NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
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.
The
Company has neither engaged in any operations nor generated any revenues to date. The Company’s only activities for the six months
ended June 30, 2022 and for the period from February 12, 2021 (inception) through December 31, 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. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at
the earliest. The Company generates non-operating income in the form of interest income on cash and cash equivalents from the proceeds
derived from the Initial Public Offering (as defined 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 10, 2021. On August 13, 2021, the Company consummated
its Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A common stock included in the
Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $100,000,000 (see Note 3) (the
“Initial Public Offering”). The Company granted the underwriter a 45-day option to purchase up to an additional 1,500,000
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 469,175 units
(the “Placement Units”) to the Sponsor at a price of $10.00 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 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, simultaneously 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, as the transactions did not involve
a public offering.
A
total of $116,725,000, comprised of the proceeds from the Offering and the proceeds of Private Placements that closed on August 13, 2021
and August 18, 2021, net of the underwriting commissions, discounts, and offering expenses, was deposited in a trust account (the “Trust
Account”) established for the benefit of the Company’s public stockholders.
Transaction
costs of the Initial Public Offering amounted to $6,168,893, consisting of $1,950,000 of underwriting fees, $3,450,000 of deferred underwriting
fees (see Note 6) and $768,893 of other costs.
Following
the closing of the Initial Public Offering and full exercise of underwriter’s over-allotment option, $823,378 of cash was held
outside of the Trust Account available for working capital purposes. As of June 30, 2022 and December 31, 2021, the Company had $20,625
and $337,595 of cash available on the condensed consolidated balance sheets, respectively, and a working capital deficit of $458,407
and a working capital surplus of $262,964, respectively.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
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 (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.
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 August 13, 2022 (or up to February 13, 2023, as applicable) to consummate a Business Combination. If the Company
is unable to complete a Business Combination within 12 months (or up to 18 months from the closing of the IPO at the election of the
Company in two separate three month extensions subject to satisfaction of certain conditions, including the deposit of up to $1,000,000,
or $1,150,000 if the underwriters’ over-allotment option is exercised in full ($0.10 per Unit in either case) for each three month
extension, into the Trust Account, or as extended by the Company’s stockholders in accordance with the third amended and restated
certificate of incorporation) from the closing of the Offering to consummate a Business Combination (the “Combination Period”),
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
Account ($10.15).
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 $10.15 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’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.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
Business
Combination
On
March 17, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Pono, Merger
Sub, Benuvia, Inc., a Delaware corporation (“Benuvia”), Mehana Equity, LLC, in its capacity as Purchaser Representative,
and Shannon Soqui, in his capacity as Seller Representative.
Pursuant
to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger
Sub would merge with and into Benuvia, with Benuvia continuing as the surviving corporation (the “Surviving Corporation”).
As
consideration for the Merger, the holders of Benuvia securities collectively were entitled to receive from the Company, in the aggregate,
a number of the Company’s securities with an aggregate value equal to (the “Merger Consideration”) (a) Four Hundred
Million U.S. Dollars ($400,000,000) minus (b) the amount by which the aggregate amount of any outstanding indebtedness (minus cash held
by Benuvia) of Benuvia at Closing (the “Closing Net Indebtedness”) exceeds Forty Million Dollars ($40,000,000), and minus
(c) the value of the options of Benuvia held by employees and consultants that are vested at the Closing that are assumed by the Company
(“Vested Options”), with each Benuvia stockholder receiving, for each share of Benuvia common stock held, a number of shares
of the Company’s common stock equal to (i) the per share price (an amount equal to Merger Consideration divided by the fully-diluted
company shares, the “Per Share Price”), divided by (ii) $10.00 (the total portion of the Merger Consideration amount payable
to all Benuvia stockholders in accordance with the Merger Agreement is also referred to herein as the “Stockholder Merger Consideration”).
