ITEM 1A. RISK FACTORS
As
a smaller reporting company, we are not required to make disclosures under this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM 1C. CYBERSECURITY
We
are a SPAC with no business operations. Since our IPO, our sole business activity has been identifying and evaluating suitable acquisition
transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk and have not adopted any cybersecurity
risk management program or formal processes for assessing cybersecurity risk. Our board of directors is generally responsible for the
oversight of risks from cybersecurity threats, if there is any. We have not encountered any cybersecurity incidents since our IPO.
ITEM 2. PROPERTIES
We
currently maintain our executive offices at 643 Ilalo St., #102, Honolulu, Hawaii 96813, and our telephone number is (808) 892-6611.
Our Sponsor is making this space available to us as part of a monthly administrative fee of $10,000. We consider our current office space
adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS
We
may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not
currently a party to any material litigation or other legal proceedings brought against us. We are also not aware of any legal proceeding,
investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business,
financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not
Applicable.
PART
II
Our
units began to trade on The Nasdaq Global Market, or Nasdaq, under the symbol “PTWOU” on or about August 5, 2022, and the
shares of Class A common stock and warrants began separate trading on Nasdaq under the symbols “PTWO” and “PTWOW,”
respectively, on or about September 26, 2022.
Holders
of Record
As
of March 18, 2024, there were 5,216,290 shares of the registrant’s Class A common stock issued and outstanding held by approximately
five stockholders of record, and 1 share of the registrant’s Class B common stock issued and outstanding held by approximately
one stockholder of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial
owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividends
We
have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of an initial
business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements
and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business
combination will be within the discretion of our board of directors at such time. It is the present intention of our board of directors
to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring
any dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring
any share dividends in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited
by restrictive covenants we may agree to in connection therewith.
Securities
Authorized for Issuance Under Equity Compensation Plans
None.
Recent
Sales of Unregistered Securities
There
were no unregistered securities to report which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report
on Form 8-K.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
References
in this report (the “Annual Report”) to “we,” “us,” “Pono,” or the
“Company” refer to Pono Capital Two,
Inc. References to our “management” or our “management team” refer to
our officers and directors, and references to the “Sponsor” refer to Mehana Capital LLC.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in
conjunction with the consolidated financial statements and the notes thereto contained
elsewhere in this Annual Report. Certain information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking
Statements” elsewhere in this report for a description of these risks and uncertainties.
Overview
We
are a blank check company incorporated in Delaware on March 11, 2022 formed for the purpose of entering into a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate
our initial business combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”)
and the sale of the private placement units, the proceeds of the sale of our shares in connection with our initial business combination
pursuant to the shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination
of the foregoing or other sources.
On
January 31, 2023, the Company entered into an Agreement and Plan of Merger, as amended and restated on June 21, 2023 (the “Merger
Agreement”), by and among the Company, Pono Two Merger Sub, Inc., a Delaware corporation incorporated in January 2023, and a wholly-owned
subsidiary of the Company (“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 personal capacity and his capacity as
Seller Representative.
Pursuant
to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger
Sub will merge with and into 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 affiliated service companies, medical corporations, and
other entities, which collectively 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 collectively will be entitled to receive from the Company,
in the aggregate, a number of the Company’s 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.
In
connection with the Merger Agreement, 1,200,000 Sponsor Shares will be issued to the Sponsor on the date that is the earlier of (a) the
six (6) month anniversary of the Closing or (b) the expiration of the “Founder Shares Lock-up Period” (as defined in the
Company’s Insider Letter with the initial stockholders); provided that, the Sponsor in its sole discretion may direct Pono to issue
all or a portion of the Sponsor Shares on such earlier or later date as it shall determine (which date shall not be earlier than the
Closing).
On
May 5, 2023, the Company held a special meeting of stockholders (the “Special Meeting”), and the chairman adjourned the Special
Meeting to May 8, 2023. On May 8, 2023, the Company held the Special Meeting. During the Special Meeting, stockholders approved an amendment
to the Company’s amended and restated certificate of incorporation (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
September 8, 2023, Pono entered into the First Amendment to the A&R Merger Agreement (the “Amendment”) with the parties
thereto. Prior to the Amendment, the A&R Merger Agreement provided for the holders of SBC securities collectively to be entitled
to receive from Pono, in the aggregate, a number of Pono securities with an aggregate value equal to (the “Merger Consideration”)
(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. Pursuant
to the Amendment, the $1,200,000,000 amount in the Merger Consideration calculation above was reduced to $1,000,000,000.
