Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended June 30, 2023, filed August 14, 2023. The registrant identified in the filing is Pono Capital Two, Inc., a Delaware special purpose acquisition company, not SBC Medical Group Holdings Inc. The company had not commenced operating activities and was seeking to complete a business combination.
Pono entered into an amended and restated merger agreement on June 21, 2023 with SBC Medical Group Holdings Incorporated. The proposed transaction would combine Pono with SBC and, following restructuring, acquire specified SBC service companies and other entities. The filing states that closing was targeted for December 31, 2023, subject to conditions and possible termination rights.
Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | Comparable Period |
|---|---|---|---|
| Operating revenue | $0 | $0 | $0 or not applicable; the company was pre-business-combination |
| Operating loss | $473,374 | $861,821 | $1,281 loss and $1,620 loss, respectively, for the 2022 periods presented |
| Interest and dividend income | $836,888 | $2,101,363 | $0 |
| Net income (loss) | $196,786 | $810,119 | $1,281 loss and $1,620 loss, respectively |
| Net income per share | $0.02 | $0.08 | Prior-period amounts were approximately $0.00 loss per share |
| Cash used in operating activities | Not separately provided | $1,315,001 | $5,764 used from inception through June 30, 2022 |
At June 30, 2023, cash outside the Trust Account was $974,921, investments held in the Trust Account were $20,438,142, total assets were $21,591,924, total liabilities were $6,510,280, and accumulated deficit was $5,206,614. Current liabilities included a $1,000,000 convertible promissory note payable to SBC and $1,000,789 of excise tax payable.
The company reported a working capital deficit of $280,468 after excluding income tax, franchise tax, and excise tax payables. No operating margin is meaningful because the company had no operating revenue. The filing does not present conventional debt leverage or liquidity ratios.
Material Changes Versus Prior Comparable Period
- Net income increased to $196,786 for the quarter and $810,119 for the six months, primarily because Trust Account investments generated $836,888 and $2,101,363 of interest and dividend income, respectively.
- Operating and formation costs increased materially to $430,842 for the quarter and $805,330 for the six months, compared with $1,281 and $1,620 in the 2022 comparison periods.
- Stockholders redeemed 9,577,250 Class A shares on May 8, 2023 for $100,078,879, reducing Trust Account investments from $119,220,016 at December 31, 2022 to $20,438,142 at June 30, 2023.
- The Sponsor converted 2,874,999 Class B founder shares into Class A shares. Class A shares subject to possible redemption declined to 1,922,750 from 11,500,000 at year-end 2022.
- The company issued a $1,000,000 non-interest-bearing convertible promissory note to SBC on May 26, 2023. The note automatically converts into Class A shares at $10 per share immediately before the merger, subject to customary adjustments.
Outlook, Risks, Contingencies, and Unusual Items
- Stockholders extended the business-combination deadline from May 9, 2023 to February 9, 2024 without an additional Sponsor deposit into the Trust Account.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern because of limited liquidity and the requirement to liquidate if a business combination is not completed by February 9, 2024.
- Management expects it will need additional capital. Certain insiders and affiliates may provide up to $1,500,000 of working-capital loans, but there is no assurance those funds will be provided.
- The proposed merger consideration has an aggregate stated value of $1.2 billion, subject to adjustments for SBC working capital, net indebtedness, transaction expenses, and post-closing escrow provisions. The final consideration and closing remain subject to conditions and adjustments.
- The June 21, 2023 amended merger agreement narrowed the target entities to SBC service companies and other entities and extended the contemplated closing date to December 31, 2023. SBC’s disclosure schedules were to be delivered by August 31, 2023, after which Pono could have termination rights for specified adverse matters.
- The company recorded a $1,000,789 excise tax liability related to the May 2023 redemptions under the Inflation Reduction Act’s 1% stock-repurchase excise tax.
- The filing identifies risks from market volatility, financing availability, geopolitical events and sanctions related to the Russia-Ukraine conflict, execution of the merger, additional redemptions, and possible liquidation.
- The filing states that there was no material litigation, no off-balance-sheet arrangements, and no subsequent event requiring adjustment or disclosure through issuance of the financial statements.
Investor Verification Items
- Registrant identity: Verify whether the intended filing is Pono Capital Two, Inc. or SBC Medical Group Holdings Inc.; the supplied filing is for Pono.
- Merger status: Confirm whether the amended merger agreement closed, was further amended, or was terminated after the June 30, 2023 reporting date.
- Deadline and liquidity: Verify the February 9, 2024 liquidation deadline, available cash, Trust Account balance, and any subsequent working-capital financing.
- Redemption and dilution: Assess the effect of the 9,577,250 redemptions, founder-share conversion, proposed Sponsor Shares, convertible note conversion, and 12,134,375 outstanding warrants.
- Transaction valuation: Reconcile the stated $1.2 billion merger consideration with final working capital, debt, cash, transaction expenses, escrow, and any financing.
- Excise tax and deferred fees: Confirm the final treatment and payment of the $1,000,789 excise tax liability and $4,025,000 deferred underwriting fee.