The
Merger Consideration otherwise payable to Benuvia stockholders was subject to the withholding of two escrows: (i) a number of shares of
the Company’s common stock equal to five percent (5.0%) of the Merger Consideration to be placed in escrow for post-closing adjustments
(if any) to the Merger Consideration and (ii) a number of shares mutually agreeable between Benuvia and us not to exceed twenty percent
(20.0%) of the Merger Consideration (the “Price Protection Escrow Amount”) to be held for downside protection for non-redeeming
stockholders following Closing.
The
Merger Consideration was subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness of Benuvia
as of the Closing Date. If the adjustment is a negative adjustment in favor of the Company, the escrow agent shall distribute to us a
number of shares of the Company’s common stock with a value equal to the absolute value of the adjustment amount. If the adjustment
is a positive adjustment in favor of Benuvia, the Company will issue to the Benuvia stockholders an additional number of shares of the
Company’s common stock with a value equal to the adjustment amount.
The
Business Combination Agreement and related agreements are further described in the Company’s Current Report on Form 8-K filed with
the SEC on March 18, 2022.
Termination
of the Merger Agreement
On
August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section 8.1(a) of the Merger Agreement,
effective immediately. Neither party was required to pay the other a termination fee as a result of the mutual decision to terminate
the Merger Agreement.
Going
Concern and Management Liquidity Plans
As
of June 30, 2022 and December 31, 2021, the Company had $20,625 and $337,595 in cash, respectively, and a working capital deficit of
$458,407 and a working capital surplus of $262,964, respectively. The Company’s liquidity needs prior to the consummation of the
Initial Public Offering had been satisfied through proceeds from notes payable and from the issuance of common stock. The Company expects
that it will need additional capital to satisfy its liquidity needs beyond the net proceeds from the consummation of the Initial Public
Offering held outside of the Trust Account for paying existing accounts payable and consummating the Business Combination. Although certain
of the Company’s initial stockholders, officers and directors or their affiliates have committed to up to $1,500,000 Working Capital
Loans (see Note 5) from time to time or at any time, there is no guarantee that the Company will receive such funds.
The
accompanying condensed consolidated financial statements have 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 incurred and expects to continue to incur
significant costs in pursuit of the Company’s financing and acquisition plans. Management plans to address this uncertainty with
the successful closing of the Business Combination. The Company will have until August 13, 2022 (or up to February 13, 2023, as applicable)
to consummate a Business Combination. If a Business Combination is not consummated by February 13, 2023, less than one year after the
date these condensed consolidated financial statements are issued, there will be a mandatory liquidation and subsequent dissolution of
the Company. Management has determined that the mandatory liquidation, should a Business Combination not occur, and potential subsequent
dissolution, as well as the Company’s working capital deficit, raises 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 these
conditions 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.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
Risks
and Uncertainties
Management
continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could
have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific
impact is not readily determinable as of the date of the condensed consolidated financial statements. The condensed consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Additionally,
as a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related
economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which
the Company ultimately consummates a Business Combination, may be materially and adversely affected. Further, the Company’s ability
to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events,
including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms
acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on
the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements of the Company are presented in conformity with GAAP and pursuant to the rules
and regulations of the SEC. Certain information or footnote disclosures normally included in consolidated financial statements prepared
in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.
Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position,
results of operations, or cash flows. In the opinion of management, the accompanying 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 condensed consolidated financial statements should be read in conjunction
with the Company’s Form 10-K as filed with the SEC on March 25, 2022. The interim results for the three and six months ended June
30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statements with another
public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult or impossible because of the potential differences in accounting standards used.
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.
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.
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 $20,625 and $337,595 in cash as of June 30, 2022 and
December 31, 2021, respectively. The Company did not have any cash equivalents as of June 30, 2022 and December 31, 2021.
Marketable
Securities Held in Trust Account
Trading
securities are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses
resulting from the change in fair value of these securities is included in unrealized gains (losses) on investments held in Trust Account
in the accompanying condensed consolidated statements of operations. Interest and dividend income on these securities is included in
interest and dividend income on investments held in Trust Account in the accompanying condensed consolidated statements of operations.
