(Bloomberg) -- The pioneer behind Japan’s hoverbikes thought merging with a special purpose acquisition vehicle would be a hassle-free way to go public, raise some cash and grow. Instead, it’s become a case study on how SPAC deals can undermine the future of innovative startups.

Aerwins Technology Inc. listed on the Nasdaq in February in one of the most disastrous SPAC mergers of all time. Within a month, its shares plunged almost 90% as spooked investors ran for exits. Founder Shuhei Komatsu resigned, as did all three outside directors on the board, including representatives of the special purpose acquisition company that brought it public.

Now a former banker is taking over as chief executive and trying to pull the company out of its tailspin. Aerwins, owned by Tokyo-based A.L.I. Technologies Inc., said in a securities filing that it’s at risk as a going concern, accounting-speak for a company that is less than a year from running out of cash. 

“I really hate SPACs,” said Taiji Ito, who was appointed as the new CEO in March. “It was a complete, utter failure.”

In Aerwins’ case, as with many SPACs that listed businesses before they were ready, reality clashed with expectations. The startup agreed to merge with Pono Capital Corp. in September in a deal that was supposed to value the company at about $750 million. That assumed Pono’s investors kept all their money in the combined entity, which would have meant a cash infusion of more than $110 million.

Instead, 99% of Pono’s investors chose to redeem their shares, swapping stock for the cash raised at the IPO price, plus any additional incentives and interest earned.

The result for Aerwins was that the market debut stripped it of cash instead of replenishing coffers. What was left of the Pono money – about $1.6 million – was used to cover listing costs. Aerwins’ market valuation is $25 million.

Even in a terrible year for SPACs, Aerwins’ saga stands out. The 99% redemption rate puts it among the 20 worst SPAC deals by share count since the industry’s pandemic boom, data analyzed by Bloomberg show. Over the past year, completed US SPAC mergers have seen an average of a little less than 90% of shares swapped for cash, according to SPAC Research data analyzed by Bloomberg. 

Aerwins develops hoverbikes designed to fly just a few meters above the ground, buoyed by strong air currents that bounce off the earth’s surface. Such vehicles are not typically subject to air travel regulations, though they still need to meet local traffic rules.

The bike’s price tag is a lofty $500,000, but Ito says that will go down over time as it manufactures at greater scale. The CEO says that Aerwins is close to inking a deal to sell more than 20 hoverbikes to a state-run company in the United Arab Emirates. The deal, if finalized, would mean $11 million in sales, bolstering chances of a revival.

To win the UAE deal, Aerwins must showcase two hoverbikes at the Dubai Airshow in November, an event expected to attract tens of thousands of visitors. In the coming months, it needs to make key modifications to boost the bike’s ability to fly in high-temperatures and windy areas. “It’s one of the hottest places in the world,” Ito said. “If we clear this, I think our product can be usable anywhere.”

He doesn’t have much time. Aerwins had an $8 million operating loss in the year that ended in March and said in a US Securities and Exchange Commission filing that there is “substantial doubt on the company’s ability to continue as a going concern.” That makes it one of 142 ex-SPACs likely to need more financing in the next year just to keep operating, according to data compiled by Bloomberg.

Ito, who has spoken to more than 50 investors since the deal closed, needs to address worries over the viability of the hoverbike as a commercial product and Aerwin’s lack of cash. Ito said he plans to cut costs in half by outsourcing assembly of the hoverbikes while tightening control over the number of parts the startup buys from suppliers. The company also plans to raise about $10 million to $30 million through measures including convertible bonds.

Still, winning back market confidence after a nosedive won’t be easy.

“It’s tough to get investor interest in a micro-cap stock with a market cap below $30 million that has a going-concern warning and appears to have no access to capital,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies Inc. “They did not get off on the right foot.”

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