UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
For the quarterly period ended September 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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orFor the transition period from to
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Commission File Number:Number 001-40734
Pono Capital CorpPONO CAPITAL CORP
(Exact name of registrant as specified in its charter)
| Delaware | 86-2049355 | |
(State or other jurisdiction of incorporation or organization) | ( Identification No.) |
643 Ilalo Street Honolulu, Hawaii | 96813 | |
| (Address of principal executive offices) | (Zip Code) |
(808)892-6611
(Registrant’s telephone number, including area code)code: (808)892-6611
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 |
Securities registered pursuant to section 12(g) of the Act:
None.
N/A
(Former nameIndicate 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 former address and former fiscal year, if changed since last report)Section 15(d) of the Act. Yes ☐ No ☒
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated“accelerated filer,” “non-accelerated filer”“smaller reporting company,” and “smaller reporting company”“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check 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 ☒ No ☐
Securities registered pursuant to Section 12(b) of the Act:
As of September 24, 2021,November 14, 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.
PONO CAPITAL CORP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements
PONO CAPITAL CORP
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
June 30, 2021
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 118,183 | $ | 337,595 | ||||
| Prepaid expenses | 14,875 | 171,837 | ||||||
| Total Current Assets | 133,058 | 509,432 | ||||||
| Marketable Securities held in Trust Account | 118,577,540 | 116,728,213 | ||||||
| Total Assets | $ | 118,710,598 | $ | 117,237,645 | ||||
| LIABILITIES, REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 651,410 | $ | — | ||||
| Accrued expenses and other current liabilities | 123,914 | 125,821 | ||||||
| Income tax payable | 112,535 | — | ||||||
| Franchise tax payable | 150,000 | 120,647 | ||||||
| Sponsor Working Capital Loan | 96,200 | — | ||||||
| Total Current Liabilities | 1,134,059 | 246,468 | ||||||
| Deferred underwriter fee payable | 3,450,000 | 3,450,000 | ||||||
| Warrant liability | 819,226 | 4,243,039 | ||||||
| Total Non-Current Liabilities | 4,269,226 | 7,693,039 | ||||||
| Total Liabilities | 5,403,285 | 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 $ and $ per share at September 30, 2022 and December 31, 2021, respectively | 118,215,005 | 116,725,000 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | — | — | ||||||
| Class A common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively (excluding shares subject to possible redemption) | 2 | 1 | ||||||
| Class B common stock, $ par value; shares authorized; shares issued and outstanding | 3 | 3 | ||||||
| Common stock value | ||||||||
| Additional paid-in capital | 30,231 | — | ||||||
| Accumulated deficit | (4,937,928 | ) | (7,426,866 | ) | ||||
| Total Stockholders’ Deficit | (4,907,692 | ) | (7,426,862 | ) | ||||
| Total Liabilities, Redeemable Class A Common Stock and Stockholders’ Deficit | $ | 118,710,598 | $ | 117,237,645 | ||||
(UNAUDITED)
| ASSETS | ||||
| Current assets | ||||
| Cash | $ | 25,005 | ||
| Prepaid expenses | 10,000 | |||
| Total current assets | 35,005 | |||
| Non-current assets | ||||
| Deferred offering costs | 78,792 | |||
| Total non-current assets | 78,792 | |||
| Total assets | $ | 113,797 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Current liabilities | ||||
| Promissory note- related party | $ | 88,792 | ||
| Total current liabilities | 88,792 | |||
| Commitments and Contingencies (Note 6) | - | |||
| Stockholders’ Equity | ||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | — | |||
| Common stock value | - | |||
| Class A common stock, $ par value; shares authorized; issued and outstanding | — | |||
| Class B common stock, $ par value; shares authorized; shares issued and outstanding (1) | 3 | |||
| Additional paid in capital | 25,226 | |||
| Accumulated deficit | (224 | ) | ||
| Total stockholders’ equity | 25,005 | |||
| Total liabilities and stockholders’ equity | $ | 113,797 |
The accompanying notes are an integral part of thesethe unaudited condensed consolidated financial statementsstatements.
PONO CAPITAL CORP
CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021(UNAUDITED)
(Unaudited)
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | For the Period from February 12, 2021 (inception) through September 30, 2021 | |||||||||||||
| Formation and operating costs | $ | 616,773 | $ | 113,640 | $ | 1,375,230 | $ | 113,869 | ||||||||
| Franchise tax expenses | 50,000 | — | 150,000 | — | ||||||||||||
| Loss from Operations | (666,773 | ) | (113,640 | ) | (1,525,230 | ) | (113,869 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Bank incentive | — | — | — | 5 | ||||||||||||
| Interest earned on marketable securities held in trust account | 747 | 747 | ||||||||||||||
| Dividends earned on marketable securities held in Trust Account | 529,950 | — | 699,327 | — | ||||||||||||
| Loss on change in fair value of Sponsor Working Capital Loan | (5,200 | ) | — | (4,200 | ) | — | ||||||||||
| Change in fair value of warrant liability | (270,488 | ) | (680,914 | ) | 3,431,576 | (680,914 | ) | |||||||||
| Offering costs allocated to warrants | — | (505,696 | ) | — | (505,696 | ) | ||||||||||
| Other Income (Loss) | 254,262 | (1,185,863 | ) | 4,126,703 | (1,185,858 | ) | ||||||||||
| Income (Loss) before income taxes | (412,511 | ) | (1,299,503 | ) | 2,601,473 | (1,299,727 | ) | |||||||||
| Income tax expense | (109,621 | ) | — | (112,535 | ) | — | ||||||||||
| Net Income (Loss) | $ | (522,132 | ) | $ | (1,299,503 | ) | $ | 2,488,938 | $ | (1,299,727 | ) | |||||
| Weighted average shares outstanding of Class A common stock | 12,085,425 | 6,318,473 | 12,043,159 | 2,516,448 | ||||||||||||
| Basic and diluted net income per common stock | $ | (0.03 | ) | $ | (0.15 | ) | $ | 0.17 | $ | (0.28 | ) | |||||
| Weighted average shares outstanding of Class B common stock | 2,875,000 | 2,500,000 | 2,875,000 | 2,088,745 | ||||||||||||
| Basic and diluted net income (loss) per common stock | $ | (0.03 | ) | $ | (0.15 | ) | $ | 0.17 | $ | (0.28 | ) | |||||
| Other operating expenses | $ | (224 | ) | |
| Net loss | $ | (224 | ) | |
| Weighted average shares outstanding, basic and diluted (1) | 2,500,000 | |||
| Basic and diluted net loss per common share | $ | 0.00 |
The accompanying notes are an integral part of thesethe unaudited condensed consolidated financial statementsstatements.
