UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from ______________ to ______________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State
or other jurisdiction |
(IRS Employer Identification No.) |
Telephone:
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC | ||||
| The Stock Market LLC |
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.
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 (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of November 10, 2022, there were shares of the registrant’s Class A common stock, par value $0.0001 per share, and shares of the registrant’s Class B common stock, par value $0.0001 per share, issued and outstanding.
PONO CAPITAL TWO, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2022
(UNAUDITED)
| Assets: | ||||
| Current assets: | ||||
| Cash | $ | |||
| Prepaid expenses | ||||
| Total current assets | ||||
| Marketable Securities held in Trust Account | ||||
| Total Assets | $ | |||
| Liabilities and Stockholders’ Deficit: | ||||
| Current liabilities: | ||||
| Accounts payable | $ | |||
| Franchise tax payable | ||||
| Income tax payable | ||||
| Total current liabilities | ||||
| Deferred underwriting fee payable | ||||
| Total Liabilities | ||||
| Commitments and Contingencies (Note 6) | ||||
| Class A common stock subject to possible redemption, shares at redemption value of $ per share | $ | |||
| Stockholders’ Deficit: | ||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding | ||||
| Class A common stock, $ par value; shares authorized; shares issued and outstanding (excluding shares subject to possible redemption) | ||||
| Class B common stock, $ par value; shares authorized; issued and outstanding | ||||
| Additional paid-in capital | ||||
| Accumulated deficit | ( | ) | ||
| Total stockholders’ deficit | ( | ) | ||
| Total Liabilities and Stockholders’ Deficit | $ | |||
The accompanying notes are an integral part of these financial statements.
| 1 |
PONO CAPITAL TWO, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three months ended September 30, 2022 | For the period from March 11, 2022 (inception) through September 30, 2022 | |||||||
| Operating and formation costs | $ | $ | ||||||
| Franchise tax expense | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income: | ||||||||
| Interest and dividend income on investments held in Trust Account | ||||||||
| Income before income taxes | ||||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average shares outstanding, Class A common stock | ||||||||
| Basic and diluted net loss per share, Class A common stock | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average shares outstanding, Class B common stock | ||||||||
| Basic and diluted net loss per share, Class B common stock | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these financial statements.
| 2 |
PONO CAPITAL TWO, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 11, 2022 (INCEPTION) THROUGH SEPTEMBER 30, 2022
(UNAUDITED)
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance at March 11, 2022 (inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B common stock to Sponsor | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||||||
| Issuance of Placement Units | — | |||||||||||||||||||||||||||
Issuance of Representative Shares | — | |||||||||||||||||||||||||||
| Proceeds allocated to Public Warrants | — | — | ||||||||||||||||||||||||||
Value of offering costs allocated to the fair value of equity instruments | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Accretion of Class A common stock subject to redemption to redemption amount | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
PONO CAPITAL TWO, INC.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 11, 2022 (INCEPTION) THROUGH SEPTEMBER 30, 2022
(UNAUDITED)
| Cash Flows from Operating Activities: | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Interest earned on Marketable securities held in Trust Account | ( | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | ( | ) | ||
| Accounts payable | ||||
| Franchise tax payable | ||||
| Income tax payable | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment of cash in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from sale of private placement units | ||||
| Proceeds from issuance of Class B common stock to Sponsor | ||||
| Proceeds from sale of Units, net of underwriting discount paid | ||||
| Advance from Sponsor for payment of formation costs | ||||
| Proceeds from promissory note - related party | ||||
| Repayment of promissory note - related party | ( | ) | ||
| Repayment to Sponsor for payment of formation costs | ( | ) | ||
| Payment of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net Change in Cash | ||||
| Cash - Beginning of period | ||||
| Cash - End of period | $ | |||
| Supplemental disclosure of non-cash investing and financing activities: | ||||
| Accretion of Class A common stock subject to redemption to redemption amount | $ | |||
| Fair value of Representative Shares | $ | |||
| Deferred underwriting fee payable | $ |
The accompanying notes are an integral part of these financial statements.
