NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
1 — Description of Organization and Business Operations
Pono
Capital Corp (the “Company”) is a blank check company incorporated in Delaware on February 12, 2021. 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.
We
have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to September 30, 2021 were
organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”) and identifying
a target company for a business combination. The Company will not generate any operating revenues until after the completion of
its initial Business Combination, at the earliest. The Company will generate 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 below). The Company has selected December
31 as its fiscal year end.
The
Company’s sponsor is Mehana Equity LLC, a Delaware limited liability company (the “Sponsor”). The registration statement
for the Company’s Initial Public Offering was declared effective on August 11, 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 6) (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”).
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 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 September 30, 2021, we have available to us $396,845 of cash
on our balance sheet and a working capital of $682,972.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of the Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have
a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions
and taxes payable on interest earned on the Trust Account) at the time of the signing of a definitive agreement to enter a Business Combination.
The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register
as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect
a Business Combination.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
1 — Description of Organization and Business Operations (Continued)
The
Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a
Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means
of a tender offer. In connection with a proposed Business Combination, the Company may seek stockholder approval of a Business Combination
at a meeting called for such purpose at which stockholders may seek to redeem their shares, regardless of whether they vote for or against
a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least
$5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding
shares voted are voted in favor of the Business Combination.
The
Company will have until August 13, 2022 (or up to February 11, 2023, as applicable) to consummate a Business Combination. If the Company
is unable to complete a Business Combination within 12 months (or up to 18 months from the closing of this offering 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 our 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 UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
1 — Description of Organization and Business Operations (Continued)
Liquidity
and Management’s Plans
Prior
to the completion of the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period
of time, which is considered to be one year from the issuance date of the financial statements. The Company has since completed its Initial
Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was
released to the Company for general working capital purposes. In addition, in order to finance transaction costs in connection with a
Business Combination, the Sponsor may provide us up to $1,500,000 under Working Capital Loans (see Note 5). Accordingly, management has
since reevaluated the Company’s liquidity and financial condition and determined that sufficient capital exists to sustain operations
through the earlier of the consummation of a Business Combination or one year from this filing and therefore substantial doubt has been
alleviated. There is no assurance that the Company’s plans to consummate an initial Business Combination will be successful within
the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Risks
and Uncertainties
Management
is currently evaluating 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 financial statement. The 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 unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form
10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial
reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position,
results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include
all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating
results and cash flows for the periods presented.
The
accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial
Public Offering as filed with the SEC on August 11, 2021, as well as the Company’s Current Report on Form 8-K, as filed with the
SEC on August 16, 2021. The interim results for the period ended September 30, 2021 are not necessarily indicative of the results to
be expected for the period ending December 31, 2021 or for any future periods.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
2 — Summary of Significant Accounting Policies (Continued)
Use
of Estimates
The
preparation of 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 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 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 $396,845 in cash and no cash equivalents as of September
30, 2021.
Marketable
Securities Held in Trust Account
At
September 30, 2021, substantially all of the assets held in the Trust Account were held in mutual funds.
Income
Taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset
and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed
for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible
amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized ASC Topic 740
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. The Company’s management determined the United States is the Company’s
only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income
tax expense. There were no unrecognized tax benefits as of September 30, 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
provision for income taxes was deemed to be immaterial for the period from February 12, 2021 (inception) through September 30, 2021.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
2 — Summary of Significant Accounting Policies (Continued)
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 amended and restated certificate
of incorporation. In accordance with ASC 480, conditionally redeemable Class A common stock (including shares of Class A common stock
that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control) 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.
On
September 30, 2021, 11,500,000 shares of Class A Common Stock outstanding are subject to possible redemption.