PONO CAPITAL CORP
CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYDEFICIT
FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021(UNAUDITED)
(Unaudited)
| Shares | Amount | Shares(1) | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares(1) | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance - February 12, 2021 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Balance | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Issuance of Class B Common stock to Sponsor (1) | — | — | 2,875,000 | 3 | 24,997 | — | 25,000 | |||||||||||||||||||||
| Capital contribution | — | — | — | — | 229 | — | 229 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (224 | ) | (224 | ) | |||||||||||||||||||
| Balance - June 30, 2021 | — | $ | — | 2,875,000 | $ | 3 | $ | 25,226 | $ | (224 | ) | $ | 25,005 | |||||||||||||||
| Balance | — | $ | — | 2,875,000 | $ | 3 | $ | 25,226 | $ | (224 | ) | $ | 25,005 | |||||||||||||||
| 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 | ) | ||||||||||||||
| Proceeds received in excess of initial fair value of Sponsor Working Capital Loan | — | — | — | — | 239,000 | — | 239,000 | |||||||||||||||||||||
| Sale of Private Placement Units | 1 | — | — | 1,149,999 | — | 1,150,000 | ||||||||||||||||||||||
| Initial fair value of private warrant liability | — | — | — | — | (7,763 | ) | — | (7,763 | ) | |||||||||||||||||||
| Remeasurement of Class A common stock to redemption amount | — | — | — | — | (1,490,005 | ) | — | (1,490,005 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | (522,132 | ) | (522,132 | ) | |||||||||||||||||||
| Balance - September 30, 2022 | 636,675 | $ | 2 | 2,875,000 | $ | 3 | $ | 30,231 | $ | (4,937,928 | ) | $ | (4,907,692 | ) | ||||||||||||||
The accompanying notes are an integral part of thesethe unaudited condensed consolidated financial statementsstatements.
PONO CAPITAL CORP
CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE PERIOD FROM FEBRUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021
(Unaudited)(UNAUDITED)
| Cash flow from operating activities: | ||||
| Net loss | $ | (224 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Formation costs paid by the Sponsor in the form of capital contribution | 229 | |||
| Net cash provided by operating activities | 5 | |||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of Class B common stock to Sponsor | 25,000 | |||
| Net cash provided by financing activities | 25,000 | |||
| Net change in cash | 25,005 | |||
| Cash at the beginning of the period | — | |||
| Cash at the end of the period | $ | 25,005 | ||
| Supplemental disclosure of non-cash financing activities: | ||||
| Deferred offering costs paid by Sponsor | $ | 78,792 | ||
| Prepaid costs paid by Sponsor | $ | 10,000 |
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| 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 | ||||||||||||||||||||
| Net income | — | — | — | — | — | 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 | |||||||||||||||
| Sale of Public Units | 11,500,000 | 12 | — | — | 114,999,988 | — | 115,000,000 | |||||||||||||||||||||
| Class A Common Stock subject to possible redemption | (11,500,000 | ) | (12 | ) | — | — | (114,999,988 | ) | — | (115,000,000 | ) | |||||||||||||||||
| Sale of Private Placement Units | 521,675 | 1 | — | — | 5,216,749 | — | 5,216,750 | |||||||||||||||||||||
| Initial fair value of private warrant liability | — | — | — | — | (437,816 | ) | — | (437,816 | ) | |||||||||||||||||||
| Accretion redemption value of Class A common stock | — | — | — | — | (16,815,322 | ) | — | (16,815,322 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | (1,299,503 | ) | (1,299,503 | ) | |||||||||||||||||||
| Net income (loss) | — | — | — | — | — | (1,299,503 | ) | (1,299,503 | ) | |||||||||||||||||||
| Re-classification | — | — | — | — | 12,011,163 | (12,011,163 | ) | — | ||||||||||||||||||||
| Adjustment of offering cost | — | — | — | — | — | (1,250 | ) | (1,250 | ) | |||||||||||||||||||
| Balance - September 30, 2021 | 521,675 | $ | 1 | 2,875,000 | $ | 3 | $ | — | $ | (13,312,140 | ) | $ | (13,312,136 | ) | ||||||||||||||
| Balance | 521,675 | $ | 1 | 2,875,000 | $ | 3 | $ | — | $ | (13,312,140 | ) | $ | (13,312,136 | ) | ||||||||||||||
The accompanying notes are an integral part of thesethe unaudited condensed consolidated financial statementsstatements.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIALCONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, 2022 | For the Period from February 12, 2021 (inception) through September 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 2,488,938 | $ | (1,299,727 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Dividends earned on marketable securities held in Trust Account | (699,327 | ) | — | |||||
| Formation costs paid by stockholder in form of capital contribution | — | 229 | ||||||
| Interest earned on marketable securities held in Trust Account | — | (747 | ) | |||||
| Offering costs allocated to warrants | — | 505,696 | ||||||
| Change in fair value of Sponsor Working Capital Loan | 4,200 | — | ||||||
| Change in fair value of warrant liability | (3,431,576 | ) | 680,914 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 156,962 | (315,687 | ) | |||||
| Accounts payable | 651,410 | — | ||||||
| Accrued expenses and other current liabilities | (1,907 | ) | 29,560 | |||||
| Income tax payable | 112,535 | — | ||||||
| Franchise tax payable | 29,353 | — | ||||||
| Net cash used in operating activities | (689,412 | ) | (399,762 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Investment of cash in Trust Account | (1,150,000 | ) | (116,725,000 | ) | ||||
| Net cash used in investing activities | (1,150,000 | ) | (116,725,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Sponsor Working Capital Loan | 470,000 | — | ||||||
| Proceeds from issuance of Class B common stock to Sponsor | — | 25,000 | ||||||
| Proceeds from sale of Units, net of underwriting discount paid | — | 113,050,000 | ||||||
| Proceeds from sale of private placement units | 1,150,000 | 5,216,750 | ||||||
| Payment of offering costs | — | (770,143 | ) | |||||
| Net cash provided by financing activities | 1,620,000 | 117,521,607 | ||||||
| Net change in cash | (219,412 | ) | 396,845 | |||||
| Cash at the beginning of the period | 337,595 | — | ||||||
| Cash at the end of the period | $ | 118,183 | $ | 396,845 | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Remeasurement of Class A common stock to redemption amount | $ | 1,490,005 | $ | — | ||||
| Proceeds in excess of initial fair value of working capital loans | $ | 378,000 | ||||||
| Deferred underwriting fee payable | $ | — | $ | 3,450,000 | ||||
| Initial Classification of Class A common stock subject to redemption | $ | — | $ | 116,725,000 | ||||
| Proceeds from promissory note and repayment | $ | — | $ | 186,542 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-7 |
Note 1 — Description of Organization and Business OperationsPONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS AND LIQUIDITY
Pono Capital Corp (the “Company” or “Pono”) is a blank check company incorporated in Delaware on February 12, 2021. As used herein, “the Company” refers to Pono Capital Corp, and its wholly owned and controlled subsidiary, Pono Merger Sub, Inc. (“Merger Sub”), unless the context indicates otherwise. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of JuneThe Company has neither engaged in any operations nor generated any revenues to date. The Company’s only activities for the nine months ended September 30, 2021, the Company had not commenced any operations. All activity2022 and for the period from February 12, 2021 (inception) through June 30,December 31, 2021 relateswere organizational activities, those necessary to prepare for the Company’s formationInitial Public Offering (“Initial Public Offering”) and the initial public offering described below.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 will generategenerates non-operating income in the form of interestinvestment income on cash and cash equivalents from the proceeds derived from the Initial Public Offering (as defined below)above). The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Mehana Equity LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on August 11,10, 2021. On August 13, 2021, the Company consummated its Initial Public Offering of units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), at $per Unit, generating gross proceeds of $100,000,000(see (see Note 6)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 Units at a price of $per unitUnit 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 placementsPrivate 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 $1,950,000of underwriting fees, $3,450,000of deferred underwriting fees (see Note 6) and $768,893of 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 JuneSeptember 30, 2022 and December 31, 2021, we have available to usthe Company had $25,005118,183 and $337,595 of cash available on ourthe condensed consolidated balance sheetsheets, respectively, and a working capital deficit of $53,7871,001,001. and a working capital surplus of $262,964, respectively.
| F-8 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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. 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 (as defined below) (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.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations (Continued)
The Company will provide its 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. In connection 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 seek 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 AugustFebruary 13, 2022 (or up to February 11, 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 this offeringthe 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,$1,000,000, or $1,150,000$1,150,000 if the underwriters’ over-allotment option is exercised in full ($ per unitUnit in either case) for each three month extension, into the trust account,Trust Account, or as extended by the Company’s stockholders in accordance with ourthe third amended and restated certificate of incorporation) from the closing of the Offering to consummate a Business Combination (the “Combination Period”), the Company will (i) cease all operations except 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 to 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’ rights 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 approval 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 accountTrust Account ($).
| F-9 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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 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’sCompany’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.
