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) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The | ||||
| The |
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 | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of May 15, 2024, there were
CLOVER LEAF CAPITAL CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CLOVER LEAF CAPITAL CORP.
CONDENSED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Redeemable Common Stock and Stockholders’ Deficit | ||||||||
| Accrued costs and expenses | $ | $ | ||||||
| Income taxes payable | ||||||||
| Excise Tax Payable | ||||||||
| Deferred income tax | ||||||||
| Promissory note to Related Party | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriting commissions | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (see Note 6) | ||||||||
| 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 unaudited condensed financial statements.
1
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Formation and operating costs | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Interest earned on investments held in Trust Account | ||||||||
| Interest earned on cash held in bank | ||||||||
| Total other income | ||||||||
| (Loss) Income before provision for income taxes | ( | ) | ||||||
| Provision for income taxes | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| ( | ) | ( | ) | |||||
| ( | ) | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2024
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of Class A ordinary shares to redemption amount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Excise tax liability on share redemptions | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2023
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of Class A ordinary shares to redemption amount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
CLOVER LEAF CAPITAL CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest and dividends earned on investment in Trust | ( | ) | ( | ) | ||||
| Amortization of prepaid expenses | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accrued costs and expenses | ||||||||
| Prepaid expenses | ||||||||
| Income taxes payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash in Trust Account | ( | ) | ||||||
| Trust Account withdrawal for redeeming shareholder payments | ||||||||
| Net cash provided by Investing Activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments to redeeming shareholders | ( | ) | ||||||
| Proceeds from issuance of promissory note to related party | ||||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Recognition of liability for excise tax on redemptions | $ | $ | ||||||
| Accretion of Class A redeemable shares to possible redemption value | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
CLOVER LEAF CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Organization, Business Operation and Going Concern
Clover Leaf Capital Corp. (the “Company,” “our,” “we,” or “us”) a blank check company incorporated in the State of Delaware for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). The Company may pursue the initial Business Combination target in any industry or geographic location. The Company originally intended to focus its search for a target business engaged in the cannabis industry.
As of March 31, 2024, the Company had not commenced any operations. All activity for the period from February 25, 2021 (inception) through March 31, 2024 relates to the Company’s formation, the initial public offering that the Company consummated on July 22, 2021 (the “Initial Public Offering” or “IPO”) and the Company’s efforts to pursue an initial Business Combination described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO.
The Company’s sponsor is Yntegra Capital Investments, LLC, a Delaware limited liability company (the “Sponsor”).
The Registration Statement on Form S-1 initially filed with the U.S.
Securities and Exchange Commission (the “SEC”) on April 4, 2021, as amended for the Company’s IPO (the “IPO Registration
Statement”) was declared effective on July 19, 2021. On July 22, 2021, the Company consummated its IPO of
Transaction
costs amounted to $
The
Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal
to at least
Following the closing of the IPO on July 22, 2021, $
The Company will provide its holders of Public Shares, including its Sponsor and any other holders of Founder Shares (as defined below) (see Note 5) (or their permitted transferees prior to our IPO (the “Initial Stockholders”) and Management Team to the extent our Initial Stockholders and/or the members of our Management Team purchase Public Shares (the “Public Stockholders”), with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called to approve the initial Business Combination or (2) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed initial Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require it to seek stockholder approval under applicable law or stock exchange listing requirement. The Company will provide its public stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes, divided by the number of then issued and outstanding Public Shares, subject to the limitations described herein.