| 4 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND GOING CONCERN
Pono
Capital Two, Inc. (the “Company”) is a blank check company incorporated in Delaware on
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from March 11, 2022 (inception) through September 30, 2022 relates to the Company’s formation and initial public offering (“Initial Public Offering”). The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The
registration statement for the Company’s Initial Public Offering was declared effective on August 4, 2022. On August 9, 2022, the
Company consummated the Initial Public Offering of units, (the “Units” and, with respect to the Class A common
stock included in the Units sold, the “Public Shares”), including Units issued pursuant to the exercise of the
underwriters’ over-allotment option in full, generating gross proceeds of $
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of units (the “Placement Units”)
at a price of $ per Placement Unit in a private placement to Mehana Capital LLC (the “Sponsor”), including Placement
Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $
Following
the closing of the Initial Public Offering on August 9, 2022, an amount of $
Transaction
costs related to the issuances described above amounted to $
On September 23, 2022, the Company announced that the holders of the Units may elect to separately trade the Public Shares and the Public Warrants (as defined in Note 3) commencing on September 26, 2022. Those Public Shares not separated will continue to trade on The Nasdaq Global Market under the symbol “PTWOU,” and the Class A Common Stock and warrants that are separated will trade on The Nasdaq Global Market under the symbols “PTWO” and “PTWOW,” respectively.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of the Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company
must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least
| 5 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company will provide its holders of Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $ per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Public Shares subject to redemption will be recorded at redemption value and classified as temporary equity upon the completion of the Initial Public Offering in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC 480”).
The
Company will proceed with a Business Combination if the Company has net tangible assets of at least $
If a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Sponsor has agreed (a) to vote its Class B common stock, the common stock included in the Placement Units and the Public Shares purchased in the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Class B common stock) and Placement Units (including underlying securities) into the right to receive cash from the Trust Account in connection with a stockholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek stockholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Certificate of Incorporation relating to stockholders’ rights of pre-Business Combination activity and (d) that the Class B common stock and Placement Units (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased in the Initial Public Offering if the Company fails to complete its Business Combination.
| 6 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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, 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 Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Going Concern and Liquidity
The Company has incurred and expects to continue to incur significant costs in pursuit 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 May 9, 2023 (or up to February 9, 2024, as applicable) to consummate a Business Combination. If a Business Combination is not consummated by May 9, 2023, less than one year after the date these 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, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 9, 2023. The Company intends to complete the initial Business Combination before the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate any Business Combination by May 9, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry 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 these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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. These financial statement do not include any adjustments that might result from the outcome of this uncertainty.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023 (the “Excise Tax”). The Excise Tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the Excise Tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the Excise Tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the Excise Tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, votes relating to certain amendments to the Company’s Amended and Restated Certificate of Incorporation or otherwise, may be subject to the Excise Tax. Whether and to what extent the Company would be subject to the Excise Tax in connection with a Business Combination, votes relating to certain amendments to the Company’s Amended and Restated Certificate of Incorporation or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. The mechanics of any required payment of the Excise Tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to effect an extension of the time in which the Company must complete a Business Combination or complete a Business Combination. Further, the application of the Excise Tax in the event of a liquidation is uncertain.
| 7 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s final prospectus for its Initial Public Offering as filed with the SEC on August 8, 2022, as well as the Company’s Current Reports on Form 8-K, as filed with the SEC on August 9, 2022, August 17, 2022, September 23, 2022 and the Form 10-Q filed on September 9, 2022. The interim results for the period from March 11, 2022 (inception) through September 30, 2022 are not necessarily indicative of the results to be expected for the period 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 independent registered public accounting firm 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.
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 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.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
| 8 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Cash
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company did
Investments Held in Trust Account
As
of September 30, 2022, the assets held in the Trust Account were held in money market funds, which were invested in U.S. Treasury securities.