Termination of Old Proposed Business Combination
On March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Merger Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shannon Soqui, in his capacity as Seller Representative.
Pursuant to the Old Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation.
The Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2022.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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.
New Proposed Business Combination
On September 7, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Pono, Pono Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Pono (“Merger Sub”), AERWINS Technologies Inc., a Delaware corporation (“AERWINS”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shuhei Komatsu, 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 will merge with and into AERWINS, with AERWINS continuing as the surviving corporation (the “Surviving Corporation”).
As consideration for the Merger, the holders of AERWINS securities collectively shall be 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) Six Hundred Million U.S. Dollars ($600,000,000), minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held by AERWINS) of AERWINS at Closing (the “Closing Net Indebtedness”), minus (c) the amount by which AERWINS’ Net Working Capital is less than $3 million, plus (d) the amount by which AERWINS’ Net Working Capital exceeds $3 million, minus (e) specified transaction expenses of AERWNS associated with the Merger, with each AERWINS stockholder receiving, for each share of AERWINS common stock held, a number of shares of the Company common stock equal to (i) the Per Share Consideration, divided by (ii) $. Each outstanding option or warrant to purchase AERWINS common stock shall be converted into the right to receive an option or warrant to purchase a number of shares of the Company common stock equal to (x) the Per Share Consideration divided by (y) $.
The Merger Consideration otherwise payable to AERWINS stockholders is subject to the withholding of a number of shares of the Company common stock equal to three percent (3.0%) of the Merger Consideration to be placed in escrow for post-closing adjustments (if any) to the Merger Consideration.
The Merger Consideration is subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness, Net Working Capital and transaction expenses as of the Closing Date. If the adjustment is a negative adjustment in favor of the Company, the escrow agent shall distribute to the Company a number of shares of the Company common stock with a value equal to the absolute value of the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, the Company will issue to the AERWINS stockholders an additional number of shares of the Company 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 September 7, 2022.
| F-11 |
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Note 1 — Description of OrganizationGoing Concern and Business Operations (Continued)
Management Liquidity and Management’s Plans
PriorAs of September 30, 2022 and December 31, 2021, the Company had $118,183 and $337,595 in cash, respectively, and a working capital deficit of $1,001,001 and a working capital surplus of $262,964, respectively. The Company’s liquidity needs prior to the completionconsummation of the Initial Public Offering the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one yearhad been satisfied through proceeds from notes payable and from the issuance dateof 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 financial statements. The Company has since completed its Initial Public Offering at which time capital in excessheld outside of the funds deposited in the Trust Account and/for paying existing accounts payable and consummating the Business Combination. Although certain of the Company’s initial stockholders, officers and directors or used to fund offering expenses was released to the Company for general working capital purposes. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor may provide ustheir affiliates have committed up to $1,500,000 under Working Capital Loans (see Note 5). Accordingly, management 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 been prepared in conformity with accounting principles generally accepted in the United States of America (“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 since reevaluatedincurred and expects to continue to incur significant costs in pursuit of the Company’s liquidityfinancing and financial condition and determined that sufficient capital existsacquisition plans. Management plans to sustain operations throughaddress this uncertainty with the earlier of the consummationsuccessful closing of a Business Combination. The Company will have until February 13, 2023 to consummate a Business Combination. If a Business Combination oris not consummated by February 13, 2023, which is less than one year from this filingafter the date these condensed consolidated financial statements are issued, there will be a mandatory liquidation and therefore substantial doubt has been alleviated. There issubsequent dissolution of the Company. The Company intends to complete the proposed Business Combination before the mandatory liquidation date. However, there can be no assurance that the Company’s plansCompany will be able to consummate an initialany Business Combination will be successfulby February 13, 2023. Based upon the above analysis, management determined that liquidity concerns and the mandatory liquidation raise substantial doubt about the Company’s ability to continue as a going concern within less than one year after the Combination Period.date the condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Risks and Uncertainties
Management is currently evaluatingcontinues 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 statement.statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 — SummaryAdditionally, as a result of Significant Accounting Policiesthe 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 available 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.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by publicly traded U.S. corporations and certain U.S. subsidiaries of publicly traded non-U.S. corporations beginning in 2023, with certain exceptions (the “Excise Tax”). Because we are a Delaware corporation and our securities trade on the New York Stock Exchange, we will likely be considered a “covered corporation” within the meaning of the Inflation Reduction Act. While not free from doubt, absent any further guidance from Congress or the U.S. Department of the Treasury, there is significant risk that the Excise Tax will apply to any redemptions of our common stock after December 31, 2022, including redemptions in connection with an initial Business Combination and any amendment to our certificate of incorporation to extend the time to consummate an initial Business Combination, unless an exemption is available. In addition, the Excise Tax may make a transaction with us less appealing to potential business combination targets, and thus, potentially hinder our ability to enter into and consummate an initial Business Combination. Further, the application of the Excise Tax in the event of a liquidation after December 31, 2022 is uncertain, and could impact the per-share amount that would otherwise be received by our stockholders in connection with our liquidation.
| F-12 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been preparedof the Company are presented in accordanceconformity with accounting principles generally accepted inGAAP and pursuant to the United States of America (“GAAP”) for interim financial informationrules and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-Xregulations 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 rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a completecomprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated 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 consolidated financial statements should be read in conjunction with the Company’s prospectus for its Initial Public OfferingForm 10-K as filed with the SEC on August 11, 2021, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on August 16, 2021.March 25, 2022. The interim results for the periodthree and nine months ended JuneSeptember 30, 2021 2022 are not necessarily indicative of the results to be expected for the periodyear ending December 31, 20212022 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.
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.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSUse of Estimates
Note 2 — Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
| F-13 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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 condensed consolidated 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 significantly from those estimates. Significant estimates made by the Company include those pertaining to the valuation of the warrant liabilities and working capital loan.
Cash and Cash Equivalents
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 $25,005118,183 and $337,595 in cash as of September 30, 2022 and December 31, 2021, respectively. The Company did 0not have any cash equivalents as of JuneSeptember 30, 2022 and December 31, 2021.
