings of investee | 11,640 | (10,736 | ) | |||||
| Derivative Expense | 1,088,477 | - | ||||||
| Decrease (Increase) in operating assets: | ||||||||
| Accounts receivable | (25,369 | ) | (198,989 | ) | ||||
| Others Receivable | 1,215,560 | (501,927 | ) | |||||
| Prepaid expenses | (36,368 | ) | (4,916 | ) | ||||
| Advances and prepayments to suppliers | 131,687 | (87,865 | ) | |||||
| Inventory | 769,273 | (29,642 | ) | |||||
| Other non current assets | 11,180 | 8,810 | ||||||
| Increase (Decrease) in operating liabilities: | ||||||||
| Accounts payable | 2,871,733 | (731,438 | ) | |||||
| Notes payable | 4,825 | - | ||||||
| Others payable | 291,147 | (75,836 | ) | |||||
| Accrued expenses | 428,615 | 85,351 | ||||||
| Deferred revenue | (288,338 | ) | 269,441 | |||||
| Operating lease liabilities-current | (9,652 | ) | (34,097 | ) | ||||
| Warrant liabilities | - | (68,023 | ) | |||||
| Other current liabilities | (371,592 | ) | - | |||||
| Operating lease liabilities-Non-current | (148,243 | ) | (134,547 | ) | ||||
| Other non-current liabilities | (42,869 | ) | (154,616 | ) | ||||
| Net cash provided (used) by continuing operations | (8,186,637 | ) | (8,330,984 | ) | ||||
| Net cash provided (used) by discontinued operations | 29,233 | (706,552 | ) | |||||
| Net cash provided (used) by operating activities | (8,157,404 | ) | (9,037,536 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | (20,757 | ) | (22,407 | ) | ||||
| Purchase of intangible assets | (36,186 | ) | (26,062 | ) | ||||
| Proceeds from disposal of investments | - | 487,427 | ||||||
| Repayment of loans receivable | - | 16,248 | ||||||
| Net cash provided (used) by continuing operations | (56,943 | ) | 455,206 | |||||
| Net cash provided (used) by discontinued operations | (5,245 | ) | (45,171 | ) | ||||
| Net cash (used) by investing activities | (62,188 | ) | 410,035 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from capital contribution | - | 3,082,473 | ||||||
| Proceeds from bond | 2,797,697 | - | ||||||
| Proceeds from loans | 3,516,441 | - | ||||||
| Repayments to loans | (2,612,192 | ) | (142,816 | ) | ||||
| Payments for finance leases | (41,681 | ) | (47,240 | ) | ||||
| Proceeds from reverse recapitalization with AERWINS Inc., net | 1,595,831 | - | ||||||
| Net cash provided (used) by continuing operations | 5,256,096 | 2,892,417 | ||||||
| Net cash provided (used) by discontinued operations | - | - | ||||||
| Net cash provided (used) by financing activities | 5,256,096 | 2,892,417 | ||||||
| Net increase (decrease) in cash and cash equivalents | (2,963,496 | ) | (5,735,084 | ) | ||||
| Effects of exchange rates change on cash | 1,720,829 | (813,365 | ) | |||||
| Cash and cash equivalents at beginning of period | 1,278,026 | 10,020,459 | ||||||
| Cash and cash equivalents at beginning of period held by discontinued operation | - | - | ||||||
| Cash and cash equivalents at ending of period held by discontinued operation | - | - | ||||||
| Cash and cash equivalents at end of period | $ | 35,359 | $ | 3,472,010 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid (received) during year for: | ||||||||
| Interest | $ | 11,708 | $ | 14,234 | ||||
| Income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.See Notes to Consolidated Financial Statements (unaudited)
PONO CAPITAL CORPAERWINS TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNEJune 30, 20222023
(UNAUDITED)(unaudited)
NOTE 1.1 - ORGANIZATION AND DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS AND LIQUIDITY
Pono Capital CorpAERWINS Technologies Inc., a Delaware corporation (the “Company”“Company,” “we,” “us,” or “Pono”“AERWINS”) istogether with its wholly owned subsidiary AERWINS, Inc., a blank check company incorporated in Delaware on February 12, 2021. As used herein, “the Company” refers to Pono Capital Corp,corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and controlled subsidiary, Pono Merger Sub, Inc. (“Merger Sub”)manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), unlessand the context indicates otherwise. The Company was formed forXTURISMO Limited Edition Hoverbike. All refences in this report on Form 10-Q to the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization“Company,” “we,” “us,” or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company“AERWINS” include both AERWINS and as such, the Company is subject to all of the risks associated with emerging growth companies.ALI.
The Company has neither engaged in any operations nor generated any revenues to date. The Company’s only activities for the six months ended June 30, 2022 and for the period fromPono Capital Corp Merger
On February 12, 2021 (inception) through December 31, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Initial Public Offering”Merger Sub”) and identifying a target company forwholly-owned subsidiary of the Company, then called Pono Capital Corp., a Business Combination. The Company will not generate any operating revenues until afterDelaware 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 completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash“Merger Agreement”), by and cash equivalents from the proceeds derived from the Initial Public Offering (as defined above). The Company has selected December 31 as its fiscal year end.
The Company’s sponsor isamong Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (the “Sponsor”(“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The registration statement forMerger and other transactions contemplated thereby (collectively, the Company’s Initial Public Offering was declared effective“Business Combination”) closed on August 10, 2021. On August 13, 2021,February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company consummated its Initial Public Offeringbecame the business of units (the “Units”AERWINS, Inc., and with respect tothis business section primarily includes information regarding the Class A common stock included in the Units being offered, the “Public Shares”)AERWINS’, at $ per Unit, generating gross proceeds of $100,000,000 (see Note 3) (the “Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional Units at the Initial Public Offering price to cover over-allotments, if any.
Simultaneously with the consummation of the closing of the Offering, the Company consummated the private placement of an aggregate of units (the “Placement Units”) to the Sponsor at a price of $ per Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”) (see Note 4).
Subsequently, on August 18, 2021, the underwriters exercised the over-allotment option in full, and the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuance by the Company of Units at a price of $ per Unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneously with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering.
A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of Private Placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account (the “Trust Account”) established for the benefit of the Company’s public stockholders.
Transaction costs of the Initial Public Offering amounted to $6,168,893, consisting of $1,950,000 of underwriting fees, $3,450,000 of deferred underwriting fees (see Note 6) and $768,893 of other costs.
Following the closing of the Initial Public Offering and full exercise of underwriter’s over-allotment option, $823,378 of cash was held outside of the Trust Account available for working capital purposes. As of June 30, 2022 and December 31, 2021, the Company had $20,625 and $337,595 of cash available on the condensed consolidated balance sheets, respectively, and a working capital deficit of $458,407 and a working capital surplus of $262,964, respectively.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)Inc. business.
The Company’s management has broad discretion with respectBusiness Combination was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). AERWINS was determined to be the specific applicationaccounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the net proceedscombined company represent a continuation of the Initial Public Offering and the salefinancial statements of the Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the signing of a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.AERWINS.
TheOn February 2, 2023, the Company will provide its stockholdersentered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the opportunity“Purchasers”). Pursuant to redeem all or a portionthe Agreement, the Purchasers agreed to purchase an aggregate shares of theircommon stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for Public Shares upon the completionconsummation of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by meansin exchange for an aggregate sum of a tender offer. In connection$ (the “Purchase Price”) with a proposed Business Combination, the Company may seek stockholder approval of a Business Combination at a meeting called for such purpose at which stockholders may seekPurchase Price being paid to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
The Company will have until August 13, 2022 (or upAERWINS, Inc. prior to February 13, 2023, as applicable) to consummate a Business Combination. If the Company is unable to complete a Business Combination within 12 months (or up to 18 months from the closing of the IPO at the election of the Company in two separate three month extensions subject to satisfaction of certain conditions, including the deposit of up to $1,000,000, or $1,150,000 if the underwriters’ over-allotment option is exercised in full ($0.10 per Unit in either case) for each three month extension, into the Trust Account, or as extended by the Company’s stockholders in accordance with the third amended and restated certificate of incorporation) from the closing of the Offering to consummate a Business Combination (the “Combination Period”“Closing”),. Effective immediately prior to the Company will (i) cease all operations exceptClosing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding Public Shares, at a per-share price, payable in cash, equal toand the aggregate amount then on deposit in the Trust Account, including interest earned (net of taxes payable and less interest to pay dissolution expenses), divided by the number of then outstanding Public Shares which redemption will completely extinguish public stockholders’ rightswere issued as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approvala registered issuance of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law.
The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the amount per Unit in the Trust Account ($).
The Sponsor has agreed that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $ per share (whether or not the underwriters’ over-allotment option is exercised in full), except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Offering against certain liabilities, including liabilitiessecurities under the Securities Act of 1933, as amended (the “Securities Act”). In, pursuant to an effective registration filed by the event that an executed waiver is deemed to be unenforceable against a third party,Company on Form S-4 which was declared effective by the Sponsor will not be responsible toSecurities and Exchange Commission on January 13, 2023.
On February 3, the extentCompany received from the Business Combination with Pono net cash of any liability for such third-party claims.$1,595,831. The Company will seekalso assumed $25,750 in prepaid expenses, $1,432,603 in other payable, $1,580,000 in notes payable ($1,480,000 as of June 30, 2023), $643,213 in warrant liabilities. The total funds from the Business Combination $1,595,831. This amount was available to reducerepay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows:
SCHEDULE OF BUSINESS COMBINATION
| Cash—Pono trust and working capital cash | $ | 1,802,594 | ||
| Cash—Subscription agreement made immediately before the closing | 5,000,000 | |||
| Less: transaction costs and advisory fees | 5,206,763 | |||
| Total funds from the Business Combination | $ | 1,595,831 |
Regarding the possibility that the Sponsor will have to indemnify the Trust Account due to claimsnotes payable of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective target businesses or other entities with which$1,480,000 described above, the Company does business, execute agreements withhas not paid by the due date. Accordingly, the Company waiving any right, title,is regarded as in default and recognizes interest or claimexpenses of any kind in or to monies held in the Trust Account.$29,392 as accrued expenses.
| 8 |
PONO CAPITAL CORPNOTE 2 - GOING CONCERN
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
Business Combination
On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “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 Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation (the “Surviving Corporation”).
As consideration for the Merger, the holders of Benuvia securities collectively were entitled to receive from the Company, in the aggregate, a number of the Company’s securities with an aggregate value equal to (the “Merger Consideration”) (a) Four Hundred Million U.S. Dollars ($400,000,000) minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held by Benuvia) of Benuvia at Closing (the “Closing Net Indebtedness”) exceeds Forty Million Dollars ($40,000,000), and minus (c) the value of the options of Benuvia held by employees and consultants that are vested at the Closing that are assumed by the Company (“Vested Options”), with each Benuvia stockholder receiving, for each share of Benuvia common stock held, a number of shares of the Company’s common stock equal to (i) the per share price (an amount equal to Merger Consideration divided by the fully-diluted company shares, the “Per Share Price”), divided by (ii) $ (the total portion of the Merger Consideration amount payable to all Benuvia stockholders in accordance with the Merger Agreement is also referred to herein as the “Stockholder Merger Consideration”).
The Merger Consideration otherwise payable to Benuvia stockholders was subject to the withholding of two escrows: (i) a number of shares of the Company’s common stock equal to five percent (5.0%) of the Merger Consideration to be placed in escrow for post-closing adjustments (if any) to the Merger Consideration and (ii) a number of shares mutually agreeable between Benuvia and us not to exceed twenty percent (20.0%) of the Merger Consideration (the “Price Protection Escrow Amount”) to be held for downside protection for non-redeeming stockholders following Closing.
The Merger Consideration was subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness of Benuvia as of the Closing Date. If the adjustment is a negative adjustment in favor of the Company, the escrow agent shall distribute to us a number of shares of the Company’s common stock with a value equal to the absolute value of the adjustment amount. If the adjustment is a positive adjustment in favor of Benuvia, the Company will issue to the Benuvia stockholders an additional number of shares of the Company’s common stock with a value equal to the adjustment amount.
The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022.
Termination of the Merger Agreement
On August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
Going Concern and Management Liquidity Plans
As of June 30, 2022 and December 31, 2021, the Company had $20,625 and $337,595 in cash, respectively, and a working capital deficit of $458,407 and a working capital surplus of $262,964, respectively. The Company’s liquidity needs prior to the consummation of the Initial Public Offering had been satisfied through proceeds from notes payable and from the issuance of common stock. The Company expects that it will need additional capital to satisfy its liquidity needs beyond the net proceeds from the consummation of the Initial Public Offering held outside of the Trust Account for paying existing accounts payable and consummating the Business Combination. Although certain of the Company’s initial stockholders, officers and directors or their affiliates have committed to up to $1,500,000 Working Capital Loans (see Note 5) from time to time or at any time, there is no guarantee that the Company will receive such funds.
The accompanying condensed consolidated financial statements have beenare prepared in conformity withusing generally accepted accounting principles generally accepted in the United States of America (“GAAP”), which contemplates continuation of the Company asapplicable to a going concern, andwhich contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. TheAs of and for the period ended June 30, 2023, the Company has incurred net loss from continuing operations of $18,376,366and expects to continue to incur significant costs in pursuitaccumulated deficit of the Company’s financing and acquisition plans. Management plans to address this uncertainty with the successful closing of the Business Combination. The Company will have until August 13, 2022 (or up to February 13, 2023, as applicable) to consummate a Business Combination. If a Business Combination is not consummated by February 13, 2023, less than one year after the date these condensed consolidated financial statements are issued, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, as well as the Company’s working capital deficit, raises$65,695,768. These factors raise substantial doubt abouton the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should
Although the Company is attempting to commence operations and generate sufficient revenue, the Company’s cash position may not be requiredsufficient to liquidate after February 13, 2023. The Companysupport the Company’s daily operations. Management intends to completeraise additional funds by way of debt, or a private or public offering. While the proposed Business Combination beforeCompany believes in the mandatory liquidation date. However,viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assuranceassurances to that effect. The ability of the Company will be able to consummate any Business Combination by February 13, 2023. Based upon the above analysis, management determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern within less than one year afteris dependent upon the date the condensed consolidated financial statements are issued.Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of debt, or a public or private offering. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result frombe necessary should the outcome of this uncertainty.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
Risks and Uncertainties
Management continuesCompany be unable to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Additionally,continue as a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business Combination, may be materially and adversely affected. Further, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.going concern.
NOTE 2.3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements of the Company are presentedhave been prepared in conformityaccordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Certain information or footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rulesSecurities and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying condensedExchange Commission (“SEC”). The consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentationthe accounts of the financial position, operating resultsCompany and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Consolidated Financial Information
The accompanying interim consolidated balance sheet as of June 30, 2023, the interim consolidated statements of operations and comprehensive income (loss), consolidated statements of changes in shareholders’ equity (deficiency), and cash flows for the periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on March 25, 2022. The interim results for the three and six months ended June 30, 2023 and 2022 and the related notes to such interim consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2023 and the Company’s consolidated results of operations and cash flows for the six months ended June 30, 2023 and 2022. The consolidated results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.2023.
