Business Context and Reporting Period
This Form 10-Q, filed May 15, 2023, covers the three months ended March 31, 2023. The filing is for Pono Capital Two, Inc., a Delaware special purpose acquisition company, rather than an operating company named SBC Medical Group Holdings Inc. Pono had not commenced operations and generated no operating revenue. Its activities consisted of formation, its August 2022 initial public offering, and pursuing a business combination.
On January 31, 2023, Pono entered into a merger agreement with SBC Medical Group Holdings Incorporated. The proposed transaction would result in SBC becoming the surviving corporation, subject to restructuring of SBC-Japan and related entities and other closing conditions.
Financial Metrics
| Metric | Three months ended March 31, 2023 | Comparable period |
|---|---|---|
| Operating revenue | $0 | $0; inception period from March 11 through March 31, 2022 |
| Operating and formation costs | $374,488 | $339 |
| Franchise tax expense | $13,959 | $0 |
| Loss from operations | $(388,447) | $(339) |
| Trust-account interest and dividend income | $1,264,475 | $0 |
| Income tax expense | $262,695 | $0 |
| Net income (loss) | $613,333 | $(339) |
| Basic and diluted earnings per share | $0.04 | $(0.00) |
| Net cash used in operating activities | $(393,819) | $0 |
At March 31, 2023, cash outside the Trust Account was $217,348, marketable securities held in the Trust Account were $120.4 million, total assets were $120.8 million, total liabilities were $4.9 million, and accumulated deficit was $3.7 million. Working capital surplus was $191,841. The filing does not report operating margins because the company had no operating revenue.
Liabilities included $4.025 million of deferred underwriting fees payable only if a business combination is completed. No related-party loans were outstanding. The company had no debt described as traditional borrowings at March 31, 2023, and no off-balance-sheet arrangements.
Material Changes Versus the Comparable Period
- Net income increased to $613,333 from a $339 net loss, primarily because of $1.264 million of interest and dividend income earned on Trust Account investments.
- Operating and formation costs increased to $374,488 from $339, and franchise tax expense was $13,959 versus none in the comparable period.
- Operating cash use was $393,819 versus zero in the inception-period comparison.
- Trust Account investments increased from $119.2 million at December 31, 2022 to $120.4 million at March 31, 2023, reflecting investment income, partially offset by $125,603 withdrawn to pay franchise taxes.
- Class A common stock subject to possible redemption increased to $119.7 million from $118.7 million at December 31, 2022, including $987,821 of accretion to redemption value.
Guidance, Outlook, Risks and Unusual Items
- The proposed merger consideration has an aggregate stated value of $1.2 billion, subject to adjustments for SBC working capital, indebtedness, cash, transaction expenses and post-closing adjustments. The filing does not provide a clear expected closing date or final share count.
- On April 26, 2023, the merger agreement was amended to change the timing of potential Sponsor Share issuance, extend certain diligence and disclosure deadlines to May 31, 2023, and contemplate a $1.0 million investment in the Sponsor by SBC or an affiliate. As of the filing date, the investment documents were still being negotiated.
- On May 8, 2023, stockholders extended the business-combination deadline from May 9, 2023 to February 9, 2024 without an additional Sponsor deposit. Stockholders also redeemed 9,577,250 Class A shares, leaving approximately $20.0 million in the Trust Account.
- The Sponsor converted 2,874,999 Founder Shares of Class B common stock into Class A common stock on May 8, 2023.
- Management identified substantial doubt about the company’s ability to continue as a going concern if a business combination is not completed by February 9, 2024. Additional capital may be required, and potential working-capital loans of up to $1.5 million are not guaranteed.
- If no business combination is completed by the deadline, the company must liquidate and redeem its public shares, subject to applicable law and available Trust Account funds. The redemption amount may be less than the $10.00 IPO unit price.
- Risks include failure to complete the proposed merger, public-share redemptions reducing available funding, the potential 1% excise tax on certain stock repurchases, market volatility, financing availability, COVID-19 effects, and geopolitical or sanctions-related effects associated with the Russia-Ukraine conflict.
- The company reported no material litigation, defaults, or legal proceedings and stated that disclosure controls and procedures were effective as of March 31, 2023.
Important Facts for Investors to Verify
- Confirm the correct registrant and transaction status: this filing is for Pono Capital Two, Inc., the SPAC pursuing a combination with SBC Medical Group Holdings Incorporated.
- Review the final merger agreement, amendments, restructuring steps, valuation adjustments, Sponsor Share provisions, and any termination rights.
- Verify the effect of the May 2023 redemptions on Trust Account cash, public-share count, dilution, and the financing available for the combination.
- Assess whether the merger closes before February 9, 2024 and whether additional financing or Sponsor working-capital loans are obtained.
- Review the financial statements and operating results of SBC Medical Group and SBC-Japan separately; this SPAC filing does not provide SBC’s operating revenue, profitability, cash flow, debt, or margins.
- Consider the $4.025 million deferred underwriting fee, potential excise tax, warrant dilution, Founder Share conversion, and other transaction-related obligations.