As
of September 30, 2021, the Class A Common Stock reflected on the balance sheet are reconciled in the following table:
Schedule
of Contingently Redeemable Class A Common Stock
|
|
As of September 30, 2021
|
|
Gross Proceeds
|
|
$
|
115,000,000
|
|
Less:
|
|
|
|
|
Proceeds allocated to public warrants
|
|
|
(9,427,125
|
)
|
Class A shares issuance costs
|
|
|
(5,663,197
|
)
|
Plus:
|
|
|
|
|
Accretion of carrying value to redemption value
|
|
|
16,815,322
|
|
Contingently 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. On September 30, 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
Loss Per Share
Net
income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for
the period. The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with
the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since
the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The
Company’s statements of operations includes a presentation of income (loss) per share for common stock shares subject to possible
redemption in a manner similar to the two-class method of income (loss) per share. Net loss per common share, basic and diluted, for
redeemable Class A common stock is calculated by dividing the net loss allocable to Class A common stock subject to possible redemption,
by the weighted average number of redeemable Class A common stock outstanding since original issuance. Net loss per common stock, basic
and diluted, for non-redeemable Class A and Class B common stock is calculated by dividing net loss allocable to non-redeemable common
stock, by the weighted average number of shares of non-redeemable common stock outstanding for the periods. Shares of non-redeemable
Class B common stock include the founder shares as these common shares do not have any redemption features and do not participate in
the income earned on the Trust Account.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Schedule
of Anti-dilutive Basic and Diluted Earnings Per Share
|
|
Three Months
Ended
September 30,
2021
|
|
|
For The Period from
February 12, 2021
(Inception) Through September 30,
2021
|
|
Redeemable Class A common stock
|
|
|
|
|
|
|
|
|
Non-redeemable net loss
|
|
|
|
|
|
|
|
|
Numerator: net loss allocable to redeemable Class A common shares
|
|
|
(890,341
|
)
|
|
|
(678,952
|
)
|
Redeemable net loss
|
|
|
(890,341
|
)
|
|
|
(678,952
|
)
|
Denominator: weighted average number of redeemable Class A common shares
|
|
|
6,043,478
|
|
|
|
2,406,926
|
|
Basic and diluted net income per redeemable Class A common share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
Non-redeemable Class A common shares
|
|
|
|
|
|
|
|
|
Numerator: net loss allocable to non-redeemable Class A common stock
|
|
|
(40,547
|
)
|
|
|
(30,928
|
)
|
Denominator: weighted average number of non-redeemable Class A common shares
|
|
|
274,995
|
|
|
|
109,522
|
|
Basic and diluted net loss per non-redeemable Class A common shares
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
Non-redeemable Class B common shares
|
|
|
|
|
|
|
|
|
Numerator: net loss allocable to non-redeemable Class B common stock
|
|
|
(368,615
|
)
|
|
|
(589,847
|
)
|
Denominator: weighted average number of non-redeemable Class B common shares
|
|
|
2,500,000
|
|
|
|
2,088,745
|
|
Denominator: weighted average number of common shares
|
|
|
2,500,000
|
|
|
|
2,088,745
|
|
Basic and diluted net loss per non-redeemable Class B common shares
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
Basic and diluted net income per common shares
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
Non-redeemable net loss
|
|
|
|
|
|
|
|
|
Note
2 — Summary of Significant Accounting Policies (Continued)
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 statement of operations. Offering costs associated with
the Class A common stock were charged to stockholders’ equity upon the completion of the Initial Public Offering.
Fair
Value of Financial Instruments
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 UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Derivative
Financial Instruments
The
Company accounts for derivative financial instruments in accordance with ASC Topic 815. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each
reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative financial instruments
is evaluated at the end of each reporting period.
Recent
Accounting Standards
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies
the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s
own equity. ASU 2020- 06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for
all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis,
with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would
have on its financial position, results of operations or cash flows. Management does not believe that any other recently issued, but
not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial
statements.
Note
3 —Initial Public Offering
Following
the closing of the Initial Public Offering and the sale of the Over-allotment Option Units, 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.
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 $ per share (as adjusted
for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing
after a Business Combination, with respect to the remaining any of the Class B common stock, upon six months after the date of the consummation
of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation,
merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange
their common stock for cash, securities or other property.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
5 — Related Party Transactions (Continued)
Promissory
Note — Related Party
On
March 22, 2021, the Sponsor committed to loan the Company an aggregate of up to $300,000 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 us with a loan to the Company up
to $1,500,000 as may be required (“Working Capital Loans”). Such 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 Working Capital Loans, but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. As of September 30, 2021, there were no amounts outstanding
under any Working Capital Loans.
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 Amended and Restated Certificate of Incorporation
and the trust agreement to be entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time
available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees,
must deposit into the Trust Account $ 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 $2,300,000 with the underwriters’ over-allotment
option exercised in full ($ 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.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
5 — Related Party Transactions (Continued)
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.
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 this offering, requiring us to register such securities for resale (in the case of the founder shares, only after conversion
to our Class A common stock). The holders of these securities are entitled to make up to two demands, excluding short form demands, that
we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration
statements filed subsequent to our completion of our 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.
Underwriters
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 deferred
underwriting fee is $3,450,000.
