UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from to
Commission
File No.
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A Common Stock and one Right to receive one-eighth (1/8) of one share of Class A Common Stock upon the consummation of an initial business combination | CLOEU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Rights, every eight (8) rights entitles the holder to receive one share of Class A Common Stock upon the consummation of an initial business combination | CLOER | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer | |
| ☒ | ||
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As
of November 22, 2021, there were
CLOVER LEAF CAPITAL CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CLOVER LEAF CAPITAL CORP.
CONDENSED BALANCE SHEET
| September 30, 2021 | ||||
| (unaudited) | ||||
| Assets: | ||||
| Current assets: | ||||
| Cash | $ | |||
| Prepaid expenses – current portion | ||||
| Total current assets | ||||
| Prepaid expenses – long term portion | ||||
| Cash held in trust account | ||||
| Total Assets | $ | |||
| Liabilities and Stockholders’ Deficit | ||||
| Current liabilities: | ||||
| Accrued costs and expenses | $ | |||
| Due to related party | ||||
| Promissory note – related party | ||||
| Total current liabilities | ||||
| Deferred underwriting commissions | ||||
| Total Liabilities | ||||
| Commitments and Contingencies (Note 7) | ||||
| Class A common stock subject to possible redemption, | ||||
| Stockholders’ Deficit | ||||
| Preferred stock, $ | ||||
| Class A common stock, $ | ||||
| Class B common stock, $ | ||||
| Additional paid-in capital | ||||
| Accumulated deficit | ( | ) | ||
| Total stockholders’ deficit | ( | ) | ||
| Total Liabilities and Stockholders’ Deficit | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
CLOVER LEAF CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the three months ended September 30, 2021 | For the period from February 25, 2021 (inception) through September 30, 2021 | |||||||
| Formation cost | $ | $ | ||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Interest and dividends earned on cash held in Trust | ||||||||
| Total other income | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average of redeemable Class A shares outstanding | ||||||||
| Basic and diluted net loss per share, redeemable Class A common stock | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average non-redeemable Class A and Class B shares outstanding | ||||||||
| Basic and diluted net loss per share, non-redeemable Class A and Class B common stock | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
CLOVER LEAF CAPITAL CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND
FOR THE PERIOD FROM FEBRUARY 25, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
(UNAUDITED)
| Class A | Class B | Additional | Total Stockholder’s | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of February 25, 2021 (Inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Class B common stock issued to initial stockholder | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Sales of | - | |||||||||||||||||||||||||||
| Sale of | - | |||||||||||||||||||||||||||
| Representative shares | - | |||||||||||||||||||||||||||
| Forfeiture of shares due to over-allotment not exercised in full | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Class A share accretion to redemption value, net of allocation of rights proceeds and offering costs | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
CLOVER LEAF CAPITAL CORP.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 25, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
(UNAUDITED)
| Cash flows from operating activities: | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Formation cost paid by Sponsor | ||||
| Interest and dividends earned on investment in Trust | ( | ) | ||
| Interest earned on cash in bank account | ( | ) | ||
| Changes in operating assets and liabilities: | ||||
| Accrued expenses | ||||
| Prepaid expenses | ( | ) | ||
| Due to related party | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment of cash in Trust Account | ( | ) | ||
| Net cash used in Investing Activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from Initial Public Offering | ||||
| Proceeds from Private placement | ||||
| Proceeds from sale of founder shares to initial stockholders | ||||
| Proceeds from issuance of promissory note to related party | ||||
| Payment of promissory note to related party | ( | ) | ||
| Payment of deferred offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net change in cash | ||||
| Cash, February 25, 2021 (inception) | ||||
| Cash, end of the period | $ | |||
| Supplemental disclosure of cash flow information: | ||||
| Class A share accretion to redemption value in excess of purchase price | $ | |||
| Deferred underwriters comission | $ | |||
| Deferred offering costs paid by promissory note – related party | $ | |||
| Representative shares issued | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
CLOVER LEAF CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2021, the Company had not commenced any operations. All activity for the period from February 25, 2021 (inception) through September 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”). On July 22, 2021, the Company consummated its IPO
of
Transaction costs amounted to $
The Company’s Business Combination must
be with one or more target businesses that together have a fair market value equal to at least
Following the closing of the IPO on July 22,
2021, $
5
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
$
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 $
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
6
Going Concern
As of September 30, 2021, the Company had $
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 6). As of September 30, 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern until the earlier of the consummation of the Business Combination or the date the Company is required to liquidate. 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.
