UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2024
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
File No. 001-40625
CLOVER LEAF CAPITAL CORP. |
(Exact name of registrant as specified in its charter) |
Delaware | | 86-2303279 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
c/o Yntegra Capital Investments, LLC 1450 Brickell Avenue, Suite 2520 Miami,
FL | | 33131 |
(Address of principal executive offices) | | (Zip Code) |
(305) 577-0031 |
(Registrant’s telephone number, including area code) |
Not
Applicable |
(Former
name, former address and former fiscal year, if changed since last report) |
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Units, each consisting of one share of Class A Common Stock, $0.0001 par value and one right to receive one-eighth (1/8) of one share of Class A Common Stock upon the consummation of an initial business combination | | CLOEU | | The Nasdaq Stock Market LLC |
Class A Common Stock, par value $0.0001 per share | | CLOE | | The Nasdaq Stock Market LLC |
Rights, every eight (8) rights entitles the holder to receive one share of Class A Common Stock upon the consummation of an initial business combination | | CLOER | | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | | Emerging growth company | ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☒ No ☐
As of May 15, 2024, there were 5,320,507 shares of Class A common stock,
par value $0.0001 per share and 1 share of Class B common stock, par value $0.0001 per share of the registrant issued and outstanding.
CLOVER
LEAF CAPITAL CORP.
FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
CLOVER
LEAF CAPITAL CORP.
CONDENSED
BALANCE SHEETS
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(unaudited) | | |
| |
Assets: | |
| | |
| |
Current assets: | |
| | |
| |
Cash | |
$ | 5,784 | | |
$ | 162,933 | |
Prepaid expenses | |
| 113,118 | | |
| 122,364 | |
Total current assets | |
| 118,902 | | |
| 285,297 | |
Investments held in Trust Account | |
| 12,589,176 | | |
| 14,648,926 | |
Total Assets | |
$ | 12,708,078 | | |
$ | 14,934,223 | |
| |
| | | |
| | |
Liabilities, Redeemable Common Stock and Stockholders’ Deficit | |
| | | |
| | |
Accrued costs and expenses | |
$ | 977,988 | | |
$ | 809,542 | |
Income taxes payable | |
| 161,370 | | |
| 134,428 | |
Excise Tax Payable | |
| 65,841 | | |
| 42,099 | |
Deferred income tax | |
| — | | |
| — | |
Promissory note to Related Party | |
| 4,137,765 | | |
| 3,842,015 | |
Due to related party | |
| 10,000 | | |
| 10,000 | |
Total current liabilities | |
| 5,352,964 | | |
| 4,838,084 | |
| |
| | | |
| | |
Deferred underwriting commissions | |
| 4,840,931 | | |
| 4,840,931 | |
Total Liabilities | |
| 10,193,895 | | |
| 9,679,015 | |
| |
| | | |
| | |
Commitments and Contingencies (see Note 6) | |
| | | |
| | |
| |
| | | |
| | |
Redeemable Common Stock: | |
| | | |
| | |
Class A common stock subject to possible redemption, 1,048,796 and 1,251,156 Class A common stock shares at redemption value of $12.13 and $11.85 per share at March 31, 2024 and December 31, 2023, respectively | |
| 12,716,949 | | |
| 14,830,241 | |
| |
| | | |
| | |
Stockholders’ Deficit: | |
| | | |
| | |
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | |
| — | | |
| — | |
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 4,271,711 and 4,271,711 shares issued and outstanding (excluding 1,048,796 and 1,251,156 shares subject to possible redemption) at March 31, 2024 and December 31, 2023, respectively | |
| 427 | | |
| 427 | |
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 1 and 1 shares issued and outstanding March 31, 2024 and December 31, 2023, respectively | |
| — | | |
| — | |
Accumulated deficit | |
| (10,203,193 | ) | |
| (9,575,460 | ) |
Total Stockholders’ Deficit | |
| (10,202,766 | ) | |
| (9,575,033 | ) |
Total Liabilities, Redeemable Common Stock and Stockholders’ Deficit | |
$ | 12,708,078 | | |
$ | 14,934,223 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
CLOVER
LEAF CAPITAL CORP.
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS
| |
For the Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Formation and operating costs | |
$ | 450,593 | | |
$ | 190,171 | |
Loss from operations | |
| (450,593 | ) | |
| (190,171 | ) |
| |
| | | |
| | |
Other income: | |
| | | |
| | |
Interest earned on investments held in Trust Account | |
| 134,398 | | |
| 199,286 | |
Interest earned on cash held in bank | |
| 2 | | |
| — | |
Total other income | |
| 134,400 | | |
| 199,286 | |
| |
| | | |
| | |
(Loss) Income before provision for income taxes | |
| (316,193 | ) | |
| 9,115 | |
Provision for income taxes | |
| (26,942 | ) | |
| (41,579 | ) |
Net loss | |
$ | (343,135 | ) | |
$ | (32,464 | ) |
| |
| | | |
| | |
Basic and diluted weighted average of redeemable Class A common stock outstanding | |
| 1,097,718 | | |
| 2,441,063 | |
Basic and diluted net loss per share, redeemable Class A common stock | |
| (0.06 | ) | |
| (0.01 | ) |
Basic and diluted weighted average non-redeemable Class A and Class B common stock outstanding | |
| 4,271,712 | | |
| 3,457,807 | |
Basic and diluted net loss per share, non-redeemable Class A and Class B common stock | |
| (0.06 | ) | |
| (0.01 | ) |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
CLOVER
LEAF CAPITAL CORP.
UNAUDITED
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE THREE MONTHS ENDED MARCH 31, 2024
| |
Class A | | |
Class B | | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance as of January 1, 2024 | |
| 4,271,711 | | |
$ | 427 | | |
| 1 | | |
$ | — | | |
$ | — | | |
$ | (9,575,460 | ) | |
$ | (9,575,033 | ) |
Accretion of Class A ordinary shares to redemption amount | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (260,857 | ) | |
| (260,857 | ) |
Excise tax liability on share redemptions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (23,741 | ) | |
| (23,741 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (343,135 | ) | |
| (343,135 | ) |
Balance as of March 31, 2024 | |
| 4,271,711 | | |
$ | 427 | | |
| 1 | | |
$ | — | | |
$ | — | | |
$ | (10,203,193 | ) | |
$ | (10,202,766 | ) |
FOR
THE THREE MONTHS ENDED MARCH 31, 2023
| |
Class A | | |
Class B | | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance as of January 1, 2023 | |
| 813,905 | | |
$ | 81 | | |
| 3,457,807 | | |
$ | 346 | | |
$ | — | | |
$ | (7,730,617 | ) | |
$ | (7,730,190 | ) |
Accretion of Class A ordinary shares to redemption amount | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (120,011 | ) | |
| (120,011 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (32,464 | ) | |
| (32,464 | ) |
Balance as of March 31, 2023 | |
| 813,905 | | |
$ | 81 | | |
| 3,457,807 | | |
$ | 346 | | |
$ | — | | |
$ | (7,883,092 | ) | |
$ | (7,882,665 | ) |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
CLOVER
LEAF CAPITAL CORP.
UNAUDITED
CONDENSED STATEMENTS OF CASH FLOWS
| |
For the Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (343,135 | ) | |
$ | (32,464 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Interest and dividends earned on investment in Trust | |
| (134,400 | ) | |
| (199,233 | ) |
Amortization of prepaid expenses | |
| — | | |
| (4,636 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accrued costs and expenses | |
| 168,448 | | |
| 27,460 | |
Prepaid expenses | |
| 9,246 | | |
| — | |
Income taxes payable | |
| 26,942 | | |
| 41,579 | |
Net cash used in operating activities | |
| (272,899 | ) | |
| (167,294 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Investment of cash in Trust Account | |
| (180,000 | ) | |
| — | |
Trust Account withdrawal for redeeming shareholder payments | |
| 2,374,149 | | |
| — | |
Net cash provided by Investing Activities | |
| 2,194,149 | | |
| — | |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Payments to redeeming shareholders | |
| (2,374,149 | ) | |
| — | |
Proceeds from issuance of promissory note to related party | |
| 295,750 | | |
| — | |
Net cash used in financing activities | |
| (2,078,399 | ) | |
| — | |
| |
| | | |
| | |
Net change in cash | |
| (157,149 | ) | |
| (167,294 | ) |
Cash, beginning of the period | |
| 162,933 | | |
| 303,449 | |
Cash, end of the period | |
$ | 5,784 | | |
$ | 136,155 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Recognition of liability for excise tax on redemptions | |
$ | 23,741 | | |
$ | — | |
Accretion of Class A redeemable shares to possible redemption value | |
$ | 260,857 | | |
$ | 120,011 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
CLOVER
LEAF CAPITAL CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 — Organization, Business Operation and Going Concern
Clover Leaf Capital Corp. (the “Company,” “our,”
“we,” or “us”) a blank check company incorporated in the State of Delaware for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(“Business Combination”). The Company may pursue the initial Business Combination target in any industry or geographic location.
The Company originally intended to focus its search for a target business engaged in the cannabis industry.
As of March 31, 2024, the Company had not commenced any operations.
All activity for the period from February 25, 2021 (inception) through March 31, 2024 relates to the Company’s formation, the initial
public offering that the Company consummated on July 22, 2021 (the “Initial Public Offering” or “IPO”) and the
Company’s efforts to pursue an initial Business Combination described below. 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 IPO.
The
Company’s sponsor is Yntegra Capital Investments, LLC, a Delaware limited liability company (the “Sponsor”).
The Registration Statement on Form S-1 initially filed with the U.S.
Securities and Exchange Commission (the “SEC”) on April 4, 2021, as amended for the Company’s IPO (the “IPO Registration
Statement”) was declared effective on July 19, 2021. On July 22, 2021, the Company consummated its IPO of 13,831,230 units (the
“Units” and, with respect to the Company’s Class A common stock, par value $0.0001 (“Class A Common Stock”)
included in the Units being offered, the “Public Shares”) at $10.00 per Unit, which is discussed in Note 3 (“The Initial
Public Offering”), and the sale of 675,593 Units which is discussed in Note 4 (“The Private Placement”), at a price
of $10.00 per private placement unit (“Private Placement Units”), in a private placement (the “Private Placement”)
to the Sponsor and Maxim Group LLC, the representative of the underwriters (the “Representative”), that closed simultaneously
with the IPO. On July 22, 2021, the underwriters partially exercised their over-allotment option and purchased 1,331,230 of their full
1,875,000 Units available and subsequently forfeited the remainder of their option as of July 28, 2021. The Company’s executive
officers and directors (“Management” or “Management Team”) has broad discretion with respect to the specific application
of the net proceeds of the IPO and sale of the Private Placement Units, although substantially all of the net proceeds are intended to
be applied generally toward consummating an initial Business Combination.