At June 30, 2022 and December 31, 2021, the investments held in the Trust Account totaled $116,897,590 and $116,728,213, respectively.
Income
Taxes
The
Company complies with the accounting and reporting requirements of Accounting Standards Codification (“ASC”) Topic 740 -
Income Taxes (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are computed for differences between the 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 realized ASC 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 June 30, 2022 and December 31, 2021 and no amounts
accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant
payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing
authorities since inception. The Company’s effective tax rate from continuing operations was 0.2% and 0.1% for
the three and six months ended June 30, 2022, respectively, and 0.0% for
the three months ended June 30, 2021 and for the period from February 12, 2021 (inception) through June 30, 2021.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
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 480 Distinguishing Liabilities from Equity (“ASC 480”), conditionally
redeemable Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments,
are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides
that currently, the Company will not redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’
equity) to be less than $5,000,001. However, the threshold in its charter would not change the nature of the underlying shares as redeemable
and thus Public Shares would be required to be disclosed outside of permanent equity. The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value ($10.15 per share)
at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional capital,
in accumulated deficit.
As
of June 30, 2022, and December 31, 2021, 11,500,000 shares of Class A Common Stock outstanding are subject to possible redemption.
As
of June 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 | |
| (5,663,197 | ) |
Plus: | |
| | |
Remeasurement
of carrying value to redemption value | |
| 16,815,322 | |
Redeemable
Class A Common Stock | |
$ | 116,725,000 | |
Concentration
of Credit Risk
Financial
instruments that potentially subject the 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. As of June 30, 2022 and December 31, 2021, the Company
had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Net
Income (Loss) Per Share
Net
income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period.
Therefore, the income (loss) per share calculation allocates income (losses) shared 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 considered
the effect of the Public Warrants (as defined in Note 3) and Placement Warrants (as defined in Note 4), to purchase an aggregate of 6,762,192
shares in the calculation of income (loss) per share, since the exercise of the warrants is contingent upon the occurrence of future
events.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
The
following table reflects the calculation of basic and diluted net income (loss) per share (in dollars, except per share amounts):
SCHEDULE
OF BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
| |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | |
| |
Three
Months Ended
June 30, 2022 | | |
Three
Months Ended
June 30, 2021 | | |
Six
Months Ended
June 30, 2022 | | |
For
the Period from February 12, 2021 (inception) through June 30, 2021 | |
| |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | |
Basic
and diluted net income (loss) per share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income (loss) | |
$ | 1,097,952 | | |
$ | 262,577 | | |
$ | — | | |
$ | 5 | | |
$ | 2,429,945 | | |
$ | 581,125 | | |
$ | — | | |
$ | (224 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic
and diluted weighted average shares outstanding | |
| 12,021,675 | | |
| 2,875,000 | | |
| — | | |
| 2,500,000 | | |
| 12,021,675 | | |
| 2,875,000 | | |
| — | | |
| 1,381,215 | |
Basic
and diluted net income (loss) per share | |
$ | 0.09 | | |
$ | 0.09 | | |
$ | — | | |
$ | 0.00 | | |
$ | 0.20 | | |
$ | 0.20 | | |
$ | — | | |
$ | (0.00 | ) |
Offering
Costs associated with the Initial Public Offering
Offering
costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly
related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public
Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant
liabilities are expensed as incurred, presented as non-operating expenses in the condensed consolidated statements of operations. Offering
costs associated with the Class A common stock were charged to stockholders’ equity upon the completion of the Initial Public Offering.
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 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
●
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.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
Derivative
Financial Instruments
The
Company accounts for derivative financial instruments in accordance with ASC 815. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting
date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative
financial instruments is evaluated at the end of each reporting period.
The Company accounts for the
Sponsor Working Capital Loans under ASC 815. The Company has made the election under ASC 815-15-25 to account for the Sponsor
Working Capital Loans under the fair value option. Using the fair value option, the Sponsor Working Capital Loans are required to be
recorded at their initial fair value on the date of issuance, and each reporting period thereafter. Differences between the face
value of the note and fair value at issuance are recognized as either an expense in the statement of condensed consolidated
operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of
the Sponsor Working Capital Loan are recognized as non-cash gains or losses in the condensed consolidated statement of
operations.
