Item 1. Business
ITEM
1.
BUSINESS
Introduction
We
are a blank check company incorporated as a Delaware corporation for the purpose of effecting a merger, share exchange, asset acquisition,
share purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to herein as our
initial business combination. Our Sponsor is Mehana Capital LLC, a Delaware limited liability company (“Sponsor”).
We
believe that there are many target companies that could become attractive public companies and we will seek a target in the disruptive
technology sector with a spotlight on companies in Asia with Japan in particular. While we may pursue an initial business combination
target in any industry or geographic region, we will seek to capitalize on the operational and investment experience of our management
team and focus on disruptive technology companies that we believe have significant growth prospects and the potential to generate attractive
returns for our stockholders. We expect to focus on identifying potential target companies with above-industry-average growth, and a
defensible market position where our management team’s operational, strategic, or managerial expertise can assist in maximizing
value.
The
Registration Statement for our initial public offering was declared effective on August 4, 2022 (the “Initial Public Offering,”
or “IPO”). On August 9, 2022, we consummated the Initial Public Offering of 11,500,000 Units, including 1,500,000 Units issued
pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $115,000,000. Each Unit
consists of one share of Class A common stock and one redeemable warrant (“Public Warrant”). Each Public Warrant entitles
the holder to purchase one share of Class A common stock at an exercise price of $11.50 per whole share.
Simultaneously
with the closing of the Initial Public Offering, we consummated the sale of 634,375 units (the “Placement Units”) at a price
of $10.00 per Placement Unit in a private placement to the Sponsor, including 63,000 Placement Units issued pursuant to the exercise
of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750, which is described in Note 4.
Following
the closing of the Initial Public Offering on August 9, 2022, an amount of $117,875,000 ($10.25 per Unit) from the net proceeds of the
sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (the “Trust
Account”), and will be invested only in U.S. government treasury obligations with maturities of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury
obligations, until the earlier of: (i) the completion of a business combination and (ii) the distribution of the funds held in the Trust
Account, as described below.
On
May 5, 2023, we held a special meeting of stockholders (the “Special Meeting”), and the chairman adjourned the Special Meeting
to May 8, 2023. On May 8, 2023, we held the Special Meeting. During the Special Meeting, stockholders approved an amendment to the Company’s
amended and restated certificate of incorporation (the “Extension Amendment” (i) to extend the date by which the Company
has to consummate a business combination from May 9, 2023 to February 9, 2024 for no additional amount to be paid by the Sponsor into
the Trust Account, and (ii) to provide for the right of a holder of Class B common stock to convert such shares into shares of Class
A common stock on a one-for-one basis prior to the closing of a business combination at the election of the holder. As approved by the
stockholders of the Company, the Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State on May 8, 2023. The Company’s stockholders elected to redeem an aggregate of 9,577,250 shares of Class A common
stock of the Company in connection with the Special Meeting. Following such redemptions, the amount of funds remaining in the Trust Account
is approximately $20 million.
In
connection with the Special Meeting, the Company and the Sponsor entered into non-redemption agreements with certain unaffiliated stockholders
owning, in the aggregate, 998,682 shares of the Company’s Class A common stock, pursuant to which such stockholders agreed, among
other things, not to redeem or exercise any right to redeem such public shares in connection with the Extension Amendment. In connection
with the non-redemption agreements, the Sponsor agreed to transfer to the stockholders that entered into such agreements Sponsor Shares
upon the consummation of the Company’s initial business combination.
On
May 8, 2023, the Sponsor converted 2,874,999 Founder Shares of Class B common stock into 2,874,999 shares of Class A common stock.
On
February 5, 2024, the Company held another special meeting of stockholders (the “Second Special Meeting”). During the Second
Special Meeting, stockholders approved another amendment to the Company’s amended and restated certificate of incorporation to
extend the date by which the Company has to consummate a business combination (the “Combination Period”) from February 9,
2024 to November 9, 2024 for no additional amount to be paid by the Sponsor into the Trust Account. As approved by the stockholders of
the Company, the Company filed another amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary
of State on February 5, 2024. The Company’s stockholders elected to redeem an aggregate of 273,334 shares of Class A common stock
of the Company in connection with the Second Special Meeting. Following such redemptions, the amount of funds remaining in the trust
account is approximately $17.9 million.