Use of Estimates
The preparation of condensedIn preparing the consolidated financial statements in conformity with U.S. GAAP, requiresthe management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Making These estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimateare based on information available as of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, whichstatements. Significant estimates required to be made by management considered in formulating its estimate, could change ininclude, but are not limited to, the near term due to one or more future confirming events. Accordingly,allowance for doubtful accounts, useful lives of property and equipment, the actualimpairment of long-lived assets, and valuation allowance of deferred tax assets. Actual results could differ significantly from those estimates.
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Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with anCash and cash equivalents include cash on hand and deposits in banks that are unrestricted as to withdrawal or use, and which have original maturitymaturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company had $20,625 and $337,595 in cash as of June 30, 2022 and December 31, 2021, respectively. The Company did 0t have any cash equivalents as of June 30, 2022 and December 31, 2021.less.
Marketable Securities HeldAccounts Receivable, net
Accounts receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in Trust Accountthe consolidated statements of operations and comprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.
Inventories
Trading securitiesInventories consist principally of raw materials used for rendering computing sharing services and for manufacturing hoverbikes. Work in progress represents the costs incurred to date on unfinished products or services. The costs recognized as work in progress include direct materials, direct labor, and overhead costs that are presented ondirectly attributable to the condensed consolidated balance sheets at fair valueproduction of the unfinished product or service. Inventories are stated at the endlower of each reporting period. Gains and losses resulting fromcost or net realizable value, cost being determined by the change in fairfirst-in, first-out method for merchandise. Net realizable value of these securities is included in unrealized gains (losses) on investments held in Trust Accountcalculated at estimated selling price in the accompanying condensed consolidated statementsordinary course of operations. Interestbusiness, less reasonably predictable costs of completion, disposal, and dividend income on these securitiestransportation. Loss from inventories written down to net realizable value should be recognized whenever the utility of goods is includedimpaired by damage, deterioration, obsolescence, changes in interest and dividend income on investments held in Trust Account inprice levels, or other causes. When inventories have been written down below cost, the accompanying condensed consolidated statements of operations. At June 30, 2022 and December 31, 2021,reduced amount is to be considered the investments held in the Trust Account totaled $116,897,590 and $116,728,213, respectively.cost for subsequent accounting purposes.
Income TaxesFixed assets
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives, as more details follow:
SCHEDULE OF ESTIMATED USEFUL LIVES OF FIXED ASSETS
| Depreciation Method | Useful Life | |||
| Building and building accessories | Straight-line method | 8-38 years | ||
| Office equipment and furniture | Straight-line method | 2-10 years | ||
| Software | Straight-line method | 5 years | ||
| Design right | Straight-line method | 7 years | ||
| Patent right | Straight-line method | 8 years |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income (loss).
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Lease-Lessee
In accordance with the Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.
The Company compliesleases office facilities, office equipment and furniture, and a vehicle, which are classified as operating leases and leases containers, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the accountingfollowing for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and reporting requirements of Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes (“ASC 740”)(ii) right-of-use asset, which requiresis an asset and liability approachthat represents the lessee’s right to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences betweenuse, or control the condensed consolidated financial statement and tax basesuse of, assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized ASC 740 prescribes a recognition threshold and a measurement attributespecified asset for the condensedlease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.balance sheet.
The Company’s management determinedoperating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the United States is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were 0unrecognized tax benefits as of June 30, 2022 and December 31, 2021 and 0amounts accruedlease term. All operating lease right-of-use assets are reviewed for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. The Company’s effective tax rate from continuing operations was 0.2% and 0.1% for the three and six months ended June 30, 2022, respectively, and 0.0% for the three months ended June 30, 2021 and for the period from February 12, 2021 (inception) through June 30, 2021.
impairment annually.
PONO CAPITAL CORPAs most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less.
Class A Common Stock Subject to Possible RedemptionImpairment of Long-Lived Assets
All of the Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s third amended and restated certificate of incorporation. In accordance with ASC 480 Distinguishing Liabilities from Equity (“ASC 480”), conditionally redeemable Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001. However, the threshold in its charter would not change the nature of the underlying shares as redeemable and thus Public Shares would be required to be disclosed outside of permanent equity. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value ($ per share) at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional capital, in accumulated deficit.
AsLong-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of June 30, 2022,an asset may not be recoverable. If the estimated cash flows from the use of the asset and December 31, 2021, shares of Class A Common Stock outstandingits eventual disposition are subjectbelow the asset’s carrying value, then the asset is deemed to possible redemption.
As of June 30, 2022,be impaired and December 31, 2021, the Class A Common Stock reflected on the condensed consolidated balance sheets are reconciled in the following table:
SCHEDULE OF CONTINGENTLY REDEEMABLE CLASS A COMMON STOCK
| Gross Proceeds | $ | 115,000,000 | ||
| Less: | ||||
| Proceeds allocated to public warrants | (9,427,125 | ) | ||
| Class A common stock issuance costs | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | 16,815,322 | |||
| Redeemable Class A Common Stock | $ | 116,725,000 |
Concentration of Credit Risk
Financial instruments that potentially subject the Companywritten down to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. As of June 30, 2022 and December 31, 2021, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.its fair value.
Net Income (Loss) Per ShareEquity Method
Net income (loss) per share is computed by dividing net income (loss) byWe apply the weighted-average number of shares outstanding duringequity method to an investment in unconsolidated entities over which we have the period. Therefore,ability to exercise significant influence. We initially record our investments based on the income (loss) per share calculation allocates income (losses) shared pro rata between Class A and Class B common stock. As a result,acquisition cost. Under the calculated net income (loss) per share isequity method, the same for Class A and Class B common stock. The Company has not considered the effectcarrying amount of the Public Warrants (as defined in Note 3) and Placement Warrants (as defined in Note 4),investment is adjusted to purchase an aggregate of 6,762,192 sharesrecognize changes in the calculationCompany’s share of income (loss) per share, since the exercisenet assets of the warrants is contingent upon the occurrence of future events.investment.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
SCHEDULE OF BASIC AND DILUTED NET INCOME (LOSS) PER SHARESUBSIDIARIES
| Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | For the Period from February 12, 2021 (inception) through June 30, 2021 | |||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,097,952 | $ | 262,577 | $ | — | $ | 5 | $ | 2,429,945 | $ | 581,125 | $ | — | $ | (224 | ) | |||||||||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Basic and diluted weighted average shares outstanding | 12,021,675 | 2,875,000 | — | 2,500,000 | 12,021,675 | 2,875,000 | — | 1,381,215 | ||||||||||||||||||||||||
| Basic and diluted net income (loss) per share | $ | 0.09 | $ | 0.09 | $ | — | $ | 0.00 | $ | 0.20 | $ | 0.20 | $ | — | $ | (0.00 | ) | |||||||||||||||
Offering Costs associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred, presented as non-operating expenses in the condensed consolidated statements of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon the completion of the Initial Public Offering.
| Percentage of Effective Ownership | ||||||||||
| Name of Subsidiary | Place of Organization | June 30, 2023 | December 31, 2022 | |||||||
| ASC TECH Agent | Japan | 48.81 | % | 48.81 | % | |||||
Warrant Liabilities
The Company accountsWe account for the Warrants in accordance with the guidance contained in ASCAccounting Standards Codification (“ASC”) 815-40 — Derivatives and Hedging -— Contracts in Entity’s Own Equity (“(“ASC 815��)815), under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifieswe classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensedour consolidated statements of operations. The Private Placement Warrants, Public Warrants, and the PublicDebt Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.Black Scholes model.
Fair Value of FinancialConvertible Promissory Notes and Derivative Instruments
The Company appliesaccounts for the fair value of the conversion feature in accordance with the guidance contained in ASC 815, which requires the Company to bifurcate and separately account for the conversion feature as an embedded derivative contained in the Company’s convertible promissory note. Accordingly, we account for the conversion option as an embedded derivative contained in the Company’s promissory note at fair value. The derivative liability is required to be remeasured at each reporting date and the change in fair value is recognized in our consolidated statements of operations.
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Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 820,830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes in shareholders’ deficit.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
SCHEDULE OF FOREIGN EXCHANGE RATES
| 2023 | 2022 | 2022 | ||||||||||
Six months ended June 30, (unaudited) | Year ended December 31, | |||||||||||
| 2023 | 2022 | 2022 | ||||||||||
| Current JPY: US$1 exchange rate | 144.47 | 135.69 | 131.81 | |||||||||
| Average JPY: US$1 exchange rate | 134.91 | 123.10 | 131.46 | |||||||||
| Foreign exchange rate | 134.91 | 123.10 | 131.46 | |||||||||
Consolidated Statements of Cash Flows
In accordance with FASB ASC 830-230, “Statement of Cash Flows”, cash flows from the Company’s operations are calculated based upon the functional currency. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value and net of a value-added tax (“Consumption Tax”). The Consumption Tax on sales is calculated at 10% of gross sales.
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
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Cost of Revenues
Cost of revenues primarily consists of salaries and related expenses (e.g. bonuses, employee benefits, and payroll taxes) for personnel directly involved in the delivery of services and products directly to customers. Cost of revenues also includes royalty/license payments to vendors, and hosting and infrastructure costs related to the delivery of the Company’s products and services.
Advertising Expenses
Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and products, and costs of direct advertising, and are included in selling expenses. The Company expenses advertising costs as incurred, in accordance with the ASC 720-35, “Advertising Costs”. The advertising expenses for six months ended June 30, 2023 and 2022 (unaudited) were $63,525 and $59,526, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the six months ended June 30, 2023, Customer A accounts for 25.9% of the Company’s total revenues.
For the six months ended June 30, 2022, Customer B, Customer C and Customer D accounts for respectively 17.9%, 14.8% and 13.5% of the Company’s total revenues.
As of June 30, 2023, Customer E accounts for 81.6% of the Company’s total accounts receivable. As of December 31, 2022, Customer E, Customer F and Customer G accounts for respectively 15.1%, 16.2% and 12.8% of the Company’s total accounts receivable
For the six months ended June 30, 2023, Vendor A and Vendor B accounts for respectively 39.5% and 16.4% of the Company’s total raw material purchases.
For the six months ended June 30, 2022, Vendor A, Vendor C and Vendor D accounts for respectively 30.1%, 19.3% and 11.2% of the Company’s total raw material purchases.
As of December 31, 2022, Vendor A accounts for 31.2% of the Company’s total accounts payable. As of June 30, 2023, Vendor A accounts for 20.1% of the Company’s total accounts payable.
Comprehensive Income or Loss
ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive loss, as presented in the accompanying consolidated statements of changes in shareholders’ deficit, consists of changes in unrealized gains and losses on foreign currency translation.
The Company computes basic and diluted earnings (loss) per share in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share reflects the potential dilution that could occur if stock options and other commitments to issue common shares were exercised or equity awards vest resulting in the issuance of common shares that could share in the earnings (loss) of the Company.
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Related Parties and Transactions
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, “Related Party Disclosures” and other relevant ASC standards.
Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Income Taxes
Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
The Company follows ASC 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations.
Fair Value Measurement (“ASC 820”), which establishes a framework for measuringMeasurements
The Company performs fair value and clarifies the definition of fair value within that framework. Themeasurements in accordance with ASC 820. Fair value is defined as the price that would be received for sale ofto sell an asset or paid forto transfer of a liability in an orderly transaction between market participants at the measurement date. GAAPASC 820 establishes a three-tier fair value hierarchy which prioritizesthat requires an entity to maximize the use of observable inputs used inand minimize the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assetsAn asset’s or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
In some circumstances, the inputs used to measure fair value might be categorizeda liability’s categorization within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy is based onupon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or | |
| ● | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative financial instruments is evaluated at the end of each reporting period.
Sponsor Working Capital Loans
The Company accounts for the Sponsor Working Capital Loans under ASC 815. The Company has made the election under ASC 815-15-25 to account for the Sponsor Working Capital Loans under the fair value option. Using the fair value option, the Sponsor Working Capital Loans are required to be recorded at their initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the statement of condensed consolidated operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Sponsor Working Capital Loan are recognized as non-cash gains or losses in the condensed consolidated statement of operations.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2022 using the modified retrospective method of transition. The adoption of ASU 2020-06 did not have a material impact on the financial statements for the six months ended June 30, 2022 and for the period from February 12, 2021 (inception) through June 30, 2021.
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Following the closing of the Initial Public Offering on August 13, 2021 and the sale of the Over-allotment Option Units on August 18, 2021, the Company sold Units at a purchase price of $per Unit. Each Unit consists of one common stock and three-quarters of one redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase three-quarters of one common stock at an exercise price of $11.50 per whole share.
NOTE 4. PRIVATE PLACEMENT
Following the closing of the Initial Public Offering and the sale of the Over-allotment Option Units, the Sponsor purchased an aggregate of Private Placement Units at a price of $ per Private Placement Unit for an aggregate purchase price of $5,216,750.
| 14 |
PONO CAPITAL CORPNOTE 4 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE, NET
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Accounts receivable | $ | 166,054 | $ | 980,688 | ||||
| Less: allowance for doubtful accounts | (6,776 | ) | - | |||||
| Accounts receivable, net | $ | 159,278 | $ | 980,688 | ||||
Allowance for doubtful accounts movement is as follows:
SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Beginning balance | $ | - | $ | (739 | ) | |||
| Change during the year | (7,256 | ) | 739 | |||||
| Foreign currency translation adjustment | 480 | - | ||||||
| Ending balance | $ | (6,776 | ) | $ | - | |||
Other receivable movement is as follows:
SCHEDULE OF OTHER RECEIVABLE
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Beginning balance | $ | 2,089,921 | $ | 1,034,690 | ||||
| Change during the year | (1,182,560 | ) | 1,189,020 | |||||
| Foreign currency translation adjustment | (104,923 | ) | (133,789 | ) | ||||
| Ending balance | $ | 802,438 | $ | 2,089,921 | ||||
The change during the year in 2022 is mainly from increase of consumption tax receivable that has been refunded in 2023.
NOTE 5 — INVENTORY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Inventory consists of the following:
SCHEDULE OF INVENTORY
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Raw materials | $ | 209,330 | $ | 1,533,784 | ||||
| Work in progress | 1,288,027 | 1,135,852 | ||||||
| Product | 31,665 | - | ||||||
| Stored item | 9,541 | 17,456 | ||||||
| Total | $ | 1,538,563 | $ | 2,687,092 | ||||
| 15 |
NOTE 6 — SEGMENT INFORMATION
JUNE 30, 2022
Management determined the Company’s operations constituted one reportable segment in accordance with ASC 280—Air mobility segment. Revenue by each service line can be found in Note 7 below.
(UNAUDITED)NOTE 7 — REVENUE RECOGNITION
The proceedsCompany currently generates its revenue from the salefollowing main sources:
Revenue from Computing Power Sharing services with Equipment Installation
The Company provides customers with computing power sharing services with equipment installation, which includes a one-time equipment installation and a certain period of time technology service. The Company recognizes revenue from one-time equipment installation at the point in time when the installation is completed and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.
Revenue from Computing Power Sharing services without Equipment Installation
The Company also provides customers with computing power sharing services without equipment installation, which includes a one-time platform set up without equipment installation, and a certain period of time technology service. The Company recognizes revenue from one-time platform set up at the point in time when the platform is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.