Deferred Offering CostsMarketable Securities Held in Trust Account
The Company complies with the requirementsAs of September 30, 2022 and December 31, 2021, substantially all of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - Expenses of Offering. Offering costs consist principally of professional and registration fees incurred throughCompany’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the condensed consolidated balance sheet date that are related toat fair value at the IPO. Offering costs are charged againstend of each reporting period. Gains and losses resulting from the carryingchange in fair value of Class A common stock orinvestments held in Trust Account are included in Dividends earned on marketable securities held in Trust Account in the statementaccompanying statements of operations based on the relative value of the Class A common stockoperations. At September 30, 2022 and the Warrants to the proceeds received from the Units sold upon the completion of the IPO. As of June 30,December 31, 2021, the Company had deferred offering costs ofinvestments held in the Trust Account totaled $78,792118,577,540 .and $116,728,213, respectively.
Income Taxes
The Company complies with the accounting and reporting requirements of ASCAccounting Standards Codification (“ASC”) Topic 740 “Income- 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 condensed consolidated 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 realizedrealized. ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the condensed 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.
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 JuneSeptember 30, 2022 and December 31, 2021 and noamounts 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.
The provisionCompany’s effective tax rate from continuing operations was -26.6% and 4.3% for income taxes was deemed to be immaterialthe three and nine months ended September 30, 2022, respectively, and 0.0% for the three months ended September 30, 2021 and for the period from February 12, 2021 (inception) through JuneSeptember 30, 2021.
See Note 8 for additional information on income taxes for the periods presented.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Class A 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 third amended and restated certificate of incorporation. In accordance with ASC 480Distinguishing 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 sharesPublic Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001. However, the threshold in its charter would not change the nature of the underlying shares as redeemable and thus public sharesPublic Shares would be required to be disclosed outside of permanent equity. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value ($per share) at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional paid-in capital, in accumulated deficit.
On JuneAs of September 30, 2022 and December 31, 2021, as there are shares of Class A Common Stock outstanding shares of Class A Common Stock are subject to possible redemption.
As of September 30, 2022 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 as of December 31, 2021 | 116,725,000 | |||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | 1,490,005 | |||
| Redeemable Class A Common Stock as of September 30, 2022 | 118,215,005 |
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 $250,000. On JuneAs of September 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.
Net income (loss) per share is computed by dividing net income (loss) by the weighted averageweighted-average number of common stock shares outstanding forduring the period. The calculation of dilutedTherefore, the income (loss) per share doescalculation allocates income (losses) pro rata between Class A and Class B common stock. As a result, the calculated net income (loss) per share is the same for Class A and Class B common stock. The Company has not considerconsidered the effect of the warrants issuedPublic Warrants (as defined in connection withNote 3) and Placement Warrants (as defined in Note 4), to purchase an aggregate of 9,102,506 shares in the Initial Public Offering and warrants issued as componentscalculation of the Private Placement Units (the “Placement Warrants”)income (loss) per share, since the exercise of the warrants areis contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.events.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
SCHEDULE OF BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | For the Period from February 12, 2021 (inception) through September 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) | $ | (421,792 | ) | $ | (100,340 | ) | $ | (931,099 | ) | $ | (368,404 | ) | $ | 2,009,274 | $ | 479,664 | $ | (710,219 | ) | $ | (589,508 | ) | ||||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Basic and diluted weighted average shares outstanding | 12,085,425 | 2,875,000 | 6,318,473 | 2,500,000 | 12,043,159 | 2,875,000 | 2,516,448 | 2,088,745 | ||||||||||||||||||||||||
| Basic and diluted net income (loss) per share | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.15 | ) | $ | (0.15 | ) | $ | 0.17 | $ | 0.17 | $ | (0.28 | ) | $ | (0.28 | ) | ||||||||||
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, and 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.
Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40 Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815”) under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies 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 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.
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 Financial Instruments
fair value within that framework. The Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. 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, 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
| F-16 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
● 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 categorized 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 based on the lowest level input that is significant to the fair value measurement.
Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with ASC Topic 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.
Recent Accounting StandardsSponsor Working Capital Loans
The Company accounts for the Sponsor Working Capital Loans (defined below in Note 5) 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.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its majority-owned and controlled operating subsidiary, Merger Sub, after elimination of all intercompany transactions and balances as of September 30, 2022 and December 31, 2021.
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- 062020-06 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 January 1, 2022for 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 onafter December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2021.2022 using the modified retrospective method of transition. The Company is currently assessing the impact, if any, thatadoption of ASU 2020-06 woulddid not have a material impact on itsthe financial position, resultsstatements as of operationsJanuary 1, 2022 or cash flows. Managementfor the nine months ended September 30, 2022.
The Company’s 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’saccompanying condensed consolidated financial statements.
Note 3 —NOTE 3. Initial Public OfferingINITIAL 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 1one redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase three-quarters of one common stock at an exercise price of $11.50per whole share.
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4.
Note 4 — Private PlacementPRIVATE 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.
.
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. 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 which was deposited into the trust account.
The proceeds from the sale of the Private Placement Units will bewere added to the net proceeds from the Offering held 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. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.
Note 5 —NOTE 5. Related Party TransactionsRELATED PARTY TRANSACTIONS
Founder Shares
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 $25,000in 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 20%% 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.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 — Related Party Transactions (Continued)
Promissory Note —- Related Party
On March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000to 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. On June 30, 2021,Upon IPO, the Company had borrowed $88,792 186,542under the Note. On August 17, 2021, the outstanding balance owed under the Note was repaid in full.
| F-18 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor may provide usthe Company with a loan to the Company up to $1,500,000 as may be required (“Sponsor Working Capital Loans”). 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 $1,500,000of 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. As of June 30,
On September 23, 2021, there were no amounts outstanding under anythe Company entered into a Sponsor Working Capital Loans.Loan in the amount of up to $1,500,000. During the three months and nine months ended September 30, 2022, the Company received proceeds of $295,000 and $470,000 respectively. 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 are recognized as a non-cash gain or losses in the condensed consolidated statement of operations. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $92,000 at initial measurement. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $96,200 at September 30, 2022.
If the Company anticipates that it may not be able to consummate the initial Business Combination within 1218 months from the date of the Initial Public Offering, 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 accountTrust Account as set out below. Pursuant to the terms of the third Amended and Restated Certificate of Incorporation and the trust agreement to be 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 unitUnit 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)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 accountTrust Account released to it.the Surviving Corporation.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSExtension Private Placements
On August 10, 2022, the Company received $1,150,000 in funding from Mehana Capital, an affiliate of the Sponsor, to extend the Combination Period for an additional three months (the “August Extension”), as described in Note 5 — Related Party Transactions (Continued)1. 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, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on August 10, 2022.
On November 9, 2022, the Company received an additional $1,150,000 in funding, of which $575,000 was from Mehana Capital and $575,000 was from AERWINS, to further extend the Combination Period for an additional three months to February 13, 2023 (the “November Extension”). Mehana Capital purchased an additional Placement Units and AERWINS purchased Placement Unites, creating proceeds to the Company of $1,150,000 which was deposited into the trust account as further described in the Form 8-K filed with the SEC on November 10, 2022.
The proceeds from the sale of the Private Placement Units from both the August Extension and the November Extension were added to the net proceeds from the Offering held in the Trust Account. The Placement Units are identical to the Units sold in the Initial Public Offering, except for the Placement Warrants, as described in Note 7. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.