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 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.
In
connection with the Second Special Meeting, we 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,
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.
Issuance
of Convertible Promissory Note
On
May 18, 2023, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with SBC. On May 26, 2023, we issued
and sold to SBC a convertible promissory note (the “Note”) of $1,000,000 in aggregate principal amount (the “Principal
Amount”). The Note is convertible into shares of our Class A common stock. 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 a specified
Company. 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 February 27, 2024, we entered into an Amendment to the Note Purchase Agreement (the “Amended Note Purchase
Agreement”) with SBC, which increased the purchase price of the Note from $1,000,000 to $2,700,000.
Immediately
prior to the merger being effected in connection with the consummation of the Business Combination, the outstanding Principal Amount
will be converted automatically into the number of shares of common stock equal to the quotient obtained by dividing (x) the Principal
Amount by (y) $10.00, subject to customary adjustments for any stock splits or combinations occurring prior to conversion.
Results
of Operations
We
have neither engaged in any operations nor generated any revenues to date. Our only activities
from March 11, 2022 (inception) through December 31, 2023 were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a business combination. We
do not expect to generate any operating revenues until after the completion of our initial business combination. We will generate non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering. We incur expenses as a result of being
a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For
the year ended December 31, 2023, we had net income of $339,767, which resulted from interest and
dividend income on investments held in the Trust Account of $2,641,407, partially offset by operating and formation costs of $1,635,452,
franchise tax expense of $137,379, and income tax expense of $528,809.
For
the period from March 11, 2022 (inception) through December 31, 2022, we had net income of $552,813, which resulted from operating and
formation costs of $382,051, income tax expenses of $248,508 and franchise tax expenses of $161,644, partially offset by interest and
dividend income on investments held in the Trust Account for $1,345,016.
Liquidity,
Capital Resources, and Going Concern
For
the year ended December 31, 2023, net cash used in operating activities was $2,132,921, which
was due to interest and dividends earned on marketable securities held in the Trust Account of $2,641,407, offset by net income
of $339,767, and a change in operating assets and liabilities of $168,719.
For
the period from March 11, 2022 (inception) through December 31, 2022, net cash used in operating
activities was $462,816, which was due to interest earned on marketable securities held in the Trust Account of $1,345,016, offset by
net income of $552,813 and a change in operating assets and liabilities of $329,387.
For
the year ended December 31, 2023, net cash provided by investing activities was $101,010,630, which was due to proceeds from the Trust
Account for payment to redeeming shareholders of $100,078,879, proceeds from the Trust Account to pay franchise taxes of $931,751.
For
the period from March 11, 2022 (inception) through December 31, 2022 net cash used in investing activities was $117,875,000 which was
due to the investment of cash in the Trust Account.
For
the year ended December 31, 2023, net cash used in financing activities was $99,078,879, which was due to payment to redeeming shareholders
of $100,078,879, partially offset by proceeds from convertible promissory note of $1,000,000.
For
the period from March 11, 2022 (inception) through December 31, 2022, net cash provided by financing
activities was $118,823,380, which was due to the proceeds from the sale of Units (as defined below) (net of the underwriting discount)
of $113,045,000, proceeds from the sale of Placement Units (as defined below) of $6,343,750, and proceeds from the issuance of Class
B common stock to the Sponsor of $25,000, offset in part by payment of offering costs of $590,370.
The
registration statement for the Company’s Initial Public Offering was declared effective on August 4, 2022. On August 9, 2022, the
Company consummated the Initial Public Offering of 11,500,000 units, (the “Units” and, with respect to the shares of Class
A common stock included in the Units sold, the “Public Shares”), including 1,500,000 Units issued pursuant to the exercise
of the underwriters’ over-allotment option in full, generating gross proceeds of $115,000,000.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 634,375 units (the “Placement
Units”) at a price of $10.00 per Placement Unit in a private placement to Mehana Capital
LLC (the “Sponsor”), including 63,000 Placement Units issued
pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750.
