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, $0.0001 par value and one Right to receive one-eighth (1/8) of one share of Class A Common Stock upon the consummation of an initial business combination | CLOEU | The Nasdaq Stock Market LLC | ||
| 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 14, 2022, there were
CLOVER LEAF CAPITAL CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CLOVER LEAF CAPITAL CORP.
CONDENSED BALANCE SHEETS
| September
30, 2022 (Unaudited) | December 31, 2021 (Audited) | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses – current portion | ||||||||
| Total current assets | ||||||||
| Prepaid expenses – long term portion | ||||||||
| Investments
held in Trust Account
| ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Redeemable Common Stock and Stockholders’ Deficit | ||||||||
| Accrued costs and expenses | $ | $ | ||||||
| Income taxes payable | ||||||||
| Promissory note to Related Party | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriting commissions | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (see Note 7) | ||||||||
| Redeemable Common Stock: | ||||||||
| Class A common stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Redeemable Common Stock and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
1
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three
Months September 30, | Nine Months September 30, | For the Period from February 25, 2021 (Inception) Through September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Formation and operating costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Recovery of previously incurred costs | ||||||||||||||||
| Interest earned on investments held in Trust Account | ||||||||||||||||
| Interest earned on cash held in bank | ||||||||||||||||
| Total other income | ||||||||||||||||
| Income (Loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| $ | ( | ) | ( | ) | ||||||||||||
| $ | ||||||||||||||||
| $ | ( | ) | ( | ) | ||||||||||||
| (1) |
The accompanying notes are an integral part of these financial statements.
2
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion of Class A ordinary shares to redemption amount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND FOR THE PERIOD FROM FEBRUARY 25, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| 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 financial statements.
3
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | For the Period From February 25, 2021 (Inception) Through September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (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 costs and expenses | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Due to related party | ( | ) | ||||||
| Income taxes payable | ||||||||
| 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 – January 1, 2022 | ||||||||
| 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 commission | $ | $ | ||||||
| Deferred offering costs paid by promissory note – related party | $ | $ | ||||||
| Representative shares issued | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
4
CLOVER LEAF CAPITAL CORP.
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 September 30, 2022, the Company had not commenced any operations. All activity for the period from February 25, 2021 (inception) through September 30, 2022 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”, or “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
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.
On October 19, 2022, the Company held a special meeting of stockholders
(the “Meeting”). At the Meeting, the Company’s stockholders approved an amendment to the Company’s amended and
restated certificate of incorporation (the “Extension Amendment”) to extend the date by which the Company must consummate
its initial business combination from October 22, 2022 to July 22, 2023, or such earlier date as determined by the Company’s board
of directors (the “Extension”). In connection with the Meeting, stockholders holding
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, 2022 and December 31, 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 5). As of September 30, 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, stockholders, officers, directors, or third parties. The Company’s Sponsor, officers and directors may, but are not obligated to, loan the Company funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.
The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. In connection with the Company’s assessment of going concern considerations in accordance with 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, 2023 to consummate a Business Combination, unless otherwise extended (see Note 5). 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.
7
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.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, a vote by the stockholders of the Company to extend the period of time to complete the Business Combination ("extension vote”) or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 15, 2022. The accompanying condensed balance sheet as of December 31, 2021 has been derived from the Company’s audited financial statements included in the Form 10-K. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
8
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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s 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 September 30, 2022 and December 31, 2021,
the Company had $
9
Investments Held in Trust Account
As of September 30, 2022 and December 31, 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 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 September 30, 2022 are as follows:
| Carrying Value as of September 30, 2022 | Gross Unrealized Gains | Gross Unrealized Gain | Fair Value as of September 30, 2022 | |||||||||||||
| U.S. Treasury Securities (matures November 25, 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 $
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 $
10
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
11
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 September 30, 2022 and December 31, 2021, the Class A common stock reflected on the balance sheet are reconciled in the following table:
| Gross Proceeds | $ | |||
| Proceeds allocated to equity rights | ( | ) | ||
| Less: | ||||
| Issuance costs related to Class A common stock subject to possible redemption | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Contingently redeemable Class A common stock subject to possible redemption (December 31, 2021) | ||||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Contingently redeemable Class A common stock subject to possible redemption (September 30, 2022) | $ |
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.