Recent
Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies
the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s
own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for
all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and should be applied on a full
or modified retrospective basis, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted
ASU 2020-06 effective January 1, 2022 using the modified retrospective method of transition. The adoption of ASU 2020-06 did not have
a material impact on the financial statements for the six months ended June 30, 2022 and for the period from February 12, 2021 (inception)
through June 30, 2021.
The
Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted,
would have a material effect on the accompanying condensed consolidated financial statements.
NOTE
3. INITIAL PUBLIC OFFERING
Following
the closing of the Initial Public Offering on August 13, 2021 and the sale of the Over-allotment Option Units on August 18, 2021, the
Company sold 11,500,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of one common stock and three-quarters of one
redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase three-quarters of one common
stock at an exercise price of $11.50 per whole share.
NOTE
4. PRIVATE PLACEMENT
Following
the closing of the Initial Public Offering and the sale of the Over-allotment Option Units, the Sponsor purchased an aggregate of 521,675
Private Placement Units at a price of $10.00 per Private Placement Unit for an aggregate purchase price of $5,216,750.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
The
proceeds from the sale of the Placement Units 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 (“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. RELATED PARTY TRANSACTIONS
Founder
Shares
On
March 22, 2021, the Company issued an aggregate of 2,875,000 shares of Class B common stock to the Sponsor for an aggregate purchase
price of $25,000 in cash. Such Class B common stock includes an aggregate of up to 375,000 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 $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing
after a Business Combination, with respect to the remaining any of the Class B common stock, upon six months after the date of the consummation
of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation,
merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange
their common stock for cash, securities or other property.
Promissory
Note - Related Party
On
March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public
Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing and was payable on the earlier of
July 31, 2021 or the completion of the Initial Public Offering. Upon IPO, the Company had borrowed $186,542 under the Note. On August
17, 2021, the outstanding balance owed under the Note was repaid in full.
Related
Party Loans
In
order to finance transaction costs in connection with a Business Combination, the Sponsor may provide the Company with a loan up to
$
as may be required. Such Sponsor Working Capital Loans would either be repaid upon consummation of a Business Combination, without
interest, or, at the lender’s discretion, up to $
of such loans may be converted upon consummation of a Business Combination into additional Placement Units at a price of $per
Unit. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust
Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor
Working Capital Loans.
On
September 23, 2021, the Company entered into a working capital loan with the Sponsor (the “Sponsor Working Capital
Loan”) in the amount of up to $,
pursuant to which the Company received proceeds of $during
the three months ended June 30, 2022. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i)
completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The unpaid principal
balance on the Sponsor Working Capital Loan may be convertible into units at the option of the Sponsor at a price of $
per unit. The unit would be identical to the Private Placement Units. Using the fair value option, the Sponsor Working Capital Loan
is required to be recorded at its’ initial fair value on the date of issuance, and each reporting period thereafter.
Differences between the face value of the Sponsor Working Capital Loan and fair value at issuance are recognized as either an
expense in the condensed consolidated statement of operations (if issued at a premium) or as a capital contribution (if issued at a
discount). Changes in the estimated fair value of the Sponsor Working Capital Loan is recognized as a non-cash gains or losses in
the condensed consolidated statement of operations. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be
$
at initial measurement. The aggregate fair value of the Sponsor Working Capital Loan was estimated to be $
at June 30, 2022.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
If
the Company anticipates that it may not be able to consummate the initial Business Combination within 12 months, the Company may, by
resolution of the board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times,
each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing
additional funds into the Trust Account as set out below. Pursuant to the terms of the third Amended and Restated Certificate of Incorporation
and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available
for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees, must deposit
into the Trust Account $ with the underwriters’ over-allotment option exercised in full ($ per Unit in either case),
on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible Business
Combination period of 18 months at a total payment value of $with the underwriters’ over-allotment option exercised in
full ($ per Unit). Any such payments would be made in the form of a loan. Any such loans will be non-interest bearing and payable
upon the consummation of a Business Combination out of the proceeds of the Trust Account released to it.