All of the Company’s investments held in the Trust Account are classified
as trading securities. Such trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains
and losses resulting from the change in fair value of investments held in Trust Account are included in net gain (loss) on investments
held in Trust Account in the accompanying statements of operations. The estimated fair values of investments held in the Trust Account
are determined using available market information. The Company had $
All
of the Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the
redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in
connection with the Business Combination and in connection with certain amendments to the Company’s Amended and Restated Certificate
of Incorporation. In accordance with ASC 480, conditionally redeemable Class A common stock (including shares of Class A common stock
that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control) is 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 $
As of September 30, 2022, the Class A common stock reflected in the balance sheet is reconciled in the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to Public Warrants | ( | ) | ||
| Issuance costs allocated to Class A common stock | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption as of August 9, 2022 | ||||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption as of September 30, 2022 | $ |
Income Taxes
The Company complies with the accounting and reporting requirements of Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company’s management determined the United States is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits as of September 30, 2022 and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
| 9 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Net
loss per share is computed by dividing net loss by the weighted-average number of shares outstanding during the period. Therefore,
the income per share calculation allocates income shared pro rata between Class A and Class B common stock. As a result, the calculated
net loss per share is the same for Class A and Class B common stock. The Company has not considered the effect of the Public Warrants
(as defined in Note 3) and Placement Warrants (as defined in Note 4), to purchase an aggregate of
| Three months ended September 30, 2022 | For the period from March 11, 2022 (inception) through September 30, 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Concentration of Credit Risk
Financial
instruments that potentially subject the Company 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 $
Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
| 10 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The carrying amounts reflected in the balance sheet for current assets and current liabilities approximate fair value due to their short-term nature. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
See Note 9 for additional information on assets measured at fair value.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For derivative instruments that are classified as equity, the derivative instruments are initially measured at fair value (or allocated value), and subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The warrants are not precluded from equity classification, and are accounted for as such on the date of issuance, and each balance sheet date thereafter.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-0) 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-convened 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 March 11, 2022 (inception). The adoption of ASU 2020-06 did not have a material impact on the financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
| 11 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3. INITIAL PUBLIC OFFERING
The
registration statement for the Company’s Initial Public Offering was declared effective on August 4, 2022. On August 9, 2022,
the Company consummated the Initial Public Offering of
Units, including
Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $
NOTE 4. PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of Placement Units at a price of $ per
Placement Unit in a private placement to the Sponsor, including Placement Units issued pursuant to the exercise of the underwriters’
over-allotment option in full, generating gross proceeds of $
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On
May 17, 2022, the Sponsor paid an aggregate of $
The Sponsor has agreed not to transfer, assign or sell any of the Class B common stock (except to certain permitted transferees as disclosed herein) 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
April 25, 2022, the Sponsor agreed to loan the Company an aggregate of up to $
| 12 |
PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Administrative Support Agreement
The
Company’s Sponsor has agreed, commencing from the date of the Initial Public Offering 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 Capital LLC, the Sponsor, $
Related Party Loans
In
order to finance transaction costs in connection with the initial Business Combination, the Sponsor or an affiliate of the Sponsor or
certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the
Company completes the initial Business Combination, the Company will repay such loaned amounts. In the event that the initial Business
Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay such loaned
amounts, including the repayment of loans from the Sponsor to pay for any amount deposited to pay for any extension of the time to complete
the initial Business Combination, but no proceeds from the Trust Account would be used for such repayment. Up to $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration and Stockholder Rights Agreement
The holders of the Founder Shares and Placement Units (including securities contained therein) and Units (including securities contained therein) that may be issued upon conversion of working capital loans and extension 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 extension 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 signed on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.
Underwriting Agreement
Simultaneously
with the Initial Public Offering, the underwriters fully exercised the over-allotment option to purchase an additional
Units at an offering price of $ per Unit for an aggregate purchase price of $
The
underwriters were paid a cash underwriting discount of $ per Unit, or $
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PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Representative Shares
Upon closing of the Initial Public Offering, the Company issued shares of Class A common stock to the underwriters. The underwriters have agreed not to transfer, assign or sell the Representative Shares until the completion of the initial Business Combination. In addition, the underwriters have agreed (i) to waive their redemption rights with respect to the Representative Shares in connection with the completion of the initial Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to the Representative Shares if the Company fails to complete its initial Business Combination within 9 months (or up to 18 months if the Company extends such period) from the closing of the Initial Public Offering.
The Representative Shares are subject to a lock-up for a period of 180 days immediately following the commencement of sales of the registration statement pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the commencement of sales of the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners, registered persons or affiliates or as otherwise permitted under Rule 5110(e)(2).
The initial measurement of the fair value of the Representative Shares was determined using the market approach to value the subject interest. Based on the indication of fair value using the market approach, the Company determined the fair value of the Representative Shares to be $ per share or $(for the Representative Shares issued) as of the date of the Initial Public Offering (which is also the grant date).
Right of First Refusal
For a period beginning on the closing of the Initial Public Offering 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 of which this prospectus forms a part.
NOTE 7. STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock — The Company is authorized to issue shares of preferred stock with a par value of $ per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2022, there were shares of preferred stock 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.
Class
B common stock — The Company is authorized to issue shares of Class B common stock with a par value of $
per share.