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.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 nine months ended September 30, 2022, the Company incurred expenses of $30,000 and $90,000, respectively. For the three months ended September 30, 2021 and for the period from February 12, 2021 (inception) through September 30, 2021, the Company incurred expenses of $17,997 under this agreement.
| F-19 |
Note 6 —PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 6. Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the founder shares and placement unitsPlacement Units (including securities contained therein) and unitsUnits (including securities contained therein) that may be issued upon conversion 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 unitsUnits 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 this offering,the IPO, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to ourthe Company’s Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that wethe Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to ourthe Company’s completion of ourits initial business combinationBusiness Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing 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.
UnderwritersUnderwriting 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 rebatementan abatement 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 this offeringthe IPO and ending 12 months from the closing of a business combination, we haveBusiness 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.statement.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 7. Note 7 – Stockholders’ EquitySTOCKHOLDERS’ 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 JuneSeptember 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 JuneSeptember 30, 2022 and December 31, 2021, there were and shares of Class A common stock issued or outstanding.and outstanding, respectively, 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 chief financial officer and the three independent directors. On JuneSeptember 30, 2022 and December 31, 2021, there were shares of Class B common stock issued and outstanding (includes an aggregate of shares subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part).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 combinationBusiness 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 statementcondensed consolidated statements of operations.
Public Warrants may only be exercised for a whole number of shares.shares at a price of $11.50 per share, subject to adjustment. 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.
PONO CAPITAL CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 – Stockholders’ Equity (Continued)
The Company has agreed that as soon 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,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.
| F-21 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Redemption of warrants when the price per Class A common stock equals or exceeds $18.00. 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 WindowPeriod 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 September 30, 2022 and December 31, 2021, there were 8,625,000 Public Warrants. On September 30, 2022 and December 31, 2021, there were 477,506 and 391,256 Private Placement Warrants outstanding, respectively.
NOTE 8. INCOME TAXES
The Company’s effective tax rate for the three and nine months ended September 30, 2022 was -26.6% and 4.3%, respectively. The effective tax rate for the period from February 12, 2021 (inception) through September 30, 2021 and for the three months ended September 30, 2021 was 0.0%. The Company’s effective tax rate differs from the statutory income tax rate of 21% primarily due to the recognition of gains or losses from the changes in the fair value of warrant liabilities and the Sponsor Working Capital Loan, which are not recognized for tax purposes. The Company has historically calculated the provision for income taxes during interim reporting periods by applying an 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 nine months ended September 30, 2022. The Company believes that, at this time, the use of the discrete method for the three and nine months ended September 30, 2022 is more appropriate than the estimated annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to a high degree of uncertainty in estimating annual pretax earnings.
| F-22 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 9. FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
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 | ||||||||||||
| September 30, 2022 | ||||||||||||||||
| Assets | ||||||||||||||||
| Marketable securities held in Trust Account: | $ | 118,577,540 | $ | 118,577,540 | $ | — | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Public Warrants | $ | 776,250 | $ | — | $ | 776,250 | $ | — | ||||||||
| Private Placement Warrants | $ | 42,976 | $ | — | $ | 42,976 | $ | — | ||||||||
| Sponsor Working Capital Loan | $ | 96,200 | $ | — | $ | — | $ | 96,200 | ||||||||
| 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 | ||||||||
As of September 30, 2022 and December 31, 2021, assets held in the Trust Account were $118,577,540 and $116,728,213 in a mutual fund invested in U.S. Treasury Securities, respectively.
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 measurement to a Level 1 fair value measurement during the period from February 12, 2021 (inception) to December 31, 2021. During the nine months ended September 30, 2022, the Public Warrants transferred from a Level 1 measure to Level 2 due to minimal observable market activity. During the nine months ended September 30, 2022, the Private Warrants transferred from a Level 3 measure to a Level 2 measure as the fair value of the Public Warrants approximates the fair value of the Private Warrants.
On October 1, 2021, the Public Warrants surpassed the 52-day threshold waiting period to be publicly traded from the effective date 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 September 30, 2022 and December 31, 2021, the Company classified the Public Warrants as Level 2 and Level 1, respectively.
| F-23 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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 September 30, 2022, the Company classified the Sponsor Working Capital Loan as Level 3.
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
| Warrants | Working Capital Loans | |||||||
| 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 | $ | 23,475 | $ | 35,000 | ||||
| Initial measurement of draw on Sponsor Working Capital Loan on July 16, 2022 | — | 7,000 | ||||||
| Initial measurement of draw on Sponsor Working Capital Loan on August 8, 2022 | — | 13,600 | ||||||
| Initial measurement of Private Placement Warrants issued on August 10, 2022 | 7,763 | — | ||||||
| Initial measurement of draw on Sponsor Working Capital Loan on September 12, 2022 | — | 35,400 | ||||||
| Change in fair value of Sponsor Working Capital Loan | — | 5,200 | ||||||
| Transfer to Level 2 of Private Placement Warrants | (31,238 | ) | — | |||||
| Fair value as of September 30, 2022 | $ | — | $ | 96,200 |
The Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte-Carlo Simulation. As of September 30, 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 2 measurement due to minimal observable market activity and a Level 1 measurement due to the use of an observable market quote in an active market, respectively.
The Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that are not actively traded, which at September 30, 2022 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.
| F-24 |
PONO CAPITAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 December 31, 2021 | ||||
| Stock price | $ | 9.97 | ||
| Strike price | $ | 11.50 | ||
| Term (in years) | ||||
| Post-Merger Period Volatility | 9.5 | % | ||
| Risk-free rate | 1.3 | % | ||
| Dividend yield | — | % | ||
| Probability of completing a Business Combination | 90.0 | % | ||
| Fair value of warrants | $ | 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 September 30, 2022 | As of September 12, 2022 (Initial Measurement) | As of August 8, 2022 (Initial Measurement) | As of July 16, 2022 (Initial Measurement) | As of May 24, 2022 (Initial Measurement) | As of April 1, 2022 (Initial Measurement) | |||||||||||||||||||
| Unit price | $ | 10.21 | $ | 10.12 | $ | 10.10 | $ | 10.10 | $ | 10.08 | $ | 10.38 | ||||||||||||
| Conversion price | $ | 10.00 | $ | 10.00 | $ | 10.00 | $ | 10.00 | $ | 10.00 | $ | 10.00 | ||||||||||||
| Expected term | ||||||||||||||||||||||||
| Unit volatility | 13.2 | % | 5.2 | % | 1.4 | % | 5.9 | % | 5.5 | % | 14.0 | % | ||||||||||||
| Dividend yield | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||
| Risk free rate | 2.9 | % | 2.9 | % | 2.7 | % | 2.5 | % | 1.2 | % | 1.1 | % | ||||||||||||
| Discount rate | 8.9 | % | 5.7 | % | 6.3 | % | 8.5 | % | 9.8 | % | 9.8 | % | ||||||||||||
| Probability of completing initial Business Combination | 20 | % | 20 | % | 16 | % | 20.0 | % | 20 | % | 20 | % | ||||||||||||
| Derivative liability measurement input | 20 | % | 20 | % | 16 | % | 20.0 | % | 20 | % | 20 | % | ||||||||||||
| Fair value of Sponsor Working Capital Loan | $ | 96,200 | $ | 35,400 | $ | 13,600 | $ | 7,000 | $ | 13,000 | $ | 23,000 | ||||||||||||
The Company recognized a gain (loss) in connection with changes in the fair value of warrant liabilities of $(On June270,488) and $3,431,576 in the condensed consolidated statements of operations during the three and nine months ended September 30, 2022, respectively. The Company recognized a loss of $680,914 in the condensed consolidated statements of operations during the three months ended September 30, 2021 there are and for the period from February 12, 2021 (inception) through September 30, 2021. The Company recognized a loss on the change in fair value of Sponsor Working Capital Loan of $05,200 Public Warrants nor Placement Warrants outstanding.and $4,200 in the condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively. 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 $239,000 and $378,000 is reflected as a contribution to additional paid-in capital during the three and nine months ended September 30, 2022.