Following
the closing of the Initial Public Offering on August 9, 2022, an amount of $117,875,000 ($10.25 per Unit) from the net proceeds of the
sale of the Units in the Initial Public Offering and the sale of the Placement
Units was placed in a trust account.
We
intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the funds
held in the trust account and not previously released to us to pay our taxes (which interest shall be net of taxes payable and excluding
deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay our taxes, if any. Our
annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account.
We expect the interest earned on the amount in the trust account will be sufficient to pay our taxes. We expect the only taxes payable
by us out of the funds in the trust account will be income and franchise taxes, if any. To the extent that our common stock or debt is
used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account
will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our
growth strategies.
As
of December 31, 2023, the Company had $284,394 in cash held outside of the Trust Account, working capital deficit, net of income tax
payable and franchise tax payable of $1,129,417 and accumulated deficit of $5,995,269. The Company has incurred and expects to continue
to incur significant costs in pursuit of the Company’s financing and acquisition plans. For the year ended December 31, 2023 the
Company had loss from operations of $(1,772,831) and net cash used in operating activities was $2,132,921. The Company has further satisfied
liquidity needs through a Convertible Promissory Note of $1,000,000. 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 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. In addition, the Company will have until November 9, 2024 to
consummate a business combination. If a business combination is not consummated by November 9, 2024, less than one year after the date
these consolidated financial statements are issued, there will be a mandatory liquidation and subsequent dissolution
of the Company. Management has determined that the mandatory liquidation, along with the lack of liquidity, should a business combination
not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern.
No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after November
9, 2024. The Company intends to complete the initial business combination before the mandatory liquidation date. However, there can be
no assurance that the Company will be able to consummate any business combination by November 9, 2024.
Off-Balance
Sheet Arrangements
As
of December 31, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.
Contractual
Obligations
Registration
and Stockholder Rights Agreement
The
holders of the Founder Shares and Placement Units (including securities contained therein) and Units (including securities contained
therein) that may be issued upon conversion of working capital loans and extension loans, and any shares of Class A common stock issuable
upon the exercise of the Placement Warrants and any shares of Class A common stock and warrants (and underlying Class A common stock)
that may be issued upon conversion of the Units issued as part of the working capital loans and extension loans and Class A common stock
issuable upon conversion of the Founder Shares, will be entitled to registration rights pursuant to a registration rights agreement signed
on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the
Founder Shares, only after conversion to the Class A common stock). The holders of these securities are entitled to make up to two demands,
excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the completion of the initial business combination and
rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.
Administrative
Support Agreement
The
Company’s Sponsor has agreed, commencing from the date of the Initial Public Offering through the earlier of the Company’s
consummation of a business combination and its liquidation, to make available to the Company certain general and administrative services,
including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to
pay to Mehana Capital LLC, the Sponsor, $10,000 per month for these services to complete a business combination. For the year ended December
31, 2023, $120,000 was incurred and paid to Mehana Capital LLC for these services. For the period from March 11, 2022 (inception) through
December 31, 2022, $50,000 was paid to Mehana Capital LLC for these services.
Underwriting
Agreement
Simultaneously
with the Initial Public Offering, the underwriters fully exercised the over-allotment option to purchase an additional 1,500,000 Units
at an offering price of $10.00 per Unit for an aggregate purchase price of $15,000,000.
The
underwriters were paid a cash underwriting discount of $0.17 per Unit, or $1,955,000 in the aggregate, upon the closing of the Initial
Public Offering. In addition, $0.35 per unit, or $4,025,000 in the aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event
that the Company completes a business combination, subject to the terms of the underwriting agreement.
Promissory
Note - Related Party
On
April 25, 2022, the Sponsor agreed 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 “Promissory Note”). This loan is non-interest bearing and payable on the earlier
of (i) March 31, 2023 or (ii) the date on which Company consummates the Initial Public Offering. Prior to the Initial Public Offering,
the Company had borrowed $300,000 under the Promissory Note. The outstanding balance under the Promissory Note of $300,000 was repaid
at the closing of the Initial Public Offering on August 9, 2022.
Critical
Accounting Estimates
We
prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management
to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there
are material differences between these estimates and actual results, our financial condition or results of operations would be affected.
We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our
circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.
We
consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were
highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from
period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact
on our financial condition or results of operations. There are items within our financial statement that require estimation but are not
deemed critical, as defined above.