Transaction
costs amounted to $9,562,126 consisting of $2,766,246 of underwriting commissions, $4,840,931 of deferred underwriting commissions, $1,383,123
of the fair value of the 138,312 Class A Common Stock issued to the Representative and/or its designees upon the consummation of the
IPO (“Representative Shares”), and $571,826 of other cash offering costs.
The
Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal
to at least 80% of the net balance in the Trust Account (as defined below) (excluding the amount of deferred underwriting discounts held
and taxes payable on the income earned on the Trust Account) at the time of the signing an agreement to enter into an initial Business
Combination. However, the Company will only complete an initial Business Combination if the post-initial 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 of 1940, as amended (the “Investment
Company Act”). There is no assurance that the Company will be able to successfully effect an initial Business Combination.
Following the closing of the IPO on July 22, 2021, $140,386,985 ($10.15
per Unit) from the net proceeds sold in the IPO, including the proceeds of the sale of the Private Placement Units, will be held in a
U.S.-based trust account (“Trust Account”), with Continental Stock Transfer & Trust Company (“Continental”)
acting as trustee, and until July 6, 2023 were invested only in U.S. government securities with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. Department of
the Treasury (“Treasury”) obligations. Except with respect to interest earned on the funds held in the Trust Account that
may be released to pay the Company’s franchise and income taxes, if any, the funds held in the Trust Account will not be released
from the Trust Account until the earliest to occur of: (1) the completion of an initial Business Combination; (2) the redemption of any
Public Shares properly submitted in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of
Incorporation, as amended and currently in effect (the “Amended and Restated Charter”) (A) to modify the substance or timing
of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete an initial Business Combination
within the applicable period or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business
Combination activity; and (3) the redemption of the Public Shares if the Company has not completed an initial Business Combination within
the applicable period, subject to applicable law.
The Company will provide its holders of Public Shares, including its
Sponsor and any other holders of Founder Shares (as defined below) (see Note 5) (or their permitted transferees prior to our IPO (the
“Initial Stockholders”) and Management Team to the extent our Initial Stockholders and/or the members of our Management Team
purchase Public Shares (the “Public Stockholders”), with the opportunity to redeem all or a portion of their Public Shares
upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called to approve the initial
Business Combination or (2) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed
initial Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety
of factors such as the timing of the transaction and whether the terms of the transaction would require it to seek stockholder approval
under applicable law or stock exchange listing requirement. The Company will provide its public stockholders with the opportunity to redeem
all or a portion of their Public Shares upon the completion of the initial Business Combination at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the
initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company
to pay franchise and income taxes, divided by the number of then issued and outstanding Public Shares, subject to the limitations described
herein.
The shares of Class A Common Stock and Class B common stock, par value
$0.0001 per share (the “Class B Common Stock,” and together with the Class A Common Stock, the “Common Stock”)
subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance
with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
480 “Distinguishing Liabilities from Equity.” The Company will proceed with an initial Business Combination if the Company
has net tangible assets of at least $5,000,001 upon such consummation of an initial Business Combination and, if the Company seeks stockholder
approval, a majority of the issued and outstanding shares voted are voted in favor of the initial Business Combination.
The Company will have only until July 22, 2024 to complete the initial
Business Combination (the “Combination Period”). Pursuant to the terms of the Company’s Amended and Restated Charter
and the Investment Management Trust Agreement, dated July 19, 2021 entered into between the Company and Continental, as trustee of the
Trust Account, in order to extend the time available for the Company to consummate its initial Business Combination, the Sponsor or its
affiliates or designees, upon five days’ advance notice prior to the applicable deadline, must have deposited into the Trust Account
$1,383,123 ($0.10 per share on or prior to the date of the applicable deadline) for each additional three-month period. 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 an initial Business
Combination. If the Company completes an initial Business Combination, it will, at the option of the Sponsor, repay such loaned amounts
out of the proceeds of the Trust Account released to the Company or convert a portion or all of the total loan amount into Units at a
price of $10.00 per Unit.
Extension of the Combination Period
The Company originally had up to 12 months from the closing of its
Initial Public Offering, or until July 22, 2022, to consummate an initial Business Combination. However, as requested by the Sponsor and
as permitted under the Company’s Amended and Restated Charter, on July 19, 2022, the Company extended the Combination Period from
July 22, 2022 to October 22, 2022 (the “July 2022 Extension”). On July 18, 2022, the Company issued a promissory note (the
“July 2022 Extension Note”) in the principal amount of $1,383,123 to the Sponsor in connection with the July 2022 Extension.
The July 2022 Extension was the first of three three-month extensions permitted under the Company’s Amended and Restated Charter.
On October 19, 2022, the Company held a special meeting of stockholders
(the “2022 Special Meeting”). At the 2022 Special Meeting, the Company’s stockholders approved an amendment to the Company’s
Amended and Restated Charter to extend the date by which the Company must consummate its initial Business Combination from October 22,
2022 to July 22, 2023, or such earlier date as determined by the Company’s board of directors (the “Board”) (the “October
2022 Extension”). In connection with the 2022 Special Meeting, stockholders holding 12,204,072 shares of the Company’s Class
A Common Stock issued in the Company’s IPO exercised their right to redeem such shares for a pro rata portion of the funds in the
Company’s Trust Account. As a result, approximately $125,587,180.34 (approximately $10.29 per share) was removed from the Company’s
Trust Account to pay such holders. On October 19, 2022, the Company issued a promissory note (the “October 2022 Extension Note”)
in the principal amount of $1,383,123 to the Sponsor in connection with the October 2022 Extension.
On July 19, 2023, the Company held a special meeting of stockholders
(the “2023 Special Meeting”). At the 2023 Special Meeting, the Company’s stockholders approved an amendment (the “2023
Extension Amendment”) to the Company’s Amended and Restated Charter to extend the date by which the Company must consummate
its initial Business Combination from July 22, 2023 to January 22, 2024, or such earlier date as determined by the Company’s Board
(the “2023 Extension”). On July 20, 2023, the Company filed the 2023 Extension Amendment with the Secretary of State of the
State of Delaware.
In connection with the 2023 Special Meeting, stockholders holding 376,002
shares of the Company’s Class A Common Stock issued in the Company’s IPO exercised their right to redeem such shares for a
pro rata portion of the funds in the Company’s Trust Account. As a result, approximately $4,209,931.03 (approximately $11.20 per
share after removal of interest to pay taxes) was removed from the Company’s Trust Account to pay such holders, resulting in approximately
$14,008,650.13 remaining in the Trust Account. On July 22, 2023, the Company issued a promissory note (the “2023 Extension Note”)
in the principal amount of $360,000 to the Sponsor in connection with the 2023 Extension.
In connection with the 2023 Extension, the Company
caused up to $360,000 to be deposited into the Trust Account in installments of $60,000 per month, which equates to approximately $0.048
per remaining Public Share, for each calendar month or portion thereof (commencing on July 22, 2024 and on the 22nd of each subsequent
month until January 22, 2024), that the Company needs to complete an initial Business Combination, and such amount was distributed either
to: (i) all of the holders of Public Shares upon the Company’s liquidation or (ii) holders of Public Shares who elect to have their
shares redeemed in connection with the consummation of the initial Business Combination. As of March 31, 2024, an aggregate of $360,000
had been deposited into the Trust Account.
On
January 17, 2024, the Company held a special meeting of stockholders (the “2024 Special Meeting”). At the 2024 Special Meeting,
the Company’s stockholders approved an amendment (the “2024 Extension Amendment”) to the Amended and Restated Charter
to extend the date by which the Company must consummate its initial Business Combination from January 22, 2024 to July 22, 2024, or such
earlier date as determined by the Company’s Board (the “2024 Extension”).
In connection with the 2024 Special Meeting, Public Stockholders holding
202,360 Public Shares exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result,
$2,374,149 (approximately $11.73 per share) was removed from the Trust Account to pay such holders.
Following the approval and implementation of the
2024 Extension Amendment, on January 22, 2024, the Company issued a promissory note (the “2024 Extension Note”) in the aggregate
principal amount of up to $360,000 the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to $360,000 to deposit
into the Company’s Trust Account for each Public Share that was not redeemed in connection with the 2024 Extension Amendment. The
2024 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s
initial Business Combination, or (b) the date of the liquidation of the Company. The Company has drawn $180,000 under the 2024 Extension
Note, which was outstanding as of March 31, 2024.
On
January 22, 2024, the Company deposited $60,000 into the Trust Account, and the Company will continue to deposit $60,000 into the Trust
Account for each additional calendar month (promptly following the 22nd of each calendar month), or portion thereof, that is needed by
the Company to complete an initial Business Combination until July 22, 2024, and such amount will be distributed either to: (i) all of
the holders of Public Shares upon the Company’s liquidation or (ii) holders of Public Shares who elect to have their shares redeemed
in connection with the consummation of the initial Business Combination. As of March 21, 2024, $180,000 of the principal on the 2024
Extension Note has been deposited into the Trust Account.
On
January 22, 2024, the Company issued the 2024 Working Capital Note in the principal amount of up to $1,000,000 to the Sponsor. The 2024
Working Capital Note was issued in connection with up to $1,000,000 of advances the Sponsor has made or may make in the future to the
Company for working capital expenses. The loan is non-interest bearing and payable upon the earlier of (i) the date of the consummation
of the Company’s initial Business Combination or (ii) the date of the liquidation of the Company. As of March 5, 2024, a total
of $525,000 had been drawn down on the 2024 Working Capital Note.
Nasdaq
Compliance—Minimum Public Holders Requirement and Annual Meeting Requirement
On August 31, 2023, the Company received a deficiency
letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying
the Company that it no longer met the minimum 300 public holders requirement for The Nasdaq Capital Market pursuant to Nasdaq Listing
Rule 5550(a)(3) (the “Minimum Public Holders Requirement”). The notification received had no immediate effect on the Company’s
Nasdaq listing. On October 16, 2023, the Company submitted to Nasdaq a plan to regain compliance with the Minimum Public Holders Requirement.
On October 25, 2023, in response to such compliance plan, the Staff granted the Company an extension of time to regain compliance with
the Minimum Public Holders Requirement. Pursuant to the extension, on or before February 27, 2024, the Company must have filed with Nasdaq
documentation that demonstrated that its Common Stock has a minimum of 300 public holders.
On January 23, 2024, the Company received a deficiency
notice from the Staff of Nasdaq notifying the Company that it was not in compliance with the requirement pursuant to Nasdaq Listing Rule
5620(a) that companies listed on Nasdaq hold an annual meeting of shareholders within twelve months of their fiscal year end (the “Annual
Meeting Requirement”) because it did not hold an annual meeting of stockholders within twelve months of our fiscal year ended December
31, 2022. The notification received had no immediate effect on the Company’s Nasdaq listing. In accordance with Nasdaq rules, the
Company had 45 calendar days, or until March 8, 2024, to submit a plan to regain compliance with the Annual Meeting Requirement.