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 — Restatement of Previously Issued Financial Statements
In the Company’s previously issued financial
statements, a portion of the public shares were classified as permanent equity to maintain stockholders’ equity greater than $
Management re-evaluated the Company’s application of ASC 480-10-99 to its accounting classification of public shares. Upon re-evaluation, management determined that the public shares include certain provisions that require classification of the public shares as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial Business Combination.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that the related impacts were material to the previously presented financial statements. Therefore, the Company, in consultation with its Audit Committee, concluded that its previously issued financial statements impacted should be restated to report all public shares as temporary equity. As such the Company is restating those periods in this Quarterly Report.
7
Impact of the Restatement
The impact to the balance sheet as of July 22, 2021 is presented as below:
| As Previously | ||||||||||||
| Reported | Adjustment | As Restated | ||||||||||
| Balance Sheet as of July 22, 2021 (per form 8-K filed on July 28, 2021) | ||||||||||||
| Class A common stock, $ | $ | $ | $ | |||||||||
| Stockholders’ equity | ||||||||||||
| Class A common stock - $ | ( | ) | ||||||||||
| Class B common stock - $ | ||||||||||||
| Additional paid-in capital | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity (deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Shares subject to possible redemption | ||||||||||||
Note 3 — 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 8 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. The interim results for the three months ended September 30, 2021 and for the period from February 25, 2021 (inception) through September 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 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.
8
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 $
Investments Held in Trust Account
As of September 30, 2021, the Company had $
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 cash held in Trust” line item in the statements of operations. Interest income is recognized when earned.
The carrying value, excluding gross unrealized holding loss and fair value of held to maturity securities on September 30, 2021 are as follows:
| Carrying Value as of September 30, 2021 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value as of September 30, 2021 | |||||||||||||
| U.S. Treasury Securities (matures February 24, 2022) | ( | ) | ||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
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 $
Due to Related Party
The balance of $
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 $
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.
9
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
All of the
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.
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 September 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.
Net Loss Per Common Share
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 condensed statement of operations applies the two-class method in calculating net loss per share. Basic and diluted net loss per common share for redeemable common stock and non-redeemable common stock is calculated by dividing net loss, allocated proportionally to each class of common stock, attributable to the Company by the weighted average number of shares of redeemable and non-redeemable stock outstanding.
The calculation of diluted loss per ordinary share 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.
10
Accordingly, basic and diluted loss per common share is calculated as follows:
| For the Three Months ended September 30, 2021 | For the period from February 25, 2021 (inception) through September 30, 2021 | |||||||
| Common stock subject to possible redemption | ||||||||
| Numerator: | ||||||||
| Net loss allocable to Class A common stock subject to possible redemption | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted Average Redeemable Class A common stock, basic and diluted | ||||||||
| Basic and Diluted net loss per share, redeemable Class A common stock | $ | ( | ) | $ | ( | ) | ||
| Non-redeemable common stock | ||||||||
| Numerator: | ||||||||
| Net loss allocable to non-redeemable common stock | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted Average non-redeemable common stock, basic and diluted | ||||||||
| Basic and diluted net loss per share, non-redeemable common stock | $ | ( | ) | $ | ( | ) | ||
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“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 unaudited condensed financial statements.
Note 4 — Initial Public Offering
Public Units
On July 22, 2021, the Company consummated its
IPO of
The Company paid an underwriting fee at the closing of the IPO of
$
Note 5 — Private Placement
Simultaneously with the closing of the IPO and
the sale of the Units, the Sponsor purchased an aggregate of
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.
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Note 6 — Related Party Transactions
Founder Shares
In March 2021, the Sponsor paid $
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
Promissory Note — Related Party
On March 4, 2021, the Sponsor agreed to loan
the Company up to $
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.