5
The shares of Class A Common Stock and Class B common stock, par value
$
The Company will have only until July 22, 2024 to complete the initial
Business Combination (the “Combination Period”). Pursuant to the terms of the Company’s Amended and Restated Charter
and the Investment Management Trust Agreement, dated July 19, 2021 entered into between the Company and Continental, as trustee of the
Trust Account, in order to extend the time available for the Company to consummate its initial Business Combination, the Sponsor or its
affiliates or designees, upon five days’ advance notice prior to the applicable deadline, must have deposited into the Trust Account
$
Extension of the Combination Period
The Company originally had up to
On October 19, 2022, the Company held a special meeting of stockholders
(the “2022 Special Meeting”). At the 2022 Special Meeting, the Company’s stockholders approved an amendment to the Company’s
Amended and Restated Charter to extend the date by which the Company must consummate its initial Business Combination from October 22,
2022 to July 22, 2023, or such earlier date as determined by the Company’s board of directors (the “Board”) (the “October
2022 Extension”). In connection with the 2022 Special Meeting, stockholders holding
On July 19, 2023, the Company held a special meeting of stockholders (the “2023 Special Meeting”). At the 2023 Special Meeting, the Company’s stockholders approved an amendment (the “2023 Extension Amendment”) to the Company’s Amended and Restated Charter to extend the date by which the Company must consummate its initial Business Combination from July 22, 2023 to January 22, 2024, or such earlier date as determined by the Company’s Board (the “2023 Extension”). On July 20, 2023, the Company filed the 2023 Extension Amendment with the Secretary of State of the State of Delaware.
In connection with the 2023 Special Meeting, stockholders holding
In connection with the 2023 Extension, the Company
caused up to $
On January 17, 2024, the Company held a special meeting of stockholders (the “2024 Special Meeting”). At the 2024 Special Meeting, the Company’s stockholders approved an amendment (the “2024 Extension Amendment”) to the Amended and Restated Charter to extend the date by which the Company must consummate its initial Business Combination from January 22, 2024 to July 22, 2024, or such earlier date as determined by the Company’s Board (the “2024 Extension”).
In connection with the 2024 Special Meeting, Public Stockholders holding
Following the approval and implementation of the
2024 Extension Amendment, on January 22, 2024, the Company issued a promissory note (the “2024 Extension Note”) in the aggregate
principal amount of up to $
6
On
January 22, 2024, the Company deposited $
On
January 22, 2024, the Company issued the 2024 Working Capital Note in the principal amount of up to $
Nasdaq Compliance—Minimum Public Holders Requirement and Annual Meeting Requirement
On August 31, 2023, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it no longer met the minimum 300 public holders requirement for The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(3) (the “Minimum Public Holders Requirement”). The notification received had no immediate effect on the Company’s Nasdaq listing. On October 16, 2023, the Company submitted to Nasdaq a plan to regain compliance with the Minimum Public Holders Requirement. On October 25, 2023, in response to such compliance plan, the Staff granted the Company an extension of time to regain compliance with the Minimum Public Holders Requirement. Pursuant to the extension, on or before February 27, 2024, the Company must have filed with Nasdaq documentation that demonstrated that its Common Stock has a minimum of 300 public holders.
On January 23, 2024, the Company received a deficiency notice from the Staff of Nasdaq notifying the Company that it was not in compliance with the requirement pursuant to Nasdaq Listing Rule 5620(a) that companies listed on Nasdaq hold an annual meeting of shareholders within twelve months of their fiscal year end (the “Annual Meeting Requirement”) because it did not hold an annual meeting of stockholders within twelve months of our fiscal year ended December 31, 2022. The notification received had no immediate effect on the Company’s Nasdaq listing. In accordance with Nasdaq rules, the Company had 45 calendar days, or until March 8, 2024, to submit a plan to regain compliance with the Annual Meeting Requirement.
On February 27, 2024, the Company was not able to demonstrate compliance with the Minimum Public Holders Requirement, and as such, on March 1, 2024, the Company received a notice (the “Delisting Notice”) from the Staff of Nasdaq informing the Company that its securities may be subject to suspension and delisting pending the outcome of a hearing before the Nasdaq Hearings Panel (the “Panel”), which the Company requested on March 8, 2024. Because the Staff of Nasdaq issued the Delisting Notice to the Company on March 1, 2024, the Company chose to forego submitting a plan of compliance to Nasdaq related to the Annual Meeting Requirement, with such deficiency serving as an additional basis for delisting the Company’s securities from Nasdaq. Because the Company was unable to demonstrate compliance with the Minimum Public Holders Requirement and did not submit to Nasdaq a plan of compliance related to the Annual Meeting Requirement, the Company’s securities may be subject to suspension and delisting pending the outcome of a hearing before the Panel, which the Company requested on March 8, 2024. The Company’s hearing before the Panel was held on May 7, 2024, and as of the date of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (this “Report”), Nasdaq has not issued its decision.