Revenue from Air Mobility Drone Solution
The Company provides customers with air mobility drone solution, which includes UAS (Unmanned Aircraft Systems) main equipment, laser scanner, software package, camera system, etc. The solution includes a one-time system set up and a certain period of time technology service. The Company recognizes revenue from one-time system set up at the point in time when the system is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly. Revenue from Air Mobility Drone Solution is included in income from discontinued operations.
Revenue from Project Management
The Company provides customers with project management, which includes project planning and implementation, and providing needed technology human resources, such as construction engineers and software engineers for various projects. The Company recognizes revenue from project management over time when the service is rendered and accepted by the customer, normally monthly. Revenue from Project Management is included in income from discontinued operations.
Revenue from Consulting Service
The Company provided a customer with consulting service related to IPO. The company recognizes revenue from the service over time as the service is rendered.
Disaggregation of Revenue
The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the Placement Units were addedrevenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the six months and three months ended June 30, 2023 and 2022 is as following (unaudited):
SCHEDULE OF DISAGGREGATION OF REVENUE
| 2023 | 2022 | |||||||
| Six months ended | ||||||||
June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Revenue from Computing Power Sharing services | 101,453 | 836,059 | ||||||
| Revenue from Project Management for Computing Share | 6,300 | 1,098,059 | ||||||
| Consulting Service | 350,000 | - | ||||||
| Total Revenue | $ | 457,753 | $ | 1,934,118 | ||||
| 2023 | 2022 | |||||||
| Three months ended | ||||||||
June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Revenue from Computing Power Sharing services | 25,703 | 274,823 | ||||||
| Revenue from Project Management for Computing Share | - | 46,348 | ||||||
| Total Revenue | $ | 25,703 | $ | 321,171 | ||||
| 16 |
For the six months ended June 30 in 2023 and 2022 (unaudited), almost all of the revenue generated are attributed to the net proceedsCompany’s operation in Japan.
Revenue from the Offering heldAir Mobility Drone Solution and Project Management are included in the Trust Account. The Placement Units are identical to the Units sold in the Initial Public Offering, except for the placement warrants (“Placement Warrants”), as described in Note 7. Ifincome from discontinued operations.
Contract Liability
As of June 30, 2023 (unaudited) and December 31, 2022, the Company does not complete a Business Combination withinrecognizes contract liability of $737,980 and $1,104,582 respectively. Contract liability primarily represents the Combination Period,Company’s remaining performance obligations under its service agreement at the proceeds from the saleend of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law)period, for which consideration has been received and the Placement Warrants will expire worthless.revenue had not been recognized.
NOTE 5.8 — RELATED PARTY TRANSACTIONS
Founder SharesGuarantee provided by a director of A.L.I.
On March 22, 2021, the Company issued an aggregate of shares of Class B common stock to the Sponsor for an aggregate purchase price of $25,000 in cash. Such Class B common stock includes an aggregate of up to shares that were subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Sponsor will collectively own at least % of the Company’s issued and outstanding shares after the Offering (assuming the initial stockholders do not purchase any Public Shares in the Offering and excluding the Placement Units and underlying securities). The underwriters exercised the over-allotment option in full, so those shares are no longer subject to forfeiture.
The initial stockholders have agreed not to transfer, assign or sell any of the Class B common stock (except to certain permitted transferees) until, with respect to any of the Class B common stock, the earlier of (i) six months after the date of the consummation of a Business Combination, or (ii) the date on which the closing price of the Company’s common stock equals or exceeds $ per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination, with respect to the remaining any of the Class B common stock, upon six months after the date of the consummation of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their common stock for cash, securities or other property.
Promissory Note - Related Party
On March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing and was payable on the earlier of July 31, 2021 or the completion of the Initial Public Offering. Upon IPO, the Company had borrowed $186,542 under the Note. On August 17, 2021, the outstanding balance owed under the Note was repaid in full.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor may provide the Company with a loan up to $1,500,000 as may be required. Such Sponsor Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such loans may be converted upon consummation of a Business Combination into additional Placement Units at a price of $per Unit. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor Working Capital Loans.
On September 23, 2021, the Company entered into a working capital loan with the Sponsor (the “Sponsor Working Capital Loan”) in the amount of up to $1,500,000, pursuant to which the Company received proceeds of $175,000 during the three months ended June 30, 2022. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The unpaid principal balance on the Sponsor Working Capital Loan may be convertible into units at the option of the Sponsor at a price of $ per unit. The unit would be identical to the Private Placement Units. Using the fair value option, the Sponsor Working Capital Loan is required to be recorded at its’ initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face value of the Sponsor Working Capital Loan and fair value at issuance are recognized as either an expense in the condensed consolidated statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Sponsor Working Capital Loan is recognized as a non-cash gains or losses in the condensed consolidated statement of operations. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $36,000 at initial measurement. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $35,000 at June 30, 2022.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
If the Company anticipates that it may not be able to consummate the initial Business Combination within 12 months, the Company may, by resolution of the board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing additional funds into the Trust Account as set out below. Pursuant to the terms of the third Amended and Restated Certificate of Incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees, must deposit into the Trust Account $1,150,000 with the underwriters’ over-allotment option exercised in full ($ per Unit in either case), on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible Business Combination period of 18 months at a total payment value of $2,300,000 with the underwriters’ over-allotment option exercised in full ($ per Unit). Any such payments would be made in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of a Business Combination out of the proceeds of the Trust Account released to it.
Administrative Support Agreement
The Company’s Sponsor has agreed, commencing from the date that the Company’s securities are first listed on NASDAQ through the earlier of the Company’s consummation of a Business Combination and its liquidation, to make available to the Company certain general and administrative services, including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay to Mehana Equity LLC, the Sponsor, $10,000 per month for these services during the 18-month period to complete a Business Combination. The Sponsor has agreed to pay for the formation cost of $229 and waived to seek reimbursement from the Company for such cost. For the three and six months ended June 30 2022,in 2023, the Company incurred expensesreceived a debt guarantee from the Representative Director of A.L.I. Daisuke Katano for a particular building lease agreement. The transaction amount is $30,00012,452 and $60,000, respectively. Forwhich is calculated by the three months ended June 30, 2021 and fortotal rental fees paid during the period from February 12, 2021 (inception) throughJanuary 1, 2023 to June 30, 2021,2023 for the Company incurred expensescontracts for which guarantees were provided as of $0 under this agreement.June 30, 2023. No warranty fees are paid.
NOTE 6. Loan from a former director of Aerwins
COMMITMENTS AND CONTINGENCIES
On February 27, 2023, the Company’s wholly owned subsidiary in Japan, A.L.I. Technologies, entered into a loan agreement with Shuhei Komatsu, the Company’s Chief Executive Officer. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I. 200,000,000 yen (approximately $1,384,370 US Dollars based on a conversion rate of 0.006921 US Dollar for each $ yen as of June 30, 2023). The original maturity date of the Loan under the Agreement was April 15, 2023, and was extended to June 30, 2023 (the “Maturity Date”). The interest rate under the Agreement is 2.475% per annum (calculated on a pro rata basis for 365 days a year), and the interest period is from February 27, 2023 until the Maturity Date. The Company recognizes $8,775 of accrued expenses. The Company has not paid 100,000,000 yen (approximately US$692,185) as of June 30, 2023. Accordingly, the Company is regarded in default and negotiates the terms with the lender.
Registration RightsPayable to Directors of Aerwins
The holdersIn the second quarter of 2023, two directors of Aerwins, Kiran Sidhu and Daisuke Katano paid some payable on behalf of the founder sharesCompany. Mr. Sidhu paid $102,000 in the second quarter of 2023 and Placement Units (including securities contained therein)the same amount is outstanding as of June 30, 2023. Mr. Katano paid $210,424 in the second quarter of 2023 and Units (including securities contained therein) that may be issued upon conversionthe same amount is outstanding as of working capital loans, and any shares of Class A common stock issuable upon the exercise of the placement warrants and any shares of Class A common stock and warrants (and underlying Class A common stock) that may be issued upon conversion of the Units issued as part of the working capital loans and Class A common stock issuable upon conversion of the founder shares, will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the IPO, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to the Company’s Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of its initial Business Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act.June 30, 2023. The Company will bear the expenses incurredpay to them at an appropriate timing in connection with the filinglight of any such registration statements. Notwithstanding anything to the contrary, under FINRA Rule 5110, the underwriters and/or their designees may only make a demand registration (i) on one occasion and (ii) during the five-year period beginning on the effective date of the registration statement relating to the Offering, and the underwriters and/or their designees may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement relating to the Offering.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
Underwriting Agreement
The Company granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions.
The underwriters were entitled to a cash underwriting discount of: (i) two percent (2.00%) of the gross proceeds of the Offering, or $2,300,000. In addition, the underwriters are entitled to a deferred fee of three percent (3.00%) of the gross proceeds of the Offering upon closing of the Business Combination, or $3,450,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
On August 13, 2021, the underwriter has given the Company a rebatement of $350,000. The total cash underwriting fee is $1,950,000 and the deferred underwriting fee is $3,450,000.
Right of First Refusal
For a period beginning on the closing of the IPO and ending 12 months from the closing of a Business Combination, the Company has granted EF Hutton a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(g)(3)(A)(i), such right of first refusal shall not have a duration of more than three years from the effective date of the registration statement.
NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company is authorized to issue preferred shares with a par value of $ per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. On June 30, 2022 and December 31, 2021, there were preferred shares issued or outstanding.
Class A Common Stock — The Company is authorized to issue shares of Class A common stock with a par value of $ per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. On June 30, 2022 and December 31, 2021, there were shares of Class A common stock issued and outstanding, excluding shares of Class A Common Stock outstanding subject to possible redemption.
Class B Common Stock — The Company is authorized to issue shares of Class B common stock with a par value of $ per share. Holders of the Company’s Class B common stock are entitled to one vote for each share. On March 22, 2021, there were shares of Class B common stock issued and outstanding and were held by the Sponsor. Effective as of April 15, 2021, the Sponsor transferred shares of Class B common stock among the chiefits financial officer and the three independent directors. On June 30, 2022 and December 31, 2021, there were shares of Class B common stock issued and outstanding. Shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Company’s initial Business Combination on a one-for-one basis.
Warrants — In accordance with the guidance contained in ASC 815-40, the warrants issued in the Initial Public Offering do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability. The Company will classify each warrant as a liability at its fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations.
Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.situation.
| 17 |
PONO CAPITAL CORPNOTE 9 — PROPERTY AND EQUIPMENT, NET
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment consist of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Building | $ | 213,375 | $ | 233,869 | ||||
| Accessory equipment | 182,629 | 211,879 | ||||||
| Structures | 43,400 | 47,568 | ||||||
| Vehicles | 4,117 | 4,512 | ||||||
| Tools, furniture and fixtures | 1,818,832 | 1,751,969 | ||||||
| Lease assets | 170,496 | 186,871 | ||||||
| Property and equipment, gross | ||||||||
| Accumulated depreciation | (721,480 | ) | (534,426 | ) | ||||
| Impairment | (1,711,369 | ) | (511,695 | ) | ||||
| Property and equipment, net | $ | - | $ | 1,390,547 | ||||
Depreciation expense for six months ended June 30, 2023 and 2022, were respectively $187,054 and $141,406.
JUNE 30, 2022NOTE 10 — INTANGIBLE ASSETS, NET
(UNAUDITED)
The Company has agreed thatcomponents of intangible assets as soonof June 30, 2023 and December 31, 2022 are as practicable, but in no event later than 15 business days after the closing of its initial Business Combination, it will use its commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement or a new registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s shares of Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, it may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event it does not so elect, it will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.follows:
Redemption of warrants when the price per Class A common stock equals or exceeds $18.00SCHEDULE OF INTANGIBLE ASSETS. Once the warrants become exercisable, the Company may redeem the Public Warrants:
● in whole and not in part;
● at a price of $0.01 per warrant;
● upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period, to each warrant holder; and
● if, and only if, the closing price of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Window and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
The Private Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
On June 30, 2022 and December 31, 2021, there were 8,625,000 Public Warrants and 391,256 Private Placement Warrants outstanding.
| June 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Software | $ | 662,075 | $ | 706,320 | ||||
| Design right | 101,578 | 111,334 | ||||||
| Patent right | 22,842 | - | ||||||
| Intangible assets, gross | ||||||||
| Accumulated amortization | (217,828 | ) | (191,813 | ) | ||||
| Impairment | (568,667 | ) | (475,265 | ) | ||||
| Intangible assets, net | $ | - | $ | 150,576 | ||||
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNEAmortization expense for six months ended June 30, 2023 and 2022, were respectively $23,541
and $(UNAUDITED)27,060.
NOTE 8.11 — IMPAIRMENT LOSS
For the six months ended June 30, 2023, the Company recognized impairment losses for the following assets:
SCHEDULE OF IMPAIRMENT LOSS
| Type | Impairment loss | |||
| Building | $ | 199,601 | ||
| Accessory equipment | 146,334 | |||
| Structures | 37,975 | |||
| Tools, furniture and fixtures | 562,650 | |||
| Operating Lease right-of-use assets | 472,414 | |||
| Software | 71,095 | |||
| Design right | 54,370 | |||
| Patent right | 21,414 | |||
| Total | $ | 1,565,853 | ||
Because the Company continues to recognize operating losses, and the future cash flows from these assets for its business in Japan are uncertain, so it has decided to write down fixed assets in Japan, the Company recognizes impairment loss for all fixed assets in Japan. The Company recognized the reduction as impairment in the line item of impairment on fixed assets. The Company reduces the book value to zero and recognizes the amount as impairment because the future cash flows from these assets were uncertain at the end of this quarter.