NOTE 10. Note 8 – Subsequent EventsSUBSEQUENT 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 statement wasstatements were issued. Based upon this review, other than thethose subsequent events included in the above notes,described below, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statement.statements.
On October 27, 2022, the Company drew $215,000 from the Sponsor Working Capital Loan with the Sponsor.
As further described in Note 5, on November 9, 2022, the Company entered into Purchase Agreements and completed the private sale of an aggregate of Placement Units at a purchase price of $per Placement Unit in a private placement and deposited $1,150,000 into the Company’s Trust account for its public stockholders, representing $per public share, allowing the Company to extend the period of time it has to consummate its initial business combination by three months from November 11, 2022 to February 13, 2023. The Purchase Agreements and related agreements are further described in the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.
ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (this(the “Quarterly Report”) to the “Company,” “Pono Capital Corp,” “our,“we,” “us” or “we”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 unaudited interim condensed consolidated financial statements and the notes thereto contained elsewhere in this report.Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
CautionarySpecial Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,“forward-looking statements” that are not historical facts and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectationsinvolve risks and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that maycould cause our actual results levelsto differ materially from those expected and projected. All statements, other than statements of activity, performance or achievementshistorical 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 be materially different from any future results, levels of activity, performance or achievements expressed or implied byidentify such forward-looking statements. In some cases, you can identifySuch 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 annual report on Form 10-K 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.gov. Except as expressly required by terminology suchapplicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,”a result of new information, future events or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.otherwise.
Overview
We are a blank check company incorporated in Delaware on February 12, 2021. We were formed for the purpose of effecting a merger, sharecapital stock exchange, asset acquisition, sharestock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We are an emerging growth company and, as such, we arethe Company is subject to all of the risks associated with emerging growth companies.
Our sponsor is Mehana Equity LLC, a Delaware limited liability company (“Sponsor”). The registration statement for We intend to effectuate our Initial Public Offering was declared effective on August 11, 2021. On August 13, 2021, we consummated our Initial Public Offering of 10,000,000 units (the “Units” and, with respect toBusiness Combination using cash from the Class A common stock included in the Units being offered, the “Public Shares”), including 1,500,000 additional Units to cover over-allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating gross proceeds of $115 million, and incurring offering costs of $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.
Simultaneously with the closing 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, 2022, we consummated the private placemententered into an Agreement and Plan of Merger (the “Old Merger Agreement”), by and among Pono, Pono Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Pono (“Private Placement”Merger Sub”) of an aggregate of 469,175 units (the “Placement Units”, 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 SponsorOld Merger Agreement, at the closing of the transactions contemplated by the Old Merger Agreement, Merger Sub was to merge with and into Benuvia, with Benuvia continuing as the surviving corporation.
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The Business Combination Agreement and related agreements are further described in our Current Report on Form 8-K filed with the SEC on March 18, 2022.
Termination of 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 pricetermination fee as a result of $10.00 per Placement Unit, generating total gross proceedsthe mutual decision to terminate the Merger Agreement.
New Proposed Business Combination
On September 7, 2022, the Company entered into an Agreement and Plan of $4,691,750.Merger (the “Merger Agreement”), by and among Pono, Pono Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Pono (“Merger Sub”), AERWINS Technologies Inc., a Delaware corporation (“AERWINS”), Mehana Equity, LLC, in its capacity as Purchaser Representative, and Shuhei Komatsu, in his capacity as Seller Representative.
Subsequently, on August 18, 2021,Pursuant to the underwriters exercised the over-allotment option in full, andMerger Agreement, at the closing of the issuance and sale of the additional Units occurred (the “Over-allotment Option Units”). The total aggregate issuancetransactions contemplated by the Company of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of $15,000,000. On August 18, 2021, simultaneouslyMerger Agreement (the “Closing”), Merger Sub will merge with the sale of the Over-allotment Option Units, the Company consummated the private sale of an additional 52,500 Placement Units, generating gross proceeds of $525,000. The Placement Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended,and into AERWINS, with AERWINS continuing as the transactions did not involve a public offering.surviving corporation (the “Surviving Corporation”).
A total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of private placements that closed on August 13, 2021 and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account established for the benefit of the Company’s public stockholders (“Trust Account”), located in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and which was invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”) until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
Our management has broad discretion with respectAs consideration for the Merger, the holders of AERWINS securities collectively shall be entitled to receive from the specific applicationCompany, in the aggregate, a number of the net proceedsCompany’s securities with an aggregate value equal to (the “Merger Consideration”) (a) Six Hundred Million U.S. Dollars ($600,000,000), minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held by AERWINS) of AERWINS at Closing (the “Closing Net Indebtedness”), minus (c) the amount by which AERWINS’ Net Working Capital is less than $3 million, plus (d) the amount by which AERWINS’ Net Working Capital exceeds $3 million, minus (e) specified transaction expenses of AERWNS associated with the Merger, with each AERWINS stockholder receiving, for each share of AERWINS common stock held, a number of shares of the Initial Public Offering although substantially allCompany common stock equal to (i) the Per Share Consideration, divided by (ii) $10.00. Each outstanding option or warrant to purchase AERWINS common stock shall be converted into the right to receive an option or warrant to purchase a number of shares of the net proceeds are intendedCompany common stock equal to be applied generally toward consummating a Business Combination. There is no assurance that we will be able to complete a Business Combination successfully. We must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of(x) the assets held in the Trust Account (as defined below) (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, we will only complete a Business Combination if the post-transaction 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.Per Share Consideration divided by (y) $10.00.
If we are unableThe Merger Consideration otherwise payable to complete a Business Combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable and up to $70,000 of interest to pay dissolution expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption,AERWINS stockholders is subject to the approvalwithholding of our remaining shareholders and our boarda number of directors, liquidate and dissolve, subject,shares of the Company common stock equal to three percent (3.0%) of the Merger Consideration to be placed in the case of clauses (ii) and (iii), to our obligations under Delaware law to provideescrow for claims of creditors and in all cases subjectpost-closing adjustments (if any) to the other requirements of applicable law.
Liquidity and Capital ResourcesMerger Consideration.