For
a detailed discussion of our significant accounting policies and related judgments, see Note 2 of the Notes to Consolidated Financial
Statements in "Item 15. Exhibits and Financial Statement Schedules" of this report.
Recent
Accounting Standards
In
December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires
public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income
taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective
for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The accounting pronouncement
is not expected to have a material impact on our consolidated financial statements and related disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This
information appears following Item 15 of this Report and is included herein by reference.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted
under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Evaluation
of Disclosure Controls and Procedures
As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation
of the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based upon their evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15
(e) under the Exchange Act) were effective.
Changes
in Internal Control Over Financial Reporting
During
the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Management’s
Report on Internal Controls Over Financial Reporting
As
required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act (as defined in Rules 13a-15(e) and 15-
d-15(e) under the Securities Exchange Act of 1934, as amended), our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external
reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures
that:
(1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of our company,
(2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and
directors, and
(3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our
consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or
procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31,
2023. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on our assessments and those criteria,
management determined that we maintained effective internal control over financial reporting as of December 31, 2023.
This
Annual Report on Form 10-K does not include an attestation report of internal controls from our independent registered public accounting
firm due to our status as an emerging growth company under the JOBS Act.
ITEM 9B. OTHER INFORMATION
As
previously reported, 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. The 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.
A form of the amendment to the non-redemption
agreement is filed with this Annual Report on Form 10-K as Exhibit 10.19 and is incorporated herein by reference. The foregoing description
of the amendment to the non-redemption agreement is not complete and is qualified in its entirety by reference to the amendment to the
non-redemption agreement filed herewith.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth information about our directors and executive officers.
Name Age Position
Darryl Nakamoto 50 Chief Executive Officer, Director
Allison Van Orman 51 Chief Financial Officer
Dustin Shindo 50 Chairman of the Board
Kotaro Chiba 49 Independent Director
Mike Sayama 70 Independent Director
Trisha Nomura 44 Independent Director, and Chairwoman of the Audit Committee
Darryl
Nakamoto, Chief Executive Officer and Director
Mr.
Nakamoto serves as our Chief Executive Officer and Director. He is an entrepreneur and executive with over 20 years of industry experience,
including his former role as CFO of a publicly traded company. Since 2017, Mr. Nakamoto serves as President and Owner of Viv, LLC, a
successful accounting and finance solutions provider. Since 2021, Mr. Nakamoto has also served as Controller of Hawaiian Springs, LLC.
From May 2016 to July 2017, Mr. Nakamoto served as President and CFO of DKI808 LLC, dba Premier Restoration Hawaii, where he secured
financing for the purchase of Maui Fire & Flood and expanded the full-service restoration business from Maui to Oahu. Between March
2014 and March 2016, Mr. Nakamoto served as President of Island Flooring. Mr. Nakamoto served as President of Kaiuli Energy from April
2012 to February 2014, a seawater air conditioning startup where he was responsible for strategic decisions and project developments.
In January 2024, Mr. Nakamoto began serving as a board member of Big Brothers
Big Sisters Hawaii, and from 2014 to 2020, Mr. Nakamoto served as Treasurer, Vice Chair and board member of the Japanese Cultural Center of Honolulu.
From
January 2005 to March 2012, Mr. Nakamoto was CFO, Treasurer and Secretary of Hoku Scientific, a then publicly traded clean energy firm
based in Honolulu, Hawaii, where he managed all finance, accounting, and treasury functions. Between January 2003 and December 2004,
Mr. Nakamoto was a Finance Analyst for Frito-Lay of Hawaii. From March 2001 to January 2003, he worked as a Consultant for Akamai Consulting
Group/Syntera Solutions. He was a Regional Director for software development startup ActivityMax from 2000 to 2001. Mr. Nakamoto began
his career as an Accountant at KPMG from 1996 to 2000. Mr. Nakamoto is a CPA, not in public practice. He graduated from the University
of Washington in 1996 with a Bachelor of Arts in Accounting and a Bachelor of Arts in Finance. Mr. Nakamoto is a former Treasurer and
board member of the Make-A-Wish foundation of Hawaii. Mr. Nakamoto’s public company experience, paired with his entrepreneurial
and management skills in a diverse array of industries makes him a valuable member of our management team and board of directors.
