| DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND GOING CONCERN | NOTE
1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND GOING CONCERN Pono
Capital Two, Inc. (the “Company”) is a blank check company incorporated in Delaware on March 11, 2022 As
of December 31, 2023, the Company had not commenced any operations. All activity for the period from March 11, 2022 (inception) through
December 31, 2023 relates to the Company’s formation and initial public offering (“Initial Public Offering”) and subsequent
costs related to completing a business combination. The Company will not generate any operating revenues until after the completion of
a business combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds
derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. 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 1,500,000 115,000,000 Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 634,375 10.00 63,000 6,343,750 Following
the closing of the Initial Public Offering on August 9, 2022, an amount of $ 117,875,000 10.25 Transaction
costs related to the issuances described above amounted to $ 6,637,645 1,955,000 4,025,000 67,275 590,370 284,394 On
September 23, 2022, the Company announced that the holders of the Units may elect to separately trade the Public Shares and the Public
Warrants (as defined in Note 3) commencing on September 26, 2022. Those Public Shares not separated will continue to trade on The Nasdaq
Global Market under the symbol “PTWOU,” and the Class A Common Stock and warrants that are separated will trade on The Nasdaq
Global Market under the symbols “PTWO” and “PTWOW,” respectively. PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 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. There is no assurance that the Company will be able to complete a business combination successfully. The Company
must complete a business combination with one or more target businesses that together have an aggregate fair market value of at least
80 50 The
Company will provide its holders of Public Shares (the “Public 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. The decision as to whether the Company will seek stockholder approval of
a business combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Stockholders will
be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $ 10.25 Distinguishing Liabilities from Equity The
Company will proceed with a business combination if the Company has net tangible assets of at least $ 5,000,001 If
a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the
Company will offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”),
and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC
prior to completing a business combination. The
Sponsor has agreed (a) to vote its Class B common stock, the common stock included in the Placement Units and the Public Shares purchased
in the Initial Public Offering in favor of a business combination, (b) not to propose an amendment to the Amended and Restated Certificate
of Incorporation with respect to the Company’s pre-business combination activities prior to the consummation of a business combination
unless the Company provides dissenting Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any
such amendment; (c) not to redeem any shares (including the Class B common stock) and Placement Units (including underlying securities)
into the right to receive cash from the Trust Account in connection with a stockholder vote to approve a business combination (or to
sell any shares in a tender offer in connection with a business combination if the Company does not seek stockholder approval in connection
therewith) or a vote to amend the provisions of the Amended and Restated Certificate of Incorporation relating to stockholders’
rights of pre-business combination activity and (d) that the Class B common stock and Placement Units (including underlying securities)
shall not participate in any liquidating distributions upon winding up if a business combination is not consummated. However, the Sponsor
will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased in the Initial Public
Offering if the Company fails to complete its business combination. PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Pursuant
to the Third Amended and Restated Certificate of Incorporation of the Company, the Company had until 9 months (or up to 18 months from
the closing of the Initial Public Offering at the election of the Company pursuant to nine one month extensions subject to satisfaction
of certain conditions, including the deposit of $379,500 ($0.033 per unit) for such one month extension, into the Trust Account, or as
extended by the Company’s stockholders in accordance with the Amended and Restated Certificate of Incorporation) from the closing
of the Initial Public Offering to consummate a business combination (the “Combination Period”). On February 5, 2024, the
Company filed an amendment to the Third Amended and Restated Certificate of Incorporation of the Company (i) to extend the Combination
Period from February 9, 2023 to November 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 If the Company is unable to complete a business combination
within 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 ten 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 up to $100,000), 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. 10.00 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 $ 10.25 PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Going
Concern and Liquidity As
of December 31, 2023, the Company had $ 284,394 1,129,417 5,995,269 1,772,831 2,132,921 1,000,000 1,500,000 Risks
and Uncertainties The
military action commenced in February 2022 between the Russian Federation and Belarus in the country of Ukraine and related economic sanctions,
as well as the military action between Hamas and Israel and the risk of escalations of other military conflicts have created and are
expected to create global economic consequences. As a result, the Company’s ability to consummate a business combination, or the
operations of a target business with which the Company ultimately consummates a business combination, may be materially and adversely
affected. Further, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing
which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party
financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world
economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a business
combination are not yet determinable. These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. On
August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for,
among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and
certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023 (the “Excise Tax”).
The Excise Tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount
of the Excise Tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes
of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the Excise Tax. The
U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry
out and prevent the abuse or avoidance of the Excise Tax. Any
redemption or other repurchase that occurs on or after January 1, 2023, in connection with a business combination, votes relating to
certain amendments to the Company’s Amended and Restated Certificate of Incorporation or otherwise, may be subject to the Excise
Tax. Whether and to what extent the Company would be subject to the Excise Tax in connection with a business combination, votes relating
to certain amendments to the Company’s Amended and Restated Certificate of Incorporation or otherwise would depend on a number
of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension
or otherwise, (ii) the structure of a business combination, (iii) the nature and amount of any “PIPE” or other equity issuances
in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same
taxable year of a business combination) and (iv) the content of regulations and other guidance from the Treasury. The mechanics of any
required payment of the Excise Tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete
a business combination and in the Company’s ability to effect an extension of the time in which the Company must complete a business
combination or complete a business combination. PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Consideration
of IR Act Excise Tax On
May 8, 2023, the Company’s stockholders redeemed 9,577,250 100,078,879 1,000,789 Proposed
Business Combination On
January 31, 2023, the Company entered into an Agreement and Plan of Merger (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 capacity as Seller Representative. Pursuant
to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement, 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 related entities which 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 as of the closing of the Business Combination, 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. The
Merger Consideration otherwise payable to SBC stockholders at the Closing is subject to a number of shares of Pono Class A common stock
equal to three percent (3.0%) of the Merger Consideration being placed in escrow with an escrow agent to be agreed by the parties, for
post-closing adjustments (if any) to the Merger Consideration. The
Merger Consideration is subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness, Net Working
Capital and transaction expenses as of the Closing Date. If the adjustment is a negative adjustment in favor of the Company, the escrow
agent shall distribute to the Company a number of shares of the Company’s Class A common stock with a value equal to the absolute
value of the adjustment amount. If the adjustment is a positive adjustment in favor of SBC, the Company will issue to the SBC stockholders
an additional number of shares of the Company’s Class A common stock with a value equal to the adjustment amount. PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS On
April 26, 2023, the Company entered into an amendment to the Merger Agreement (the “Amendment”) with the other parties thereto.
Prior to the Amendment, the Merger Agreement provided that the 1,200,000 1,000,000 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. 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 (the “Extension Amendment”). The Company’s stockholders elected to redeem an aggregate
of 9,577,250 20.0 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 On
May 8, 2023, the Sponsor converted 2,874,999 2,874,999 On
February 3, 2024, the Company held a special meeting of stockholders (the “Special Meeting”), and the chairman adjourned
the Special Meeting to February 3, 2024. 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 February
9, 2024 to November 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 (the “Extension Amendment”). The Company’s stockholders elected
to redeem an aggregate of 273,334 17.9 PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS On
February 27, 2024, the Company and SBC entered into an Amendment to the Note Purchase Agreement (the “Amended Note Purchase Agreement”),
which increased the purchase price of the Note from $ 1,000,000 2,700,000 1,000,000 2,700,000 Amended
and Restated Merger Agreement On
June 21, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”)
with the parties thereto. Prior to the A&R Merger Agreement, the Merger Agreement provided that by June 22, 2023: (i) SBC shall complete
its agreed upon disclosure schedules, (ii) the Company shall complete its due diligence review of SBC, and (iii) the parties to the Original
Agreement shall agree upon any modifications or amendments to the Original Agreement to the terms and conditions therein. The parties
entered into the A&R Merger Agreement in connection with such requirements. The
A&R Merger Agreement revised the target companies to be directly or indirectly purchased by the Company following a restructuring
of SBC’s corporate structure, to include only the Service Companies and Other Entities, and to no longer include the direct or
indirect purchase of SBC’s Medical Corporations, and as a result, removed other references to the Medical Corporations, including
the related representations and warranties, among others. Pursuant to the A&R Merger Agreement, the parties agreed that, following
the date of the A&R Merger Agreement, SBC used its commercially reasonable efforts to complete its disclosure schedules and delivered
them to the Company by August 31, 2023. Upon delivery of the disclosure schedules to the Company, the disclosure schedules were deemed
to modify and supplement SBC’s representations and warranties set forth in the A&R Merger Agreement. The A&R Merger Agreement
also extended the date by which the Closing shall occur from September 30, 2023 (subject to extension) to December 31, 2023. Pursuant
to the A&R Merger Agreement, the parties also agreed that any future expenses incurred in connection with the extension of the time
by which the Company must complete its initial business combination shall be borne entirely by the Company, which replaces and supersedes
the prior requirement under the Original Agreement for the Company and SBC to share such expenses equally. See the Current Report on
Form 8-K filed by the Company with the SEC on June 22, 2023 for additional details. 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, Pono entered into the Second Amendment to the Merger Agreement (the “Amendment”) with the parties thereto.
Prior to the Amendment, the Pono 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 Pono; and
(iii) one person mutually agreed upon and designated prior to the Closing by Pono and SBC, who must qualify as an independent director.
Following the Amendment, the Pono 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 Pono, who must qualify as an independent director; and (iii) one person mutually agreed upon and designated prior to the Closing by
Pono and SBC, who must qualify as an independent director. PONO
CAPITAL TWO, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS On
December 28, 2023, Pono entered into the Third Amendment to the Merger Agreement (the “Amendment”) with the parties thereto.
The Amendment was entered into solely to extend the Outside Date (as defined in the Merger Agreement) from December 31, 2023 to March
31, 2024. |