On February 27, 2024, the Company was not able
to demonstrate compliance with the Minimum Public Holders Requirement, and as such, on March 1, 2024, the Company received a notice (the
“Delisting Notice”) from the Staff of Nasdaq informing the Company that its securities may be subject to suspension and delisting
pending the outcome of a hearing before the Nasdaq Hearings Panel (the “Panel”), which the Company requested on March 8,
2024. Because the Staff of Nasdaq issued the Delisting Notice to the Company on March 1, 2024, the Company chose to forego submitting
a plan of compliance to Nasdaq related to the Annual Meeting Requirement, with such deficiency serving as an additional basis for delisting
the Company’s securities from Nasdaq. Because the Company was unable to demonstrate compliance with the Minimum Public Holders
Requirement and did not submit to Nasdaq a plan of compliance related to the Annual Meeting Requirement, the Company’s securities
may be subject to suspension and delisting pending the outcome of a hearing before the Panel, which the Company requested on March 8,
2024. The Company’s hearing before the Panel was held on May 7, 2024, and as of the date of this Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2024 (this “Report”), Nasdaq has not issued its decision.
Indemnification
Agreement with Kustom Entertainment and Digital Ally
On February 1, 2024, the Company entered into indemnification agreement
(the “Indemnification Agreement”) with Kustom Entertainment, Inc., a Nevada corporation (“Kustom Entertainment”)
and Digital Ally, Inc., a Nevada corporation and the sole stockholder of Kustom Entertainment, pursuant to which, Kustom Entertainment
and Digital Ally, Inc., a Nevada corporation (the “Kustom Entertainment Stockholder”) agreed to indemnify the Company and
its officers and directors for liabilities incurred in connection with the Kustom Entertainment Stockholder disclosure incorporated by
reference into the Registration Statement on Form S-4 the Company initially filed with the SEC on October 4, 2023, as amended (File No.
333-274851) (the “Kustom Entertainment Registration Statement”).
If
the Company has not completed the initial 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 not more than ten business days thereafter, redeem
the 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 on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less
up to $100,000 of interest to pay dissolution expenses), divided by the number of then issued and outstanding Public Shares, which redemption
will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions,
if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining
stockholders and the Board, liquidate and dissolve, subject in each case to the Company’s obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
The Sponsor, officers and directors have entered into a letter agreement
with the Company, pursuant to which they have agreed to waive: (i) their redemption rights with respect to any Founder Shares (as defined
below) (see Note 5), the shares of the Company’s Class A Common Stock included within the Private Placement Units purchased by our
Sponsor, Initial Stockholders, and the underwriters of the Initial Public Offering in the Private Placement (“Private Placement
Shares”), and Public Shares held by them, as applicable, in connection with the completion of the initial Business Combination;
(ii) their redemption rights with respect to any Founder Shares and Public Shares held by them in connection with a stockholder vote to
amend the Company’s Amended and Restated Charter (a) to modify the substance or timing of the Company’s obligation to redeem
100% of the Public Shares if the Company does not complete the initial Business Combination within the Combination Period or (b) with
respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity; and (iii) their rights
to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if the Company fails to complete the
initial Business Combination within the Combination Period (although they will be entitled to liquidating distributions from the Trust
Account with respect to any Public Shares they hold if the Company fails to complete the initial Business Combination within the prescribed
time).
The
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s
independent registered public accounting firm) 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 amount of funds in the Trust Account to below
(i) $10.15 per Public Share or (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of
the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that
such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights
to the monies held in the Trust Account (whether or not such waiver is enforceable), nor will it apply to any claims under the Company’s
indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended
(the “Securities Act”). The Company has not independently verified whether the Sponsor has sufficient funds to satisfy its
indemnity obligations and believes that the Sponsor’s only assets are securities of the Company and, therefore, the Sponsor may
not be able to satisfy those obligations. The Company has not asked the Sponsor to reserve for such obligations.
Franchise
and Income Tax Withdrawals from Trust Account
Since
completion of its IPO on July 19, 2021, and through March 31, 2024, the Company withdrew $1,017,913 from the Trust Account to pay its
liabilities related to federal, Florida state and Delaware franchise taxes. Through March 31, 2024, the Company remitted $777,312 to
the respective tax authorities. Additionally, as of March 31, 2024, the Company had accrued but unpaid income tax liability of $161,370
and was in a credit position of $48,543 for Delaware franchise tax, which resulted in remaining excess of funds withdrawn from the Trust
Account, but not remitted to the government authorities of $240,601. As of March 31, 2024, the Company had $5,784 in its operating account
and inadvertently used $234,817 of the funds withdrawn from the Trust Account for payment of taxes for payment of other operating expenses
not related to taxes. The Company continues to incur further tax liabilities and intends to cover such liabilities from the funds in
its operating account and, if necessary, from the proceeds from the promissory note to Sponsor, without recurring to additional withdrawals
from the Trust Account, until the excess of the funds withdrawn from the Trust Account over the amounts remitted to the government authorities
is cured.
Going
Concern
As
of March 31, 2024 and December 31, 2023, the Company had $5,784 and $162,933 in cash, respectively, and working capital deficit of $5,121,226
and $4,493,502 (net of Delaware franchise and income taxes), respectively.
Prior
to the completion of the IPO, the Company’s liquidity needs had been satisfied through a payment from the Sponsor of $25,000 (see
Note 5) for the Founder Shares to cover certain offering costs and the loan under an unsecured promissory note from the Sponsor of $300,000
(see Note 5).
On
July 24, 2023, the Company issued a promissory note (the “2023 Working Capital Note”) in the principal amount of up to $300,000
to the Sponsor. The 2023 Working Capital Note was issued in connection with advances the Sponsor may make in the future to the Company
for working capital expenses. The loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business
Combination or (ii) the date the winding up of the Company is effective.
At various dates in the fourth quarter of 2023, the Sponsor advanced
to the Company $415,000 for the Company’s working capital needs. On January 22, 2024, the Company issued the 2024 Working Capital
Note in the principal amount of up to $1,000,000 to the Sponsor. The 2024 Working Capital Note was issued in connection with advances
the Sponsor may make in the future to the Company for working capital expenses. The loan is non-interest bearing and payable upon the
earlier of (i) completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The funds advanced
in the fourth quarter of 2023 were considered advanced under terms of this 2024 Working Capital Note and were outstanding as of March
31, 2024.
In
addition, in order to finance transaction costs in connection with an Initial Business Combination, the Company’s Sponsor or an
affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company
Working Capital Loans, as defined below (see Note 5). $1,010,750 and $715,000 were outstanding under Working Capital Loans as of March
31, 2024, and December 31, 2023, respectively.
Until
the consummation of an initial Business Combination, the Company will be using the funds not held in the Trust Account for identifying
and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures,
selecting the target business to acquire, and structuring, negotiating, and consummating the initial Business Combination. The Company
will need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or
third parties. The Company’s Sponsor, officers and directors may, but are not obligated to, loan the Company funds from time to
time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.
Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may
be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead expenses.
The
Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. In connection
with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”)
Topic 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The Company
has until July 22, 2024 to consummate an initial Business Combination, unless otherwise extended. It is uncertain that the Company will
be able to consummate an initial Business Combination by this time. If an initial Business Combination is not consummated by this date,
there will be a mandatory liquidation and subsequent dissolution of the Company. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities that might be necessary, should the Company be unable to continue
as a going concern, and also do not include any adjustments that might result should an initial Business Combination not occur.
Merger
Agreement
On June 1, 2023, the Company entered into an Agreement and Plan of
Merger (the “Kustom Entertainment Merger Agreement”) with CL Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary
of the Company (“Merger Sub”), the Sponsor, in the capacity as the representative from and after the Effective Time (as defined
in the Kustom Entertainment Merger Agreement) for the stockholders of the Company (other than the Kustom Entertainment Stockholder as
of immediately prior to the Effective Time and its successors and assignees) in accordance with the terms and conditions of the Kustom
Entertainment Merger Agreement, Kustom Entertainment, which has a focus and mission to own and produce events, festivals, and entertainment
alongside its evolving primary and secondary ticketing technologies, and the Kustom Entertainment Stockholder.
Pursuant to the Kustom Entertainment Merger Agreement, subject to the
terms and conditions set forth therein upon the consummation of the transactions contemplated by the Kustom Entertainment Merger Agreement
(the “Closing”), Merger Sub will merge with and into Kustom Entertainment (the “Merger,” and together with the
other transactions and agreements contemplated by the Kustom Entertainment Merger Agreement, the “Kustom Entertainment Business
Combination”), with Kustom Entertainment continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of
the Company. In the Merger, all of the issued and outstanding capital stock of Kustom Entertainment immediately prior to the Effective
Time shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the right for the Kustom
Entertainment Stockholder to receive the Merger Consideration (as defined below). Upon consummation of the Kustom Entertainment Business
Combination, the Company will change its name to “Kustom Entertainment, Inc.”
The aggregate merger consideration to be paid pursuant to the Kustom
Entertainment Merger Agreement to the Kustom Entertainment Stockholder as of immediately prior to the Effective Time will be an amount
equal to (the “Merger Consideration”) (i) $125 million, minus (ii) the estimated consolidated indebtedness of Kustom Entertainment
as of the Closing (“Closing Indebtedness”). The Merger Consideration to be paid to the Kustom Entertainment Stockholder will
be paid solely by the delivery of new shares of the Company’s Class A Common Stock, each valued at $11.14 per share. The Closing
Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to the Closing and is not
subject to any post-Closing true-up or adjustment.
Risks
and Uncertainties
Management
continues to evaluate 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 these unaudited condensed financial statements. The unaudited condensed
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation
Reduction Act of 2022
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 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 Treasury has been given authority to provide regulations and other guidance to carry out and prevent the
abuse or avoidance of the excise tax. In April 2024, the Treasury issued proposed regulations providing guidance with respect to the excise
tax. Taxpayers may rely on these proposed regulations until final regulations are issued. Under the proposed regulations, liquidating
distributions made by special purpose acquisition companies are exempt from the excise tax. In addition, any redemptions that occur in
the same taxable year as a liquidation is completed will also be exempt from such tax.
Any
redemption or other repurchase that occurs after December 31, 2022, in connection with an initial Business Combination, a vote by the
stockholders of the Company to extend the period of time to complete the initial Business Combination (“Extension Vote”)
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 an initial Business Combination, Extension Vote or otherwise would depend on a number of factors, including (i) the fair market
value of the redemptions and repurchases in connection with the initial Business Combination, extension or otherwise, (ii) the structure
of an initial Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with
an initial Business Combination (or otherwise issued not in connection with an initial Business Combination but issued within the same
taxable year of an initial Business Combination), and (iv) the content of regulations and other guidance from the Treasury. In addition,
because the excise tax would be payable by the Company and not by the redeeming holder, 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 an initial Business
Combination and in the Company’s ability to complete an initial Business Combination.