Right
of First Refusal
For
a period beginning on the closing of this offering and ending 12 months from the closing of a business combination, we have granted EF
Hutton a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public
equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(g)(3)(A)(i), such right of first refusal
shall not have a duration of more than three years from the effective date of the registration statement of which this prospectus forms
a part.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
7 – Stockholders’ Equity
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 September 30,
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 September 30, 2021, there
were 521,675 shares of Class A common stock issued and outstanding.
Class
A Common Stock Subject to Possible Redemption — We account for our Class A common stock subject to possible redemption
in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock
subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Shares of conditionally
redeemable Class A common stock (including 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 our control) are classified as temporary
equity. At all other times, shares of Class A common stock are classified as shareholders’ equity. Although the Company did not
specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its public shares in an amount
that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001. However, the threshold in its charter
would not change the nature of the underlying shares as redeemable and thus public shares would be required to be disclosed outside of
permanent equity. As of September 30, 2021, 11,500,000 shares of Class A Common Stock outstanding are 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 September
30, 2021, there were 2,875,000 shares of Class B common stock issued and outstanding (includes an aggregate of 375,000 shares subject
to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part). 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 statement 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 UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
7 – Stockholders’ Equity (Continued)
The
Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial Business
Combination, it will use its commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement
or a new registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration
statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants
expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock
issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial business
combination, 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
Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Public Offering, except that the Placement
Warrants and the Class A common stock issuable upon the exercise of the 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 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 Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants
will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
On
September 30, 2021, there were 8,625,000
Public Warrants and 391,256 Placement
Warrants outstanding.
PONO
CAPITAL CORP
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2021
Note
8 — Fair Value Measurements
The
following table presents information about the Company’s assets and derivative warrant liabilities that are measured at fair value
on a recurring basis as of September 30, 2021 and indicates 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:
|
|
Quoted Prices in Active Markets
(Level 1)
|
|
|
Significant other Observable Inputs
(Level 2)
|
|
|
Significant other Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
$
|
116,725,747
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,074,000
|
|
Private Placement Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
471,855
|
|
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.
There were no changes in the measurements during the three months ended September 30, 2021.
At
September 30, 2021, assets held in the Trust Account were $116,725,747 in a mutual fund invested in U.S. Treasury Securities.
The
Company recognized $9,864,941 for the derivative warrant liabilities upon their issuance on August 13, 2021. The Sponsor paid an aggregate
of $5,216,750 for Private Placement Warrants with an initial aggregate fair value of $437,816. The excess purchase price over the initial
fair value on the private placement closing date is recognized as a capital contribution from the Sponsor.
The
Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that
are not actively traded, which at September 30, 2021 included both the Public and 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.
The
following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:
Schedule
of Fair Value Measurement Inputs and Valuation Techniques
|
|
August 13, 2021
|
|
|
September 30, 2021
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Share price
|
|
$
|
9.18
|
|
|
$
|
9.33
|
|
Expected term (years)
|
|
|
6.00
|
|
|
|
5.86
|
|
Probability of Acquisition
|
|
|
80
|
%
|
|
|
80
|
%
|
Post-Merger Period Volatility
|
|
|
25
|
%
|
|
|
25
|
%
|
Risk-free rate
|
|
|
0.08
|
%
|
|
|
0.08
|
%
|
Dividend yield (per share)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
change in the fair value of the derivative warrant liabilities for the period from February 12, 2021 (inception) through September 30,
2021 is summarized as follows:
Schedule
of change in the fair value of the warrant liabilities
|
|
Private Placement
|
|
|
Public Warrants
|
|
|
Warrant Liability
|
|
Fair value as of August 13, 2021 (Initial Public Offering)
|
|
$
|
437,816
|
|
|
$
|
9,427,125
|
|
|
$
|
9,864,941
|
|
Change in valuation inputs or other assumptions(1)
|
|
|
34,039
|
|
|
|
646,875
|
|
|
|
680,914
|
|
Fair value as of September 30, 2021
|
|
$
|
471,855
|
|
|
$
|
10,074,000
|
|
|
$
|
10,545,855
|
|
(1)
|
Changes in valuation inputs or other assumptions are recognized in change in fair value of warrant liability in the statement of operations.
|
Note
9 – Subsequent Events
Management
has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial
statement was issued. Based upon this review, other than the events included in the above notes, the Company did not identify any subsequent
events that would have required adjustment or disclosure in the condensed financial statement.