Indemnification Agreement with Kustom Entertainment and Digital Ally
On February 1, 2024, the Company entered into indemnification agreement (the “Indemnification Agreement”) with Kustom Entertainment, Inc., a Nevada corporation (“Kustom Entertainment”) and Digital Ally, Inc., a Nevada corporation and the sole stockholder of Kustom Entertainment, pursuant to which, Kustom Entertainment and Digital Ally, Inc., a Nevada corporation (the “Kustom Entertainment Stockholder”) agreed to indemnify the Company and its officers and directors for liabilities incurred in connection with the Kustom Entertainment Stockholder disclosure incorporated by reference into the Registration Statement on Form S-4 the Company initially filed with the SEC on October 4, 2023, as amended (File No. 333-274851) (the “Kustom Entertainment Registration Statement”).
If
the Company has not completed the initial Business Combination within the Combination Period, the Company will: (i) cease all operations
except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem
the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less
up to $
The Sponsor, officers and directors have entered into a letter agreement
with the Company, pursuant to which they have agreed to waive: (i) their redemption rights with respect to any Founder Shares (as defined
below) (see Note 5), the shares of the Company’s Class A Common Stock included within the Private Placement Units purchased by our
Sponsor, Initial Stockholders, and the underwriters of the Initial Public Offering in the Private Placement (“Private Placement
Shares”), and Public Shares held by them, as applicable, in connection with the completion of the initial Business Combination;
(ii) their redemption rights with respect to any Founder Shares and Public Shares held by them in connection with a stockholder vote to
amend the Company’s Amended and Restated Charter (a) to modify the substance or timing of the Company’s obligation to redeem
7
The
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s
independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business
with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below
(i) $
Franchise and Income Tax Withdrawals from Trust Account
Since
completion of its IPO on July 19, 2021, and through March 31, 2024, the Company withdrew $
Going Concern
As
of March 31, 2024 and December 31, 2023, the Company had $
Prior
to the completion of the IPO, the Company’s liquidity needs had been satisfied through a payment from the Sponsor of $
On
July 24, 2023, the Company issued a promissory note (the “2023 Working Capital Note”) in the principal amount of up to $
At various dates in the fourth quarter of 2023, the Sponsor advanced
to the Company $
In
addition, in order to finance transaction costs in connection with an Initial Business Combination, the Company’s Sponsor or an
affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company
Working Capital Loans, as defined below (see Note 5). $
Until the consummation of an initial Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating, and consummating the initial Business Combination. The Company will need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s Sponsor, officers and directors may, but are not obligated to, loan the Company funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.
The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) Topic 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The Company has until July 22, 2024 to consummate an initial Business Combination, unless otherwise extended. It is uncertain that the Company will be able to consummate an initial Business Combination by this time. If an initial Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary, should the Company be unable to continue as a going concern, and also do not include any adjustments that might result should an initial Business Combination not occur.
8
Merger Agreement
On June 1, 2023, the Company entered into an Agreement and Plan of Merger (the “Kustom Entertainment Merger Agreement”) with CL Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), the Sponsor, in the capacity as the representative from and after the Effective Time (as defined in the Kustom Entertainment Merger Agreement) for the stockholders of the Company (other than the Kustom Entertainment Stockholder as of immediately prior to the Effective Time and its successors and assignees) in accordance with the terms and conditions of the Kustom Entertainment Merger Agreement, Kustom Entertainment, which has a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies, and the Kustom Entertainment Stockholder.