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The basic and diluted income per common stock is calculated as follows:
| For the Three Months Ended | For the Three Months Ended | For the Nine Months Ended | For the Period From February 25, 2021 (Inception) Through | |||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Common stock subject to possible redemption | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss allocable to Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | |||||||||
| Non-redeemable common stock | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss allocable to Class B common stock | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | |||||||||
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements 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. As of September 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
Our effective tax rate was
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, 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 and Florida as its only “major” tax jurisdictions. The Company is subject to income taxation 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.
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Note 3 — Initial Public Offering
On July 22, 2021, the Company consummated its
IPO of
The Company paid an underwriting fee at the closing
of the IPO of $
Note 4 — 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.
Note 5 — 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
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Promissory Note — Related Party
On March 4, 2021, the Sponsor agreed to loan the
Company up to $
As described in Note 8 below, on October 19, 2022, in connection with
the extension of the period of initial Business Combination from October 22, 2022, to July 22, 2023, the Company issued a further
promissory note (the “October Note”) in the principal amount of $
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.
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 $
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
Underwriting Agreement
The Company has granted the underwriters a 30-day
option to purchase up to
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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 were entitled to a deferred underwriting
discount of
Representative’s Common Stock
The Company 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 has
granted 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
Note 7 — Stockholders’ Deficit
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
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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,
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, other than as described below.
On October 19, 2022, the Company held the Meeting at which the Company’s stockholders approved an Extension Amendment to extend the date by which the Company must consummate its initial Business Combination from October 22, 2022, to July 22, 2023, or such earlier date as determined by the Company’s board of directors.
In connection with the Meeting, stockholders holding
On October 19, 2022, the Company issued a
promissory note (the “October Note”) in the principal amount of $
The Company will cause the Extension Funds to be deposited into the
Trust Account, which equates to approximately $
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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 IPO 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.
The registration statement for our Initial Public Offering was declared effective on July 19, 2021 (the “Effective Date”). On July 22, 2021, we consummated our Initial Public Offering of 13,831,230 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, the representative of the underwriters (the “Representative”), that closed simultaneously with the Initial Public Offering. 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 Initial Public Offering 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.
Our charter provides that we would have only 12 months from the closing of the Initial Public Offering to complete the initial Business Combination, except that we 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 our 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 us to consummate the 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 we complete 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 us or convert a portion or all of the total loan amount into units at a price of $10.00 per unit.
On July 18, 2022, the Company issued the July Note in the principal amount of $1,383,123 to the Sponsor in connection with the Company’s extension of the date by which the Company has to complete its initial Business Combination from July 22, 2022 to October 22, 2022. At the election of the Sponsor, up to $1,383,123 of the unpaid principal amount of the July Note may be converted into units of the Company (the “Conversion Units”) with the total Conversion Units so issued shall be equal to: (x) the portion of the principal amount of the July Note being converted divided by (y) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of units.
On July 18, 2022, the Company caused to be deposited an aggregate of $1,383,123 (representing $0.10 per public share) into the Company’s Trust Account for its public stockholders. The extension was the first of three three-month extensions permitted under the Company’s governing documents and provides the Company with additional time to complete its initial Business Combination.
On October 19, 2022, the Company held the Meeting at which the Company’s stockholders approved an Extension Amendment to extend the date by which the Company must consummate its initial Business Combination from October 22, 2022, to July 22, 2023, or such earlier date as determined by the Company’s board of directors.
In connection with the Meeting, stockholders holding 12,204,072 shares of the Company’s Class A common stock issued in the Company’s Initial Public Offering exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, approximately $125,587,180.34 (approximately $10.29 per share) was removed from the Company’s Trust Account to pay such holders.
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On October 19, 2022, the Company issued the October Note in the principal amount of $1,383,123 to the Sponsor pursuant to which the Sponsor loaned to the Company $1,383,123 to deposit into the Company’s Trust Account for each share of the Company’s Class A common stock that was not redeemed in connection with the Extension. The October Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s initial Business Combination, or (b) the date of the liquidation of the Company.