4
In
connection with the Second Special Meeting, the Company entered into a non-redemption agreement with an unaffiliated investor (the
“Holder”) which agreed to acquire from public stockholders of the Company 1,500,000 to 1,700,000 shares of Class A
common stock in the open market, at a prices no higher than the redemption price per share payable to stockholders who exercise
redemption rights in connection with the stockholder vote to approve the Company’s proposed business combination with SBC (as
defined below), prior to the Second Special Meeting and to agree to waive its redemption rights and hold the shares until after the
closing of the business combination. In consideration of the Holder’s agreement to waive its redemption rights with respect to
the shares, and subject to (i) the Holder acquiring 1,500,000 to 1,700,000 shares of Class A common stock in the open market, and
(ii) Holder’s satisfaction of its other obligations under the non-redemption agreement, the Company, on the closing date of
the business combination, provided that Holder has continued to hold the Holder’s shares through the closing date, SBC and
Yoshiyuki Aikawa, the chief executive officer of SBC, shall cause to be issued or transferred to Holder a number of shares of Class
A common stock held by Dr. Aikawa (the “Incentive Shares”), which will equal one (1) Incentive Share for each public
share purchased in the open market pursuant to the non-redemption agreement that is continuously owned by Holder until the closing
date of the business combination. This non-redemption agreement terminates on the earliest to occur of (i) the closing date of the
business combination, (ii) the termination of the related business combination agreement, or (iii) April 30, 2024 (the
“Clearance Date”) if the Company has not cleared all SEC comments to its proxy statement in connection with the business
combination by that date. On March 15, 2024, the parties to the non-redemption agreement entered into an amendment to the
non-redemption agreement to extend the Clearance Date to June 30, 2024, and to agree to close the business combination on or before August
31, 2024.
If
we are unable 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 no more than ten 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 up to $100,000), 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 our 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 underwriters have agreed to waive their rights to the deferred underwriting commission held in the Trust Account
in the event we do 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 Initial Public Offering
price per Unit ($10.00).
On
January 31, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among us, Pono Two Merger
Sub, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), SBC Medical Group Holdings Incorporated,
a Delaware corporation (“SBC”), Mehana Capital, LLC, in its capacity as Purchaser Representative, and Yoshiyuki Aikawa, in
his capacity as Seller Representative.
Pursuant
to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement, Merger Sub will merge with and into
SBC, with SBC continuing as the surviving corporation. The transactions contemplated by the Merger Agreement are referred to herein as
the “Business Combination.”
As
a condition to closing of the Business Combination, SBC will complete certain restructuring transactions pursuant to which SBC Medical
Group Co., Ltd., a Japanese corporation (“SBC-Japan”) and certain related entities which carry on the business of SBC-Japan
and such other related entities, will become subsidiaries of SBC.
As
consideration for the Business Combination, the holders of SBC securities as of the closing of the Business Combination, collectively
will be entitled to receive from us, in the aggregate, a number of our securities with an aggregate value equal to (a) $1,200,000,000,
minus (b) the amount, if any, by which $3,000,000 exceeds SBC’s Net Working Capital, plus (c) the amount, if any, by which SBC’s
Net Working Capital exceeds $3,000,000, minus (d) the aggregate amount of any outstanding indebtedness (minus cash held by SBC) of SBC
at Closing, minus (e) specified transaction expenses of SBC associated with the Business Combination.
On
April 26, 2023, the parties entered into an amendment to the Merger Agreement. Our board approved the amendment on April 25, 2023. Pursuant
to the Amendment, the Sponsor in its sole discretion may direct Pono to issue all or a portion of the Sponsor Shares on an earlier or
later date as it may determine, which date will not be earlier than the Closing. In addition, pursuant to the Amendment, the date by
which (i) SBC will complete its agreed upon disclosure schedules, (ii) Pono will complete its due diligence review of SBC, and (iii)
the parties to the Merger Agreement will agree upon any modifications or amendments to the Merger Agreement to the terms and conditions
therein, among other related matters, was extended from April 28, 2023 to May 31, 2023. SBC also agreed to purchase, or to cause one
of its Affiliates to purchase, equity in the Sponsor in an amount equal to $1,000,000, by way of a separate agreement to be entered into
on or before May 5, 2023.
On
May 18, 2023, the parties entered into a Note Purchase Agreement pursuant to which the parties have agreed that Pono will issue and sell
to SBC a convertible promissory note of $1,000,000 in aggregate principal amount which note is convertible into shares of Class A Common
Stock, par value $0.0001 per share of Pono.