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PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The holders of record of the common stock are entitled to one vote for each share held on all matters to be voted on by stockholders. In connection with any vote held to approve the initial Business Combination, the insiders, officers and directors, have agreed to vote their respective shares of common stock acquired in the Initial Public Offering or following the Initial Public Offering in the open market, in favor of the proposed Business Combination.
Shares of Class B common stock shall be convertible into shares of Class A common stock on a one-for-one basis automatically on the closing of the Business Combination at a ratio for which the numerator shall be equal to the sum of 20% of all shares of Class A Common Stock issued and outstanding or issuable (upon the conversion or exercise of any Equity-linked Securities or otherwise) by the Company, related to or in connection with the consummation of the initial Business Combination (excluding any securities issued or issuable to any seller in the initial Business Combination, any Placement Warrants issued to the Sponsor or its affiliates upon conversion of loans to the Company) plus the number of shares of Class B Common Stock issued and outstanding prior to the closing of the initial Business Combination; and the denominator shall be the number of shares of Class B Common Stock issued and outstanding prior to the closing of the initial Business Combination.
Warrants
— As of September 30, 2022, there were
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the Public 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 Public 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 Public Warrants is not effective by the 60th business day after the closing of the initial Business Combination, Public 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 Public Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act; provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their Public Warrants on a cashless basis.
Once the Public Warrants become exercisable, the Company may call the Public Warrants for redemption:
| ● | in whole and not in part; | |
| ● | at
a price of $ | |
| ● | upon not less than 30 days’ prior written notice of redemption given after the Public Warrants become exercisable (the “30-day redemption period”) to each Public Warrant holder; and | |
| ● | if,
and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
If and when the Public Warrants become redeemable by the Company, the Company may not exercise the redemption right if the issuance of shares of common stock upon exercise of the Public Warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
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PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In
order to extend the period of time the Company has to consummate a Business Combination, the Sponsor or its affiliates or designees may,
but are not obligated to, loan the Company up to $
The Placement Warrants are identical to the Public Warrants except that, so long as they are held by the Sponsor or its permitted transferees, (i) they (including the Class A common stock issuable upon exercise of these Placement Warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the initial Business Combination, and (ii) the holders thereof (including with respect to shares of Class A common stock issuable upon exercise of such Placement Warrants) are entitled to registration rights.
The
Company accounts for the
NOTE 8. INCOME TAXES
The
Company’s effective tax rate for the three months ended September 30, 2022 and for the period from March 11, 2022 (inception)
to September 30, 2022 was
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PONO CAPITAL TWO, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of September 30, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| September 30, 2022 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investments held in Trust Account: | ||||||||||||||||
| U.S. Treasury Securities | $ | $ | $ | $ | ||||||||||||
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as previously disclosed the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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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 Two, Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Mehana Capital LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. 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 cause 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 to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering (as defined below) filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.report. 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.
Overview
We are a blank check company incorporated in Delaware on March 11, 2022 formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). We have not selected any Business Combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any Business Combination target. We intend to effectuate our initial Business Combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”) and the sale of the private placement units, the proceeds of the sale of our shares in connection with our initial Business Combination pursuant to the shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing or other sources.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities for the period from March 11, 2022 (inception) through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a Business Combination.. We do not expect to generate any operating revenues until after the completion of our initial Business Combination. We will generate non-operating income in the form of interest income on cash and cash equivalents held after 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 diligence expenses.
For the three months ended September 30, 2022, we had a net loss of $11,419, which resulted from operating and formation costs of $177,865, income tax expenses of $58,651 and franchise tax expenses of $125,753, partially offset by interest and dividend income on investments held in the Trust Account for $350,850.
For the period from March 11, 2022 (inception) through September 30, 2022, we had net loss of $13,039, which resulted from operating and formation costs of $179,485, income tax expenses of $58,651 and franchise tax expenses of $125,753, partially offset by interest and dividend income on investments held in the Trust Account for $350,850.
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Liquidity and Capital Resources
For the period from March 11, 2022 (inception) through September 30, 2022, net cash used in operating activities was $368,410, which was due to interest earned on marketable securities held in the Trust Account of $350,850, net loss of $13,039, and a change in operating assets and liabilities of $4,521.
For the period from March 11, 2022 (inception) through September 30, 2022, net cash used in investing activities was $117,875,000 which was entirely due to the investment of cash in the Trust Account.