Allison
Van Orman, Chief Financial Officer
Ms.
Van Orman is an experienced Certified Public Accountant and entrepreneur. Since December 2000, Ms. Van Orman has served as Principal
at Allison D T Van Orman, CPA LLC, where she helps clients navigate complex tax compliance and tax planning issues and consults small
business owners to improve operations and identify areas of growth. Ms. Van Orman was sole proprietor of Grumpy Girl Clothing between
October 2003 and December 2010, performing duties such as product design, product costing and distribution, graphic design and marketing,
and public relations and communications for her business. From 1998 to 2000, Ms. Van Orman was an auditor/accountant at Chinaka, Siu,
& Co., CPAs in Honolulu, where she performed accounting and tax duties for small business clients as well as preparing audit programs
and supervising assistants on audits of non-profit organizations. Ms. Van Orman received her Bachelor of Science, Magna Cum Laude in
Accounting from Santa Clara University in 1995 and her MBA from the University of Hawaii in 1997. She is a licensed CPA in the State
of Hawaii, and currently a member of the American Institute of Certified Public Accountants (“AICPA”). Ms. Van Orman’s
accounting experience makes her an invaluable asset to the management team.
Dustin
Shindo, Chairman of the Board
Mr.
Shindo serves as our Chairman of the Board. He is the Manager of Mehana Capital, LLC, our Sponsor, and is an entrepreneur,
executive, technologist, and a seasoned advisor with more than 25 years of industry experience. Mr. Shindo previously served as
Chairman of the Board of Pono Capital Three, Inc. until the closing of its business combination with New Horizon Aircraft Ltd. in
January 2024. Mr. Shindo also previously served as Chief Executive Officer of Pono Capital Corp. until the closing of its business
combination with AERWINS Technologies Inc. in February 2023. Recently, Mr. Shindo started
Joyn Corporation, a software company. Mr. Shindo is also the Vice President and director of Perfect Game Hawaii, a non-profit
entity supporting baseball. From 2017 to July 2022, Mr. Shindo served as the Chief Executive Officer of Junify Corporation,
which operates in California and Japan. Junify offers zero trust network access software (software defined border) to help companies
better secure their cloud resources. Mr. Shindo has also been retained for a number of consulting positions since July 2014 for
companies working in the health care, travel, technology, construction, and non-profit industries. From December 2012 to December
2018, Mr. Shindo served as the Chief Executive Officer of Pono Health based in California, Washington, and Hawaii, where he provided
consulting, data management, analytics, and software development services. Pono Health was the primary entity of Pono Corporation,
founded in December 2012. Mr. Shindo managed healthcare data for individuals in Hawaii and for clinics in Washington, Oregon and
Arizona. Mr. Shindo also developed analytics platform used to calculate gaps in care, cost savings, and other health
metrics.
From
March 2001 to March 2010, Mr. Shindo served as the Chief Executive Officer of Hoku Scientific based in Honolulu, Hawaii, where he led
the company through an IPO on the NASDAQ Global Market and signed customer contracts totaling USD 2+ billion. From December 1995 to August
1997, Mr. Shindo served as the President of Mehana Brewing Company based in Hilo, Hawaii. In June 1995, Mr. Shindo received his Bachelor
of Art’s degree in Accounting/Finance/Marketing at University of Washington based in Seattle, Washington. In May 1999, Mr. Shindo
received his Master’s in Business Administration at Darden Graduate School of Business Administration, University of Virginia based
in Charlottesville, Virginia. In August 2015, Mr. Shindo completed the SEP program at Stanford Graduate School of Business, Stanford
University. Mr. Shindo’s entrepreneurial, executive, and advising experience, paired with his public company experience through
Pono Capital Corp., Pono Capital Three, Inc., and Hoku Scientific, make him a valuable member of our board of directors.
Our
Independent Directors
Our
efforts to seek a suitable business combination target will be complemented and augmented by the expertise and network of relationships
of our directors, who each have extensive experience in business and financial matters. In addition to our seasoned executive team, we
have assembled a strong group of directors. The board is expected to be comprised of five individuals. These individuals bring together
a breadth of operating experience, industry connectivity and proprietary access to leading companies that enhance our value proposition.