Pursuant to the Kustom Entertainment Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Kustom Entertainment Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom Entertainment (the “Merger,” and together with the other transactions and agreements contemplated by the Kustom Entertainment Merger Agreement, the “Kustom Entertainment Business Combination”), with Kustom Entertainment continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Company. In the Merger, all of the issued and outstanding capital stock of Kustom Entertainment immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the right for the Kustom Entertainment Stockholder to receive the Merger Consideration (as defined below). Upon consummation of the Kustom Entertainment Business Combination, the Company will change its name to “Kustom Entertainment, Inc.”
The aggregate merger consideration to be paid pursuant to the Kustom
Entertainment Merger Agreement to the Kustom Entertainment Stockholder as of immediately prior to the Effective Time will be an amount
equal to (the “Merger Consideration”) (i) $
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR
Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with an initial Business Combination, a vote by the stockholders of the Company to extend the period of time to complete the initial Business Combination (“Extension Vote”) or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with an initial Business Combination, Extension Vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the initial Business Combination, extension or otherwise, (ii) the structure of an initial Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with an initial Business Combination (or otherwise issued not in connection with an initial Business Combination but issued within the same taxable year of an initial Business Combination), and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete an initial Business Combination and in the Company’s ability to complete an initial Business Combination.
As
discussed above, on July 19, 2023, holders of
Management
has evaluated the requirements of the IR Act and the Company’s operations and has determined that $
9
New SPAC Rules
On January 24, 2024, the SEC adopted new rules and regulations for special purpose acquisition companies (“SPACs”), which will become effective on July 1, 2024 (the “2024 SPAC Rules”). The 2024 SPAC Rules require, among other matters, (i) additional disclosures relating to SPAC Business Combination transactions; (ii) additional disclosures relating to dilution and to conflicts of interest involving sponsors and their affiliates in both SPAC initial public offerings and Business Combination transactions; (iii) additional disclosures regarding projections included in SEC filings in connection with proposed Business Combination transactions; and (iv) the requirement that both the SPAC and its target company be co-registrants for Business Combination registration statements. In addition, the SEC’s adopting release provided guidance describing circumstances in which a SPAC could become subject to regulation under the Investment Company Act, including its duration, asset composition, business purpose, and the activities of the SPAC and its management team in furtherance of such goals. The 2024 SPAC Rules may materially affect our ability to negotiate and complete our initial Business Combination and may increase the costs and time related thereto.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in unaudited condensed financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results, and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K (the “2023 Annual Report”) for the year ended December 31, 2023, as filed with the SEC on March 22, 2024. The accompanying condensed balance sheet as of December 31, 2023 has been derived from the Company’s audited financial statements included in the 2023 Annual Report. The interim results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of these unaudited condensed financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
As of March 31, 2024 and December 31, 2023, the Company had $
Investments Held in Trust Account
As
of March 31, 2024 and December 31, 2023, the Company had $
As of March 31, 2024, and December 31, 2023, the Company’s investments were held in the Trust Account are held in an interest-bearing demand deposit account and are classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
10
| Carrying Value as of March 31, 2024 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value as of March 31, 2024 | |||||||||||||
| Demand Deposit Account | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Carrying Value as of December 31, 2023 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value as of December 31, 2023 | |||||||||||||
| Demand Deposit Account | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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 FASB ASC Topic 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A—“Expenses
of Offering”. Offering costs consist of legal, accounting, underwriting and other costs incurred through the consummation of the
IPO. Offering costs amounted to $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects Management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| ● | Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| ● | Level 2 – Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| ● | Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
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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.
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.
| 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) | ||||
| Less: | ||||
| Redemptions of Class A common stock | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Contingently redeemable Class A common stock subject to possible redemption (December 31, 2022) | ||||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Less: | ||||
| Redemptions of Class A common stock | ( | ) | ||
| Contingently redeemable Class A common stock subject to possible redemption (December 31, 2023) | ||||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Less: | ||||
| Redemptions of Class A common stock | ( | ) | ||
| Contingently redeemable Class A common stock subject to possible redemption (March 31, 2024) | $ |
Net Loss Per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. The Company has two classes of shares, redeemable Common Stock and non-redeemable Common Stock. The Company’s redeemable Common Stock is comprised of shares of Class A Common Stock sold in the IPO. The Company’s non-redeemable shares are comprised of shares of Class B Common Stock purchased by the Sponsor as well as shares of Class A Common Stock sold in the Private Placement and Representative Shares. Earnings and losses are shared pro rata between the two classes of shares. The Company’s statement of operations applies the two-class method in calculating net loss per share. Basic and diluted net loss per common share for redeemable Common Stock and non-redeemable Common Stock is calculated by dividing net loss, allocated proportionally to each class of Common Stock, attributable to the Company by the weighted average number of shares of redeemable and non-redeemable stock outstanding.