Administrative
Support Agreement
The
Company’s Sponsor has agreed, commencing from the date that the Company’s securities are first listed on NASDAQ through the
earlier of the Company’s consummation of a Business Combination and its liquidation, to make available to the Company certain general
and administrative services, including office space, utilities and administrative services, as the Company may require from time to time.
The Company has agreed to pay to Mehana Equity LLC, the Sponsor, $10,000 per month for these services during the 18-month period to complete
a Business Combination. The Sponsor has agreed to pay for the formation cost of $229 and waived to seek reimbursement from the Company
for such cost. For the three and six months ended June 30, 2022, the Company incurred expenses of $30,000 and $60,000, respectively.
For the three months ended June 30, 2021 and for the period from February 12, 2021 (inception) through June 30, 2021, the Company incurred
expenses of $0 under this agreement.
NOTE
6. COMMITMENTS AND CONTINGENCIES
Registration
Rights
The
holders of the founder shares and Placement Units (including securities contained therein) and Units (including securities contained
therein) that may be issued upon conversion of working capital loans, and any shares of Class A common stock issuable upon the exercise
of the placement warrants and any shares of Class A common stock and warrants (and underlying Class A common stock) that may be issued
upon conversion of the Units issued as part of the working capital loans and Class A common stock issuable upon conversion of the founder
shares, will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective
date of the IPO, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to the
Company’s Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands,
that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect
to registration statements filed subsequent to the Company’s completion of its initial Business Combination and rights to require
us to register for resale such securities pursuant to Rule 415 under the Securities Act. 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.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
Underwriting
Agreement
The
Company granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to
1,500,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and
commissions.
The
underwriters were entitled to a cash underwriting discount of: (i) two percent (2.00%) of the gross proceeds of the Offering, or $2,300,000.
In addition, the underwriters are entitled to a deferred fee of three percent (3.00%) of the gross proceeds of the Offering upon closing
of the Business Combination, or $3,450,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the
amounts held in the Trust Account, subject to the terms of the underwriting agreement.
On
August 13, 2021, the underwriter has given the Company a rebatement of $350,000. The total cash underwriting fee is $1,950,000 and the
deferred underwriting fee is $3,450,000.
Right
of First Refusal
For
a period beginning on the closing of the IPO and ending 12 months from the closing of a Business Combination, the Company has granted
EF Hutton a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public
equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(g)(3)(A)(i), such right of first refusal
shall not have a duration of more than three years from the effective date of the registration statement.
NOTE
7. STOCKHOLDERS’ DEFICIT
Preferred
Stock — The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.000001 per share with such
designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. On June 30, 2022
and December 31, 2021, there were no preferred shares issued or outstanding.
Class
A Common Stock — The Company is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.000001
per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. On June 30, 2022 and December
31, 2021, there were 521,675 shares of Class A common stock issued and outstanding, excluding 11,500,000 shares of Class A Common Stock
outstanding subject to possible redemption.
Class
B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.000001
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
2,875,000 shares of Class B common stock issued and outstanding and were held by the Sponsor. Effective as of April 15, 2021, the Sponsor
transferred 100,000 shares of Class B common stock among the chief financial officer and the three independent directors. On June 30,
2022 and December 31, 2021, there were 2,875,000 shares of Class B common stock issued and outstanding. Shares of Class B common stock
will automatically convert into shares of Class A common stock at the time of the Company’s initial Business Combination on a one-for-one
basis.
Warrants
— In accordance with the guidance contained in ASC 815-40, the warrants issued in the Initial Public Offering do not meet
the criteria for equity treatment thereunder, each warrant must be recorded as a liability. The Company will classify each warrant as
a liability at its fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations.