Our board will be a driving force in our efforts to identify a target and effect a business combination and may invest personal capital
in the transaction. The Company’s independent directors’ bios are presented here.
Kotaro
Chiba, Independent Director
Kotaro
Chiba serves as an independent director. Mr. Chiba previously served as an Independent Director of Pono Capital Three, Inc. until the closing of its business combination with New Horizon Aircraft
Ltd. in January 2024 and as an Independent Director of Pono Capital Corp. until the closing of its business combination with AERWINS
Technologies Inc. in February 2023. Mr. Chiba is also the founder and General Partner of Chiba Dojo Fund, a venture capital based fund
in Tokyo focusing its investing on Internet and IOT related start-ups since September 2019. Before launching the Chiba Dojo Fund, Mr.
Chiba founded and continues to serve as the General Partner of the Drone Fund since in June 2017. The Drone Fund is a venture capital-based
fund in Tokyo focusing its investment on drones and air mobility start-ups. The Drone Fund aims to create a drone and air-mobility enabled
society. One of the Drone Fund’s portfolio companies went public on the Tokyo Mothers Market in December 2019—the first drone
company to make an IPO in Japan. As an angel investor, Mr. Chiba has invested in more than 60 startups and 40 VC funds in Internet markets
and other fields. Mr. Chiba also currently serves or has served as Director of various mobility and technology companies, including:
Aeronext since April 2017, A.L.I. Technologies, Inc. since December 2017, Prodrone Co. Ltd. from October 2020 to October 2022, teTra
aviation from May 2020 to August 2022, and VFR from October 2021 to November 2022.
Prior
to that, Mr. Chiba was the co-founder, Executive Vice President and director from January 2009 to July 2016 with COLOPL Inc., which focused
on mobile gaming services on smartphone applications as well as VR services and location data analysis consulting services, research
service dedicated to smartphones. In 2012, he helped lead the company’s listing on the Tokyo Stock Exchange (Mothers) and then
in 2014 led the company to a US$4 billion IPO on the Tokyo Exchange market (first section). Prior to that, Mr. Chiba was the founder
and director from January 2000 to March 2007 for K Laboratory Inc. (now KLab Inc.) that develops mobile games and online games. Before
joining KLab Inc., Mr. Chiba was a mobile web media planner from April 1997 to December 1999 for Recruit Co. Ltd., which is Japan’s
largest recruitment company and provides services such as job advertising, temporary staffing, sales promotion, and IT solution.
Since
April 2019, Mr. Chiba has been a guest Professor at Keio University, a research-oriented campus located in the city of Fujisawa, Kanagawa
Prefecture, Japan where he teaches students to become technology innovators. Mr. Chiba is Keio University, SFC Campus graduate, in March
1997, with a Bachelor of Arts in Environment and Information Studies. He is also the first domestic customer of Honda Jet in Japan and
holds a private pilot license (FAA Japan). Mr. Chiba’s extensive experience and knowledge in developing start-ups and working in
venture capital provides him with a unique perspective and makes him a valuable addition to our board of directors.
Mike
Sayama, Ph.D., Independent Director
Dr.
Mike Sayama serves as an independent director. Dr. Sayama previously served as an Independent Director of Pono Capital Three, Inc.
until the closing of its business combination with New Horizon Aircraft
Ltd. in January 2024 and as an Independent Director for AERWINS Technologies Inc. (f/k/a Pono Capital Corp.). Dr. Sayama was
formerly the Executive Director of Community First since it was established in July 2016 until January 2021. As the founding executive
director, he was responsible for operations, developing a strategic plan for an accountable health community in East Hawaii, community
relations, and fund raising. From January 2021 to June 2021 he served as the Director of Strategy to facilitate the transition to a new
management team.
From
October 2013 to December 2018, Dr. Sayama served as a Vice President at Pono Health and was Director of Learning Health Homes, a project
where he was responsible for managing the East Hawaii Independent Physicians Association and implementing a data platform integrating
health plan, hospital, and physician data. Dr. Sayama also facilitated the reorganization of EHI and development of its strategic direction.
Community First, a 501(c) 3 non-profit, which serves as a neutral forum for healthcare stakeholders in East Hawaii, grew out of the Learning
Health Homes Initiative.