As of June 30, 2021, we had approximately $25,005 in our operating bank account, and a working capital deficit of approximately $53,787. Our liquidity needs upThe Merger Consideration is subject to June 30, 2021 had been satisfied throughadjustment after the payment of $25,000 from the Sponsor to cover for certain expensesClosing based on our behalf in exchange for the issuanceconfirmed amounts of the Founder Shares, the loan of approximately $88,792 from the Sponsor pursuant to a promissory note,Closing Net Indebtedness, Net Working Capital and the proceeds from the consummationtransaction expenses as of the Private Placement not heldClosing Date. If the adjustment is a negative adjustment in favor of the Trust Account. We fully repaidCompany, the Note on August 17, 2021. In addition, in orderescrow agent shall distribute to finance transaction costs in connectionthe Company a number of shares of the Company common stock with a Business Combination,value equal to the Sponsor has agreedabsolute value of the adjustment amount. If the adjustment is a positive adjustment in favor of AERWINS, the Company will issue to provide us upthe AERWINS stockholders an additional number of shares of the Company common stock with a value equal to $1,500,000 under Working Capital Loans (see Note 5). As of June 30, 2021, there were no amounts outstanding under any Working Capital Loan.the adjustment amount.
Based on the foregoing, management believes that we will have sufficient borrowing capacity from our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors to meet its needs through the earlier of the consummation of aThe Business Combination or one year from this filing. Over this time period, we will be using these funds for paying existing accounts payable, identifyingAgreement and evaluating prospective initial Business Combination candidates, performing due diligencerelated agreements are further described in the Company’s Current Report on prospective target businesses, paying for travel expenditures, selectingForm 8-K filed with the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.SEC on September 7, 2022.
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 our financial position, results of our operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities for the nine months ended September 30, 2022 and for the period from inception to JuneFebruary 12, 2021 (inception) through September 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”) and identifying a target company for a business combination. We doThe Company will not expect to generate any operating revenues until after the completion of our business combination. We expect to generateits initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash and marketable securities held aftercash equivalents from the proceeds derived from the Initial Public Offering. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expensesexpenses.
For the three months ended September 30, 2022, we recorded a net loss of $522,132, which resulted from formation and operating costs of $616,773, franchise tax expense of $50,000, a loss due to a change in connection with completingfair value of warrant liability of $270,488, income tax expense of $109,621 and a business combination.loss on fair value of Sponsor Working Capital Loan of $5,200, offset in part by interest and dividend income on investments held in the Trust Account in the amount of $529,950.
For the three months ended September 30, 2021, we had a net loss of $1,299,503, which consisted of a change in Fair Value of warrant liability $680,914, formation and operating costs of $113,640 and offering costs allocated to warrants of $505,696, partially offset by interest income on marketable securities held in the Trust Account of $747.
For the nine months ended September 30, 2022, we recorded net income of $2,488,938, which resulted from a gain on fair value of warrant liability of $3,431,576, and interest and dividend income on investments held in the Trust Account in the amount of $699,327 , partially offset by formation and operating costs of $1,375,230, franchise tax expense of $150,000, income tax expense of $112,535 and a loss on fair value of the Sponsor Working Capital Loan of $4,200.
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For the period from February 12, 2021 (inception) through JuneSeptember 30, 2021, we had a net loss of $224,$1,299,727, which consisted of a loss due to a change in Fair Value of warrant liability $680,914, formation and operating costs of $229,$113,869 and offering costs allocated to warrants of $505,696 partially offset by a bank incentive of $5.$5, and interest income on marketable securities held in the Trust Account of $747.
Going Concern, Liquidity and Capital Resources
For the nine months ended September 30, 2022, net cash used in operating activities was $689,412, which was due to the change in fair value of the warrant liability of $3,431,576, change in fair value of the Sponsor Working Capital Loan of $4,200 and interest and dividend income on the investments held in the Trust Account of $699,327, partially offset by net income of $2,488,938 and changes in working capital of $948,353.
For the period from February 12, 2021 (inception) through September 30, 2021 net cash used in operating activities was $399,762, which was due to the net loss of $1,299,727, changes in working capital of $286,127 and interest earned on marketable securities held in Trust Account of $747 partially offset by formation costs paid by a stockholder in the form of a capital contribution of $229, offering costs allocated to warrants of $505,696, and change in fair value of warrant liability of $680,914.
Net cash used in investing activities for the nine months ended September 30, 2022, was $1,150,000 due to investment of cash into the Trust Account.
Contractual ObligationsNet cash used in investing activities for the period from February 12, 2021 (inception) through September 30, 2021, was $116,725,000 due to investment of cash into the Trust Account.
Administrative Support AgreementFor the nine months ended September 30, 2022, net cash provided by financing activities was $1,620,000 due to $470,000 received from the issuance of a Sponsor Working Capital Loan and $1,150,000 in proceeds from the sale of private placement units.
We agreedFor the period from February 12, 2021 (inception) through September 30, 2021, net cash provided by financing activities was $117,521,607 due to payproceeds received from the issuance of Class B common stock to the Sponsor of $25,000, proceeds from sale of Units, net of underwriting discount paid of $113,050,000, proceeds from sale of private placement units of $5,216,750, partially offset by payment of offering costs of $770,143.
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had $118,183 and $337,595 in cash and no cash equivalents as of September 30, 2022 and December 31, 2021, respectively.
At September 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in mutual funds.
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a totalgoing concern and the realization of $10,000 per month, commencingassets and the satisfaction of liabilities in the normal course of business. The Company has incurred and expect 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 a Business Combination. The Company will have February 13, 2023 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, raise 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 February 13, 2023. The Company intends to complete the proposed 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 February 13, 2023. Based upon the above analysis, management determined that liquidity concerns and the mandatory liquidation raise substantial doubt about the Company’s ability to continue as a going concern within less than one year after the date the condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 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.
Contractual Obligations
Promissory Note - Related Party
On March 22, 2021, the Company issued an unsecured promissory note to an affiliate of the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate of $300,000 to cover expenses related to the IPO. The Promissory Note was non-interest bearing and was payable on the effective dateearlier of (i) July 31, 2021 or (ii) the consummation of the Initial Public Offering, for office space, utilities, secretarial and administrative support services providedIPO. On August 17, 2021, the Company repaid the outstanding balance under the Promissory Note.
Sponsor Working Capital Loans
In order to members of the management team. Upon completion of the initialfinance transaction costs in connection with a Business Combination, or our liquidation, we will cease paying these monthly fees.
Registration Rights
The holdersSponsor may provide us with a loan of Founder Shares, Private Placement Warrants, Forward Purchase Securities and warrants thatup to $1,500,000 as may be issued upon conversion ofrequired (“Sponsor Working Capital Loans”). Such Sponsor Working Capital Loans ifwould 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 are entitled to registration rights pursuant to a registration rights agreement. These holders will be entitled to certain demand and “piggyback” registration rights. However,Sponsor Working Capital Loans. On April 1, 2022, we drew $110,000 from the registration rights agreement provides thatSponsor Working Capital Loan with our Sponsor. On May 24, 2022, we will not permit any registration statement fileddrew down another $65,000 on the same Sponsor Working Capital Loan. On July 16th 2022, there was an additional draw for $35,000. On August 8, 2022 the Company drew down another $85,000. On September 12, 2022 there was another draw for $175,000. On October 27, 2022, the Company drew $215,000 from the Sponsor Working Capital Loan with the Sponsor. As of September 30, 2022, there was $470,000 outstanding under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to be registered. We will bear the expenses incurred in connection with the filing of any such registration statements.Sponsor Working Capital Loan.