As
discussed above, on July 19, 2023, holders of 376,002 shares of Common
Stock elected to redeem their shares in connection with the 2023 Extension Amendment. As a result, $4,209,931 was removed from the Company’s
Trust Account to pay such holders. On January 22, 2024, holders of 202,360 shares of Common Stock elected to redeem their shares
in connection with the 2024 Extension Amendment. As a result, $2,304,427 was removed from the Company’s Trust Account to pay such
holders.
Management
has evaluated the requirements of the IR Act and the Company’s operations and has determined that $ 65,841 is required to
be recorded as a liability, which remained outstanding on the Company’s balance sheet as of March 31, 2024. This liability will
be reevaluated and remeasured at the end of each quarterly period.
New SPAC Rules
On January 24, 2024, the SEC adopted new rules
and regulations for special purpose acquisition companies (“SPACs”), which will become effective on July 1, 2024 (the “2024
SPAC Rules”). The 2024 SPAC Rules require, among other matters, (i) additional disclosures relating to SPAC Business Combination
transactions; (ii) additional disclosures relating to dilution and to conflicts of interest involving sponsors and their affiliates in
both SPAC initial public offerings and Business Combination transactions; (iii) additional disclosures regarding projections included
in SEC filings in connection with proposed Business Combination transactions; and (iv) the requirement that both the SPAC and its target
company be co-registrants for Business Combination registration statements. In addition, the SEC’s adopting release provided guidance
describing circumstances in which a SPAC could become subject to regulation under the Investment Company Act, including its duration,
asset composition, business purpose, and the activities of the SPAC and its management team in furtherance of such goals. The 2024 SPAC
Rules may materially affect our ability to negotiate and complete our initial Business Combination and may increase the costs and time
related thereto.
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 unaudited condensed
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 Annual Report on Form 10-K (the “2023 Annual Report”) for the year ended December
31, 2023, as filed with the SEC on March 22, 2024. The accompanying condensed balance sheet as of December 31, 2023 has been derived from
the Company’s audited financial statements included in the 2023 Annual Report. The interim results for the three months ended March
31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.
Emerging
Growth Company Status
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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of
2002, 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 Securities
Exchange Act of 1934, as amended (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 unaudited condensed 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.
Use
of Estimates
The
preparation of these unaudited condensed 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 unaudited
condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
As of March 31, 2024 and December 31, 2023, the Company had $5,784 and $162,933 in cash, respectively, and no cash equivalents.
Investments
Held in Trust Account
As
of March 31, 2024 and December 31, 2023, the Company had $12,589,176 and $14,648,926 in investments held in the Trust Account, respectively.
As
of March 31, 2024, and December 31, 2023, the Company’s investments were held in the Trust Account are held in an interest-bearing
demand deposit account and are classified as trading securities. Trading securities are presented on the balance sheets at fair value
at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are
included in interest earned on marketable securities held in Trust Account in the accompanying statements of operations. The estimated
fair values of investments held in Trust Account are determined using available market information.
The
carrying value, excluding gross unrealized holding loss and fair value of held-to-maturity securities on March 31, 2024 and December
31, 2023 are as follows:
| |
Carrying Value as of March 31, 2024 | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value as of March 31, 2024 | |
Demand Deposit Account | |
| 12,589,176 | | |
| — | | |
| — | | |
| 12,589,176 | |
| |
$ | 12,589,176 | | |
$ | — | | |
$ | — | | |
$ | 12,589,176 | |
| |
Carrying Value as of December 31, 2023 | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value as of December 31, 2023 | |
Demand Deposit Account | |
| 14,648,926 | | |
| — | | |
| — | | |
| 14,648,926 | |
| |
$ | 14,648,926 | | |
$ | — | | |
$ | — | | |
$ | 14,648,926 | |
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times, may exceed the federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts,
and Management believes the Company is not exposed to significant risks on such accounts.
Offering
Costs Associated with Initial Public Offering
The
Company complies with the requirements of the FASB ASC Topic 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A—“Expenses
of Offering”. Offering costs consist of legal, accounting, underwriting and other costs incurred through the consummation of the
IPO. Offering costs amounted to $9,562,126 and were charged to permanent and temporary equity, ratably with the redeemable and non-redeemable
shares they are allocated to, upon the completion of the IPO.
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair
Value Measurements and Disclosures” (“ASC 820”) approximates the carrying amounts represented in the balance sheet,
primarily due to its short-term nature.
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each
reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects Management’s estimate of amounts that the Company would
have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction
between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company
seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is
used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and
liabilities:
|
● |
Level
1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has
the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices
that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree
of judgment. |
|
● |
Level
2 – Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets
that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv)
inputs that are derived principally from or corroborated by market through correlation or other means. |
|
● |
Level
3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued
at each reporting date, with changes in the fair value reported in the statement of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
Class
A Common Stock Subject to Possible Redemption
All
of the 13,831,230 Class A Common Stock sold as part of the Units in the IPO contain a redemption feature that 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 initial Business Combination and in connection with certain amendments to the Company’s Amended and Restated Charter.
In accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in FASB ASC Topic
480-10-S99, redemption provisions not solely within the control of the Company require Common Stock subject to redemption to be classified
outside of permanent equity. Given that the Class A Common Stock was issued with other freestanding instruments (i.e., equity rights),
the initial carrying value of Class A Common Stock classified as temporary equity is the allocated proceeds based on the guidance in
FASB ASC Topic 470-20, “Debt—Debt with Conversion and Other Options.”
If
it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption
value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable,
if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur
and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected
to recognize the changes immediately.
Immediately
upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount, which approximates fair
value. The change in the carrying value of Class A Common Stock subject to possible redemption resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit and Class A Common Stock.
As
of March 31, 2024 and December 31, 2023, the Class A Common Stock reflected on the balance sheet is reconciled in the following table:
Gross Proceeds | |
$ | 138,312,300 | |
Proceeds allocated to equity rights | |
| (760,718 | ) |
Less: | |
| | |
Issuance costs related to Class A common stock subject to possible redemption | |
| (9,509,534 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 12,344,937 | |
Contingently redeemable Class A common stock subject to possible redemption (December 31, 2021) | |
| 140,386,985 | |
Less: | |
| | |
Redemptions of Class A common stock | |
| (125,587,180 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 3,483,582 | |
Contingently redeemable Class A common stock subject to possible redemption (December 31, 2022) | |
| 18,283,387 | |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 756,785 | |
Less: | |
| | |
Redemptions of Class A common stock | |
| (4,209,931 | ) |
Contingently redeemable Class A common stock subject to possible redemption (December 31, 2023) | |
| 14,830,241 | |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 260,857 | |
Less: | |
| | |
Redemptions of Class A common stock | |
| (2,374,149 | ) |
Contingently redeemable Class A common stock subject to possible redemption (March 31, 2024) | |
$ | 12,716,949 | |
Net
Loss Per Common Stock
The Company complies with accounting and disclosure requirements of
FASB ASC Topic 260, “Earnings Per Share.” Net loss per share is computed by dividing net loss by the weighted average number
of shares of Common Stock outstanding during the period. The Company has two classes of shares, redeemable Common Stock and non-redeemable
Common Stock. The Company’s redeemable Common Stock is comprised of shares of Class A Common Stock sold in the IPO. The Company’s
non-redeemable shares are comprised of shares of Class B Common Stock purchased by the Sponsor as well as shares of Class A Common Stock
sold in the Private Placement and Representative Shares. Earnings and losses are shared pro rata between the two classes of shares. The
Company’s statement of operations applies the two-class method in calculating net loss per share. Basic and diluted net loss per
common share for redeemable Common Stock and non-redeemable Common Stock is calculated by dividing net loss, allocated proportionally
to each class of Common Stock, attributable to the Company by the weighted average number of shares of redeemable and non-redeemable stock
outstanding.
The calculation of diluted loss per share of Common Stock does not
consider the effect of the rights, which entitle the holder to received one-eighth (1/8) of one share of Class A Common Stock upon the
consummation of an initial Business Combination, and which rights include the rights sold as part of the Units in the Company’s
Initial Public Offering (the “Public Rights”) and rights included within the Private Placement Units purchased by the Company’s
Sponsor and the Representative in the Private Placement (the “Private Placement Rights,” and together with the Public Rights,
the “Rights”) since exercise of the Rights is contingent upon the occurrence of future events and the inclusion of such Rights
would be anti-dilutive. Accretion of the carrying value of Class A Common Stock to redemption value is excluded from net loss per redeemable
share because the redemption value approximates fair value. As a result, diluted net loss per share is the same as basic net loss per
share for the periods presented.
The
basic and diluted (loss) income per common stock is calculated as follows:
| |
For the Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
Common stock subject to possible redemption | |
| | |
| |
Numerator: | |
| | |
| |
Net (loss) income allocable to redeemable Class A common stock | |
$ | (70,150 | ) | |
$ | (13,434 | ) |
Denominator: | |
| | | |
| | |
Weighted Average redeemable Class A common stock, basic and diluted | |
| 1,097,718 | | |
| 2,441,063 | |
Basic and Diluted net (loss) income per share, redeemable Class A common stock | |
$ | (0.06 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Non-redeemable common stock | |
| | | |
| | |
Numerator: | |
| | | |
| | |
Net (loss) income allocable to non-redeemable Class A and Class B common stock | |
$ | (272,985 | ) | |
$ | (19,030 | ) |
Denominator: | |
| | | |
| | |
Weighted Average non-redeemable Class A and Class B common stock, basic and diluted | |
| 4,271,712 | | |
| 3,457,807 | |
Basic and diluted net (loss) income per share, non-redeemable Class A and Class B common stock | |
$ | (0.06 | ) | |
$ | (0.01 | ) |
Income
Taxes
The
Company accounts for income taxes under FASB ASC Topic 740, “Income Taxes” (“ASC 740”). ASC 740 requires the
recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial
statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit
carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion
of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s unaudited condensed financial statements
and prescribes a recognition threshold and measurement process for unaudited condensed financial statement recognition and measurement
of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim period, disclosure and transition.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized
tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. 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 has identified the United States as its only “major” tax jurisdiction.
The Company’s effective tax rate was (8.52)%
and 456.16% for the three months ended March 31, 2024, and 2023, respectively. The effective tax rate differs from the statutory
tax rate of 21% for the three months ended March 31, 2024, and 2023, due to the valuation allowance on the deferred tax assets.
The
Company is subject to income tax examinations by major taxing authorities since inception. These examinations may include questioning
the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws.
The Company’s Management does not expect that the total amount of unrecognized tax benefits will materially change over the next
twelve months.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU Topic 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): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked
contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.
ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The Company is reviewing what impact, if any, adoption will have on the Company’s financial position,
results of operations or cash flows.
In
December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU
2023-09”), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures
of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15,
2024. Early adoption is permitted. The Company’s Management does not believe the adoption of ASU 2023-09 will have a material impact
on its consolidated financial statements and disclosures.
Management
does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material
effect on the Company’s unaudited condensed financial statements.
Note
3 — Initial Public Offering
On July 22, 2021, the Company consummated its IPO of 13,831,230 Units
at a purchase price of $10.00 per Unit, generating gross proceeds of $138,312,300. This included 1,331,230 Units due to a partial over-allotment
exercised by the underwriters. The underwriters forfeited their remaining over-allotment option on July 28, 2021. Each Unit consists of
(i) one share of Class A Common Stock and (ii) one Right.
The
Company paid an underwriting fee at the closing of the IPO of $2,766,246. An additional fee of $4,840,931 was deferred and will become
payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial Business
Combination.
Note
4 — Private Placement
Simultaneously
with the closing of the IPO and the sale of the Units, the Sponsor purchased an aggregate of 571,859 Private Placement Units at a price
of $10.00 per Private Placement Unit ($5,718,590 in the aggregate) and the Representative purchased an aggregate of 103,734 Private Placement
Units at a price of $10.00 per Private Placement Unit ($1,037,340 in the aggregate) in a Private Placement. Each Private Placement Unit
is identical to the Units offered in the IPO except as described below.
The Private Placement Units and their component securities will not
be transferable, assignable or salable until after the completion of the initial Business Combination except to permitted transferees.
There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Founder Shares, Private Placement
Shares or the Rights sold as part of the Units in the Company’s Initial Public Offering (whether they are purchased in the Company’s
Initial Public Offering or thereafter in the open market), which will expire worthless if the Company does not consummate an initial Business
Combination within the Combination Period.
Note
5 — Related Party Transactions
Founder
Shares
In
March 2021, the Sponsor paid $25,000 in consideration for 3,593,750 shares of Class B Common Stock (the “Founder Shares”).
The number of Founder Shares issued was determined based on the expectation that the Founder Shares would represent 20% of the outstanding
shares after the IPO (excluding shares included in the Private Placement Units or the shares of Class A Common Stock issuable to the
Representative). Up to 468,750 of the Founder Shares were subject to forfeiture depending on the extent to which the underwriters’
over-allotment is exercised. On July 22, 2021, the underwriters partially exercised their over-allotment option and purchased an additional
1,331,230 of their full 1,875,000 option. The underwriters forfeited the remainder of their over-allotment option as of July 28, 2021,
resulting in aggregate Founders Shares outstanding of 3,457,807.
On
April 8, 2021, the Sponsor transferred a membership interest (the “Interest”) to three of the Company’s officers and
the three independent directors of 75,000 Founder Shares. The Interest relates solely to the number of Founder Shares laid out in the
Company’s officers’ and independent directors’ respective agreements. The transferred shares shall vest upon the Company
consummating an initial Business Combination (the “Vesting Date”). If prior to the Vesting Date, any of the grantees ceases
to remain in their role, either voluntarily or for a cause (a “Separation Event”), 100% of the shares granted will be automatically
and immediately transferred back to the Sponsor upon such Separation Event. Since the stock grants to both directors and to the officers
contain the performance condition of consummating an initial Business Combination, the Company has determined the appropriate accounting
treatment is to defer recognition of the compensation costs until the consummation of an initial Business Combination in accordance with
FASB ASC Topic 718, “Compensation—Stock Compensation.”
The
Company’s Sponsor and any other holders of Founder Shares (or their permitted transferees) prior to our IPO (“Initial Stockholders”),
including the Interests transferred to the Company’s officers and directors, have agreed not to transfer, assign or sell any of
their Founder Shares until the earlier to occur of: (i) six months after the completion of the initial Business Combination; and (ii)
subsequent to the initial Business Combination (a) if the closing price of the shares of the Class A Common Stock equals or exceeds $12.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within
any 30-trading day period commencing after the initial Business Combination or (b) the date on which the Company completes a liquidation,
merger, capital stock exchange, reorganization or other similar transaction that results in all of the public stockholders having the
right to exchange their shares of Common Stock for cash, securities or other property (except with respect to permitted transferees).
Any permitted transferees would be subject to the same restrictions and other agreements of the Company’s Initial Stockholders
with respect to any Founder Shares (the “Lock-Up”).
On
July 20, 2023, the Company issued an aggregate of 3,457,806 shares of its Class A Common Stock to the Sponsor upon the conversion (the
“Founder Share Conversion”) of an equal number of shares of Class B Common Stock of the Company held by the Sponsor. The
3,457,806 shares of Class A Common Stock issued in connection with the Founder Share Conversion are subject to the same restrictions
as applied to the Class B Common Stock before the Founder Share Conversion, including, among other things, certain transfer restrictions,
waiver of redemption rights and the obligation to vote in favor of an Initial Business Combination as described in the prospectus for
the Company’s IPO. Following the Founder Share Conversion, there were 5,522,867 shares of Class A Common Stock issued and outstanding
and 1 share of Class B Common Stock issued and outstanding. As a result of the Founder Share Conversion, the Sponsor holds approximately
73.0% of the Company’s issued and outstanding Class A Common Stock.
Promissory
Note — Related Party
On
March 4, 2021, the Sponsor agreed to loan the Company up to $300,000 to be used for a portion of the expenses of the IPO, under a promissory
note. These loans are non-interest bearing, unsecured and due at the earlier of September 30, 2021, or the closing of the IPO. These
loans were repaid upon the closing of the IPO out of the offering proceeds that had been allocated to the payment of offering expenses.
As of March 31, 2024 and December 31, 2023, there is no amount outstanding under the promissory note.
On July 18, 2022, the Company issued the July 2022 Extension Note in
the principal amount of $1,383,123 to the Sponsor in connection with the July 2022 Extension. The July 2022 Extension Note bears no interest
and is due and payable upon the earlier to occur of (i) the date on which the Company’s initial Business Combination is consummated
and (ii) the liquidation of the Company on or before October 22, 2022 or such liquidation date as may be approved by the Company’s
stockholders. At the election of the Sponsor, up to $1,383,123 of the unpaid principal amount of the July 2022 Extension Note may be converted
into Units of the Company (the “Conversion Units”) with the total Conversion Units so issued shall be equal to: (i) the portion
of the principal amount of the July 2022 Extension Note being converted divided by (ii) the conversion price of ten dollars ($10.00),
rounded up to the nearest whole number of Conversion Units. The conversion feature included in the July 2022 Extension Note is closely
related to the debt instrument itself and is not bifurcated from the host instrument. As a result, all debt proceeds received have been
allocated to debt liability. As of March 31, 2024, and December 31, 2023, there was $1,383,892 outstanding under the July 2022 Extension
Note.
On October 19, 2022, in connection with the October 2022 Extension,
the Company issued the October 2022 Extension Note in the principal amount of $1,383,123 to the Sponsor pursuant to which the Sponsor
loaned to the Company $1,383,123 to deposit into the Company’s Trust Account for each share of the Company’s Class A Common
Stock that was not redeemed in connection with the October 2022 Extension. The October 2022 Extension Note bears no interest and is repayable
in full upon the earlier of (i) the date of the consummation of the Company’s initial Business Combination, or (ii) the date of
the liquidation of the Company. As of March 31, 2024, and December 31, 2023, there was $1,383,123 outstanding under the October 2022 Extension
Note.
On July 21, 2023, the Company issued a promissory note (the “2023
Extension Note”) in the aggregate principal amount of up to $360,000 to the Sponsor, pursuant to which the Sponsor agreed to loan
to the Company up to $360,000 to deposit into Trust Account for the Company’s Class A Common Stock, held by the Company’s
public stockholders that were not redeemed in connection with the 2023 Extension. On July 21, 2023, the Company deposited $60,000 into
the Trust Account, with such amount being treated as the first draw under the 2023 Extension Note, and the Company continued to deposit
$60,000 into the Trust Account for each additional calendar month (promptly following the 22nd of each calendar month), or
portion thereof, that is needed by the Company to complete an initial Business Combination until January 22, 2024, and such amount will
be distributed either to: (i) all of the holders of Public Shares upon the Company’s liquidation or (ii) holders of Public Shares
who elect to have their shares redeemed in connection with the consummation of the initial Business Combination. The 2023 Extension Note
bears no interest and is repayable in full upon the earlier of (i) the date of the consummation of the Company’s initial Business
Combination or (ii) the date of the liquidation of the Company. The Sponsor deposited $360,000 in the Trust Account under the 2023 Extension
Note, which was outstanding as of March 31, 2024 and December 31, 2023.
On July 21, 2023, the Company issued the 2023 Working Capital Note
in the principal amount of up to $300,000 to the Sponsor. The 2023 Working Capital Note was issued in connection with advances the Sponsor
may make in the future to the Company for working capital expenses. The loan is non-interest bearing and payable upon the earlier of (i)
completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The Company drew $300,000
under the 2023 Working Capital Note which was outstanding as of March 31, 2024.
On January 22, 2024, the Company issued the 2024 Extension
Note in the aggregate principal amount of up to $360,000 the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to
$360,000 to deposit into the Company’s Trust Account for each Public Share that was not redeemed in connection with the 2024 Extension
Amendment. The 2024 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of
the Company’s initial Business Combination, or (b) the date of the liquidation of the Company. The Company has drawn $180,000 under
the 2024 Extension Note, which was outstanding as of March 31, 2024.
On January 22, 2024, the Company issued the 2024 Working
Capital Note in the principal amount of up to $1,000,000 to the Sponsor. The 2024 Working Capital Note was issued in connection with advances
the Sponsor may make in the future to the Company for working capital expenses. The loan is non-interest bearing and payable upon the
earlier of (i) completion of the initial Business Combination or (ii) the date the winding up of the Company is effective. The Company
has drawn $530,750 and $415,000 under the 2024 Working Capital Note as of March 31, 2024, and December 31, 2024, respectively.
Related
Party Loans
In order to fund working capital deficiencies or finance
transaction costs in connection with an intended initial Business Combination, the Sponsor, an affiliate of the Sponsor or certain of
the Company’s officers and directors may, but is not obligated to, loan the Company funds as may be required (the “Working
Capital Loans”). If the Company completes an initial Business Combination, the Company will repay such loaned amounts out of the
proceeds of the Trust Account released to the Company. Otherwise, such Working Capital Loans would be repaid only out of funds held outside
the Trust Account. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital
held outside the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account would be used to repay such loaned
amounts. Up to $1,500,000 of such Working Capital Loans may be convertible into Private Placement-equivalent Units at a price of $10.00
per Unit (which, for example, would result in the holders being issued 150,000 Units if $1,500,000 of notes were so converted), at the
option of the lender. The Units would be identical to the Private Placement Units issued to the Sponsor. $830,750 and $715,000 were outstanding
under such Working Capital Loans as of March 31, 2024 and December 31, 2023, respectively.