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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 $
Note 7 — 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
Underwriting Agreement
The Company has granted the underwriters a 30-day option
to purchase up to
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
$
The underwriters will be entitled to a deferred
underwriting discount of
Representative’s Common Stock
The Company has agreed to issue to Maxim and/or
its designees,
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
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Note 8 — Stockholders’ Equity
Preferred Stock
The Company is authorized to issue
Class A Common Stock
The Company is authorized to issue
Class B Common Stock
The Company is authorized to issue
The Company’s initial stockholders have
agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of:
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,
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 9 — 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 statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Clover Leaf Capital Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Yntegra Capital Investments, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are 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”). We may pursue the initial Business Combination target in any industry or geographic location, and we intend to focus our search for a target business engaged in the cannabis industry.
As of September 30, 2021, we had not commenced any operations. All activity for the period from February 25, 2021 (inception) through September 30, 2021 relates to our formation and the initial public offering (the “IPO”) described below and subsequent to the IPO the search for a target company for our Business Combination. We will not generate any operating revenues until after the completion of our initial Business Combination, at the earliest. We will generate non-operating income in the form of interest income on cash, cash equivalents and investments held in the Trust Account from the proceeds derived from the IPO. We have selected December 31 as our fiscal year end.
The registration statement for our IPO was declared effective on July 19, 2021 (the “Effective Date”). On July 22, 2021, we consummated our 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, and the sale of 675,593 Units, at a price of $10.00 per Unit, in a private placement to our 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. Our 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 issuance of additional shares in connection with an initial Business Combination to the owners of the target or other investors:
| ● | may significantly dilute the equity interest of investors in our Initial Public Offering, which dilution would increase if the anti-dilution provisions in the common stock resulted in the issuance of common stock on a greater than one-to-one basis upon conversion of the common stock; |
| ● | may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock; |
| ● | could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; |
| ● | may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and |
| ● | may adversely affect prevailing market prices for our common stock and/or warrants. |
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Similarly, if we issue debt securities or otherwise incur significant debt to banks or other lenders or the owners of a target, it could result in:
| ● | default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations; |
| ● | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| ● | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| ● | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| ● | our inability to pay dividends on our common stock; |
| ● | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes; |
| ● | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| ● | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; |
| ● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt services requirements, and execution of our strategy; and |
| ● | Other purposes and other disadvantages compared to our competitors who have less debt |
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our initial Business Combination will be successful.
Results of Operations
Our entire activity since inception up to September 30, 2021 relates to our formation, the Initial Public Offering and, since the closing of the Initial Public Offering, a search for a Business Combination candidate. We will not be generating any operating revenues until the closing and completion of our initial Business Combination, at the earliest.
For the three months ended September 30, 2021, we had a net loss of $319,154, which consisted of $330,655 in formation and operating costs offset by $25 in interest income from the operating bank account and interest income of $11,476 from marketable securities held in our Trust Account.
For the nine months ended September 30, 2021, we had a net loss of $326,598, which consisted of $338,100 in formation and operating costs offset by $26 in interest income from the operating bank account and interest income of $11,476 from marketable securities held in our Trust Account.
Liquidity and Capital Resources
As of September 30, 2021, we had $839,642 in our operating bank account, and a working capital surplus of $887,101.
On July 22, 2021 we consummated our IPO of 13,831,230 Units at $10.00 per Unit. Simultaneously with the IPO, consummated the sale of 675,593 Units at a price of $10.00 per Unit, in a private placement to the Sponsor and Maxim Group LLC, the representative of the underwriters.
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.
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.
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Our liquidity needs up to September 30, 2021 have been satisfied through a payment from the Sponsor of $25,000 for the Founder Shares to cover certain offering costs and the loan under an unsecured promissory note from our Sponsor of $300,000. As of September 30, 2021 we borrowed $174,225 of which we paid back $168,225 in borrowings under the promissory note. In addition, in order to finance transaction costs in connection with our Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans up to $1,500,000. As of September 30, 2021, there were no amounts outstanding under any Working Capital Loans.
Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we 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.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed 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 unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:
Class A Common Stock Subject to Possible Redemption
All of the 13,831,230 Class A Common Stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such public shares in connection with 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.
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.
Net Loss Per Common Share
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 condensed statement of operations applies the two-class method in calculating net loss per share. Basic and diluted net loss per common share for redeemable common stock and non-redeemable common stock is calculated by dividing net loss, allocated proportionally to each class of common stock, attributable to the Company by the weighted average number of shares of redeemable and non-redeemable stock outstanding.
The calculation of diluted loss per ordinary share 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.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
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Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and administrative support. Upon completion of our Business Combination or the Company’s liquidation, we will cease paying these monthly fees.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“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 unaudited condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2021, due to the restatement of our July 22, 2021 balance sheet included in the Form 8-K filed in connection with our IPO, regarding the classification of redeemable common stock, as described below which constitutes a material weakness in our internal control over financial reporting for complex financial instruments. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Regarding the restatements to the Company’s balance sheet included on the Company’s Form 8-K, this was necessitated by the fact that the Company’s Common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, the Company concluded that its Common stock subject to possible redemption should be presented at redemption value as temporary equity, outside of the Stockholders’ equity section of the Company’s balance sheet. The Company had previously classified a portion of the redeemable common stock in permanent equity. The Company restated its financial statements to classify all redeemable common stock as temporary equity.
It is noted that the non-cash adjustments to the financial statement do not impact the amounts previously reported for our cash and cash equivalents or total assets. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
Other than as set forth above, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this report, except as set forth below, there have been no material changes from the risk factors previously disclosed in our final prospectus dated July 19, 2021 and filed with the SEC on July 21, 2021.
We have identified a material weakness in our internal control over financial reporting as of September 30, 2021. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
After consultation with our management, our audit committee identified, in light of the reclassification of the reclassification of our redeemable Class A common stock as temporary equity, a material weakness in our internal controls over financial reporting relating to our accounting for complex financial instruments. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Measures to remediate material weaknesses may be time-consuming and costly and there is no assurance that such initiatives will ultimately have the intended effects. If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our share price may decline. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
As a result of the material weakness in our internal controls over financial reporting described above, the change in accounting for our redeemable Class A common stock, and other matters raised or that may in the future be raised by the SEC, we may face for the prospect of litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements, any of which claims could result in adverse effects to our business. As of the date hereof, we have no knowledge of any such litigation or dispute.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds
On July 22, 2021, we consummated our initial public offering of 13,831,230 units. Each unit consists of one share of Class A Common Stock and one right to receive one-eighth (1/8) of a share of Class A Common Stock upon the consummation of an initial Business Combination (“Right”), with every eight (8) rights entitling the holder thereof to receive one share of Class A Common Stock at the closing of the Company’s initial Business Combination. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $138,312,300. The Company granted the underwriters in the IPO a 30-day option to purchase up to 1,875,000 additional units solely to cover over-allotments, of which 1,331,230 units were purchased concurrently with the closing of the IPO. On July 28, 2021, the underwriters forfeited the remainder of their over-allotment option.
On July 22, 2021, simultaneously with the closing of the IPO, the Company completed the private sale of 675,593 units (the “Private Placement Units”) to Yntegra Capital Investments, LLC and Maxim Group LLC at a purchase price of $10.00 per Private Placement Unit, generating gross proceeds to the Company of $6,755,930.
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.
Following the closing of our initial public offering on July 22, 2021, $140,386,984.50 from the net proceeds of the sale of the units in our initial public offering, the exercise of the over-allotment option and the sale of the private placement units was placed in a trust account established for the benefit of our public stockholders and maintained by Continental Stock Transfer & Trust Company, as trustee. The proceeds held in the trust account may be invested by the trustee only in U.S. government securities with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act.
There has been no material change in the planned use of the proceeds from our initial public offering and the private placement as is described in the Company’s final prospectus related to our initial public offering.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CLOVER LEAF CAPITAL CORP. | ||
| Date: November 24, 2021 | By: | /s/ Felipe MacLean |
| Name: | Felipe MacLean | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 24, 2021 | By: | /s/ Luis A. Guerra |
| Name: | Luis A. Guerra | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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