Underwriting Agreement
We granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to 1,500,000 additional Units to cover over-allotments, ifdo not have any at the Initial Public Offering price less the underwriting discounts and commissions. On August 18, 2021, the underwriters fully exercised their over-allotment option.long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriters were entitled to an underwriting discount of two percent (2.00%) of the gross proceeds of the Proposed Offering, or $2,000,000 (or up to $2,300,000 if the underwriters’ over-allotmentunderwriter is exercised in full). In addition, the underwriters are entitled to a deferred fee of three percent (3.00%) of the gross proceeds of the Proposed Offering or $3,000,000 (or up to $3,450,000 if the underwriters’ over-allotment is exercised in full) upon closing of the Business Combination.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 an abatement of $350,000. The total cash underwriting fee is $1,950,000 and the deferred underwriting fee is $3,450,000.
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Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with GAAPaccounting principles generally accepted in the United States of America requires the Company’s 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 condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company hasWe have identified the following as its critical accounting policies:
Use of Estimates —Warrant Liabilities The preparation of condensed 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 revenues and expenses during the reporting periods.
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 significantly from those estimates.
Fair Value Measurements — Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. 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, 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 categorized 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 based on the lowest level input that is significant to the fair value measurement.
The fair value of the Company’s assets and liabilities approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Net loss Per Share of Common Stock — Basic loss per share of common stock is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Consistent with FASB 480, shares subject to possible redemption, as well as their pro rata share of undistributed trust earnings consistent with the two-class method, have been excluded from the calculation of loss per share of common stockWe account for the six months June 30, 2021. Such shares, if redeemed, only participate in their pro rata share of trust earnings. Diluted loss per share includes the incremental number of shares of common stock to be issued to settle warrants, as calculated using the treasury method. For the period from February 12, 2021 (inception) through June 30, 2021, the Company did not have any dilutive warrants, securities or other contracts that could potentially, be exercised or converted into common stock. As a result, diluted loss per share of common stock is the same as basic loss per share of common stock for all periods presented.
Derivative Financial Instruments — The Company accounts for derivative financial instrumentsWarrants in accordance with ASC Topic 815. For derivative financial instruments that are accountedthe 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 the derivative instrument is initially recorded at itstheir fair value upon issuance and remeasuredadjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date with changesuntil exercised, and any change in the fair value reportedis recognized in theour condensed consolidated statements of operations. The classificationPrivate 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 derivative financial instruments is evaluated at the endPublic Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each reporting period. There were no derivative financial instruments as of June 30, 2021.relevant date.
Class A Common Stock Subject to Possible Redemption —
We account for our Class A common stock subject to possible redemptionconversion in accordance with the guidance in ASC Topic 480 “Distinguishing- Distinguishing Liabilities from Equity.”Equity. Shares of Class A common stockCommon Stock subject to mandatory redemption (if any) are classified as a liability instrumentsinstrument and are measured at fair value. Shares of conditionallyConditionally redeemable Class A common stock (including Class A common stock that featurefeatures redemption rights that are either within the control of 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 control 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.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share. Remeasurement associated with the redeemable shares of Class A common stock are classifiedis excluded from earnings per share as shareholders’ equity. 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. As of June 30, 2021, as there are no shares of Class A Common Stock outstanding, no shares of Class A Common Stock are subject to possible redemption.value approximates fair value.
Recent Accounting Pronouncements — Standards
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— 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 January 1, 2022for 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 onafter December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2021.2022 using the modified retrospective method of transition. The Company is currently assessing the impact, if any, thatadoption of ASU 2020-06 woulddid not have a material impact on itsthe financial position, resultsstatements as of operationsJanuary 1, 2022 or cash flows. Managementfor the nine months ended September 30, 2022.
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Our 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’saccompanying condensed consolidated financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. 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. As of June 30, 2021, we were not subject to any market or interest rate risk. The net proceeds of the Initial Public Offering, including amounts in the Trust Account, will be invested in U.S. government securities with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act that invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and ProceduresProcedures.
Evaluation of Disclosure 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 quarterperiod ended JuneSeptember 30, 2021,2022, 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 effective at athe reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.level.
Changes in Internal Control overOver Financial Reporting
During the most recently completed fiscal quarter ended June 30, 2021, there wasThere have been no changechanges in our internal control over financial reporting during the quarter ended September 30, 2022 that hashave materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
PART II—II - OTHER INFORMATION
ItemITEM 1. Legal ProceedingsLEGAL PROCEEDINGS
None.
ItemITEM 1A. Risk FactorsRISK 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 ourthe Initial Public Offering filed withdeclared effective by the SEC.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, there have been no material changes to the risk factors disclosed in our final prospectus for ourthe Initial Public Offering filed with the SEC or as disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2021 filed with the SEC and declared effective by the SEC.
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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 August 11, 2021. 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;
● 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;
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● 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 disclose changesnot be able to adequately address these additional risks. If we were unable to do so, we may be unable to complete such factorsinitial business combination, or, disclose additional factorsif 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 our futurebusiness 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 SEC.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.
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ItemITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use of Proceeds
On August 13, 2021, we consummated the initial public offering of 10,000,000 units. On August 18, 2021, in connection with the underwriters’ election to fully exercise their over-allotment option, we sold an additional 1,500,000 units. The units sold in the initial public offering and the full exercise of over-allotment option sold at an offering price of $10.00 per unit, generating total gross proceeds of $115,000,000. EF Hutton, division of Benchmark Investments, Inc. acted as sole book-running manager of the initial public offering. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-257150). The Securities and Exchange Commission declared the registration statement effective on August 11, 2021.
Simultaneouslysimultaneously with the consummation of the initial public offering, we consummatedOffering, the Company completed a private placement of an aggregate of 469,175521,675 units (the “Placement Units”) at a price of $10.00 per private placement unit,Private Placement Unit, generating total gross proceeds of $4,691,750. Simultaneously with the closing$5,216,750 (the “Private Placement”). The issuance of the underwriters’ full exercise of the over-allotment option, we consummated the private placement of an additional 52,500 private placement units at a price of $10.00 per private placement unit, generating additional proceeds of $525,000. The issuances werePrivate Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.Act of 1933, as amended.
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. Mehana Capital purchased an aggregate of 115,000 placement units of the Company, each unit consists of one share of Class A common stock, $0.000001 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 which was deposited into the trust account.
The private placement units are identical toFor a description of the units solduse of the proceeds generated in the initial public offering, except as is described in the Company’s final prospectus.
Of the gross proceeds received from the initial public offering including the over-allotment option, and the private placement units, $116,725,000 was placed in the trust account. Transaction costs of the Initial Public Offering, amounted to $6,168,893 consistingsee Part I, Item 2 of $1,950,000 of underwriting fees, $3,450,000 of deferred underwriting fees (see Note 6) and $768,893 of other costs.this Quarterly Report.
There has been no material change in the planned use of the proceeds from the initial public offering and private placement as is described in the Company’s final prospectus related to the initial public offering.
ItemITEM 3. Defaults upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES
None.
ItemITEM 4. Mine Safety Disclosures.MINE SAFETY DISCLOSURES
Not applicable.
ItemITEM 5. Other Information.OTHER INFORMATION
None.
ItemITEM 6. Exhibits.EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
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.
| Date: | By: | /s/ Dustin Shindo |
| Dustin Shindo | ||
| Chief Executive Officer | ||
| Pono Capital Corp | ||
| Date: November 14, 2022 | By: | /s/ Trisha Nomura |
| Trisha Nomura | ||
| Chief Financial Officer | ||