From
August 1997 to October 2013, Dr. Sayama served as a Vice President of the Hawaii Medical Service Association, first in Health Benefits
Management and then in Customer Relations. In the first position, he streamlined preauthorization and appeal processes, including the
elimination of preauthorization for inpatient admissions without increase in inpatient utilization. In his second position he established
call centers in Hilo which stabilized the call center work force and improved the timeliness and accuracy of customer service.
From
April 2001 to April 2005, Dr. Sayama was a Director on the City Bank Board, and from April 2005 to April 2009, was a Director on the
Boards of Central Pacific Bank and Central Pacific Financial Corporation.
Regarding
education: In May 1975, he received his Bachelor of Arts degree in Psychology from Yale University, and in August 1979, his Master of
Arts degree in Clinical Psychology from University of Michigan. In August 1982, Dr. Sayama received his Ph.D. degree in Clinical Psychology
from University of Michigan. He is the author of several books on psychotherapy and Zen Buddhism.
His
community service includes having been a Director on the Bay Clinic Board (the Federally Qualified Health Center in East Hawaii) and
currently serving as the Abbot of Chozen-ji, International Zen Dojo. Mr. Sayama brings broad knowledge of the healthcare technology industry,
as well as prior experience serving as a founding executive director, which makes him a valuable addition to our board of directors.
Trisha
Nomura, Independent Director and Chairperson of the Board’s Audit Committee
Trisha
Nomura serves as an independent director and Chairwoman of our audit committee. Ms. Nomura previously served as an Independent
Director and Chairwoman of the audit committee of Pono Capital Three, Inc. until the closing of its business combination with New Horizon Aircraft
Ltd. in January 2024 and continues in these roles at the merged company. She also previously served as Chief Financial
Officer of Pono Capital Corp. until the closing of its business combination with AERWINS Technologies Inc. in February 2023. Since
July 2018, Ms. Nomura has owned a consulting firm, Ascend Consulting, LLC. Prior to opening her own firm, Ms. Nomura worked in both
public accounting and private industry. Ms. Nomura was the Chief Operating Officer of HiHR from July 2015 to December 2016, and the
Vice President of Strategic Services from May 2014 to July 2015. Ms. Nomura also served as the Chief People Officer of ProService
Hawaii from January 2017 to June 2018. Ms. Nomura currently serves as Vice President of the Hawaii Society of
Certified Public Accountants. Ms. Nomura began volunteering with the HSCPA since 2010 through the YCPA Squad, has been the
Treasurer of Kaneohe Little League since 2013, and is a member of the AICPA, where she was selected to attend the Leadership
Academy, has served as an at-large Council member and has also served on the Association Board of Directors. Ms. Nomura is a
CPA, not in public practice, and a CGMA. She is a graduate of Creighton University, where she obtained her Bachelor of Science in
Business Administration in accounting, and of the University of Hawaii at Manoa, where she earned her Master of Accountancy degree.
Ms. Nomura’s consulting, accounting and management skills and knowledge make her an important addition to our board of
directors.
Number
and Terms of Office of Officers and Directors
We
have five directors. Our board of directors is divided into three classes, with only one class of directors being elected in each year
and with each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term.
In accordance with the Nasdaq corporate governance requirements, we are not required to hold an annual meeting until one year after our
first fiscal year end following our listing on Nasdaq.
The
term of office of the first class of directors, consisting of Kotaro Chiba, will expire at our first annual meeting of stockholders.
The term of office of the second class of directors, consisting of Darryl Nakamoto and Mike Sayama, will expire at our second annual
meeting of the stockholders. The term of office of the third class of directors, consisting of Trisha Nomura and Dustin Shindo, will
expire at our third annual meeting of stockholders. We may not hold an annual meeting of stockholders until after we complete our initial
business combination. We may not hold an annual meeting of stockholders until after we complete our initial business combination.
Prior
to the completion of an initial business combination, any vacancy on the board of directors may be filled by a nominee chosen by holders
of a majority of our founder shares. In addition, prior to the completion of an initial business combination, holders of a majority of
our founder shares may remove a member of the board of directors for any reason. Pursuant to an agreement to be entered into concurrently
with the issuance and sale of our securities, our sponsor, upon completion of an initial business combination, will be entitled to nominate
individuals for election to our board of directors, as long as our sponsor holds any securities covered by the registration rights agreement.
Our
officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms