NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note
1 — Organization, Business Operation and Going Concern
Clover Leaf Capital Corp. (the
“Company”) is a blank check company 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 March 31, 2022, the Company had not commenced any operations. All activity for the period from February 25, 2021 (inception) through
March 31, 2022 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 generates 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 for the Company’s IPO was declared effective on July 19, 2021 (the “Effective Date”). 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.” 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.
Going
Concern
As of March
31, 2022 and December 31, 2021, the Company had $667,413 and $680,302 in cash, respectively, and working capital of $488,068 and
$418,498, 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).
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 March 31, 2022 and December 31, 2021, there were no amounts outstanding under any Working
Capital Loans.
Until
the consummation of a 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 Business Combination. The Company will need to raise
additional capital through loans or additional investments from its Sponsor, shareholders, 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 Financial Accounting Standard Board’s Account
Standards Update (“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.” The Company has until July 22, 2022 to consummate a Business Combination. It is uncertain that the Company will be able
to consummate a Business Combination by this time. If a 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 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 adjustment that might result from the outcome of the uncertainty about should a Business Combination not occur.
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 — Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations
of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management,
the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the
fair statement of the balances and results for the periods presented. The interim results for the three months ended March 31, 2022 are
not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022.
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 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 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 these financial statements in conformity with U.S. 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.
As of March 31, 2022 and December 31, 2021, the Company had $667,413 and $680,302 in cash, respectively, and no cash equivalents.
Investments
Held in Trust Account
As
of March 31, 2022 and December 31, 2021, the Company had $140,457,616 and $140,404,628 in investments held in the Trust Account,
respectively.
The
Company classifies its United States Treasury securities as held-to-maturity in accordance with FASB ASC Topic 320 “Investments
- Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to
hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion
of premiums or discounts.
A
decline in the market value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment
that reduces the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for
the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability
and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment
is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the
severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the
general market condition in the geographic area or industry in which the investee operates.
Premiums and discounts are amortized
or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method. Such
amortization and accretion are included in the “Interest and dividends earned on investment held in the trust account” line
item in the statements of operations. Interest income is recognized when earned.
The carrying
value, excluding gross unrealized holding gain and fair value of held to maturity securities on March 31, 2022 are as follows:
| |
Carrying Value as of March 31, 2022 | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value as of March 31, 2022 | |
U.S. Treasury Securities (matures February 24, 2022) | |
| 140,457,616 | | |
| 18,598 | | |
| — | | |
| 140,476,214 | |
| |
$ | 140,457,616 | | |
$ | 18,598 | | |
$ | — | | |
$ | 140,476,214 | |
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 ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A—“Expenses
of Offering”. Offering costs consist of legal, accounting, underwriting and other costs incurred through the consummation of the
Public Offering. 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 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the balance sheets, 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 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 which 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 Business Combination and in connection with certain amendments to the Company’s amended and restated certificate
of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in
ASC 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, 2022, the Class A common stock reflected on the balance sheet are 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 | |
$ | 140,386,985 | |
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 Class A shares sold in the IPO. The Company’s
non-redeemable shares are comprised of Class B shares purchased by the Sponsor as well as Class A shares sold in the Private Units and
representative shares. Earnings and losses are shared pro rata between the two classes of shares. The Company’s statements of operations
apply 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 issued in connection with the IPO 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 period presented.
The
basic and diluted income per common stock is calculated as follows:
| |
| | |
For the Period From February 25, 2021 | |
| |
For the Three Months Ended | | |
(Inception) Through | |
| |
March 31, 2022 | | |
March 31, 2021 | |
Common stock subject to possible redemption | |
| | |
| |
Numerator: | |
| | |
| |
Net loss allocable to Class A common stock subject to possible redemption | |
$ | 63,492 | | |
$ | — | |
Denominator: | |
| | | |
| | |
Weighted Average Class A common stock, basic and diluted | |
| 14,645,135 | | |
| — | |
Basic and Diluted net income per share, Class A common stock | |
$ | 0.00 | | |
$ | — | |
| |
| | | |
| | |
Non-redeemable common stock | |
| | | |
| | |
Numerator: | |
| | | |
| | |
Net loss allocable to Class B common stock | |
$ | 14,991 | | |
$ | (725 | ) |
Denominator: | |
| | | |
| | |
Weighted Average non-redeemable common stock, basic and diluted | |
| 3,457,807 | | |
| 3,125,000 | |
Basic and diluted net income per share, common stock | |
$ | 0.00 | | |
$ | (0.00 | ) |
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 March 31, 2022 and December 31, 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.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 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 U.S. GAAP. The ASU 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.
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 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 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. 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 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 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 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. 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 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 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 has been allocated to the payment of offering expenses. As of
March 31, 2022 and December 31, 2021, there is no amount outstanding 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
March 31, 2022 and December 31, 2021, no such Working Capital Loans were outstanding.
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, 2022, the Company incurred $40,000 in administrative support fees which is included
in formation and operating costs in the accompanying statements of operations. As of March 31, 2022 and December 31, 2021, there was $2,903
and $2,903 outstanding, respectively, 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. 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.
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.
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’
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, 2022 and December 31, 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 shares of Class A common stock are entitled to one vote for each share. As of March 31,
2022 and December 31, 2021 there were 813,905 shares of Class A common stock issued or outstanding, excluding 13,831,230 shares
of Class A common stock subject to possible redemption.
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, 2022 and December 31, 2021, there were 3,457,807 shares of Class B common stock issued
and outstanding, 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: (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 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
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, the Company did not identify any subsequent events that would have required adjustment or disclosure in
the financial statement.