The calculation of diluted loss per share of Common Stock does not consider the effect of the rights, which entitle the holder to received one-eighth (1/8) of one share of Class A Common Stock upon the consummation of an initial Business Combination, and which rights include the rights sold as part of the Units in the Company’s Initial Public Offering (the “Public Rights”) and rights included within the Private Placement Units purchased by the Company’s Sponsor and the Representative in the Private Placement (the “Private Placement Rights,” and together with the Public Rights, the “Rights”) since exercise of the Rights is contingent upon the occurrence of future events and the inclusion of such Rights would be anti-dilutive. Accretion of the carrying value of Class A Common Stock to redemption value is excluded from net loss per redeemable share because the redemption value approximates fair value. As a result, diluted net loss per share is the same as basic net loss per share for the periods presented.
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| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Common stock subject to possible redemption | ||||||||
| Numerator: | ||||||||
| Net (loss) income allocable to redeemable Class A common stock | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Non-redeemable common stock | ||||||||
| Numerator: | ||||||||
| Net (loss) income allocable to non-redeemable Class A and Class B common stock | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s unaudited condensed financial statements and prescribes a recognition threshold and measurement process for unaudited condensed financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction.
The Company’s effective tax rate was (
The Company is subject to income tax examinations by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s Management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU Topic 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is reviewing what impact, if any, adoption will have on the Company’s financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s Management does not believe the adoption of ASU 2023-09 will have a material impact on its consolidated financial statements and disclosures.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
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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 the Rights sold as part of the Units in the Company’s Initial Public Offering (whether they are purchased in the Company’s Initial Public Offering or thereafter in the open market), which will expire worthless if the Company does not consummate an initial Business Combination within the Combination Period.
Note 5 — Related Party Transactions
Founder Shares
In
March 2021, the Sponsor paid $
On
April 8, 2021, the Sponsor transferred a membership interest (the “Interest”) to three of the Company’s officers and
the three independent directors of
The
Company’s Sponsor and any other holders of Founder Shares (or their permitted transferees) prior to our IPO (“Initial Stockholders”),
including the Interests transferred to the Company’s officers and directors, have agreed not to transfer, assign or sell any of
their Founder Shares until the earlier to occur of: (i) six months after the completion of the initial Business Combination; and (ii)
subsequent to the initial Business Combination (a) if the closing price of the shares of the Class A Common Stock equals or exceeds $
On
July 20, 2023, the Company issued an aggregate of
Promissory Note — Related Party
On
March 4, 2021, the Sponsor agreed to loan the Company up to $
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On July 18, 2022, the Company issued the July 2022 Extension Note in
the principal amount of $
On October 19, 2022, in connection with the October 2022 Extension,
the Company issued the October 2022 Extension Note in the principal amount of $
On July 21, 2023, the Company issued a promissory note (the “2023
Extension Note”) in the aggregate principal amount of up to $
On July 21, 2023, the Company issued the 2023 Working Capital Note
in the principal amount of up to $
On January 22, 2024, the Company issued the 2024 Extension
Note in the aggregate principal amount of up to $
On January 22, 2024, the Company issued the 2024 Working
Capital Note in the principal amount of 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 will repay such loaned amounts out of the
proceeds of the Trust Account released to the Company. Otherwise, such Working Capital Loans would be repaid only out of funds held outside
the Trust Account. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital
held outside the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account would be used to repay such loaned
amounts. Up to $
15
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, dated July 19, 2021, entered into by
the Company, the Sponsor, Initial Stockholders and the holder parties thereto (the “Registration Rights Agreement”). These
holders will be entitled to make up to three demands, excluding short-form registration demands, that the Company registers such securities
for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities
in other registration statements filed by the Company. Notwithstanding the foregoing, the underwriters may not exercise their demand and
“piggyback” registration rights after
Underwriting Agreement
The
Company 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
The Representative’s Common Stock
The
Company agreed to issue to the Representative and/or its designees,
The shares have been deemed compensation by the Financial Industry Regulatory Authority (“FINRA”) and are therefore subject to a Lock-Up for a period of 180 days immediately following the date of the effectiveness of the IPO Registration Statement pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the IPO Registration Statement, nor may they be sold, transferred, assigned, pledged, or hypothecated for a period of 180 days immediately following the effective date of the IPO Registration Statement except to any underwriter and selected dealer participating in the IPO and their bona fide officers or partners.
Right of First Refusal
Subject
to certain conditions, the Company will grant the Representative, for a period beginning on the closing of the IPO and ending 15 months
after the date of the consummation of the initial Business Combination, a right of first refusal to act as lead left book-running managing
underwriter with at least
16
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
The
Company’s Initial Stockholders have agreed not to transfer, assign, or sell any of their Founder Shares until the earlier to occur
of: (i) six months after the date of the consummation of the initial Business Combination and (ii) subsequent to the initial Business
Combination (a) if the closing price of the Company’s shares of Class A Common Stock equals or exceeds $
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of the Class
A Common Stock and holders of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of the
Company’s stockholders, except as required by law. The shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock at the time of the initial Business Combination on a one-for-one basis (subject to adjustment for stock splits,
stock dividends, reorganizations, recapitalizations, and the like), and subject to further adjustment as provided herein. In the case
that additional shares of Class A Common Stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered
in the IPO and related to the closing of the initial Business Combination, the ratio at which shares of Class B Common Stock shall convert
into shares of Class A Common Stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B Common Stock
agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A Common Stock
issuable upon conversion of all shares of Class B Common Stock will equal, in the aggregate, on an as-converted basis,
Rights
Each holder of a Right will receive one-eighth (1/8) of one Class A Common Stock upon consummation of the initial Business Combination. In the event the Company will not be the surviving entity upon completion of the initial Business Combination, each holder of a Right will be required to affirmatively convert its Rights in order to receive the 1/8 share of Class A Common Stock underlying each Right (without paying any additional consideration). If the Company is unable to complete an initial Business Combination within the required time period and the Company redeems the Public Shares of Class A Common Stock for the funds held in the Trust Account, holders of Rights will not receive any such funds in exchange for their Rights and the Rights will expire worthless. Every eight (8) Rights that a holder holds will entitle the holder to receive one share at the closing of the initial Business Combination. The Company will not issue fractional shares of Class A Common Stock upon exchange of the Rights. If, upon conversion of the Rights, a holder would be entitled to receive a fractional interest in a share, fractional shares will be rounded up to the nearest whole share.
If the Company is unable to complete an initial Business Combination within the required time period and it liquidates the funds held in the Trust Account, holders of Rights will not receive any such funds with respect to any of their Rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Rights, and all Rights will expire worthless.
Note 8 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events, other than that identified below, that would have required adjustment or disclosure in the unaudited condensed financial statements.
On May 9, 2024, the Company, Kustom Entertainment, and the Kustom Entertainment Stockholder entered into a termination agreement (the “Termination Agreement”), pursuant to which the parties terminated the Indemnification Agreement.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this Item regarding our financial position, business strategy, and the plans and objectives of Management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” and similar expressions, as they relate to us or our Management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our Management, as well as assumptions made by, and information currently available to, our Management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Report under “Item 1. Financial Statements”.
Overview
We are a blank check company incorporated in the State of Delaware for the purpose of effecting an initial Business Combination. We may pursue the initial Business Combination target in any industry or geographic location, and we were focusing our search for a target business engaged in the cannabis industry.
