Filing summary
Entity clarification: The supplied filing is Pono Capital Three, Inc.’s Form 10-Q, not a filing by New Horizon Aircraft Ltd. It reports on the SPAC that agreed to combine with Robinson Aircraft Ltd., doing business as Horizon Aircraft. The financial figures below are for Pono Capital Three.
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2023; the balance sheet is compared with December 31, 2022. Pono is a shell company formed to pursue a business combination and had not commenced operating activities. It completed its IPO in February 2023 and entered into a business combination agreement with Horizon Aircraft on August 15, 2023.
Financial results and liquidity
| Metric | Period / amount |
|---|---|
| Operating revenue | None; the company says it expects no operating revenue before a business combination. |
| Operating and formation costs | $612,468 for Q3 2023; $1,038,554 for the first nine months of 2023. |
| Net income | $112,662 for Q3 2023; $1,729,250 for the first nine months of 2023. The comparable 2022 periods reported net losses of $1,420 and $2,847, respectively. |
| Primary source of income | Trust-account investment interest of $1,562,141 in Q3 and $3,604,815 in the first nine months of 2023. These gains, rather than operating revenue, drove reported profitability. |
| Cash and trust investments | At September 30, 2023, cash outside the trust was $68,282; trust-account investments were $121,479,815. Cash was $88,277 at December 31, 2022. |
| Cash flows | For the first nine months of 2023, operating cash use was $767,778, investing cash use was $117,875,000, and financing cash provided was $118,622,783. |
| Working capital and liabilities | Working capital deficit was $271,121. Current liabilities were $1,250,776; total liabilities were $13,590,776, including an $8,890,000 forward purchase agreement derivative liability and $3,450,000 deferred underwriting fee payable. |
| Debt and equity | No balance was outstanding under the original $300,000 sponsor promissory note at quarter-end; it was repaid in February 2023. Shareholders’ deficit was $12,511,121, while $120,622,804 of redeemable public shares was classified as temporary equity. |
Margins are not meaningful because Pono had no operating revenue or operating business. The filing reports no off-balance-sheet arrangements. The statements do not provide a clear conventional debt balance beyond the related-party borrowing disclosures and the liabilities noted above.
Material changes and transaction status
- The February 2023 IPO raised $115 million gross, with an additional $5,653,750 from sponsor placement units. Pono placed $117,875,000 in trust; the trust balance had increased to $121,479,815 by September 30.
- Under the August 2023 agreement, Horizon shareholders’ consideration is based on $96 million less closing net indebtedness, divided by the redemption price. The agreement also provides for potential incentive shares of up to $8 million in value and a 3% escrow for post-closing adjustments.
- Closing conditions include at least $5 million of cash available after SPAC expenses and redemptions, shareholder approvals, and other customary conditions. A Meteora forward purchase arrangement is not an obligation for the seller to purchase shares; it is recorded as a derivative liability and remeasured through earnings.
Outlook, risks, and unusual items
- There is no operating forecast or revenue guidance in the filing. Management intended to complete the business combination before the deadline but cautioned that completion was not assured.
- The filing states that failure to complete a business combination by February 14, 2024, or by August 14, 2024 if extensions are obtained, would require liquidation. Management identified substantial doubt about Pono’s ability to continue as a going concern if the transaction is not completed; the limited cash held outside the trust contributes to that uncertainty.
- After quarter-end, Pono borrowed $175,000 from related parties to cover ongoing business-combination costs. The filing also reports a September Form S-4 filing and an October amendment.
- Key transaction risks include redemptions reducing available cash below the $5 million contractual condition, failure to meet closing conditions or obtain approvals, and inability to complete the deal by the applicable deadline. Additional risks cited include market volatility, higher interest rates, and the economic effects of the war in Ukraine.
- Q3 income tax expense was $757,011, and the effective tax rate was 87.0%. A noncash $80,000 increase in the forward purchase agreement’s fair value was recorded as an expense. The agreement’s $8.89 million fair value relies on Level 3 valuation inputs and assumptions.
Important facts for investors to verify
- Confirm the issuer and transaction documents: this 10-Q is Pono Capital Three’s, and Horizon Aircraft is the proposed target.
- Check subsequent filings for the business combination’s closing status, required approvals, financing, redemptions, and cash available against the $5 million minimum.
- Verify any deadline extensions and the current trust balance, redemption value, and cash outside the trust.
- Review the forward purchase agreement’s terms and valuation assumptions, and the potential dilution from incentive shares, warrants, and transaction financing.
- Assess the going-concern warning alongside the limited unrestricted cash and post-quarter related-party borrowing.