Administrative
Support Agreement
Commencing
on the date of the IPO, the Company has agreed to pay an affiliate of the Sponsor for office space, secretarial, and administrative services
provided to members of the Management Team, in the amount of $10,000 per month. The administrative support agreement began on the day
the Company first listed on The Nasdaq Capital Market and continue monthly until the completion of the Company’s initial Business
Combination or liquidation of the Company. For the three months ended March 31, 2024, the Company incurred $30,000, in administrative
support fees, which is included in formation and operating costs in the accompanying statements of operations. For the three months ended
March 31, 2023, the Company incurred $30,000 in administrative support fees which is included in formation and operating costs in the
accompanying statements of operations. As of March 31, 2024 and December 31, 2023, there was $10,000 and $10,000, respectively, outstanding,
which is included on the accompanying balance sheets as “due to related party.”
Note
6 — Commitments and Contingencies
Registration
Rights
The holders of the Founder Shares, Private Placement Units and securities
that may be issued upon conversion of Working Capital Loans and extension loans will have registration rights to require the Company to
register a sale of any of its securities held by them pursuant to a Registration Rights Agreement, dated July 19, 2021, entered into by
the Company, the Sponsor, Initial Stockholders and the holder parties thereto (the “Registration Rights Agreement”). These
holders will be entitled to make up to three demands, excluding short-form registration demands, that the Company registers such securities
for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities
in other registration statements filed by the Company. Notwithstanding the foregoing, the underwriters may not exercise their demand and
“piggyback” registration rights after five and seven years, respectively, after the effective date of the IPO Registration
Statement forms a part and may not exercise their demand rights on more than one occasion.
Underwriting
Agreement
The
Company granted the underwriters a 30-day option to purchase up to 1,875,000 additional Units to cover any over-allotments, if any, at
the IPO price less the underwriting discounts and commissions. On July 22, 2021, the underwriters partially exercised their over-allotment
option and purchased an additional 1,331,230 Units and forfeited the remainder of their over-allotment option as of July 28, 2021.
The
Company agreed to pay or reimburse the underwriters for travel, lodging, and other “road show” expenses, expenses of the
underwriters’ legal counsel, and certain diligence and other fees, including the preparation, binding and delivery of bound volumes
in form and style reasonably satisfactory to the Representative, transaction Lucite cubes, or similar commemorative items in a style
as reasonably requested by the Representative, and reimbursement for background checks on the Company’s directors and executive
officers, which such fees and expenses are capped at an aggregate of $125,000 (less amounts previously paid).
The
underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the IPO held in the Trust Account
upon the completion of the Company’s initial Business Combination, subject to the terms of the underwriting agreement.
The
Representative’s Common Stock
The
Company agreed to issue to the Representative and/or its designees, 125,000 shares of Common Stock (or 143,750 shares if the underwriter’s
over-allotment option is exercised in full) upon the consummation of the IPO. On July 22, 2021, the underwriters partially exercised
their over-allotment option, resulting in an aggregate issuance of 138,312 Representative Shares. These shares were valued at a price
of $10.00 which was the sale price of the Units sold in the IPO. The Representative has agreed not to transfer, assign, or sell any such
shares until the completion of the Company’s initial Business Combination. In addition, the Representative has agreed (i) to waive
its redemption rights with respect to such shares in connection with the completion of the Company’s initial Business Combination
and (ii) to waive its rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to
complete an initial Business Combination within the applicable period.
The
shares have been deemed compensation by the Financial Industry Regulatory Authority (“FINRA”) and are therefore subject to
a Lock-Up for a period of 180 days immediately following the date of the effectiveness of the IPO Registration Statement pursuant to
Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any
hedging, short sale, derivative, put, or call transaction that would result in the economic disposition of the securities by any person
for a period of 180 days immediately following the effective date of the IPO Registration Statement, nor may they be sold, transferred,
assigned, pledged, or hypothecated for a period of 180 days immediately following the effective date of the IPO Registration Statement
except to any underwriter and selected dealer participating in the IPO and their bona fide officers or partners.
Right
of First Refusal
Subject
to certain conditions, the Company will grant the Representative, for a period beginning on the closing of the IPO and ending 15 months
after the date of the consummation of the initial Business Combination, a right of first refusal to act as lead left book-running managing
underwriter with at least 75% of the economics; or, in the case of a three-handed deal, 50% of the economics, for any and all future
public and private equity, convertible, and debt offerings for the Company or any of its successors or subsidiaries. In accordance with
FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the effective date of
the IPO Registration Statement.
Note
7 — Stockholders’ Deficit
Preferred
Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As
of March 31, 2024 and December 31, 2023, there were no shares of preferred stock 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 $0.0001
per share. Holders of shares of Class A Common Stock are entitled to one vote for each share. As of March 31, 2024 and December 31, 2023
there were 4,271,711 and 4,271,711 shares of Class A Common Stock issued or outstanding, excluding 1,048,796 and 1,251,156 shares of
Class A Common Stock subject to possible redemption, respectively.
Class
B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B Common Stock with a par value of $0.0001
per share. As of March 31, 2024 and, December 31, 2023 there were 1 and 1 shares of Class B Common Stock issued and outstanding, respectively,
so that the Founder Shares represent, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the IPO.
The
Company’s Initial Stockholders have agreed not to transfer, assign, or sell any of their Founder Shares until the earlier to occur
of: (i) six months after the date of the consummation of the initial Business Combination and (ii) subsequent to the initial Business
Combination (a) if the closing price of the Company’s shares of Class A Common Stock equals or exceeds $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within any 30-trading day
period after the initial Business Combination or (b) the date on which the Company consummates a liquidation, merger, stock exchange,
or other similar transaction that results in all of the public stockholders having the right to exchange their shares of Class A Common
Stock for cash, securities, or other property (except as described herein). Any permitted transferees would be subject to the same restrictions
and other agreements of the Company’s Initial Stockholders with respect to any Founder Shares.
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of the Class
A Common Stock and holders of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of the
Company’s stockholders, except as required by law. The shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock at the time of the initial Business Combination on a one-for-one basis (subject to adjustment for stock splits,
stock dividends, reorganizations, recapitalizations, and the like), and subject to further adjustment as provided herein. In the case
that additional shares of Class A Common Stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered
in the IPO and related to the closing of the initial Business Combination, the ratio at which shares of Class B Common Stock shall convert
into shares of Class A Common Stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B Common Stock
agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A Common Stock
issuable upon conversion of all shares of Class B Common Stock will equal, in the aggregate, on an as-converted basis, 20% of the sum
of the total number of all shares of Common Stock outstanding upon completion of the IPO (excluding shares included in the Private Placement
Units or the shares of Class A Common Stock issuable to the Representative) plus all shares of Class A Common Stock and equity-linked
securities issued or deemed issued in connection with the initial Business Combination.
Rights
Each
holder of a Right will receive one-eighth (1/8) of one Class A Common Stock upon consummation of the initial Business Combination. In
the event the Company will not be the surviving entity upon completion of the initial Business Combination, each holder of a Right will
be required to affirmatively convert its Rights in order to receive the 1/8 share of Class A Common Stock underlying each Right (without
paying any additional consideration). If the Company is unable to complete an initial Business Combination within the required time period
and the Company redeems the Public Shares of Class A Common Stock for the funds held in the Trust Account, holders of Rights will not
receive any such funds in exchange for their Rights and the Rights will expire worthless. Every eight (8) Rights that a holder holds
will entitle the holder to receive one share at the closing of the initial Business Combination. The Company will not issue fractional
shares of Class A Common Stock upon exchange of the Rights. If, upon conversion of the Rights, a holder would be entitled to receive
a fractional interest in a share, fractional shares will be rounded up to the nearest whole share.
If
the Company is unable to complete an initial Business Combination within the required time period and it liquidates the funds held in
the Trust Account, holders of Rights will not receive any such funds with respect to any of their Rights, nor will they receive any distribution
from the Company’s assets held outside of the Trust Account with respect to such Rights, and all Rights will expire worthless.
Note
8 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred
after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, the
Company did not identify any subsequent events, other than that identified below, that would have required adjustment or disclosure in
the unaudited condensed financial statements.
On May 9, 2024, the Company, Kustom Entertainment,
and the Kustom Entertainment Stockholder entered into a termination agreement (the “Termination Agreement”), pursuant to which
the parties terminated the Indemnification Agreement.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in
this Report including, without limitation, statements under this Item regarding our financial position, business strategy, and the plans
and objectives of Management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,”
“believe,” “estimate,” “expect,” “intend,” and similar expressions, as they relate to
us or our Management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our Management,
as well as assumptions made by, and information currently available to, our Management. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written
or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in
this Report under “Item 1. Financial Statements”.
Overview
We
are a blank check company incorporated in the State of Delaware for the purpose of effecting an initial Business Combination. We may
pursue the initial Business Combination target in any industry or geographic location, and we were focusing our search for a target business
engaged in the cannabis industry.
The
IPO Registration Statement was declared effective on July 19, 2021. On July 22, 2021, we consummated our Initial Public Offering of 13,831,230
Units at $10.00 per Unit, and the sale of 675,593 Units, at a price of $10.00 per Unit, in the Private Placement to our Sponsor and the
Representative that closed simultaneously with the Initial Public Offering. On July 22, 2021, the underwriters of the Initial Public
Offering partially exercised their over-allotment option and purchased 1,331,230 of their full 1,875,000 Units available and subsequently
forfeited the remainder of their option as of July 28, 2021. Our Management has broad discretion with respect to the specific application
of the net proceeds of the Initial Public Offering and sale of the Private Placement Units, although substantially all of the net proceeds
are to be applied generally toward consummating an initial Business Combination.
Transaction
costs amounted to $9,562,126, consisting of $2,766,246 of underwriting commissions, $4,840,931 of deferred underwriting commissions,
$1,383,123 of fair value of the Representative Shares, and $571,826 of other cash offering costs.
Recent
Developments
On February 1, 2024, we entered into the Indemnification Agreement
with Kustom Entertainment and the Kustom Entertainment Stockholder, pursuant to which Kustom Entertainment and the Kustom Entertainment
Stockholder agreed to indemnify the Company and its officers and directors for liabilities incurred in connection with the Kustom Entertainment
Stockholder disclosure incorporated by reference into the Kustom Entertainment Registration Statement.
On May 9, 2024, our Company, Kustom Entertainment, and the Kustom Entertainment
Stockholder entered into the Termination Agreement, pursuant to which the parties terminated the Indemnification Agreement.