NOTE 12 — LEASES
The components of lease costs are as follows:
SCHEDULE OF LEASE COSTS
| 2023 | 2022 | |||||||
| For the Six months Ended | ||||||||
| June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Short-term lease costs | $ | 39,233 | $ | 536 | ||||
| Finance lease costs | 47,411 | 51,127 | ||||||
| Operating lease costs | 177,160 | 107,922 | ||||||
| Total lease costs | $ | 263,804 | $ | 159,585 | ||||
| 18 |
As of June 30, 2023, the future maturity of lease liabilities is as follows:
SCHEDULE OF FUTURE MATURITY OF LEASE LIABILITIES
| Year ending December 31, | Finance lease | Operating lease | ||||||
| 2023 (six months) | $ | 64,834 | $ | 93,987 | ||||
| 2024 | 50,078 | 227,438 | ||||||
| 2025 | 10,283 | 155,979 | ||||||
| 2026 | 10,283 | - | ||||||
| Thereafter | 12,854 | - | ||||||
| Total lease payments | 148,332 | 477,404 | ||||||
| Less: imputed interest | (5,780 | ) | (4,991 | ) | ||||
| Total lease liabilities | 142,552 | 472,413 | ||||||
| Less: current portion | 85,025 | 228,175 | ||||||
| Non-current lease liabilities | $ | 57,527 | $ | 244,238 |
The following table presents supplemental information related to the Company’s leases:
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASE
| 2023 | 2022 | |||||||
| For the Six months Ended | ||||||||
| June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | 157,895 | 168,644 | ||||||
| Financing cash flows from finance lease | 41,681 | 47,240 | ||||||
| Weighted average remaining lease term (years) | ||||||||
| Finance leases | 1.1 | 1.8 | ||||||
| Operating leases | 1.1 | 1.4 | ||||||
| Weighted-average discount rate: (per annum) | ||||||||
| Finance leases | 2.66 | % | 2.38 | % | ||||
| Operating leases | 0.94 | 0.94 | ||||||
Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The amount of security deposits as of June 30, 2023 and as of December 31, 2022 is $152,598 and 174,111 respectively.
| 19 |
NOTE 13 — LONG-TERM DEBTS
The Company’s long-term loans borrowed from banks and other financial institutions, which consist of the following:
SCHEDULE OF LONG-TERM LOANS BORROWED FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
| Name of Lender | Original Amount Borrowed (JPY) | Loan Duration | Annual Interest Rate | Balance as of (unaudited) | Balance as of December 31, 2022 | |||||||||||||
| Mizuho Bank, Ltd. | 40,000,000 | 1/22/2021— 1/22/2028 | 0.00 | % | 276,874 | 303,467 | ||||||||||||
| Mizuho Bank, Ltd. | 60,000,000 | 1/22/2021— 1/22/2028 | 0.00 | % | 415,311 | 455,201 | ||||||||||||
| Mizuho Bank, Ltd. | 50,000,000 | 1/22/2021— 1/22/2028 | 1.70 | % | 346,093 | 379,334 | ||||||||||||
| Japan Finance Corporation | 50,000,000 | 12/29/2020— 12/31/2027 | 1.11 | % | 233,959 | 279,190 | ||||||||||||
| Japan Finance Corporation | 250,000,000 | 12/29/2020— 1/31/2026 | 0.50 | % | 1,730,462 | 1,896,669 | ||||||||||||
| Aggregate outstanding principal balances | 3,002,699 | 3,313,861 | ||||||||||||||||
| Less: current portion | (166,332 | ) | (54,624 | ) | ||||||||||||||
| Non-current portion | $ | 2,836,367 | $ | 3,259,237 | ||||||||||||||
Interest expense for long-term debts was $11,708 and $14,234 for the six months ended June 30, 2023 and 2022 (unaudited), respectively.
NOTE 14 – CONVERTIBLE PROMISSORY NOTES, NET
On April 12, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Fund II LP (the “Investor”). Pursuant to the SPA, the Company agreed to issue to the Investor up to three secured convertible promissory notes in the aggregate principal amount of $6,000,000 for a purchase price of an aggregate of $5,000,000 and up to 5,601,613 warrants to acquire up to shares of the Company’s common stock.
On April 12, 2023, the Company issued first tranche of convertible promissory note of $2,520,000 with maturity date of April 12, 2025 and no interest and issued warrant exercisable for 60 months to acquire shares of common stock at $ per share. The note may convert into common shares at the option of the Holder. The conversion price is the lesser of: (i) $0.90; or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the note. Debt issuance cost of $457,304, original issue discount of $420,000 and additional discount of $1,642,696 are recognized as reduction from the principal amount of the note and will be amortized over the life of the note utilizing straight-line method.
On May 23, 2023, the Company issued second tranche of convertible promissory note of $1,680,000 with maturity date of May 23, 2025 and no interest and issued warrant exercisable for 60 months to acquire shares of common stock at $ per share. The note may convert into common shares at the option of the Holder. The conversion price is the lesser of: (i) $0.90; or (ii) 90% of the lowest single VWAP during the 20 Trading Days prior to conversion of the note. Debt issuance cost of $245,000, original issue discount of $280,000 and additional discount of $1,133,395 are recognized as reduction from the principal amount of the note and will be amortized over the life of the note utilizing straight-line method.
The notes consist of the following components as of June 30, 2023:
SCHEDULE OF DEBT NOTES
| Principal | $ | 4,200,000 | ||
| Debt discount | (4,178,395 | ) | ||
| Interest expense | 435,072 | |||
| Net Carrying Balance at June 30, 2023 | $ | 456,677 |
As of the year ended June 30, 2023, debt discount of the convertible notes consisted of following:
SCHEDULE OF DEBT DISCOUNT OF THE CONVERTIBLE NOTES
| Start Date | End Date | Debt Discount At Debt Issuance | Amortization | Debt Discount As of June 30, 2023 | ||||||||||
| April 12, 2023 | April 12, 2025 | $ | 2,520,000 | 302,400 | $ | 2,217,600 | ||||||||
| May 23, 2023 | May 23, 2025 | 1,658,395 | 132,672 | 1,525,723 | ||||||||||
| Total | 4,178,395 | 435,072 | 3,743,323 | |||||||||||
| 20 |
NOTE 15 – DERIVATIVE LIABILITY
The derivative liability is derived from the debt conversion option features in Note 14. They were valued using Monte Carlo simulation model using assumptions detailed below. As of June 30, 2023, the derivative liability was $1,456,641. The Company recorded $595,673 gain from changes in derivative liability during the six months ended June 30, 2023. In addition, the Company recorded $1,088,477 as excess of derivative expense at initial valuation due to the total debt discount cannot excess the face amount of the convertible note balance. The Monte Carlo simulation model with following assumptions:
SCHEDULE OF DERIVATIVE LIABILITY
| Volatility | 65% - 82.50 | % | ||
| Risk-free rate | 3.95% - 4.98 | % | ||
| Stock price | $ - $ | |||
| Dividend Yield | - | |||
| Expected life | 4.79 – 5 years |
Fair value of the derivative is summarized as below:
SCHEDULE OF FAIR VALUE OF THE DERIVATIVE
Derivative Liability | ||||
| Balance at January 1, 2023 | $ | - | ||
| Additions | 2,052,314 | |||
| Change in fair value | (595,673 | ) | ||
| Ending Balance, June 30, 2023 | $ | 1,456,641 |
NOTE 16 – WARRANT LIABILITY
The warrant liability is derived from warrants issued as debt warrants in Note 14, public warrants and placement warrants.
As of June 30, 2023, the total fair value of the warrant liability was $1,255,795.
The following table provides a reconciliation of the warrants measured at fair value using Level 1 inputs:
SCHEDULE OF RECONCILIATION OF THE WARRANTS MEASURED AT FAIR VALUE USING LEVEL 1 INPUTS
| Public warrants | ||||
| Balance at January 1, 2023 | $ | - | ||
| Additions | - | |||
| Transfer from Level 2 | 603,750 | |||
| Change in fair value | (280,313 | ) | ||
| Ending Balance, June 30, 2023 | $ | 323,437 | ||
The Black-Scholes model with the following assumptions inputs:
SCHEDULE OF BLACK-SCHOLES MODEL ASSUMPTIONS INPUTS
| Volatility | 62.80% - 82.50 | % | ||
| Risk-free rate | 3.62% - 4.98 | % | ||
| Stock price | $ - $ | |||
| Dividend Yield | - | |||
| Expected life | 4.79 – 5 years |
The following table provides a reconciliation of the warrants measured at fair value using Level 2 inputs:
SCHEDULE OF RECONCILIATION OF THE WARRANTS MEASURED AT FAIR VALUE USING LEVEL 2 INPUTS
| Public warrants | Placement warrants | Debt warrants | ||||||||||
| Balance at January 1, 2023 | $ | - | - | - | ||||||||
| Additions | 603,750 | 39,463 | 1,812,253 | |||||||||
| Transfer to Level 1 | (603,750 | ) | - | - | ||||||||
| Change in fair value | - | (18,180 | ) | (901,178 | ) | |||||||
| Ending Balance, June 30, 2023 | $ | - | 21,283 | 911,075 | ||||||||
| 21 |
NOTE 17 — INCOME TAXES
United States
Aerwins Technologies Inc. is a holding company registered in the State of Delaware incorporated in June 2022. The U.S. federal income tax rate is 21%.
Japan
The Company’s effectiveCompany conducts its major businesses in Japan and is subject to tax rate forin this jurisdiction. During the three months periods ended June 30, 2023 and 2022, all taxable income (loss) of the Company is generated in Japan. Income taxes in Japan applicable to the Company are imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately 34.59% for the six months ended June 30, 2022 was 2023 and 2022.
0.1%. The effective tax rate forFor the three and six months ended June 30, 2021 was2023 and 2022, the Company’s income tax expenses are as follows:
SCHEDULE OF COMPANY' S INCOME TAX EXPENSES
| 2023 | 2022 | |||||||
| For the Six months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Current | $ | - | $ | - | ||||
| Deferred | - | - | ||||||
| Total | $ | - | $ | - | ||||
0.0%. The Company’s
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations to the Japanese statutory tax rate differs fromfor the statutory income tax rate ofsix months ended June 30, 2023 and 2022 is as follows:
21SCHEDULE OF EFFECTIVE INCOME TAX RATES OF OPERATIONS TO THE JAPANESE STATUTORY TAX RATE% primarily due to
| 2023 | 2022 | |||||||
| For the Six months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Japanese statutory tax rate | 34.59 | % | 34.59 | % | ||||
| Change in valuation allowance | (34.59 | )% | (34.59 | )% | ||||
| Effective tax rate | (0.00 | )% | (0.00 | )% | ||||
For the recognition of gains or losses from the changes in the fair value of warrant liabilitiessix months ended June 30, 2023 and the Sponsor Working Capital Loan, which are not recognized for tax purposes. 2022 (unaudited)
The Company has historically calculated theCompany’s provision for income taxes duringfor interim reporting periods by applyingwas determined using an estimate of its annual effective tax rate. Each quarter, the Company updates its estimate of the annual effective tax rate, for the full fiscal year to income or loss for the reporting period. The Company has used a discrete effective tax rate method to calculate taxes for the three and six months ended June 30, 2022. The Company believes that, at this time, the use of the discrete method for the three and six months ended June 30, 2022 is more appropriate thanif the estimated annual effective tax rate method aschanges, the estimated annual effective tax rate method is not reliable due toCompany makes a high degree of uncertaintycumulative adjustment in estimating annual pretax earnings.
NOTE 9. FAIR VALUE MEASUREMENTSsuch period.
The following tables present information aboutCompany recognized income tax expense for the Company’s assets and liabilities that are measured at fair value on a recurring basis as ofsix months ended June 30, 2023 and 2022, and December 31, 2021 and indicate the fair value hierarchyboth of the valuation techniques that the Company utilized to determine such fair value:which were estimated corporate inhabitant taxes.
SCHEDULE OF ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS BY LEVEL WITHIN FAIR VALUE HIERARCHY
| Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| June 30, 2022 | ||||||||||||||||
| Assets | ||||||||||||||||
| Marketable securities held in Trust Account: | $ | 116,897,590 | $ | 116,897,590 | $ | — | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Public Warrants | $ | 517,500 | $ | 517,500 | $ | — | $ | — | ||||||||
| Private Placement Warrants | $ | 23,475 | $ | — | $ | — | $ | 23,475 | ||||||||
| Sponsor Working Capital Loan | $ | 35,000 | $ | — | $ | — | $ | 35,000 | ||||||||
| 22 |
| Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Assets | ||||||||||||||||
| Marketable securities held in Trust Account: | $ | 116,728,213 | $ | 116,728,213 | $ | — | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Public Warrants | $ | 4,052,888 | $ | 4,052,888 | $ | — | $ | — | ||||||||
| Private Placement Warrants | $ | 190,151 | $ | — | $ | — | $ | 190,151 | ||||||||
NOTE 18 — EQUITY METHOD
As of June 30, 2022 and December 31, 2021, assets heldthe Company holds 48.81% of ASC TECH Agent. Accordingly, the Company applies equity method to its investment. For the six months ended June 30, 2023 and 202 (unaudited), net income from ASC TECH agent is recognized as equity in earnings of investee of $11,640 of loss and $10,736 of profit in the Trust Account wereconsolidated statements of operations and comprehensive income (loss).
NOTE 19 – SHAREHOLDERS’ DEFICIT
Aerwins was authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
Business combination with Pono Capital Corp
On February 3, 2023, the Company consummated the Merger with Pono. On February 2, 2023, the Company entered into a Subscription Agreement with the Purchasers. In total, the number of Public Shares increased by at the closing of the Business Combination.
Shares issued to service providers
The Company agreed with service providers to pay the service fees by issuing common stocks subject to the closing of the business combination. After the closing of the Business Combination, the Company issued shares of common stock for the three months ended March 31, 2023. The Company issued shares to consultants who provide the Company with several services for the three months ended June 30, 2023. These share issuances are recognized as expense at the fair value of the shares at the issuance date. The total amount of fair value of shares issued for the six months ended June 30, 2023 was $6,258,298 and $116,728,2132,600,000 is recognized as prepaid expenses.
The Company’s outstanding shares increased by for the six months ended June 30, 2023, and recognized Common stock of $14 and Additional Paid-in Capital of $4,224,049. As of June 30, 2023, there were of common shares issued. The numbers of common stocks are retrospectively presented to reflect the legal capital of post-merger AERWINS.
Basic earnings (loss) per share is calculated on the basis of weighted-average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect of stock options. Dilutive common shares are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options.
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
| 2023 | 2022 | |||||||
| For the Six months Ended | ||||||||
June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Earnings (loss) per share – basic | ||||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | (18,376,366 | ) | $ | (6,548,417 | ) | ||
| Net loss from discontinued operation | (846,499 | ) | (679,519 | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding used in calculating basic earnings (loss) per share | 54,957,819 | 42,712,850 | ||||||
| Denominator used for earnings (loss) per share | ||||||||
| Loss per share from continuing operations (basic and diluted) | $ | ) | $ | ) | ||||
| Loss per share from discontinued operation (basic and diluted) | ) | ) | ||||||
| 2023 | 2022 | |||||||
| For the Three months Ended | ||||||||
June 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Earnings (loss) per share – basic | ||||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | (10,737,846 | ) | $ | (3,369,816 | ) | ||
| Net loss from discontinued operation | (683,474 | ) | (466,117 | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding used in calculating basic earnings (loss) per share | 56,871,014 | 43,509,237 | ||||||
| Denominator used for earnings (loss) per share | ||||||||
| Loss per share from continuing operations (basic and diluted) | $ | ) | $ | ) | ||||
| Loss per share from discontinued operation (basic and diluted) | ) | ) | ||||||
Basic loss per share equals diluted loss per share because the calculation of diluted loss per share would be anti-dilutive.
| 23 |
On July 27, 2022, Aerwins issued stock options to certain directors of the Company which can be exercised for a total of shares of the Company’s common stock with an exercise price of $ per share and a vesting period shall commence on the first business day following the occurrence of going public (the “Trigger Date”), and thereafter (i) one third of the option shall vest on the three months anniversary of the Trigger Date, (ii) one third of the option shall vest on the fifteen month anniversary of the Trigger Date; and (iii) the remaining one third of the option shall vest on the twenty seven month anniversary of the Trigger Date. The remaining weighted average contractual life as of June 30, 2023, is years.
| Grant date | July 27, 2022 | |||
| Number of shares at grant date | 4,142,277 | |||
| Outstanding at January 31, 2023 | 4,142,277 | |||
| Forfeiture | (2,969,049 | ) | ||
| Outstanding at June 30, 2023 | 1,173,228 | |||
| Exercise price | $ | 0.00015 | ||
| Consideration paid to the Company at the grant date | $ | 132 |
The number of shares is retrospectively presented to reflect the Business Combination with Pono.
SCHEDULE OF FAIR VALUE OF THE STOCK BASED COMPENSATION
| Exercise period | years | |||
| Share price on the issuance date | $ | 0.0001 | ||
| Volatility | % | |||
| Expected dividend rate | % | |||
| Risk-free interest rate | % |
NOTE 22 – FAIR VALUE MEASUREMENT
The estimated fair value of the Company’s financial instrument at June 30, 2023 and December 31, 2022 are set forth below. The following summary excludes cash and cash equivalents, accounts receivable, other receivable, short-term loans payable, accounts payable, accrued expenses, contract liability, current portion of long-term debts, current operating and finance lease liabilities and other current liabilities for which fair values approximate their carrying amounts.
SCHEDULE OF ESTIMATED FAIR VALUE OF THE FINANCIAL INSTRUMENT
| Amount at Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| June 30, 2023 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Public Warrants | $ | 323,437 | $ | 323,437 | $ | - | $ | - | ||||||||
| Placement Warrants | $ | 21,283 | $ | - | $ | 21,283 | $ | - | ||||||||
| Debt Warrants | $ | 911,075 | $ | - | $ | 911,075 | $ | - | ||||||||
| Subtotal : Warrant liabilities | $ | 1,255,795 | $ | 323,437 | $ | 932,358 | - | |||||||||
| Derivative Liability | $ | 1,456,641 | $ | - | $ | 1,456,641 | $ | - | ||||||||
| Liabilities fair value | $ | 1,456,641 | $ | - | $ | 1,456,641 | $ | - | ||||||||
The Public Warrants are classified as Level 1 in a mutual fund investedthe fair value hierarchy because they valued using quoted market prices. The Placement Warrants, Debt Warrants, and Derivative Liability are classified as Level 2 in U.S. Treasury Securities, respectively.the fair value hierarchy. This classification is based on the availability of significant inputs used in the Black-Sholes model and Monte Carlo simulation, which are observable in the market.
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement2 to a Level 1 fair value measurement during the period from February 12, 2021 (inception)January 1, 2023 due to December 31, 2021.
On October 1, 2021, the Public Warrants surpassed the 52-day threshold waiting period to be publicly traded from the effective dateincrease of the Company’s Prospectus, August 10, 2021. Once publicly traded, the observable input qualifies the liability for treatment as a Level 1 liability. As such, as of June 30, 2022 and December 31, 2021, the Company classified the Public Warrants as Level 1.
On April 1, 2022, the Company entered into the Sponsor Working Capital Loan. Given the potential equity component of this Sponsor Working Capital Loan, it was valued using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination, which is considered to be a Level 3 fair value measurement. As such, as of June 30, 2022, the Company classified the Sponsor Working Capital Loan as Level 3.
market activity.
PONO CAPITAL CORPNOTE 23 – DISCONTINUED OPERATIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
The estimated value of the Public Warrants transferred from a Level 3 measurement to a Level 1 measurement from the initial measurement through December 31, 2021 was $4,052,888 as presented in the changes in fair value of Level 3 warrant liabilities table below.
SCHEDULE OF CHANGE IN FAIR VALUE OF THE WARRANT LIABILITIES
| Fair value as of February 12, 2021 (inception) | $ | — | ||
| Initial measurement on August 13, 2021 (Level 3) | 9,864,941 | |||
| Change in fair value | (5,621,902 | ) | ||
| Transfer to Level 1 | (4,052,888 | ) | ||
| Fair value as of December 31, 2021 | 190,151 | |||
| Change in fair value of Private Placement Warrants | (95,076 | ) | ||
| Fair value as of March 31, 2022 | $ | 95,075 | ||
| Initial measurement of draw on Sponsor Working Capital Loan on April 1, 2022 | 23,000 | |||
| Initial measurement of draw on Sponsor Working Capital Loan on May 24, 2022 | 13,000 | |||
| Change in fair value of Sponsor Working Capital Loan | (1,000 | ) | ||
| Change in fair value of Private Placement Warrants | (71,600 | ) | ||
| Fair value as of June 30, 2022 | $ | 58,475 |
The Warrants are measuredAs at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte-Carlo Simulation. As of June 30, 2023, to facilitate cost reduction plan, the Company has made the strategic decision to discontinue drone solution service. The results of operations in relation to the Company’s Drone solution service have been classified by the Company as discontinued operations for the six months ended June 30, 2023 and 2022 and December 31, 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.are shown below:
The Company utilizesSCHEDULE OF DISCONTINUED OPERATIONS
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
For the six months ended June 30, | For the three months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenues | $ | 925,205 | $ | 857,303 | $ | 83,334 | $ | 431,594 | ||||||||
| Cost of revenues | 735,962 | 725,562 | 105,331 | 390,178 | ||||||||||||
| Gross profit | 189,243 | 131,741 | (21,997 | ) | 41,416 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 4,099 | 5,904 | 684 | 900 | ||||||||||||
| General and administrative expenses | 715,547 | 576,135 | 352,200 | 327,582 | ||||||||||||
| Research and development expenses | 167,053 | 229,736 | 109,834 | 178,875 | ||||||||||||
| Total operating expenses | 886,699 | 811,775 | 462,718 | 507,357 | ||||||||||||
| Loss from operations | (697,456 | ) | (680,034 | ) | (484,715 | ) | (465,941 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income (expenses), net | (1,164 | ) | - | (1,043 | ) | - | ||||||||||
| Gain (Loss) on disposal of fixed assets | (9,761 | ) | (176 | ) | - | (176 | ) | |||||||||
| Impairment of fixed assets | (229,600 | ) | - | (205,684 | ) | - | ||||||||||
| Other income (expenses), net | 91,482 | 691 | 7,968 | - | ||||||||||||
| Total other income (expenses) | (149,043 | ) | 515 | (198,759 | ) | (176 | ) | |||||||||
| Loss before income tax provision | $ | (846,499 | ) | $ | (679,519 | ) | $ | (683,474 | ) | $ | (466,117 | ) | ||||
NOTE 24 – SUBSEQUENT EVENTS
A.L.I. Technologies has not been able to pay some accounts payable by due date. As of August 10, 2023, the health insurance association seized our bank account in Japan for delinquent health insurance premiums. As a binomial Monte-Carlo simulation to estimateresult, 28,075 USD deposited in the fair value of the warrants at each reporting period for warrants that are not actively traded, which at June 30, 2022 and December 31, 2021 included the Private Placement Warrants. The estimated fair value of the derivative warrant liabilities is determined using Level 3 inputs. Inherent in a binomial Monte-Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.bank account has been seized.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
The following table provides quantitative information regarding Level 3 fair value measurements inputs of the Private Placement Warrants as of their measurement dates:
SCHEDULE OF FAIR VALUE MEASUREMENT INPUTS AND VALUATION TECHNIQUES
As of | As of December 31, 2021 | |||||||
| Stock price | $ | 10.12 | $ | 9.97 | ||||
| Strike price | $ | 11.50 | $ | 11.50 | ||||
| Term (in years) | ||||||||
| Post-Merger Period Volatility | 0.8 | % | 9.5 | % | ||||
| Risk-free rate | 3.0 | % | 1.3 | % | ||||
| Dividend yield | — | % | — | % | ||||
| Probability of completing a Business Combination | 20.0 | % | 90.0 | % | ||||
| Fair value of warrants | $ | 0.06 | $ | 0.49 | ||||
The Sponsor Working Capital Loan was valued using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination, which is considered to be a Level 3 fair value measurement. The estimated fair value of each draw of the Sponsor Working Capital Loan was based on the following significant inputs:
As of | As of May 24, 2022 (Initial Measurement) | As of April 1, 2022 (Initial Measurement) | ||||||||||
| Unit price | $ | 10.10 | $ | 10.08 | $ | 10.38 | ||||||
| Conversion price | $ | 10.00 | $ | 10.00 | $ | 10.00 | ||||||
| Expected term | ||||||||||||
| Unit volatility | 5.5 | % | 5.5 | % | 14.0 | % | ||||||
| Dividend yield | — | % | — | % | — | % | ||||||
| Risk free rate | 1.7 | % | 1.2 | % | 1.1 | % | ||||||
| Discount rate | 9.8 | % | 9.8 | % | 9.8 | % | ||||||
| Probability of completing a Business Combination | 20 | % | 20 | % | 20 | % | ||||||
| Fair value of Sponsor Working Capital Loan | $ | 35,000 | $ | 13,000 | $ | 23,000 | ||||||
The Company recognized a gain in connection with changes in the fair value of warrant liabilities of $1,605,125 and $3,702,064 in the condensed consolidated statements of operations during the three and six months ended June 30, 2022, respectively. The Company did not recognize any gain or loss for the three months ended June 30, 2021 or for the period from February 12, 2021 (inception) through June 30, 2021 as the Company had not yet completed the Initial Public Offering and had not yet granted any warrants. The Company recognized a gain on the change in fair value of Sponsor Working Capital Loan of $1,000 in the condensed consolidated statement of operations for the three and six months ended June 30, 2022. The aggregate amount by which the cash proceeds from the draws on the Sponsor Working Capital Loan was in excess of the fair value on the initial measurement dates of $139,000 is reflected as a contribution to additional paid-in capital during the three and six months ended June 30, 2022.
NOTE 10. SUBSEQUENT EVENTS
Management has evaluated subsequent events and transactions that occurred after the condensed consolidated balance sheet date up to the date that the condensed consolidated financial statements were issued. Based upon this review, other than those subsequent events described below, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On July 16, 2022, the Company drew $35,000 from the Sponsor Working Capital Loan (see Note 5). On August 8, 2022, the Company drew $85,000 from the Sponsor Working Capital Loan. On August 10, 2022, the Company received $1,150,000 in funding from Mehana Capital LLC (“Mehana Capital”), an affiliate of the Sponsor to extend the Combination Period for an additional three months, as described in Note 1. The Combination Period will now end on November 11, 2022. Mehana Capital purchased an aggregate of placement units of the Company, each unit consists of one share of Class A common stock, $ par value per share, and three-quarters of one warrant, each whole Placement Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share (the “Placement Units”), creating proceeds to the Company of $1,150,000 to be deposited into the trust account as further described in the Form 8-K filed with the SEC on August 10, 2022.
As further described in Note 1, on August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Pono Capital Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Mehana Equity LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed consolidatedour audited financial statements and the notes related thereto contained elsewherewhich are included in “Item 1. Financial Statements and Supplementary Data” of this Quarterly Report.Report on Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could causestatements. Our actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results tomay differ materially from those anticipated in thethese forward-looking statements please refer to the Risk Factors sectionas a result of the Company’s annual reportmany factors, including those set forth under “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in our Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”(“Commission”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.March 31, 2023.
Overview
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI, except that references to the “Company” “we,” “us,” or “Pono” in this Item 2 refer to Aerwins Technologies Inc. f/k/a Pono Capital Corp.
We are a blank check companywere originally incorporated in Delaware on February 12, 2021. We were2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businessesbusinesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Business Combination”“Merger”). We are an emerging growth company with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and as such,a wholly-owned subsidiary of the Company, is subjectthen called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to allan agreement and plan of the risks associated with emerging growth companies. We intend to effectuate our Business Combination using cash from the proceedsmerger, dated as of the Initial Public Offering and the sale of the Private Warrants, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
On March 17,September 7, 2022 we entered into an Agreement and Plan of Merger (the(as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Pono Merger Sub, Inc.,AERWINS, Mehana Equity LLC, a Delaware corporationlimited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, (“Merger Sub”), Benuvia,and Pono changed its name to “AERWINS Technologies 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 Merger Agreement, at the closingbusiness of the transactions contemplated byCompany became the Merger Agreement (the “Closing”), Merger Subbusiness of AERWINS, Inc. The Business Combination was to merge with and into Benuvia, with Benuvia continuingaccounted for as the surviving corporation (the “Surviving Corporation”).
As consideration for the Merger, the holders of Benuvia securities collectively were entitled to receive from us, in the aggregate, a number of our securities with an aggregate value equal to (the “Merger Consideration”) (a) Four Hundred Million U.S. Dollars ($400,000,000) minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held by Benuvia) of Benuvia at Closing (the “Closing Net Indebtedness”) exceeds Forty Million Dollars ($40,000,000), and minus (c) the value of the options of Benuvia held by employees and consultants that are vested at the Closing that are assumed by us (“Vested Options”), with each Benuvia stockholder receiving, for each share of Benuvia common stock held, a number of shares of our common stock equal to (i) the Per Share Price, divided by (ii) $10.00 (the total portion of the Merger Consideration amount payable to all Benuvia Stockholdersreverse recapitalization in accordance with the Merger Agreement is also referred to hereinU.S. GAAP. Under this method of accounting, Pono Capital Corp was treated as the “Stockholder Merger Consideration”).
The Merger Consideration otherwise payable to Benuvia stockholdersacquired company and AERWINS, Inc. was subject totreated as the withholding of two escrows: (i) a number of shares of our common stock equal to five percent (5.0%) of the Merger Consideration to be placed in escrowacquirer for post-closing adjustments (if any) to the Merger Consideration and (ii) a number of shares mutually agreeable between Benuvia and us not to exceed twenty percent (20.0%) of the Merger Consideration (the “Price Protection Escrow Amount”) to be held for downside protection for non-redeeming stockholders following Closing.
The Merger Consideration was subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness of Benuvia as of the Closing Date. If the adjustment was a negative adjustment in favor of us, the escrow agent was to distribute to us a number of shares of our common stock with a value equal to the absolute value of the adjustment amount. If the adjustment was a positive adjustment in favor of Benuvia, we would issue to the Benuvia stockholders an additional number of shares of our common stock with a value equal to the adjustment amount.financial statement reporting purposes.
The Business Combination Agreementoccurred during the period for which the financial information herein is presented. The financial information included in this “Management’s Discussion and related agreements are further described in our CurrentAnalysis of Financial Condition and Results of Operations” reflects the historical operations of the Company prior to the Business Combination and the combined operations after the Business Combination, unless otherwise noted. For additional information on the Business Combination please see the “Explanatory Note” on page 1 of this Quarterly Report on Form 8-K filed with10-Q. For additional information on the SECcorporate history of our Company please see the section titled “Corporate History” on March 18,page 70 of our Annual Report.
Business Overview
We were incorporated in the State of Delaware on June 9, 2022. We conduct business activities principally through our 100%-owned subsidiary, A. L. I. Technologies Inc., a Japanese corporation (“A. L. I. Technologies”), which was established in Japan in September 2016 and was acquired by us in August, 2022.
TerminationWe are developing our air mobility business with the aim of Merger Agreementcontributing to society as a global company that leads the air mobility society by providing infrastructure that enables anyone to use the airspace safely, securely, and conveniently through the constant challenge of new technologies and their implementation in society.
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To realize this vision, we have developed the following business areas but we are focusing manned air mobility area for the future:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster,
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI.
Significant Market Opportunities
In today’s increasingly populated and interconnected world, traditional modes of urban transportation continue to create congestion and pollution, and dependent on land-based infrastructure. Transportation for the future requires a revolutionary solution.
The market opportunities based on our technologies are significant. According to an analysis by Frost & Sullivan, the autonomous vehicle services market is expected to grow from a mere $1.1 billion in 2019 to $202.5 billion in 2030 at a CAGR of 60.1%, facilitated by mutually beneficial business models across the entire mobility value chain. To capture the significant growth potential in the AAV market, we strive to continue to innovate and expand the boundaries for air-based mobility.
We have already completed our first manned flight test of the XTURISMO LTD EDITION prototype 1 which we tested in 2019. The current XTURISMO LTD EDITION made a debut to the public in October 2021 at Fuji Speedway Circuit in Japan. We will further develop the product to be resistant to wind of 6 meters per second and further to 8 meters per second to increase its safety features. In the future, we are also preparing to develop new models ranging from unmanned versions for logistical purposes to potentially hydrogen-based models. On the software side, we are currently further developing our traffic management system and developing a digital sky road infrastructure based on our existing air traffic control system.
Our air mobility enables urban mobility to expand into three-dimensional space. We believe our technology will change the future of transportation, improve lives, and create new industries. The XTURISMO LTD EDITION is a full spec version ranging from high quality carbon and equipped with intensive software capability which allows manual/autonomous/remote control driving experience. Each XTURISMO LTD EDITION is built to order, and accordingly, we begin production of each specific unit when a confirmed order is received by us. Due to the cost of the XTURISMO LTD EDITION, we have decided to limit the production of the XTURISMO LTD EDITION to 200 units. Most of the parts were created exclusively for the product with small unit orders resulting in the purchase price to be relatively expensive. The price of the current XTURISMO LTD EDITION is 77.7 million yen ($550,000 USD) per unit (including insurance and installation program) in Japan. We believe the price of the supply parts can be decreased if we are able to obtain further orders, and at such time we may be able to mass produce a less expensive model to facilitate safe, cost-effective, and easy-to-use air mobility solutions. Additionally, since the XTURISMO LTD EDITION is still in the development phase, the materials can change depending on the usage and unnecessary features can be omitted, both of which can reduce the price.
We design, develop, manufacture, market, and operate unmanned aircraft and their supporting systems and infrastructure for a wide range of industries and applications, including passenger transportation, logistics, and smart city management. For example, in a joint project with Yamanashi prefecture located in a mountainous region in Japan, we have conducted a logistics test for a hypothetical disaster situation using unmanned drones from three different manufacturers equipped with our proprietary air traffic control system (C.O.S.M.O.S.) to control these drones simultaneously. First, we designed and set up minimum flight routes for unmanned drones in C.O.S.M.O.S. that could be used during a disaster. These were then used as airways (equivalent to infrastructure as a smart city), and flights were made to deliver supplies needed in times of disaster by multiple vehicles flying simultaneously along the airways. Additionally, we have conducted similar tests with the Ministry of Land, Infrastructure, Transport and Tourism of Japan. We are also seeking to provide efficient services in the field of civil engineering, particularly for surveying and infrastructure inspections. We aim to use unmanned aircraft instead of the existing methods of surveying and visual inspection, which methods typically involve using Cessna aircraft or having workers perform such tasks in person. Furthermore, in the passenger sector, we develop, manufacture, sell, and operate XTURISMO LTD EDITION. We provide an integrated air mobility solution ranging from hardware to software.
Orders, Delivery and Financial Results
On August 8,
We are developing the following business areas:
(1) manned air mobility area, which involves the sale and development of hoverbikes that can float at low altitude through difficult-to-move zones in times of disaster, etc., and (b) industrial drone business, which involves the sale and development of industrial drones; and
(2) unmanned air mobility domain, which provides solutions utilizing industrial drones (integrated provision of R&D, aircraft rental or sales, operators, operation management, and other software); and
(3) the computing power sharing domain, which provides services such as blockchain verification and AI.
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Discontinued Operations
As of June 30, 2023 we discontinued providing drone photography services and joint research and development services previously provided within our unmanned air mobility business. Current estimated costs and charges to be incurred in connection with discontinuing of this portion of our drone service business are not material.
Key Factors that Affect Our Results of Operations
Our business is affected by many factors which we discuss under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the CompanyCommission on March 31, 2023, and Benuvia mutually terminatedin subsequent filings. The following are a few of those key factors that may affect our financial condition and results of operations:
Our Purported Product Superiority.
Both hardware and software technologies are key factors intended to strengthen our competitive advantages. Regarding hardware, we developed air mobility CFRP material for XTURISMO which reduced the Merger Agreement pursuant to Section 8.1(a)weight of the Merger Agreement, effective immediately. Neither party was requiredopen propeller and its body. CFRP is also easy to payprocess and corresponds to various designs and has strong resistance to dust and salt air. We also developed an original body and steering wheel which enables a driver to drive manually easier. The original hybrid engine has high power generation with low revolution and electric supply support to control the device system. Regarding software, the stability control of XTURISMO assists driving using sensor fusion surrounding the body and links with the cloud in real time through encrypted driving and control data communication. Also, C.O.S.M.O.S., the air traffic control platform connects with each hoverbike and provides flight and network management. These hardware and software solutions are all made in Japan.
Our Ability to Expand International Market
We are seeking to promote global expansion using partnerships, and our ability to succeed in this endeavor will affect our results of operations. Especially in the Gulf Cooperation Council, we have partners for creating the business in the area and will aim to raise funds which we believe will enable us to establish an office and R&D center in the area. We also expect that the area can be a distribution, manufacturing and marketing hub for the vehicles. After that or at the same time, we plan to expand sales channels to other regions, including the United States. Also, in order to facilitate such global expansion, we plan to acquire human resources in various countries outside of Japan.
Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency
We are aiming to establish a termination feehighly profitable structure for the mass production of hovercrafts by using a fabless model which focuses on design and supply chain control. We plan to select subcontractors and suppliers appropriately based on cost, quality, and delivery date, and we will seek to build an efficient production system. We also hope to sign a partnership agreement with a local government to implement hovercrafts in society. We aim to reduce the cost of developing advanced technologies and implementing our products in society by utilizing subsidies as a resultpart of such support.
A Severe or Prolonged Slowdown in the Global and Japan Economy Could Materially and Adversely Affect Our Business and Our Financial Condition
In recent years, the economic indicators in Japan have shown mixed signs, and future growth of the mutual decisionJapanese economy is subject to terminatemany factors beyond our control. The Japanese economy is gradually recovering due to the Merger Agreement.effects of various government policies which encourage the transition to the post-COVID society. However, it is necessary to note downside risks due to fluctuations in the financial markets, price increases, and supply-chain constraints as global monetary tightening is progressing. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products and their prices.
Results of Operations
We have neither engagedComparison of Results of Operations for the six Months Ended June 30, 2023, and 2022
The following table summarizes our operating results as reflected in any operations nor generated anyour statements of income during the six months ended June 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the six Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 457,753 | 100.0 | % | $ | 1,934,118 | 100.0 | % | $ | (1,476,365 | ) | (76.3 | )% | |||||||||||
| COST OF REVENUE | 600,280 | 131.1 | % | 2,047,280 | 105.9 | % | (1,447,000 | ) | (70.7 | )% | ||||||||||||||
| GROSS PROFIT | (142,527 | ) | (31.1 | )% | (113,162 | ) | (5.9 | )% | (29,365 | ) | 25.9 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 63,525 | 13.9 | % | 59,526 | 3.1 | % | 3,999 | 6.7 | % | |||||||||||||||
| General and administrative expenses | 10,108,287 | n.m. | 2,722,078 | 140.7 | % | 7,386,209 | 271.3 | % | ||||||||||||||||
| Research and development expenses | 6,795,396 | n.m. | 4,484,102 | 231.8 | % | 2,311,294 | 51.5 | % | ||||||||||||||||
| Total operating expenses | 16,967,208 | n.m. | 7,265,706 | 375.7 | % | 9,701,502 | 133.5 | % | ||||||||||||||||
| Income (loss) from operations | (17,109,735 | ) | n.m. | (7,378,868 | ) | (381.5 | )% | (9,730,867 | ) | 131.9 | % | |||||||||||||
| Other income (expenses) | (1,266,631 | ) | (276.7 | )% | 830,451 | 42.9 | % | (2,097,082 | ) | (252.5 | )% | |||||||||||||
| Income (loss) before income tax provision | (18,376,366 | ) | n.m. | (6,548,417 | ) | (338.6 | )% | (11,827,949 | ) | 180.6 | % | |||||||||||||
| Income taxes expense (benefit) | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | (18,376,366 | ) | n.m. | (6,548,417 | ) | (338.6 | )% | (11,827,949 | ) | 180.6 | % | |||||||||||||
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Revenue
Our total revenues decreased by $1,476,365, or 76.3% to $457,753 for the six months ended June 30, 2023 from $1,934,118 for the six months ended June 30, 2022. The decrease in our revenues was due to a decrease in sales from shared computing business.
Cost of Revenue
Our total costs of revenues decreased by $ 1,447,000, or 70.7%, to $ 600,280 for the six months ended June 30, 2023 from $2,047,280 for the six months ended June 30, 2022. The decrease in our costs was attributable to the decrease of sales described above.
Gross Profit
Our total gross loss increased by $ 29,365 or 25.9%, to $ 142,527 for the six months ended June 30, 2023 from $113,162 for the six months ended June 30, 2022.
Operating Expenses
The following table sets forth the breakdown of our operating revenuesexpenses for the six months ended June 30, 2023 and 2022:
| For the six Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 457,753 | 100.0 | % | $ | 1,934,118 | 100.0 | % | $ | (1,476,365 | ) | (76.3 | )% | |||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 63,525 | 13.9 | % | 59,526 | 3.1 | % | 3,999 | 6.7 | % | |||||||||||||||
| General and administrative expenses | 10,108,287 | n.m. | 2,722,078 | 140.7 | % | 7,386,209 | 271.3 | % | ||||||||||||||||
| Research and development expenses | 6,795,396 | n.m. | 4,484,102 | 231.8 | % | 2,311,294 | 51.5 | % | ||||||||||||||||
| Total operating expenses | 16, 967,208 | n.m. | 7,265,706 | 375.7 | % | 9,701,502 | 133.5 | % | ||||||||||||||||
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.
| For the six Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| Salaries and welfare | $ | 1,233,994 | 12.2 | % | $ | 1,125,100 | 41.3 | % | $ | 108,894 | 9.7 | % | ||||||||||||
| Consulting and professional service fees | 5,133,291 | 50.8 | % | 981,288 | 36.0 | % | 4,152,003 | 423.1 | % | |||||||||||||||
| Share based payment | 1,634,106 | 16.2 | % | - | - | 1,634,106 | n.m. | |||||||||||||||||
| Rent expense | 81,593 | 0.8 | % | 72,926 | 2.7 | % | 8,667 | 11.9 | % | |||||||||||||||
| Office, utility and other expenses | 950,415 | 9.4 | % | 224,402 | 8.2 | % | 726,013 | 323.5. | % | |||||||||||||||
| Travel and entertainment expense | 271,563 | 2.7 | % | 128,228 | 4.7 | % | 143,335 | 111.8 | % | |||||||||||||||
| Commission fees expenses | 292,234 | 2.9 | % | 11,186 | 0.4 | % | 281,048 | n.m. | ||||||||||||||||
| Other expenses | 511,092 | 5.1 | % | 178,948 | 6.6 | % | 332,144 | 185.6 | % | |||||||||||||||
| Total general and administrative expenses | 10,108,287 | 100 | % | 2,722,078 | 100 | % | 7,386,209 | 271.3 | % | |||||||||||||||
* Refers to date. the percentage of total general and administrative expenses.
Our only activitiesgeneral and administrative expenses increased by $7,386,209 or 271.3%, to $10,108,287 for the six months ended June 30, 2023 from $2,722,078 for the six months ended June 30, 2022, primarily attributable to Consulting and forprofessional service fees relating to the period from February 12, 2021 (inception) through June 30, 2021 were organizational activities, those necessarybusiness combination with Pono.
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Research and development expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
| For the six Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Research and Development Expenses | Amount | % of | Amount | % of | Amount | % of | ||||||||||||||||||
| Raw materials | $ | 4,084,773 | 60.1 | % | $ | 1,719,734 | 38.4 | % | $ | 2,365,039 | 137.5 | % | ||||||||||||
| Labor expenses | 580,173 | 8.5 | % | 497,556 | 11.1 | % | 82,617 | 16.6 | % | |||||||||||||||
| Outsourcing expenses | 1,864,889 | 27.4 | % | 1,919,725 | 42.8 | % | (54,836 | ) | (2.9 | )% | ||||||||||||||
| Other expenses | 265,560 | 3.9 | % | 347,086 | 7.7 | % | (81,526 | ) | (23.5 | )% | ||||||||||||||
| Total research and development expenses | 6,795,396 | 100 | % | 4,484,102 | 100 | % | 2,311,294 | 51.5 | % | |||||||||||||||
* Refers to prepare for the Initial Public Offering (“Initial Public Offering”)percentage of total research and identifying a target company for a business combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligencedevelopment expenses.
ForOur research and development expenses increased by $ 2,311,294, or 51.5%, to $ 6,795,396 for the six months ended June 30, 2023 from $4,484,102 for the six months ended June 30, 2022, primarily attributable to the increase in raw materials cost for development of XTURISMO.
Other Income (Expenses), net
Our other income (expenses) primarily includes impairment loss of fixed assets.
Total other income, net, decreased by $2,097,082 or 252.5% from $830,451 of income for the six months ended June 30, 2022 to $1,266,631 of expenses for the six months ended June 30, 2023.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss of $18,376,366 for the six months ended June 30, 2023 representing a $11,827,949 or 180.6% increase from a net loss of $6,548,417 for the six months ended June 30, 2022. All net loss is attributable to AERWINS Technologies Inc.
Comparison of Results of Operations for the three Months Ended June 30, 2023, and 2022
The following table summarizes our operating results as reflected in our statements of income during the three months ended June 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 25,703 | 100.0 | % | $ | 321,171 | 100.0 | % | $ | (295,468 | ) | (92.0 | )% | |||||||||||
| COST OF REVENUE | 265,680 | n.m. | % | 425,962 | 132.6 | % | (160,282 | ) | (37.6 | )% | ||||||||||||||
| GROSS PROFIT | (239,977 | ) | (933.7 | )% | (104,791 | ) | (32.6 | )% | (135,186 | ) | 129.0 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 26,492 | 103.1 | % | 56,624 | 17.6 | % | (30,132 | ) | (53.2 | )% | ||||||||||||||
| General and administrative expenses | 4,215,208 | n.m. | % | 1,462,361 | 455.3 | % | 2,752,847 | 188.2 | % | |||||||||||||||
| Research and development expenses | 4,751,800 | n.m. | % | 2,208,964 | 687.8 | % | 2,542,836 | 115.1 | % | |||||||||||||||
| Total operating expenses | 8,993,500 | n.m. | % | 3,727,949 | n.m. | % | 5,265,551 | 141.2 | % | |||||||||||||||
| Income (loss) from operations | (9,233,477 | ) | n.m. | % | (3,832,740 | ) | n.m. | % | (5,400,737 | ) | 140.9 | % | ||||||||||||
| Other expenses | (1,504,369 | ) | n.m. | % | 462,924 | 144.1 | % | (1,967,293 | ) | (425.0 | )% | |||||||||||||
| Income (loss) before income tax provision | (10,737,846 | ) | n.m. | % | (3,369,816 | ) | n.m. | % | (7,368,030 | ) | 218.6 | % | ||||||||||||
| Income taxes expense (benefit) | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | (10,737,846 | ) | n.m. | % | (3,369,816 | ) | n.m. | % | (7,368,030 | ) | 218.6 | % | ||||||||||||
| 30 |
Revenue
Our total revenues decreased by $295,468, or 92.0% to $25,703 for the three months ended June 30, 2023 from $321,171 for the three months ended June 30, 2022. The decrease in our revenues was mainly due to a decrease in sales from shared computing business.
Cost of Revenue
Our total costs of revenues decreased by $ 160,282, or 37.6%, to $ 265,680 for the three months ended June 30, 2023 from $425,962 the three months ended June 30, 2022. The decrease in our costs was attributable to the decrease of sales described above.
Gross Profit
Our total gross profit decreased by $ 135,186, or 129.0%, to $ 239,977 of loss for the three months ended June 30, 2023 from $ 104,791 of loss for the three months ended June 30, 2022.
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the three months ended June 30, 2023 and 2022:
| For the three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 25,703 | 100.0 | % | $ | 321,171 | 100.0 | % | $ | (295,468 | ) | (92.0 | )% | |||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 26,492 | 103.1 | % | 56,624 | 17.6 | % | (30,132 | ) | (53.2 | )% | ||||||||||||||
| General and administrative expenses | 4,215,208 | n.m. | % | 1,462,361 | 455.3 | % | 2,752,847 | 188.2 | % | |||||||||||||||
| Research and development expenses | 4,751,800 | n.m. | % | 2,208,964 | 687.8 | % | 2,542,836 | 115.1 | % | |||||||||||||||
| Total operating expenses | 8,993,500 | n.m. | % | 3,727,949 | n.m. | % | 5,265,551 | 141.2 | % | |||||||||||||||
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.
| For the three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| Salaries and welfare | $ | 474,063 | 11.2 | % | $ | 500,006 | 34.2 | % | $ | (25,943 | ) | (5.2 | )% | |||||||||||
| Consulting and professional service fees | 1,092,364 | 25.9 | % | 633,412 | 43.3 | % | 458,952 | 72.5 | % | |||||||||||||||
| Share-based payment | 1,634,106 | 38.8 | % | - | 0.0 | % | 1,634,106 | n.m. | % | |||||||||||||||
| Rent expense | 42,149 | 1.0 | % | 34,401 | 2.4 | % | 7,748 | 22.5 | % | |||||||||||||||
| Office, utility and other expenses | 382,171 | 9.1 | % | 160,139 | 11.0 | % | 222,032 | 138.6 | % | |||||||||||||||
| Travel and entertainment expense | 58,945 | 1.4 | % | 68,957 | 4.7 | % | (10,012 | ) | (14.5 | )% | ||||||||||||||
| Commission fees expenses | 283,409 | 6.7 | % | 4,808 | 0.3 | % | 278,601 | n.m. | % | |||||||||||||||
| Other expenses | 248,000 | 5.9 | % | 60,638 | 4.1 | % | 187,362 | 309.0 | % | |||||||||||||||
| Total general and administrative expenses | 4,215,208 | 100 | % | 1,462,361 | 100 | % | 2,752,847 | 188.2 | % | |||||||||||||||
* Refers to the percentage of total general and administrative expenses.
Our general and administrative expenses increased by $2,752,847 or 188.2%, to $4,215,208 for the three months ended June 30, 2023 from $2,752,847 for the three months ended June 30, 2022, we recorded net income of $1,360,529, which resulted from a gain on fair value of warrant liability of $1,605,125, a gain on fair value of Sponsor Working Capital Loan of $1,000,primarily attributable to Share-based payment and interestConsulting and dividend income on investments held inprofessional service fees relating to the Trust Account in the amount of $157,623, partially offset by franchise taxbusiness combination with Pono.
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Research and development expenses of $50,000, income tax expense of $ 2,914, and operating and formations costs of $400,305.
ForOur research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
| For the three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Research and Development Expenses | Amount | % of | Amount | % of | Amount | % of | ||||||||||||||||||
| Raw materials | $ | 3,364,570 | 70.8 | % | $ | 850,311 | 38.5 | % | $ | 2,514,259 | 295.6 | % | ||||||||||||
| Labor expenses | 296,743 | 6.2 | % | 189,604 | 8.6 | % | 107,139 | 56.5 | % | |||||||||||||||
| Outsourcing expenses | 928,331 | 19.5 | % | 925,693 | 41.9 | % | 2,638 | 0.3 | % | |||||||||||||||
| Other expenses | 162,156 | 3.4 | % | 243,356 | 11.0 | % | (81,200 | ) | (33.4 | )% | ||||||||||||||
| Total research and development expenses | 4,751,800 | 100 | % | 2,208,964 | 100 | % | 2,542,836 | 115.1 | % | |||||||||||||||
* Refers to the percentage of total research and development expenses.
Our research and development expenses increased by $ 2,542,836, or 115.1%, to $ 4,751,800 for the three months ended June 30, 2021, we had net income2023 from $ 2,208,964 for the three months ended June 30, 2022, primarily attributable to the increase in raw materials cost for development of $5, which resulted fully from operating and formation costs.XTURISMO.
ForOther Income (Expenses), net
Our other income (expenses) primarily includes impairment loss related to fixed asets.
Total other income, net, decreased by $1,967,293 or 425.0% from $462,924 of income for the three months ended June 30, 2022 to $1,504,369 of expenses for the three months ended June 30, 2023.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss of $10,737,846 for the three months ended June 30, 2023 representing a $7,368,030 or 218.6% increase from a net loss of $3,369,816 for the three months ended June 30, 2022. All net loss is attributable to AERWINS Technologies Inc.
Results from Discontinued Operations
As at June 30, 2023, to facilitate cost reduction plan, the Company discontinued providing drone photography services and joint research and development services previously provided within its unmanned air mobility business. The results of operations in relation to these services have been classified by the Company as discontinued operations for the six months ended June 30, 2023 and 2022 we recorded net income of $3,011,070, which resulted from a gain on fair value of warrant liability of $3,702,064, a gain on fair value of the Sponsor Working Capital Loan of $1,000, and interest and dividend income on investments held in the Trust Account in the amount of $169,377, partially offset by operating and formation costs of $758,457, income tax expense of $2,914, and franchise tax expense of $100,000.are shown below:
For the period from February 12, 2021 (inception) through June 30, 2021, we had a net loss of $224, which resulted fully from formation costs.
| For the six months ended June 30, | For the three six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 925,205 | $ | 857,303 | $ | 83,334 | $ | 431,594 | ||||||||
| Cost of revenues | 735,962 | 725,562 | 105,331 | 390,178 | ||||||||||||
| Gross profit | 189,243 | 131,741 | (21,997 | ) | 41,416 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 4,099 | 5,904 | 684 | 900 | ||||||||||||
| General and administrative expenses | 715,547 | 576,135 | 352,200 | 327,582 | ||||||||||||
| Research and development expenses | 167,053 | 229,736 | 109,834 | 178,875 | ||||||||||||
| Total operating expenses | 886,699 | 811,775 | 462,718 | 507,357 | ||||||||||||
| Loss from operations | (697,456 | ) | (680,034 | ) | (484,715 | ) | (465,941 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income (expenses), net | (1,164 | ) | - | (1,043 | ) | - | ||||||||||
| Gain (Loss) on disposal of fixed assets | (9,761 | ) | (176 | ) | - | (176 | ) | |||||||||
| Impairment of fixed assets | (229,600 | ) | - | (205,684 | ) | - | ||||||||||
| Other income (expenses), net | 91,482 | 691 | 7,968 | - | ||||||||||||
| Total other income (expenses) | (149,043 | ) | 515 | (198,759 | ) | (176 | ) | |||||||||
| Loss before income tax provision | $ | (846,499 | ) | $ | (679,519 | ) | $ | (683,474 | ) | $ | (466,117 | ) | ||||
Going Concern, Liquidity and Capital Resources
For the six months endedAs of June 30, 2022, net2023, we had $35,359 in cash usedas compared to $1,278,026 as of December 31, 2022. We also had $159,278 in operating activities was $491,970, which wasaccounts receivable as of June 30, 2023 as compared to $980,688 as of December 31, 2022. Our accounts receivable primarily include balances due to the change in fair valuefrom services provided and accepted by customers. As of the warrant liability of $3,702,064, change in fair value of the Sponsor Working Capital Loan of $1,000 and interest and dividend income on the investments held in the Trust Account of $169,377, partially offset by net income of $3,011,070 and changes inJune 30, 2023, our working capital of $369,401.deficit was $6,037,574.
ForIn assessing our liquidity, management monitors and analyzes our cash, our ability to raise funds and to generate sufficient revenue in the period from February 12, 2021 (inception) throughfuture, and our operating and capital expenditure commitments. We are looking for other sources, such as raising additional capital by issuing shares of stock, to meet our needs for cash. To that end, management is currently scrutinizing potential cost reductions among the operating expenses and other cost reductions to better align our expenses with revenues which resulted in our discontinuance as of June 30, 2021 net2023 of our drone photography services and joint research and development services previously provided within our unmanned air mobility business. Furthermore, we note that we have a history of operating losses, have not yet achieved profitable operations and expect to incur further losses. We have funded our operations primarily from equity and debt financing and shareholder loans. As of June 30, 2023, cash provided by operatinggenerated from financing activities was $5, which was duenot sufficient to fund operations and, in particular, to fund our growth strategy in the short-term or long-term. In connection with our efforts to obtain additional working capital, we sold two Convertible Notes to the formation costs paid by a stockholderSelling Securityholder in the formaggregate principal amount of $4,200,000 for an aggregate purchase price of $3,500,000 on April 12, 2023 and May 23, 2023, respectively, along with warrants to purchase 3,921,129 shares of our Common Stock and expect to close on the sale of a third Convertible Note in the principal amount of $1,800,000 for a purchase price of $1,500,000 which includes a warrant to purchase 1,680,484 shares of our Common Stock. See “Liquidity and Capital Resources – Recent Financing Transactions” below. The primary need for liquidity is to fund working capital contributionand general corporate purposes, including personnel costs, capital expenditures and the costs of $229, partially offset byoperating as a public company. The ability to fund operations, to make planned capital expenditures, to execute on the development and manufacture of air mobility platform COSMOS and the XTURISMO Limited Edition Hoverbike and to repay or refinance indebtedness depends on our net lossability to raise funds from debt and/or equity financing which is subject to prevailing economic conditions and financial, business and other factors, some of $224.which are beyond our control. There can be no assurance that additional financing will be available to us when needed or at all, or obtained on commercially reasonable terms acceptable to us.
ForDuring the six monthsquarter ended June 30, 2022, net cash provided by financing activities was $175,000 due to proceeds received from2023, one of the issuanceCompany’s directors, Kiran Sidhu and a former director, Daisuke Katano, paid some payables on behalf of a Sponsor Working Capital Loan.the Company. Mr. Sidhu paid $102,000 and Mr. Katano paid $210,424. Each of these amounts remain outstanding as of June 30, 2023.
For the period from February 12, 2021 (inception) through June 30, 2021, net cash provided by financing activities was $25,000 due to proceeds received from the issuance of Class B common stock to the Sponsor.
There were no investing activities for the six months ended June 30, 2022 or for the period from February 12, 2021(inception) through June 30 2021.GOING CONCERN
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company had $20,625 and $337,595 in cash and no cash equivalents as of June 30, 2022 and December 31, 2021, respectively.
At June 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in mutual funds.
The accompanying condensedCompany’s consolidated financial statements have beenare prepared using generally accepted accounting principles in conformity with GAAP, which contemplates continuationthe United States of the Company asAmerica applicable to a going concern, andwhich contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. TheAs of and for the period ended June 30, 2023, the Company has incurred net loss from continuing operations of $18,376,366 and expect to continue to incur significant costs in pursuitaccumulated deficit of the Company’s financing and acquisition plans. Management plans to address this uncertainty with the successful closing of the Business Combination. The Company will have until August 13, 2022 (or up to February 13, 2023, as applicable) to consummate a Business Combination. If a Business Combination is not consummated by February 13, 2023, less than one year after the date these condensed consolidated financial statements are issued, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, as well as the Company’s working capital deficit, raises$65,695,768. These factors raise substantial doubt abouton the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should
Although the Company is attempting to commence operations and generate sufficient revenue, the Company’s cash position may not be requiredsufficient to liquidate after February 13, 2023. The Companysupport the Company’s daily operations. Management intends to completeraise additional funds by way of debt, or a private or public offering. While the proposed Business Combination beforeCompany believes in the mandatory liquidation date. However,viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assuranceassurances to that effect. The ability of the Company will be able to consummate any Business Combination by February 13, 2023. Based upon the above analysis, management determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern within less than one year afteris dependent upon the date the condensed consolidated financial statements are issued.Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of debt, or a public or private offering. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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Certain Effects this Offering May Have on the Exercise of the Warrants
Sales of a substantial number of shares of our Common Stock in the public market by the Selling Securityholder and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Common Stock. The Total Resale Shares represent a substantial percentage of our total outstanding Common Stock as of the date of this prospectus. The Total Resale Shares being offered for resale in this prospectus represent [37.7]% of our current total outstanding Common Stock, assuming the sale of all of the Convertible Notes and exercises of all Warrants. Consequently, the sale of all securities being offered in this prospectus could result in a significant decline in the public trading price of our Common Stock.
In the event of the exercise of any of Warrants for cash, we will receive the proceeds from such exercise. Assuming the exercise in full of all of Warrants for cash, we would receive an aggregate of approximately $2,355,516, but would not receive any proceeds from the outcomesale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. We intend to use the proceeds received from the exercise of the Warrants, if any, for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions. We believe the likelihood that holders of our Warrants will exercise their Warrants, and therefore the amount of cash proceeds we would receive, is dependent upon the trading price of our Common Stock, the last reported sales price for which was $0.298 per share on July 20, 2023. If the trading price of our Common Stock is less than the Warrant Exercise Prices, respectively, we expect that holders of the Warrants will not exercise them. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and we may receive no proceeds from the exercise of Warrants. We will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in our future liquidity projections, but we do not currently expect to rely on the cash exercise of Warrants to fund our operations. We instead currently expect to rely on the sources of funding described below, if available on reasonable terms or at all.
Recent Financing Transactions
Stock Purchase Agreement. On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate 3,196,311 shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 shares of common stock of the Company (the “Company Shares”) upon the consummation of the Business Combination in exchange for an aggregate sum of $5,000,000 (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Company Shares, and the Company Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 (Registration No. 333-268625) which was declared effective by the Securities and Exchange Commission on January 13, 2023.
Standby Equity Purchase Agreement. On January 23, 2023 (the “Effective Date”), Pono entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd., (“YA”). The Company and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of the Company’s shares of common stock, par value $0.000001 per share (the “Common Shares”) at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 96% or 97% (depending on the type of notice) of the Market Price (as defined below) and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. “VWAP” means, for any trading day, the daily volume weighted average price of the Common Shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.