For the period from March 11, 2022 (inception) through September 30, 2022, net cash provided by financing activities was $118,823,380, which was due to the proceeds from the sale of Units (as defined below) (net of the underwriting discount) of $113,045,000, proceeds from the sale of Private Placement Units (as defined below) of $6,343,750, and proceeds from the issuance of Class B common stock to the Sponsor of $25,000, offset in part by payment of offering costs of $590,370.
The registration statement for the Company’s Initial Public Offering was declared effective on August 4, 2022. On August 9, 2022, the Company consummated the Initial Public Offering of 11,500,000 units, (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), including 1,500,000 Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $115,000,000.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 634,375 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to Mehana Capital LLC (the “Sponsor”), including 63,000 Placement Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750.
Following the closing of the Initial Public Offering on August 9, 2022, an amount of $117,875,000 ($10.25 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the funds held in the trust account and not previously released to us to pay our taxes (which interest shall be net of taxes payable and excluding deferred underwriting commissions) to complete our initial Business Combination. We may withdraw interest to pay our taxes, if any. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account. We expect the interest earned on the amount in the trust account will be sufficient to pay our taxes. We expect the only taxes payable by us out of the funds in the trust account will be income and franchise taxes, if any. To the extent that our common stock or debt is used, in whole or in part, as consideration to complete our initial Business Combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial Business Combination. Moreover, we may need to obtain additional financing either to complete our initial Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
| 19 |
The accompanying unaudited condensed financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred and expects to continue to incur significant costs in pursuit 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 May 9, 2023 (or up to February 9, 2024, as applicable) to consummate a Business Combination. If a Business Combination is not consummated by May 9, 2023, less than one year after the date these unaudited condensed 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, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 9, 2023. The Company intends to complete the initial Business Combination before the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate any Business Combination by May 9, 2023.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements.
Contractual Obligations
Registration and Stockholder Rights Agreement
The holders of the Founder Shares and Placement Units (including securities contained therein) and Units (including securities contained therein) that may be issued upon conversion of working capital loans and extension 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 extension 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 Proposed Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.
Administrative Support Agreement
The Company’s Sponsor has agreed, commencing from the date of the Initial Public Offering 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 Capital LLC, the Sponsor, $10,000 per month for these services during the 9-month period to complete a Business Combination. For the period from March 11, 2022 (inception) through September 30, 2022, $20,000 was paid to Mehana Capital LLC for these services.
Underwriters Agreement
Simultaneously with the Initial Public Offering, the underwriters fully exercised the over-allotment option to purchase an additional 1,500,000 Units at an offering price of $10.00 per Unit for an aggregate purchase price of $15,000,000.
The underwriters were paid a cash underwriting discount of $0.17 per Unit, or $1,955,000 in the aggregate, upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or $4,025,000 in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
| 20 |
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For derivative instruments that are classified as equity, the derivative instruments are initially measured at fair value (or allocated value), and subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Common Stock Subject to Possible Redemption
All of the Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with ASC 480, conditionally redeemable Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is 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 at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional paid-in capital, in accumulated deficit.
Net loss Per Share
Net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding during the period. Therefore, the income per share calculation allocates income shared pro rata between Class A and Class B common stock. As a result, the calculated net loss per share is the same for Class A and Class B common stock. The Company has not considered the effect of the Public Warrants (as defined in Note 3) and Placement Warrants (as defined in Note 4), to purchase an aggregate of 12,134,375 shares in the calculation of income per share, since the exercise of the warrants is contingent upon the occurrence of future events.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-0) 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-convened 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 March 11, 2022 (inception). The adoption of ASU 2020-06 did not have a material impact on the unaudited condensed financial statements.
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Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This item is not applicable as we are a smaller reporting company.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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 our Initial Public Offering filed with the SEC on August 8, 2022, and the Form 10-Q for the period from March 11, 2022 (inception) to June 30, 2022 filed on September 9, 2022. 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, there have been no material changes to the risk factors disclosed in our final prospectus for our Initial Public Offering filed with the SEC on August 8, 2022, and the Form 10-Q for the period from March 11, 2022 (inception) to June 30, 2022 filed on September 9, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Pono Capital Two, Inc. | ||
| Date: November 10, 2022 | By: | /s/ Darryl Nakamoto |
| Name: | Darryl Nakamoto | |
| Title: | Chief Executive Officer and Director | |
| Pono Capital Two, Inc. | ||
| Date: November 10, 2022 | By: | /s/ Allison Van Orman |
| Name: | Allison Van Orman | |
| Title: | Chief Financial Officer | |
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