Extensions
of Our Combination Period
We originally had up to 12 months from the
closing of our Initial Public Offering, or until July 22, 2022, to consummate an initial Business Combination. However, as requested by
our Sponsor and as permitted under our Amended and Restated Charter, on July 19, 2022, we extended the Combination Period by an additional
three months from July 22, 2022 to October 22, 2022. In addition, at the 2022 Special Meeting held on October 19, 2022, our stockholders
approved an amendment to our Amended and Restated Charter to extend the Combination Period from October 22, 2022 to July 22, 2023, or
such earlier date as determined by our Board of Directors. In addition, at the 2023 Special Meeting held on July 19, 2023, our stockholders
approved an amendment to our Amended and Restated Charter to extend the Combination Period from July 22, 2023 to January 22, 2024, or
such earlier date as determined by our Board of Directors. Thereafter, at the 2024 Special Meeting held on January 17, 2024, our stockholders
approved an amendment to our Amended and Restated Charter to extend the Combination Period from January 22, 2024 to July 22, 2024, or
such earlier date as determined by our Board of Directors.
We may seek to further extend the Combination
Period consistent with applicable laws, regulations and stock exchange rules. Such an extension would require the approval of our Public
Stockholders, who will be provided the opportunity to redeem all or a portion of their Public Shares. Such redemptions will likely have
a material adverse effect on the amount held in our Trust Account, our capitalization, principal stockholders and other impacts on our
Company or Management Team, such as our ability to maintain our listing on Nasdaq.
Founder
Share Conversion
On July 20, 2023, upon the approval of the proposal
to amend the Amended and Restated Charter to provide for the elective right of holders of shares of Class B Common Stock to convert such
shares into shares of Class A Common Stock, on a one-for-one basis at any time prior to the closing of a Business Combination by our stockholders
at the 2023 Special Meeting. we issued an aggregate of 3,457,806 shares of our Class A Common Stock to our Sponsor upon the Founder Share
Conversion. The 3,457,806 shares of Class A Common Stock issued in connection with the Founder Share Conversion are subject to the same
restrictions as applied to the Class B Common Stock before the Founder Share Conversion, including, among other things, certain transfer
restrictions, waiver of redemption rights, and the obligation to vote in favor of an initial Business Combination as described in the
IPO Registration Statement. Following the Founder Share Conversion, there were 5,522,867 shares of Class A Common Stock issued and outstanding
and 1 share of Class B Common Stock issued and outstanding. As a result of the Founder Share Conversion, our Sponsor held approximately
73.0% of our issued and outstanding Class A Common Stock.
Kustom Entertainment Business Combination
On June 1, 2023, we entered into the Kustom Entertainment
Merger Agreement with Merger Sub, the Sponsor, Kustom Entertainment, and the Kustom Entertainment Stockholder.
Pursuant to the Kustom
Entertainment Merger Agreement, subject to the terms and conditions set forth therein upon the Closing, Merger Sub will merge with and
into Kustom Entertainment, with Kustom Entertainment continuing as the surviving corporation in the Merger and our wholly-owned subsidiary.
In the Merger, all of the issued and outstanding capital stock of Kustom Entertainment immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the right for the Kustom Entertainment
Stockholder to receive the Merger Consideration. Upon consummation of the Kustom Entertainment Business Combination, we will change our
name to “Kustom Entertainment, Inc.”
On October 4, 2023, we issued a press release
announcing that we had submitted to EDGAR, the SEC’s online portal, the Kustom Entertainment Registration Statement, which includes
a preliminary proxy statement/prospectus, with respect to the Kustom Entertainment Business Combination.
For a full description of the Kustom Entertainment
Merger Agreement and the proposed Kustom Entertainment Business Combination, please see “Item 1. Business” of our 2023 Annual
Report.
Results
of Operations
Our
entire activity since inception up to March 31, 2024 relates to our formation, the Initial Public Offering, and, since the closing of
the Initial Public Offering, a search for an initial Business Combination candidate. We will not be generating any operating revenues
until the Closing and completion of our initial Business Combination, at the earliest.
For
the three months ended March 31, 2024, we had a net loss of $316,193, which consisted of formation and operating costs of $450,593 and
provision for income taxes of $26,942, offset by interest earned on investments held in Trust Account of $134,398 and interest earned
on cash held in bank of $2.
For
the three months ended March 31, 2023, we had a net loss of $32,464, which consisted of formation and operating costs of $190,171 and
provision for income taxes of $41,579, offset by interest earned on investments held in Trust Account of $199,233 and interest earned
on cash held in bank of $53.
Factors
That May Adversely Affect our Results of Operations
Our
results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could
cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted
by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in
interest rates, supply chain disruptions, declines in consumer confidence and spending, public health considerations, and geopolitical
instability, such as the military conflicts in Ukraine and the Middle East. We cannot at this time predict the likelihood of one or more
of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete
an initial Business Combination.
Liquidity,
Capital Resources, and Going Concern
As
of March 31, 2024 and December 31, 2023, we had cash of $5,784 and $162,933, respectively, and working capital deficit of $5,121,226
and working capital of $4,493,502, respectively. Prior to the completion of the Initial Public Offering, our liquidity needs had been
satisfied through a payment from our Sponsor of $25,000 for the Founder Shares to cover certain offering costs and the loan under an
unsecured promissory note from our Sponsor of $300,000.
In
addition, on July 18, 2022, we issued the July 2022 Extension Note to our Sponsor in the principal amount of $1,383,123, pursuant to
which our Sponsor loaned us $1,383,123 ($0.10 per Public Share after redemptions) to deposit into the Trust Account for each Public Share
that was not redeemed in connection with the July 2022 Extension. At the election of our Sponsor, up to $1,383,123 of the unpaid principal
amount of the July 2022 Extension Note may be converted into Conversion Units, of which the total Conversion Units so issued shall be
equal to: (i) the portion of the principal amount of the July 2022 Extension Note being converted divided by (ii) the conversion price
of ten dollars ($10.00), rounded up to the nearest whole number of Units.
On
October 19, 2022, we issued the October 2022 Extension Note to our Sponsor in the principal amount of $1,383,123, pursuant to which our
Sponsor loaned us $1,383,123 to deposit into the Trust Account for each Public Share that was not redeemed in connection with the October
2022 Extension. The October 2022 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation
of an initial Business Combination, or (b) the date of our liquidation.
On July 21, 2023, the Company issued the 2023 Extension Note in the
aggregate principal amount of up to $360,000 to the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to $360,000
to deposit into the Trust Account for the Public Stockholders that did not redeem Public Shares in the connection with the 2023 Extension.
The 2023 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of our initial
Business Combination, or (b) the date of our liquidation. As of March 31, 2024, $360,000 was outstanding under the 2023 Extension Note.
On
July 21, 2023, we issued the 2023 Working Capital Note in the principal amount of up to $300,000 to our Sponsor. The 2023 Working Capital
Note was issued in connection with advances our Sponsor may make in the future to us as Working Capital Loans. The 2023 Working Capital
Note is non-interest bearing and payable upon the earlier of (i) completion of our initial Business Combination or (ii) the date that
our winding up is effective. We drew $300,000 under the 2023 Working Capital Note, which was outstanding as of March 31, 2024.
On January 22, 2024, we issued the 2024 Extension Note in the aggregate
principal amount of up to $360,000 the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to $360,000 to deposit
into the Company’s Trust Account for each Public Share that was not redeemed in connection with the 2024 Extension Amendment. The
2024 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s
initial Business Combination, or (b) the date of the liquidation of the Company. The Company has drawn $180,000 under the 2024 Extension
Note, which was outstanding as of March 31, 2024.
On January 22, 2024, we issued the 2024 Working Capital
Note in the principal amount of up to $1,000,000 to our Sponsor. The 2024 Working Capital Note was issued in connection with advances
our Sponsor may make in the future to us as Working Capital Loans. The 2024 Working Capital Note is non-interest bearing and payable upon
the earlier of (i) completion of the initial Business Combination or (ii) the date of our winding up is effective. We have drawn $530,750
and $415,000 under the 2024 Working Capital Note as of March 31, 2024, and December 31, 2024, respectively.
In addition, in order to finance transaction costs
in connection with an initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors
may, but are not obligated to, provide us further Working Capital Loans. $830,750.00 and $715,000 were outstanding under Working Capital
Loans as of March 31, 2024 and December 31, 2023, respectively.
Until
the consummation of an initial Business Combination, we will continue to use the funds not held in the Trust Account for identifying
and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures,
selecting the target business to acquire, and structuring, negotiating, and consummating the initial Business Combination. We will need
to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties.
Our Sponsor, officers, and directors may, but are not obligated to, loan us funds from time to time or at any time, in whatever amount
they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional
financing. If we are unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which
could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing
overhead expenses.
On June 26, 2023, we instructed Continental to
liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit
account at Morgan Stanley with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business
Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from
the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested
in U.S. government securities.
Going
Concern
We
cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. In connection with
our assessment of going concern considerations in accordance with FASB ASU Topic 2014-15, “Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern.” We have until July 22, 2024 to consummate an initial Business Combination.
It is uncertain that we will be able to consummate an initial Business Combination by this time. If an initial Business Combination is
not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. These conditions raise substantial doubt
about our ability to continue as a going concern. The unaudited condensed financial statements and notes thereto contained elsewhere
in this Report do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities
that might be necessary should we be unable to continue as a going concern and also do not include any adjustment that might result from
the outcome of this uncertainty should an initial Business Combination not occur.
Off-Balance
Sheet Financing Arrangements
We
have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024 and December
31, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often
referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt
or commitments of other entities, or purchased any non-financial assets.
Contractual
Obligations
Administrative
Support Agreement
We
do not have any long-term debt, capital lease obligations, operating lease obligations, or long-term liabilities, other than an agreement
to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and administrative support, pursuant to the Administrative
Support Agreement. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees.
Registration
Rights
The
holders of the Founder Shares, Private Placement Units, and securities that may be issued upon conversion of Working Capital Loans and
extension loans will have registration rights to require us to register a sale of any of the securities held by them pursuant to the
Registration Rights Agreement. These holders will be entitled to make up to three demands, excluding short-form registration demands,
that we register such securities for sale under the Securities Act. In addition, these holders will have “piggyback” registration
rights to include their securities in other registration statements filed by us. Notwithstanding the foregoing, the underwriters of the
Initial Public Offering may not exercise their demand and “piggyback” registration rights after five and seven years, respectively,
after the effective date of the IPO Registration Statement and may not exercise their demand rights on more than one occasion.
Underwriting
Agreement
The
underwriters had a 30-day option to purchase up to 1,875,000 additional Units to cover any over-allotments, if any, at the Initial Public
Offering price less the underwriting discounts and commissions. On July 22, 2021, the underwriters partially exercised their over-allotment
option and purchased an additional 1,331,230 Units and forfeited the remainder of their over-allotment option as of July 28, 2021.