Public
Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only
whole warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination and will
expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The
Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation
to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class
A common issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common
stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable for
cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants,
unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising
holder, or an exemption from registration is available.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
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, 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.
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 Window and the Company liquidates
the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will
they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly,
the warrants may expire worthless.
The
Private Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Public Offering, except that
the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be
transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions.
Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by
the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers
or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the
same basis as the Public Warrants.
On
June 30, 2022 and December 31, 2021, there were 8,625,000 Public Warrants and 391,256 Private Placement Warrants outstanding.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
NOTE
8. INCOME TAXES
The
Company’s effective tax rate for the three and six months ended June 30, 2022 was 0.1%. The effective tax rate for the three and
six months ended June 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 six months ended June 30, 2022. The Company
believes that, at this time, the use of the discrete method for the three and six months ended June 30, 2022 is more appropriate 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.
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 June 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 | |
June
30, 2022 | |
| | | |
| | | |
| | | |
| | |
Assets | |
| | | |
| | | |
| | | |
| | |
Marketable
securities held in Trust Account: | |
$ | 116,897,590 | | |
$ | 116,897,590 | | |
$ | — | | |
$ | — | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Public
Warrants | |
$ | 517,500 | | |
$ | 517,500 | | |
$ | — | | |
$ | — | |
Private
Placement Warrants | |
$ | 23,475 | | |
$ | — | | |
$ | — | | |
$ | 23,475 | |
Sponsor
Working Capital Loan | |
$ | | |
$ | | |
$ | | |
$ | |
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 June 30, 2022 and December 31, 2021, assets held in the Trust Account were $116,897,590 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.
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 June 30, 2022 and December 31, 2021, the Company classified the Public Warrants as Level 1.
On April 1, 2022, the Company
entered into the Sponsor Working Capital Loan. Given the potential equity component of this Sponsor Working Capital Loan, it was valued
using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination, which is
considered to be a Level 3 fair value measurement. As such, as of June 30, 2022, the Company classified the Sponsor Working Capital Loan
as Level 3.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
The
estimated value of the Public Warrants transferred from a Level 3 measurement to a Level 1 measurement from the initial measurement through
December 31, 2021 was $4,052,888 as presented in the changes in fair value of Level 3 warrant liabilities table below.
SCHEDULE
OF CHANGE IN FAIR VALUE OF THE WARRANT LIABILITIES
Fair
value as of February 12, 2021 (inception) | |
$ | — | |
Initial
measurement on August 13, 2021 (Level 3) | |
| 9,864,941 | |
Change
in fair value | |
| (5,621,902 | ) |
Transfer
to Level 1 | |
| (4,052,888 | ) |
Fair
value as of December 31, 2021 | |
| 190,151 | |
Change
in fair value of Private Placement Warrants | |
| (95,076 | ) |
Fair
value as of March 31, 2022 | |
$ | 95,075 | |
Initial
measurement of draw on Sponsor Working Capital Loan on April 1, 2022 | |
| 23,000 | |
Initial
measurement of draw on Sponsor Working Capital Loan on May 24, 2022 | |
| 13,000 | |
Change
in fair value of Sponsor Working Capital Loan | |
| (1,000 | ) |
Change
in fair value of Private Placement Warrants | |
| (71,600 | ) |
Fair
value as of June 30, 2022 | |
$ | 58,475 | |
The
Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte-Carlo Simulation.
As of June 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 1 measurement due to the use of an observable market quote in an active
market.
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 June 30, 2022 and December 31, 2021 included the Private Placement Warrants. The estimated fair value
of the derivative warrant liabilities is determined using Level 3 inputs. Inherent in a binomial Monte-Carlo simulation are assumptions
related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility
of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants.
The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected
remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The
dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
PONO
CAPITAL CORP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022
(UNAUDITED)
The
following table provides quantitative information regarding Level 3 fair value measurements inputs of the Private Placement Warrants
as of their measurement dates:
SCHEDULE
OF FAIR VALUE MEASUREMENT INPUTS AND VALUATION TECHNIQUES
| |
As
of
June 30, 2022 | | |
As
of
December 31, 2021 | |
Stock
price | |
$ | 10.12 | | |
$ | 9.97 | |
Strike
price | |
$ | 11.50 | | |
$ | 11.50 | |
Term
(in years) | |
| 5.3 | | |
| 5.6 | |
Post-Merger
Period Volatility | |
| 0.8 | % | |
| 9.5 | % |
Risk-free
rate | |
| 3.0 | % | |
| 1.3 | % |
Dividend
yield | |
| — | % | |
| — | % |
Probability
of completing a Business Combination | |
| 20.0 | % | |
| 90.0 | % |
Fair
value of warrants | |
$ | 0.06 | | |
$ | 0.49 | |
The Sponsor Working Capital Loan
was valued using a Black-Scholes method that is adjusted for the estimated probability of the Company completing a Business Combination,
which is considered to be a Level 3 fair value measurement. The estimated fair value of each draw of the Sponsor Working Capital Loan
was based on the following significant inputs:
| |
| | | |
| | | |
| | |
| |
As
of
June 30, 2022 | | |
As
of
May 24, 2022
(Initial Measurement) | | |
As
of
April 1, 2022
(Initial Measurement) | |
Unit
price | |
$ | 10.10 | | |
$ | 10.08 | | |
$ | 10.38 | |
Conversion
price | |
$ | 10.00 | | |
$ | 10.00 | | |
$ | 10.00 | |
Expected
term | |
| 0.3 | | |
| 0.4 | | |
| 0.5 | |
Unit
volatility | |
| 5.5 | % | |
| 5.5 | % | |
| 14.0 | % |
Dividend
yield | |
| — | % | |
| — | % | |
| — | % |
Risk
free rate | |
| 1.7 | % | |
| 1.2 | % | |
| 1.1 | % |
Discount
rate | |
| 9.8 | % | |
| 9.8 | % | |
| 9.8 | % |
Probability
of completing a Business Combination | |
| 20 | % | |
| 20 | % | |
| 20 | % |
The
Company recognized a gain in connection with changes in the fair value of warrant liabilities of $1,605,125 and $3,702,064 in the condensed consolidated statements of operations during the
three and six months ended June 30, 2022, respectively. The Company did not recognize any gain or loss for the three months ended June
30, 2021 or for the period from February 12, 2021 (inception) through June 30, 2021 as the Company had not yet completed the Initial
Public Offering and had not yet granted any warrants. The Company recognized a gain on the change in fair value of Sponsor Working Capital
Loan of $1,000 in the condensed consolidated statement of operations for the three and six months ended June 30, 2022. The aggregate
amount by which the cash proceeds from the draws on the Sponsor Working Capital Loan was in excess of the fair value on the initial measurement
dates of $139,000 is reflected as a contribution to additional paid-in capital during the three and six months ended June 30, 2022.
NOTE
10. SUBSEQUENT EVENTS
Management
has evaluated subsequent events and transactions that occurred after the condensed consolidated balance sheet date up to the date that
the condensed consolidated financial statements were issued. Based upon this review, other than those subsequent events described below,
the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed consolidated
financial statements.
On
July 16, 2022, the Company drew $35,000 from
the Sponsor Working Capital Loan (see Note 5). On August 8, 2022, the Company drew $85,000
from the Sponsor Working Capital Loan. On August 10, 2022, the Company received $1,150,000
in funding from Mehana Capital LLC (“Mehana Capital”), an affiliate of the Sponsor to extend the Combination Period for an additional three months, as
described in Note 1. The Combination Period will now end on November 11, 2022. Mehana Capital purchased an aggregate of 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 to be deposited into the trust account as further described in the Form 8-K filed with
the SEC on August 10, 2022.
As
further described in Note 1, on August 8, 2022, the Company and Benuvia mutually terminated the Merger Agreement pursuant to Section
8.1(a) of the Merger Agreement, effective immediately. Neither party was required to pay the other a termination fee as a result of the
mutual decision to terminate the Merger Agreement.