Pursuant to the SEPA, the Company is required to register all shares which YA may acquire. The Company agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to YA pursuant to the SEPA. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. The Company may not issue more than 19.99% of its shares issued and outstanding as of the Effective Date without first receiving shareholder approval for such issuances, unless such additional shares may be issued consistent with the rules and regulations of the Nasdaq Stock Market. Pursuant to the SEPA, the use of proceeds from the sale of the shares by the Company to YA shall be used by the Company in the manner as will be set forth in the prospectus included in the Registration Statement (and any post-effective amendment thereto) and any prospectus supplement thereto filed pursuant to the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid YA Global II SPV, LLC, a subsidiary of YA, a structuring fee in the amount of $15,000, and, on the Effective Date, the Company agreed to issue to YA shares with aggregate value equal to one million dollars, as a commitment fee.
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YA has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our common stock during any time prior to the public disclosure of the SEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36-month anniversary of the Effective Date or (ii) the date on which YA shall have made payment of Advances (as defined in the SEPA) pursuant to the SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).
Lind Global Financing. On April 12, 2023, we entered into the Purchase Agreement with the Selling Securityholder pursuant to which we agreed to issue to the Selling Securityholder up to three Convertible Notes in the aggregate principal amount of $6,000,000 for an aggregate purchase price of $5,000,000 and up to Warrants to purchase 5,601,613 shares of the Company’s Common Stock (the “Transaction”).
The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to the Selling Securityholder of a Warrant to acquire 2,352,678 shares of common stock and the Closing of the second Tranche (the “Second Closing) which occurred on May 23, 2023 and consisted of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to the Selling Securityholder of a Warrant to acquire 1,568,542 shares of common stock. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing and the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to the Selling Securityholder of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to the Selling Securityholder of a Warrant to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement that includes this uncertainty.prospectus. The Third Closing is subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay the Selling Securityholder a commitment fee in an amount equal to 2.5% of the funding amount being funded by the Selling Securityholder at the applicable Closing.
The Convertible Note issued in the First Closing has a maturity date of April 12, 2025, the Convertible Note issued in the Second Closing has a maturity date of May 23, 2025 and the Convertible Note to be issued in the Third Closing will have a maturity date of two years from the date of issuance (the “Maturity Date”). Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”). The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.
The Warrants were issued or will be issued to the Selling Securityholder without payment of any cash consideration. Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant and Second Closing Warrant is $0.8926 per share and $0.7316 per share, respectively, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued at the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing. For further details regarding the Transaction, see “The Lind Global Financing.”
Cash Flows for the Six Months Ended June 30, 2023 and 2022
The following table sets forth summary of our cash flows for the periods indicated:
| For the Six Months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Unaudited | ||||||||
| Net cash provided by (used in) operating activities | $ | (8,186,637 | ) | $ | (8,330,984 | ) | ||
| Net cash provided by (used in) investing activities | (56,943 | ) | 455,206 | |||||
| Net cash provided by (used in) financing activities | 5,256,096 | 2,892,417 | ||||||
| Net cash provided by (used in) discontinued operations | 23,988 | (751,723 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (2,963,496 | ) | (5,735,084 | ) | ||||
| Effect of exchange rate changes | 1,720,829 | (813,365 | ) | |||||
| Cash and cash equivalents, beginning of the year | 1,278,026 | 10,020,459 | ||||||
| Cash and cash equivalents, end of the year | $ | 35,359 | $ | 3,472,010 | ||||
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Operating Activities
Net cash used in operating activities was $8,186,637 for the six months ended June 30, 2023, primarily consisting of the following:
● Net loss of $19,222,865 for the six months ended June 30, 2023.
● Share-based compensation of $3,658,298.
● Impairment loss of $1,565,853.
● Decrease in Other receivable of $1,215,560.
● Increase in Accounts payable of $2,871,733.
Net cash used in operating activities was $8,330,984 for the six months ended June 30, 2022, primarily consisting of the following:
● Net loss of $7,227,936 for the six months ended June 30, 2022.
● Gain on sale of investment securities of $451,154.
● Increase in Other Receivable of $501,927
● Decrease in Accounts payable of $731,439.
Investing Activities
Net cash used in investing activities amounted to $56,943 for the six months ended June 30, 2023, and included purchase of fixed assets of $20,757 and purchase of intangible assets of $36,186.
Net cash provided by investing activities amounted to $455,206 for the six months ended June 30, 2022, and included a purchase of fixed assets of $22,407 and Proceeds from disposal of investments of $487,427.
Financing Activities
Net cash provided by financing activities amounted to $5,256,096, for the six months ended June 30, 2023 and primarily consisted of Proceeds from bond of $2,797,697 and Proceeds from reverse recapitalization of $1,595,831.
Net cash provided by financing activities amounted to $2,892,417 for the six months ended June 30, 2022 and primarily consisted of Proceeds from capital contribution of $3,082,473.
Contractual obligations
Lease commitment
The Company’s subsidiary, A. L. I. Technologies entered into 13 leases for its office space, multi-function printers and a vehicle, which were classified as operating leases. A. L. I. Technologies also entered into two leases classified as finance leases.
As of June 30, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows:
| Year ending December 31, | Finance lease | Operating lease | ||||||
| 2023 (six months) | 64,834 | 93,987 | ||||||
| 2024 | 50,078 | 227,438 | ||||||
| 2025 | 10,283 | 155,979 | ||||||
| 2026 | 10,283 | - | ||||||
| Thereafter | 12,854 | - | ||||||
| Total lease payments | 148,332 | 477,404 | ||||||
| Less: imputed interest | (5,780 | ) | (4,991 | ) | ||||
| Total lease liabilities | 142,552 | 472,413 | ||||||
| Less: current portion | 85,025 | 228,175 | ||||||
| Non-current lease liabilities | $ | 57,527 | $ | 244,238 | ||||
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Long Term Debt
The Company’s long-term debts included loans borrowed from banks and other financial institutions.
As of June 30, 2023, future minimum loan payments are as follows:
| Year ending December 31, | Loan Payment | |||
| 2023 | 183,029 | |||
| 2024 | 324,315 | |||
| 2025 | 2,049,191 | |||
| 2026 | 311,612 | |||
| Thereafter | 177,739 | |||
| Total | 3,045,886 | |||
| Less interest | 43,187 | |||
| Balance as of June 30, 2023 | $ | 3,002,699 | ||
Off-Balance Sheet Arrangements
We did not have no obligations, assets or liabilities, which would be consideredany off-balance sheet arrangements as of June 30, 2022 and December 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.2023.
Contractual ObligationsCritical Accounting Policies and Estimates
Promissory Note - Related Party
On March 22, 2021,Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the Company issued an unsecured promissory notereported amounts of our assets and liabilities and revenue and expenses, to an affiliatedisclose contingent assets and liabilities on the date of the Sponsor (the “Promissory Note”), pursuantconsolidated financial statements, and to whichdisclose the Company could borrow upreported amounts of revenue and expenses incurred during the financial reporting period. The most significant estimates and assumptions include the valuation of accounts receivable, advances to suppliers, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an aggregate of $300,000 to cover expenses related to the IPO. The Promissory Note was non-interest bearing and was payable on the earlier of (i) July 31, 2021 or (ii) the consummationintegral component of the IPO. On August 6, 2021, the Company repaid the outstanding balance under the Promissory Note.
Sponsor Working Capital Loans
In order to finance transaction costsfinancial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in connection with a Business Combination, our Sponsor may provide us with a loan of up to $1,500,000 as may be required (“Sponsor Working Capital Loans”). Such Sponsor Working Capital Loans would either be repaid upon the consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such loans may be converted upon consummation of a Business Combination into additional Placement Units at a price of $10.00 per Unit. In the event that a Business Combination does not close, we may use a portion of proceeds held outside the Trust Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor Working Capital Loans. As of March 31, 2022 and December 31, 2021, there were no amounts outstanding under any Sponsor Working Capital Loans. On April 1, 2022, we drew $110,000 from the Sponsor Working Capital Loan with our Sponsor. On May 24, 2022, we drew down another $65,000 on the same Sponsor Working Capital Loan. As of June 30, 2022, there was $175,000 outstanding under the Sponsor Working Capital Loan.
Underwriting Agreementtheir application.
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriter is entitled to a deferred feebelieve critical accounting policies as disclosed in this prospectus reflect the more significant judgments and estimates used in preparation of three percent (3.00%) of the gross proceeds of the Offering upon closing of the Business Combination, or $3,450,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
On August 13, 2021, the underwriter has given the Company a rebatement of $350,000. The total cash underwriting fee is $1,950,000 and the deferred underwriting fee is $3,450,000. The deferred fee will be forfeited by the underwriters solely in the event that we fail to complete a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policiesour consolidated financial statements.
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of condensedour consolidated financial statements:
Use of Estimates
In preparing the consolidated financial statements and related disclosures in conformity with accounting principles generally accepted inU.S. GAAP, the United States of America requires management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and incomethe reported amounts of revenues and expenses during the periods reported.reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment, the impairment of long- lived assets, valuation allowance of deferred tax assets, and revenue recognition. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815-40 - Derivatives and Hedging - Contracts in Entity’s Own Equity under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our condensed consolidated statements of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.Accounts Receivable
Class A Common Stock SubjectAccounts receivable, net represent the amounts that the Company has an unconditional right to Possible Redemption
Weconsideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for our common stock subjectdoubtful receivables when there is objective evidence that the Company may not be able to possible conversion in accordance with the guidance in ASC Topic 480 - Distinguishing Liabilities from Equity. Sharescollect amounts due. The allowance is based on management’s best estimates of Class A Common Stock subject to mandatory redemption are classifiedspecific losses on individual exposures, as well as a liability instrumentprovision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of operations and measured at fair value. Conditionally redeemable common stock (including common stockcomprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that features redemption rightsthe likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that are either withinhave previously been written off, the control ofCompany reverses the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our controlallowance and subject to occurrence of uncertain future events. Accordingly, shares of Class A Common Stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed consolidated balance sheets.bad debt.
Net Income (Loss) per Common ShareLease-Lessee
Net income (loss) per common shareIn accordance with the Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) the Company determines whether a contract is computed by dividing net income (loss) byor contains a lease at inception of the weighted average numbercontract and whether that lease meets the classification criteria of sharesa finance or operating lease. Lease terms of common stock outstandingcertain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.
The Company leases office facilities, office equipment and furniture, and a vehicle, which are classified as operating leases and leases containers, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the period. lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheet.
The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. All operating lease right-of-use assets are reviewed for impairment annually.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
The Company applieshas elected the two-class method in calculating earnings per share. Remeasurement associatedshort-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with the redeemable sharesa lease term of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.twelve months or less.
Recent Accounting StandardsForeign Currency Translation
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted for fiscal years beginning after December 15, 2020. We adopted ASU 2020-06 effective January 1, 2022 using the modified retrospective method of transition. The adoption of ASU 2020-06 did not have a material impact on the financial statements for the six months ended June 30, 2022 and for the period from February 12, 2021 (inception) through June 30, 2021.
Our management doesThe Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effectUS$ are translated into US$, using the exchange rate on the accompanying condensed consolidatedbalance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements.statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes shareholders’ deficit.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
Six months ended June 30, (unaudited) | Year ended December 31, | |||||||||||
| 2023 | 2022 | 2022 | ||||||||||
| Current JPY: US$1 exchange rate | 144.47 | 135.69 | 131.81 | |||||||||
| Average JPY: US$1 exchange rate | 134.91 | 123.10 | 131.46 | |||||||||
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Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value and net of a value-added tax (“Consumption Tax”). The Consumption Tax on sales is calculated at 10% of gross sales.
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.Not applicable.
ItemITEM 4. Controls and Procedures.CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal yearquarter ended December 31, 2021,June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective at the reasonable assurance level. Management has determined that a material weakness exists due to our late filing of certain reports required to be filed by us with the SEC.
Changes in Internal Control Overover Financial Reporting
There have beenwere no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHERII-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus for the Initial Public Offering declared effective by the SEC on August 10, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, other than as described below, thereThere have been no material changes to thein our risk factors from those disclosed in final prospectusPart I, Item 1A. of our Annual Report on Form 10-K for the Initial Public Offering declared effective by the SEC.
The risk factor disclosure in our final prospectus as set forth under the heading “If we pursue a target company with operations or opportunities outside of the United States for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations” is replaced in its entirety with the following risk factor:
If we pursue a target company with operations or opportunities outside of the United States for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations.
If we pursue a target company with operations or opportunities outside of the United States for our initial business combination, we would be subject to risks associated with cross-border business combinations, including in connection with investigating, agreeing to and completing our initial business combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates. If we effect our initial business combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following:
● costs and difficulties inherent in managing cross-border business operations and complying with different commercial and legal requirements of overseas markets;
● rules and regulations regarding currency redemption;
● complex corporate withholding taxes on individuals;
● laws governing the manner in which future business combinations may be effected;
● exchange listing and/or delisting requirements;
● tariffs and trade barriers;
● regulations related to customs and import/export matters;
● local or regional economic policies and market conditions;
● unexpected changes in regulatory requirements;
● longer payment cycles;
● tax issues, such as tax law changes and variations in tax laws as compared to the United States;year ended December 31, 2022.
● currency fluctuations and exchange controls;
● rates of inflation;
● challenges in collecting accounts receivable;
● cultural and language differences;
● employment regulations;
● underdeveloped or unpredictable legal or regulatory systems;
● corruption;
● protection of intellectual property;
● social unrest, crime, strikes, riots and civil disturbances;
● regime changes and political upheaval;
● terrorist attacks, natural disasters and wars;
● deterioration of political relations with the United States; and
● government appropriation of assets.
Additionally, as a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business Combination, may be materially and adversely affected. Further, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable.
We may not be able to adequately address these additional risks. If we were unable to do so, we may be unable to complete such initial business combination, or, if we complete such combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations.
Further, the risk factor disclosure in our final prospectus as set forth under the heading “Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination and results of operations” is replaced in its entirety with the following risk factor:
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. We will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, disclosures in business combination transactions involving SPACs and private operating companies; the financial statement requirements applicable to transactions involving shell companies; the use of projections in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which special purpose acquisition companies (“SPACs”) could become subject to regulation under the Investment Company Act of 1940, as amended, including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. These rules, if adopted, whether in the form proposed or in a revised form, may increase the costs of and the time needed to negotiate and complete an initial business combination, and may constrain the circumstances under which we could complete an initial business combination.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 13, 2021, simultaneously with the consummation of the Offering, the Company completed a private placement of an aggregate of 469,175 units (the “Placement Units”) at a price of $10.00 per Private Placement Unit, generating total gross proceeds of $4,691,750 (the “Private Placement”). The issuance of the Private Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.[None.]
For a description of the use of the proceeds generated in the Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.Not applicable.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| 40 |
| 41 |
| * | Filed or furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ | |
| Name: | Taiji Ito | |
Title: | ||
Chief Executive Officer | ||
(Principal Executive Officer)
| By: | /s/ | |
| Name: | Kensuke Okabe | |
Title: | ||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||