The
underwriters are entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Initial Public Offering held in the
Trust Account upon the completion of the initial Business Combination, subject to the terms of the underwriting agreement.
Critical
Accounting Estimates
The
preparation of unaudited condensed 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 unaudited
condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those
estimates. We have identified the following as our critical accounting policies:
Class
A Common Stock Subject to Possible Redemption
All
of the 13,831,230 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 our liquidation, if there is a stockholder vote or tender offer in connection
with the initial Business Combination and in connection with certain amendments to our Amended and Restated Charter. In accordance with
the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in FASB ASC Topic 480-10-S99. Redemption
provisions not solely within our control require Common Stock subject to redemption to be classified outside of permanent equity.
If
it is probable that the equity instrument will become redeemable, we have the option to either accrete changes in the redemption value
over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later)
to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust
the carrying amount of the instrument to equal the redemption value at the end of each reporting period. We have elected to recognize
the changes immediately.
Net
Loss Per Common Share
We
comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net loss per share is computed
by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. We have two classes of shares,
redeemable Common Stock and non-redeemable Common Stock. Our redeemable Common Stock is comprised of shares of Class A Common Stock sold
in the Initial Public Offering. Our non-redeemable shares are comprised of shares of Class B Common Stock purchased by our Sponsor as
well as shares of Class A Common Stock sold as part of the Private Placement Units and the Representative Shares. Earnings and losses
are shared pro rata between the two classes of shares. Our statements of operations ally the two-class method in calculating net loss
per share. Basic and diluted net loss per common share for redeemable Common Stock and non-redeemable Common Stock is calculated by dividing
net loss, allocated proportionally to each class of Common Stock, attributable to us by the weighted average number of shares of redeemable
and non-redeemable stock outstanding.
The
calculation of diluted loss per share of Common Stock does not consider the effect of the rights issued in connection with the Initial
Public Offering since exercise of the rights is contingent upon the occurrence of future events and the inclusion of such rights would
be anti-dilutive. Accretion of the carrying value of Class A Common Stock to redemption value is excluded from net loss per redeemable
share because the redemption value approximates fair value. As a result, diluted loss per share is the same as basic loss per share for
the periods presented.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU Topic 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): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity” (“ASU 2020-06”). which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked
contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.
ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. We are reviewing what impact, if any, adoption will have on our financial position, results of operations,
or cash flows.
In
December 2023, the FASB issued ASU Topic 2023-09, “Income Taxes” (Topic 740): Improvements to Income Tax Disclosures
(“ASU 2023-09”), which requires disclosure of incremental income tax information within the rate reconciliation and expanded
disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15,
2024. Early adoption is permitted. Our Management does not believe the adoption of ASU 2023-09 will have a material impact on its consolidated
financial statements and disclosures.
Our
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have
a material effect on our unaudited condensed financial statements.
JOBS
Act
The
JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify
as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, the unaudited condensed financial statements may not be comparable
to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying
on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as
an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide
an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between
executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer
an “emerging growth company,” whichever is earlier.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information otherwise required under this Item.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures
designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted
under the Exchange Act is accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer
(together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure.
Under the supervision and with the participation of our Management,
including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded
that our disclosure controls and procedures were not effective as of the end of the quarterly period ended March 31, 2024, due to the
following material weaknesses identified in the prior reporting periods:
|
(i) |
Accounting for complex financial instruments including those requiring us to apply complex accounting principles as a means of differentiating between liability, temporary equity, and permanent equity classification; |
|
(ii) |
controls needed to ensure the timeliness, completeness and accuracy of accruals; and |
|
(iii) |
controls needed to ensure the accuracy of the provision for income tax and the Delaware franchise tax; |
|
(iv) |
controls over the financial reporting process which failed to identify a material out of period adjustment that resulted in the restatement of previously issued financial statements; and |
|
(v) |
controls over compliance with the provisions of the Trust Agreement related to the use of funds withdrawn from the Trust Account for payment of the Company’s tax liabilities. |
In light of the material weaknesses described above, we
have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the
nuances of the complex accounting standards that apply to our financial statements including making greater use of third-party professionals
with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time,
and we can offer no assurance that these initiatives will ultimately have the intended effects. We believe our efforts will enhance our
controls relating to accounting for complex financial instruments and internal controls related to timeliness, completeness, and accuracy
of accruals, but we can offer no assurance that our controls will not require additional review and modification in the future as industry
accounting practice may evolve over time.
We
do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure
controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all
our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Changes
in Internal Control over Financial Reporting
Other than as discussed above, there have been no changes to our internal
control over financial reporting during the quarterly period ended March 31, 2024 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
To the knowledge of our Management Team, there is no material litigation
currently pending or contemplated against us or any of our officers or directors in their capacity as such or against any of our property.
Item
1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act,
we are not required to include risk factors in this Report. For additional risks relating to our operations, see the section titled “Risk
Factors” contained in our (i) IPO Registration Statement, (ii) 2023 Annual Report, and (iii) Definitive Proxy Statements on Schedule
14A filed with the SEC on July 7, 2023 and January 3, 2024, and (iv) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023,
June 30, 2023 and September 30, 2023, as filed with the SEC on May 16, 2023, August 14, 2023 and November 14, 2023, respectively. Any
of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional
risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes
to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
For risks related to Kustom Entertainment and
the Kustom Entertainment Business Combination, please see the Kustom Entertainment Registration Statement.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered
Sales of Equity Securities
None.
Use
of Proceeds
For a description of the use of proceeds generated in our Initial Public
Offering and Private Placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022,
as filed with the SEC on August 15, 2022. There has been no material change in the planned use of proceeds from our Initial Public Offering
and Private Placement as described in the IPO Registration Statement. The specific investments in our Trust Account may change from time
to time.
On June 26, 2023, we instructed Continental to
liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit
account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business
Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from
the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested
in U.S. government securities.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
On January 17, 2024, we held the 2024 Special Meeting and our stockholders
approved, among other things, the 2024 Extension Amendment, which extended the date by which we must consummate a Business Combination
from January 22, 2024 (which was 30 months from the closing of the Initial Public Offering) to July 22, 2024 (or such earlier date as
determined by the Board). In connection with the vote to approve the 2024 Extension Amendment, Public Stockholders holding 202,360 Public
Shares properly exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. We paid cash in
the aggregate amount of $2,369,636, or approximately $11.71 per share to such redeeming Public Stockholders.
The
following table contains monthly information about the repurchases of our equity securities for the three months ended March 31, 2024:
Period | |
(a) Total number of shares (or units) purchased | | |
(b) Average price paid per share (or unit) | | |
(c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | |
(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | |
January 1 – January 31, 2024 | |
| 202,360 | | |
$ | 11.71 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
February 1 – February 29, 2024 | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
March 1 – March 31, 2024 | |
| — | | |
| — | | |
| — | | |
| — | |
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
Not
applicable.
Item
5. Other Information.
Trading
Arrangements
During the quarterly period ended March 31, 2024,
none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted or terminated any
“Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation
S-K.
Additional Information
On May 9, 2024, our Company, Kustom Entertainment, and the Kustom Entertainment
Stockholder entered into the Termination Agreement, pursuant to which the parties terminated the Indemnification Agreement.
Item
6. Exhibits
The
following exhibits are filed as part of, or incorporated by reference into, this Report.
No. |
|
Description of Exhibit |
3.1 |
|
Third Amendment to Amended and Restated Certificate of Incorporation. (1) |
10.1 |
|
Extension Note, dated January 22, 2024, issued to Yntegra Capital Investments, LLC. (1) |
10.2 |
|
Working Capital Note, dated January 22, 2024, issued to Yntegra Capital Investments, LLC. (1) |
10.3 |
|
Indemnification Agreement, dated February 1, 2024, between Clover Leaf Capital Corp., Kustom Entertainment, Inc., and Digital Ally, Inc. (2) |
10.4 |
|
Termination Agreement, dated May 9, 2024, by and among Clover Leaf Capital Corp., Kustom Entertainment, Inc. and Digital Ally, Inc.* |
31.1 |
|
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
31.2 |
|
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
32.1 |
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
32.2 |
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
101.INS |
|
Inline XBRL Instance Document.* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document.* |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document.* |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
104 |
|
Cover Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101).* |
* |
Filed herewith. |
** |
Furnished herewith. |
(1) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 22, 2024. |
(2) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 7, 2024. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CLOVER
LEAF CAPITAL CORP. |
|
|
|
Date:
May 15, 2024 |
By: |
/s/
Felipe MacLean |
|
Name: |
Felipe
MacLean |
|
Title: |
Chief
Executive Officer |
|
|
(Principal
Executive Officer) |
|
|
|
Date:
May 15, 2024 |
By: |
/s/
Luis A. Guerra |
|
Name: |
Luis
A. Guerra |
|
Title: |
Chief
Financial Officer |
|
|
(Principal
Accounting and Financial Officer) |
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WHEREAS, the Company, Kustom
and DGLY entered into that certain Indemnification Agreement, dated as of February 1, 2024 (the “Indemnification Agreement”);
and
WHEREAS, the parties hereto
desire to, effective immediately as of the date first written above, terminate the Indemnification Agreement as more specifically provided
herein.
NOW, THEREFORE, the parties
hereto, in consideration of the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, intending to be legally bound, hereby agree as follows:
1.
Termination. The parties hereto hereby acknowledge and agree that, effective as of the Effective Date, the Indemnification
Agreement and all obligations of the Company, Kustom and DGLY pursuant thereto will be terminated in all respects.
2.
Release and Waiver. Effective as of the Effective Date, each of the parties hereto mutually release and discharge each other
from all claims or demands under or in connection with the Indemnification Agreement.
3.
Further Assurances. Each of the parties hereto hereby further covenants and agrees to execute and deliver all further documents
and agreements and take all further action that may be reasonably necessary or desirable in order to enforce and effectively implement
the terms and conditions of this Agreement.
4.
Successors and Assigns. This Agreement is intended to bind, inure to the benefit of and be enforceable by the parties hereto
and their respective successors and assigns.
5.
Counterparts; Governing Law. This Agreement may be executed in two or more counterparts (including by means of facsimile
or other electronic transmission), each of which shall be deemed to be an original and all of which shall constitute the same instrument.
This Agreement shall be governed by the laws of the State of New York, without giving effect to conflict of laws provisions.
6.
Headings. The headings of the sections, paragraphs and subsections of this Agreement are inserted for convenience only and
shall not affect the interpretation hereof.
IN WITNESS WHEREOF, the
parties hereto have duly executed and delivered this Agreement effective as of the Effective Date.
I, Luis A. Guerra, certify that:
In connection with the Quarterly Report on Form
10-Q of Clover Leaf Capital Corp. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Felipe MacLean, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
In connection with the Quarterly Report on Form
10-Q of Clover Leaf Capital Corp. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Luis A. Guerra, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: