NOTES
TO CONDENSED FINANCIAL STATEMENTS
JUNE
30, 2021
(Unaudited)
Note
1 — Organization and Business Operations
Clover
Leaf Capital Corp. (the “Company”) a blank check company recently incorporated in the State of Delaware for the purpose of
effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more
businesses (the “Business Combination”). The Company may pursue the initial Business Combination target in any industry or
geographic location, the Company intends to focus its search for a target business engaged in the cannabis industry.
As
of June 30, 2021, the Company had not commenced any operations. All activity for the period from February 25, 2021 (inception) through
June 30, 2021 relates to the Company’s formation and the initial public offering (the “IPO”) 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 has selected December 31 as its fiscal year end.
The
Company’s sponsor is Yntegra Capital Investments, LLC, a Delaware limited liability company (the “Sponsor”).
The
registration statement for the Company’s IPO was declared effective on July 19, 2021 (the “Effective Date”). Subsequent
to June 30, 2021, on July 22, 2021, the Company consummated its IPO of 13,831,230 Units (the “Units” and, with respect to
the 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 Unit, in a private placement to the Sponsor and Maxim Group LLC (“Maxim”), the
representative of the underwriters, 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 management 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 a 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.
The
Company’s 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 a Business Combination. However,
the Company will only complete a Business Combination if the post-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 a 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 Trust Account (“Trust Account”) and will be 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. government 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 (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 12 months
from the closing of the IPO (or up to 21 months if the Company extends the period of time to consummate an initial Business Combination)
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 12 months
from the closing of the IPO (or up to 21 months if the Company extends the period of time to consummate an initial Business Combination),
subject to applicable law.
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 either (1) in connection with a stockholder meeting called to approve the Business Combination
or (2) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed 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 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 Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if
the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks
stockholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination.
The
Company will have only 12 months from the closing of the IPO to complete the initial Business Combination or may extend the period
of time to complete the initial Business Combination by three additional three-month periods (the “Combination Period”).
Pursuant to the terms of the Company’s amended and restated certificate of incorporation and the trust agreement to be entered
into between the Company and Continental Stock Transfer & Trust Company, 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 deposit into the trust account for each additional three month period, $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.
If
the Company has not completed the initial Business Combination within the Combination Period, the Company will: (1) cease all operations
except for the purpose of winding up; (2) 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 (3) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining
stockholders and the board of directors, 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: (1) their
redemption rights with respect to any founder shares, private placement shares and public shares held by them, as applicable, in connection
with the completion of the initial Business Combination; (2) 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 certificate of incorporation
(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 (3) 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 frame).
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
(1) $10.15 per public share or (2) 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 our
indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act. The Company has
not independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe 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.
Liquidity
and Capital Resources
As
of June 30, 2021, the Company had $17,574 in cash and a working capital deficit of $354,015. The Company’s liquidity needs up to
June 30, 2021 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). As of June 30, 2021 the Company had
$173,500 in borrowings under the promissory note. In addition, in order to finance transaction costs in connection with a 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). As of June 30, 2021, there were no amounts outstanding
under any Working Capital Loans.
After
consummation of the IPO on July 22, 2021, the Company had $1,654,310 in its operating bank account, and working capital of $1,179,238.
Based on the foregoing, management believes that
the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of one year from this filing
or twelve months from consummation of the IPO. Over this time period, the Company will be
using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with
or acquire, and structuring, negotiating and consummating the Business Combination.
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 financial statements. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Note
2 — 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 (“US GAAP”) for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included
in 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 Prospectus which contains the initial audited financial statements and
notes thereto for the period from February 25, 2021 (inception) to March 8, 2021 as filed with the SEC on July 21, 2021, as well as the
8-K filed on July 28, 2021 which contains the audited balance sheet as of July 22, 2021. The interim results for the three months ended
June 30, 2021 and for the period from February 25, 2021 (inception) through June 30, 2021 are not necessarily indicative of the results
to be expected for the year ending December 31, 2021 or for any future interim 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 auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, 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 shareholder 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 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 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 financial statements in conformity with US 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 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.
The Company had $17,574 in cash and no cash equivalents as of June 30, 2021.
Deferred
Offering Costs
Deferred offering costs consist of underwriter,
accounting, filing and legal expenses incurred through the balance sheet date that are directly related to the Initial Public Offering
and that will be charged to stockholders’ equity upon the completion of the Initial Public Offering. If the Initial Public Offering
proved to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, would have been charged to operations.
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” 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.
|
Class
A Common Stock Subject to Possible Redemption
As
of June 30, 2021, there were no shares of Class A common stock issued or outstanding. The Company will account for its Class A common
stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Common stock subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally
redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject
to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.
At all other times, common stock are classified as stockholders’ equity. The Company’s shares of Class A common stock feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain
future events.
Net
Loss Per Common Share
The
Company complies with the accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net loss per
common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period,
excluding common stock subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 468,750 shares
of common stock that were subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 5).
As of June 30, 2021, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted
into common stock and then share in the earnings of the Company. As a result, diluted loss per common share is the same as basic loss
per common share for the period presented.
Income
Taxes
The
Company accounts for income taxes under FASB ASC 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 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 financial statements and prescribes
a recognition threshold and measurement process for 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 June 30, 2021. 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 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.
The
provision for income taxes was deemed to be immaterial for the period from February 25, 2021(inception) through June 30, 2021.
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.
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect
on the Company’s financial statements.
Note
3 — Initial Public Offering
Public
Units
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 (see Note 8). 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 (see Note 8). Each Unit consists of (i) one share of Class A common
stock and (ii) one right to receive one-eighth (1/8) of a share of Class A common stock upon the consummation of the initial
Business Combination (the “rights” or “public rights”) (see Note 7).
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 Unit ($5,718,590 in the aggregate) and the representative has committed to purchase an aggregate of 103,734 Private Placement
Units at a price of $10.00 per Unit ($1,037,340 in the aggregate) in a private placement that closed simultaneously with the closing
of the IPO. 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 private placement rights, which will expire worthless
if the Company does not consummate a 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 Maxim). 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. This means that 332,808 of the founder shares are no longer subject to forfeiture.
The underwriters forfeited the remainder of their over-allotment option as of July 28, 2021 (See Note 8).
On April 8, 2021, the Sponsor transferred a membership
interest (the “Interest”) to 3 of the Company’s officers and the 3 Independent Directors of 75,000 Founder Shares. The
Interest relates solely to the number of Founder Shares laid out in their 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 a 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 ASC Topic 718 – “Compensation – Stock Compensation”.
The Company’s 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: (A) six months after the completion of the initial Business Combination; and (B) subsequent
to the initial Business Combination (x) 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 (y) 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”).
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 Initial Public
Offering, 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 Initial Public Offering. These loans will be repaid upon the closing of the Initial Public Offering out of
the of offering proceeds that has been allocated to the payment of offering expenses. As of June 30, 2021, the Company had borrowed $173,500
under the promissory note.
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 would repay such loaned amounts out of the proceeds of the Trust Account released to the Company. Otherwise, such 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 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. As of
June 30, 2021, no such Working Capital Loans were outstanding.
Administrative
Service Fee
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. Upon completion of the initial Business Combination or
the Company’s liquidation, it will cease paying these monthly fees. As of June 30, 2021, nothing has been accrued.
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. 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 “piggy-back”
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 registration statement of which the IPO forms a part and may not exercise their demand rights on more
than one occasion.
Underwriting
Agreement
The
Company has 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 (see Note 8).
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.
Additionally,
the Company has agreed to reimburse the underwriters for out-of-pocket expenses such as 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 our directors,
director nominees and executive officers, which such fees and expenses are capped at an aggregate of $125,000, the full amount of which
was paid at the time of the IPO.
Representative’s
Common Stock
The
Company has agreed to issue to Maxim 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. Maxim has agreed not to transfer, assign or sell any such shares until
the completion of the Company’s initial business combination. In addition, Maxim 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 12 months from the closing of the IPO (or up to 21 months from the closing of the IPO if the period
of time to consummate a business combination is extended, as described herein).
The
shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following
the date of the effectiveness of the registration statement of the IPO 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 registration statement of the IPO, nor may they be sold, transferred, assigned, pledged or hypothecated
for a period of 180 days immediately following the effective date of the registration statement of the IPO except to any underwriter
and selected dealer participating in the offering and their bona fide officers or partners.
Right
of First Refusal
Subject
to certain conditions, the Company will grant Maxim, for a period beginning on the closing of the IPO and ending 15 months after
the date of the consummation of the 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 registration statement
of the IPO.
Note
7 — Stockholders’ Equity
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 June 30, 2021, 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
Class A common stock are entitled to one vote for each share. As of June 30, 2021, there were no shares of Class A common stock
issued or outstanding.
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 June
30, 2021, there were 3,593,750 shares of Class B common stock issued and outstanding, of which 468,750 shares are subject
to forfeiture to the extent that the underwriters’ over-allotment option was not exercised in full so that the founder shares
will represent, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering
(assuming the Sponsor did not purchase any public shares in the Initial Public Offering).
The
Company’s initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur
of: (A) six months after the date of the consummation of the initial Business Combination; and (B) subsequent to the initial
Business Combination (x) if the closing price of our 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 (y) 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
our 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 Initial Public Offering 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 Initial Public Offering (excluding shares included in the private placement units or the shares of Class A common stock issuable
to Maxim) 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 you hold
will entitle you to receive one share at the closing of the 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 financial statements
were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have
required adjustment or disclosure in the financial statements.
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. Each Unit consists of (i)
one share of Class A common stock and (ii) one right to receive one-eighth (1/8) of a share of Class A common stock upon
the consummation of the initial Business Combination (the “rights” or “public rights”).
The
Company paid an underwriting fee at the closing of the IPO of $2,766,246 as of July 22, 2021. An additional fee of $4,840,931 was deferred
and will become payable upon the Company’s completion of an initial Business Combination. The deferred portion of the fee 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.
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 Unit ($5,718,590 in the aggregate) and the representative has committed to purchase an aggregate of 103,734 Private Placement
Units at a price of $10.00 per Unit ($1,037,340 in the aggregate) in a private placement that closed simultaneously with the closing
of the IPO.
On July 28, 2021 the underwriters forfeited the
remainder of their over-allotment allocation. They exercised 1,331,230 of their full 1,875,000 option. This resulted in the forfeiture
of 135,943 Founder Shares for an aggregate of 3,457,807 Founder Shares outstanding.