As of October 19, 2022, the Company caused an aggregate of $1,383,123 to be deposited into the Trust Account to support the Extension, which equates to approximately $0.85 per remaining public share, for the period that the Company needs to complete an initial Business Combination, and such amount will be distributed either to: (i) all of the holders of public shares upon the Company’s liquidation or (ii) holders of public shares who elect to have their shares redeemed in connection with the consummation of the Initial Business Combination.
Results of Operations
Our entire activity since inception up to September 30, 2022 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, 2022, we had a net income of $94,213, which consisted of interest earned on investments held in Trust Account of $607,876 and interest earned on cash held in bank of $3, offset by formation and operating costs of $384,730 and provision for income taxes of $128,936.
For the nine months ended September 30, 2022, we had a net income of $50,507, which consisted of interest earned on investments held in Trust Account of $880,096, recovery of previously incurred costs of $341,684 and interest earned on cash held in bank of $26, offset by formation and operating costs of $1,037,688 and provision for income taxes of $133,611.
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 period from February 25. 2021 (inception) through 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, 2022 and December 31, 2021, we had $16,399 and $680,302 in cash, respectively, and working capital deficit of $1,442,428 (net of Delaware Franchise and income taxes) and $418,498, respectively. Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through a payment from our Sponsor of $25,000 for the founder shares to cover certain offering costs and the loan under an unsecured promissory note from our Sponsor of $300,000.
In addition, in order to finance transaction costs in connection with a 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. As of September 30, 2022 and December 31, 2021, there were no amounts outstanding under any working capital loans.
Until the consummation of a Business Combination, we 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. We will need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. Our Sponsor, officers and directors may, but are not obligated to, loan us funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we 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.
We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” We have until July 22, 2023, unless further extended, as described below, to consummate a Business Combination. It is uncertain that we 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. These conditions raise substantial doubt about our 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 we be unable to continue as a going concern, also do not include any adjustment that might result from the outcome of this uncertainty about should a Business Combination not occur.
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On July 18, 2022, the Company issued the July Note in the principal amount of $1,383,123 to the Sponsor in connection with the extension. The July Note bears no interest and is due and payable upon the earlier to occur of (i) the date on which the Company’s initial Business Combination is consummated and (ii) the liquidation of the Company on or before October 22, 2022 (unless extended to April 22, 2023) or such later liquidation date as may be approved by the Company’s stockholders. At the election of the Sponsor, up to $1,383,123 of the unpaid principal amount of the July Note may be converted into Conversion Units with the total Conversion Units so issued shall be equal to: (x) the portion of the principal amount of the July Note being converted divided by (y) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of units.
On July 18, 2022, the Company issued a press release announcing that the Sponsor had caused to be deposited an aggregate of $1,383,123 (representing $0.10 per public share) into the Company’s Trust Account for its public stockholders. This deposit enables the Company to extend the date by which the Company has to complete its initial Business Combination from July 22, 2022 to October 22, 2022. The extension was the first of three three-month extensions permitted under the Company’s governing documents and provides the Company with additional time to complete its initial Business Combination.
On October 19, 2022, the Company issued the October Note in the principal amount of $1,383,123 to the Sponsor pursuant to which the Sponsor loaned to the Company $1,383,123 to deposit into the Company’s Trust Account for each share of the Company’s Class A common stock that was not redeemed in connection with the Extension. The October Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s initial Business Combination, or (b) the date of the liquidation of the Company.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed 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 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 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.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2022 and December 31, 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 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.
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, 2022, 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. During quarterly period ended September 30, 2022, we identified additional material weaknesses in internal controls related to timeliness, completeness and accuracy of accruals.
In light of the material weaknesses, 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 the material weaknesses, 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 described above, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2022 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, other than as set forth below, there have been no material changes from the risk factors previously disclosed in the Company’s (i) most recent prospectus for the Initial Public Offering as filed with the SEC on July 19, 2021, (ii) its Annual Report on Form 10-K for the year ended December 31, 2021, and (iii) its Quarterly Report on Form 10-Q for the period ended June 30, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC..
A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions by us of our shares in connection with a Business Combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).
On August 16, 2022, the IR Act was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the structure of the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the business combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in our ability to complete a Business Combination, including the Transaction.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash items until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of securities in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.
The funds in the Trust Account have, since our Initial Public Offering, been held only in U.S. government treasury obligations 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. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account as cash items until the earlier of the consummation of our initial Business Combination or the liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash items would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.
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In the event that we may be deemed to be an investment company, we may be required to liquidate the Company.
We may not be able to complete an initial Business Combination with certain potential target companies if a proposed transaction with the target company may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations.
Certain acquisitions or business combinations may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations. In the event that such regulatory approval or clearance is not obtained, or the review process is extended beyond the period of time that would permit an initial Business Combination to be consummated with us, we may not be able to consummate a Business Combination with such target.
Among other things, the U.S. Federal Communications Act prohibits foreign individuals, governments, and corporations from owning more than a specified percentage of the capital stock of a broadcast, common carrier, or aeronautical radio station licensee. In addition, U.S. law currently restricts foreign ownership of U.S. airlines. In the United States, certain mergers that may affect competition may require certain filings and review by the Department of Justice and the Federal Trade Commission, and investments or acquisitions that may affect national security are subject to review by the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States.
Outside the United States, laws or regulations may affect our ability to consummate a Business Combination with potential target companies incorporated or having business operations in jurisdiction where national security considerations, involvement in regulated industries (including telecommunications), or in businesses relating to a country’s culture or heritage may be implicated.
U.S. and foreign regulators generally have the power to deny the ability of the parties to consummate a transaction or to condition approval of a transaction on specified terms and conditions, which may not be acceptable to us or a target. In such event, we may not be able to consummate a transaction with that potential target.
As a result of these various restrictions, the pool of potential targets with which we could complete an initial Business Combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies (“SPACs”) that do not have similar ownership issues. Moreover, the process of government review could be lengthy. Because we have only a limited time to complete our initial Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate, our public stockholders may only receive $10.00 per share, and our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.
We have identified additional material weaknesses in our internal control over financial reporting as of September 30, 2022. 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.
We have identified additional material weaknesses in our internal controls over financial reporting as of September 30, 2022, relating to timeliness, completeness and accuracy of accruals. 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 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. If we identify any new material weaknesses in the future, any such newly identified material weaknesses 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 adversely affect our business and operating results. 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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. For a description of the use of proceeds generated in our Initial Public Offering and Private Placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, as filed with the SEC on August 15, 2022. There has been no material change in the planned use of proceeds from our Initial Public Offering and Private Placement as described in the registration statement.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Effective July 6, 2022, Chris Rebentisch resigned from his position as Chief Operating Officer and Secretary of the Company.
Effective July 11, 2022, Markus Puusepp, was appointed as Chief Operating Officer and Secretary of the Company. There is no arrangement or understanding between Mr. Puusepp and any other person pursuant to which he was named Chief Operating Officer and Secretary of the Company.
Mr. Puusepp has been employed as Chief Strategy Officer of SHL Medical AG (“SHL”) since 2017. SHL is a global solution provider in the design, development and manufacturing of advanced drug delivery systems. Mr. Puusepp previously spent over seven years in Hong Kong and Beijing within the private equity and medtech industries. Prior to that, he worked in investment banking in Sweden, as well as management consulting. Additionally, Mr. Puusepp has held several directorships, including as a board member for Spowdi since October 2020, a non-executive board member of QulO since October 2018, a board member of Pharmaero ApS since February 2018 and as a Chairman of Innovation Zed since February 2018. He received his Masters in Business Administration from Stockholm University in 2008.
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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. |
| (1) | Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 24, 2022. |
| (2) | Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 19, 2022 |
| (3) | Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 24, 2022. |
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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 14, 2022 | By: | /s/ Felipe MacLean |
| Name: | Felipe MacLean | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ Luis A. Guerra |
| Name: | Luis A. Guerra | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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