On
May 26, 2023, the closing date of the purchase and sale of the Note, SBC delivered the Note reflecting the Principal Amount and SBC deposited
$1,000,000 by wire transfer into the specified Company account. The Note does not bear interest (unless otherwise required by applicable
law, in which event interest will accrue at the minimum rate required by applicable law) and the principal amount may be prepaid at any
time.
On
May 30, 2023, the parties entered into Amendment No. 2 to the Merger Agreement. Our board approved the amendment on May 23, 2023. The
amendment extended the time for (i) SBC to deliver disclosure schedules, (ii) Pono to complete its due diligence review of SBC and (iii)
the parties to agree upon a modifications or amendments to the Merger Agreement to the terms and conditions therein until June 15, 2023.
On
June 15, 2023, the parties entered into Amendment No. 3 to the Merger Agreement. Our board approved the amendment on June 15, 2023. The
amendment further extended the time for (i) SBC to deliver disclosure schedules, (ii) Pono to complete its due diligence review of SBC
and (iii) the parties to agree upon a modifications or amendments to the Merger Agreement to the terms and conditions therein until June
22, 2023.
5
On
June 21, 2023, the parties entered into an Amended and Restated Agreement and Plan of Merger (“A&R Merger Agreement”).
Our board approved the A&R Merger Agreement on June 15, 2023. The A&R Merger Agreement revised the target companies to be directly
or indirectly purchased by Pono following a restructuring of SBC’s corporate structure, to include only the Service Companies and
certain other entities, and to no longer include the direct or indirect purchase of Medical Corporations, and as a result, removed other
references to the Medical Corporations, including the related representations and warranties, among others. The Medical Corporations
were removed for Japanese regulatory reasons under the Japanese Medical Care Act. Based on the provisions of the Japanese Medical Care
Act, in essence, medical corporations are considered not-for-profit organizations with a benevolent purpose of serving human-kind and
cannot be controlled by for-profit entities. More specifically, the Medical Corporations, even though considered related parties, are
independent business operators and, the Company does not exercise control over the day-to-day operations of their clinics (except to
the extent governed by our management services contracts). The removal of the Medical Corporations from the A&R Merger Agreement
required a reduction of the valuation. As a result, the schedule was delayed by approximately two months. Other than the reduction of
the valuation and delay, the overall transaction was not affected by this removal. The A&R Merger Agreement also extended the date
by which the disclosures schedules were to be delivered to August 31, 2023 and extended the date by which the Closing shall occur from
September 30, 2023 to December 31, 2023. Pursuant to the A&R Merger Agreement, the parties also agreed that any future expenses incurred
in connection with the extension of the time by which Pono must complete its initial business combination shall be borne entirely by
Pono, which replaces and supersedes the prior requirement under the Original Agreement for Pono and SBC to share such expenses equally.
On
September 8, 2023, the parties entered into the First Amendment to the A&R Merger Agreement, which provided for the holders of SBC
securities collectively to be entitled to receive from Pono as Merger consideration, in the aggregate, a number of Pono securities with
an aggregate value equal to (a) $1,000,000,000, minus (b) the amount, if any, by which $3,000,000 exceeds SBC’s Net Working Capital,
plus (c) the amount, if any, by which SBC’s Net Working Capital exceeds $3,000,000, minus (d) the aggregate amount of any outstanding
indebtedness (minus cash held by SBC) of SBC at Closing, minus (e) specified transaction expenses of SBC associated with the Business
Combination. Our board approved the amendment on September 7, 2023.
On
October 26, 2023, the parties entered into the Second Amendment to the A&R Merger Agreement (the “Second Amendment”)
with the parties thereto. Prior to the Second Amendment, the Company’s board of directors as of the Closing was to be designated
as follows: (i) three persons designated prior to the Closing by SBC, two of whom must qualify as independent directors; (ii) one person
designated prior to the Closing by the Company; and (iii) one person mutually agreed upon and designated prior to the Closing by the
Company and SBC, who must qualify as an independent director. Following the Second Amendment, the Company’s board of directors
as of the Closing will be designated as follows: (i) three persons designated prior to the Closing by SBC, at least one of whom must
qualify as an independent director; (ii) one person designated prior to the Closing by the Company, who must qualify as an independent
director; and (iii) one person mutually agreed upon and designated prior to the Closing by the Company and SBC, who must qualify as an
independent director.
On
December 28, 2023, the parties entered into the Third Amendment to the A&R Merger Agreement (the “Third Amendment”) with
the parties thereto. The Third Amendment was entered into solely to extend the Outside Date (as defined in the A&R Merger Agreement)
from December 31, 2023 to March 31, 2024.
On
February 27, 2024, the Company and SBC entered into an Amendment to the Note Purchase Agreement (the “Amended Note Purchase Agreement”),
which increased the purchase price of the Note from $1,000,000 to $2,700,000.
Please
see the Current Reports on Form 8-K we filed with the SEC on February 2, 2023, June 22, 2023, September 11, 2023, October 26, 2023, December 29, 2023, and March 1, 2024 for additional information.
Our
Company
We
are a blank check company incorporated in Delaware on March 11, 2022 formed for the purpose of entering into a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a “business combination”).
We intend to effectuate our initial business combination using cash from the proceeds of the Initial Public Offering and the sale of
the private placement units, the proceeds of the sale of our shares in connection with our initial business combination pursuant to the
shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the
foregoing or other sources.
We
believe that there are many target companies that could become attractive public companies and we will seek a target in the disruptive
technology sector with a spotlight on companies in Asia with Japan in particular. While we may pursue an initial business combination
target in any industry or geographic region, we will seek to capitalize on the operational and investment experience of our management
team and focus on disruptive technology companies that we believe have significant growth prospects and the potential to generate attractive
returns for our stockholders. We expect to focus on identifying potential target companies with above-industry-average growth, and a
defensible market position where our management team’s operational, strategic, or managerial expertise can assist in maximizing
value.
6
We
believe the traditional IPO and direct listing processes are not designed for these types of companies to execute on their ambitious
strategies. We believe using a SPAC structure is a disruptive alternative to, and creates more efficiencies than, the traditional IPO
approach. We also believe that because the industries in which we have particular expertise, and in which we will seek to identify a
potential business combination target, are often overlooked by traditional venture capital, public equity and private equity investors,
many high-quality companies in these industries are not well suited to a traditional IPO, direct listing or private equity buyout transaction.
Therefore, we believe our focus on these particular industries will provide unique access to the highest quality companies and management
teams and a substantial number of proprietary business combination opportunities. Our mission is to create a better solution to the conventional
IPO for these high growth, disruptive technology and technology-enabled companies, which addresses their needs for capital and liquidity,
while overcoming the key points of friction in the traditional IPO path in particular for businesses in Japan.
We
believe our expertise will make us an attractive partner for companies seeking a clear and efficient path to listing their shares with
a significant degree of funding certainty including high-quality companies in Japan where certain of the Company’s officers and
directors are familiar with Japanese business and M&A culture, which will have an impact on the dynamics of a business combination.
There are a large number of companies that desire to have publicly-traded shares to provide liquidity to investors and employees, create
a currency for mergers and acquisitions and access to equity capital markets. We may seek to combine with businesses owned by our founder
and minority investors, although we may consummate a transaction with businesses controlled by private equity investors or family-owned
businesses, which means there is a wide universe of potential partners. We believe our understanding of private deal execution and public
capital markets, and valuation dynamics in both markets, make us uniquely positioned to identify and execute a business combination with
a growth orientation.
Our
Management Team
Our
management team is led by Darryl Nakamoto, our Chief Executive Officer and Director, Allison Van Orman, our Chief Financial Officer,
and Dustin Shindo, our Chairman of the Board, who will be supported by Pono Capital Two, Inc.’s independent directors, sponsor,
accountants and legal counsel, as further described below. We believe our management team is well positioned to identify and evaluate
businesses within the technology industry that would benefit from being a public company and from access to our expertise. We believe
we can achieve this mission by utilizing our team’s extensive experience in growing and operating technology companies as well
as our broad network of contacts in the technology sector.
Competition
In
identifying, evaluating and selecting a target business for our initial business combination, we may encounter competition from other
entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout
funds, public companies and operating businesses seeking strategic business combinations. Many of these entities are well established
and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these
competitors possess greater financial, technical, human and other resources than we do. Our ability to acquire larger target businesses
will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the initial business
combination of a target business. Furthermore, our obligation to pay cash in connection with our public stockholders who exercise their
redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the
future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place
us at a competitive disadvantage in successfully negotiating an initial business combination.
Employees
We
currently have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters, but
they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination.
The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial
business combination and the stage of the initial business combination process we are in. We do not intend to have any full-time employees
prior to the completion of our initial business combination.
For
additional discussion of the general development of our business, see our final prospectus on Form 424B4, filed with the SEC on August
8, 2022.
7
ITEM
1A.
RISK
FACTORS
As
a smaller reporting company, we are not required to make disclosures under this Item.
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