The IPO Registration Statement was declared effective on July 19, 2021. On July 22, 2021, we consummated our Initial Public Offering of 13,831,230 Units at $10.00 per Unit, and the sale of 675,593 Units, at a price of $10.00 per Unit, in the Private Placement to our Sponsor and the Representative that closed simultaneously with the Initial Public Offering. On July 22, 2021, the underwriters of the Initial Public Offering partially exercised their over-allotment option and purchased 1,331,230 of their full 1,875,000 Units available and subsequently forfeited the remainder of their option as of July 28, 2021. Our Management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and sale of the Private Placement Units, although substantially all of the net proceeds are to be applied generally toward consummating an initial Business Combination.
Transaction costs amounted to $9,562,126, consisting of $2,766,246 of underwriting commissions, $4,840,931 of deferred underwriting commissions, $1,383,123 of fair value of the Representative Shares, and $571,826 of other cash offering costs.
Recent Developments
On February 1, 2024, we entered into the Indemnification Agreement with Kustom Entertainment and the Kustom Entertainment Stockholder, pursuant to which Kustom Entertainment and the Kustom Entertainment Stockholder agreed to indemnify the Company and its officers and directors for liabilities incurred in connection with the Kustom Entertainment Stockholder disclosure incorporated by reference into the Kustom Entertainment Registration Statement.
On May 9, 2024, our Company, Kustom Entertainment, and the Kustom Entertainment Stockholder entered into the Termination Agreement, pursuant to which the parties terminated the Indemnification Agreement.
Extensions of Our Combination Period
We originally had up to 12 months from the closing of our Initial Public Offering, or until July 22, 2022, to consummate an initial Business Combination. However, as requested by our Sponsor and as permitted under our Amended and Restated Charter, on July 19, 2022, we extended the Combination Period by an additional three months from July 22, 2022 to October 22, 2022. In addition, at the 2022 Special Meeting held on October 19, 2022, our stockholders approved an amendment to our Amended and Restated Charter to extend the Combination Period from October 22, 2022 to July 22, 2023, or such earlier date as determined by our Board of Directors. In addition, at the 2023 Special Meeting held on July 19, 2023, our stockholders approved an amendment to our Amended and Restated Charter to extend the Combination Period from July 22, 2023 to January 22, 2024, or such earlier date as determined by our Board of Directors. Thereafter, at the 2024 Special Meeting held on January 17, 2024, our stockholders approved an amendment to our Amended and Restated Charter to extend the Combination Period from January 22, 2024 to July 22, 2024, or such earlier date as determined by our Board of Directors.
We may seek to further extend the Combination Period consistent with applicable laws, regulations and stock exchange rules. Such an extension would require the approval of our Public Stockholders, who will be provided the opportunity to redeem all or a portion of their Public Shares. Such redemptions will likely have a material adverse effect on the amount held in our Trust Account, our capitalization, principal stockholders and other impacts on our Company or Management Team, such as our ability to maintain our listing on Nasdaq.
18
Founder Share Conversion
On July 20, 2023, upon the approval of the proposal to amend the Amended and Restated Charter to provide for the elective right of holders of shares of Class B Common Stock to convert such shares into shares of Class A Common Stock, on a one-for-one basis at any time prior to the closing of a Business Combination by our stockholders at the 2023 Special Meeting. we issued an aggregate of 3,457,806 shares of our Class A Common Stock to our Sponsor upon the Founder Share Conversion. The 3,457,806 shares of Class A Common Stock issued in connection with the Founder Share Conversion are subject to the same restrictions as applied to the Class B Common Stock before the Founder Share Conversion, including, among other things, certain transfer restrictions, waiver of redemption rights, and the obligation to vote in favor of an initial Business Combination as described in the IPO Registration Statement. Following the Founder Share Conversion, there were 5,522,867 shares of Class A Common Stock issued and outstanding and 1 share of Class B Common Stock issued and outstanding. As a result of the Founder Share Conversion, our Sponsor held approximately 73.0% of our issued and outstanding Class A Common Stock.
Kustom Entertainment Business Combination
On June 1, 2023, we entered into the Kustom Entertainment Merger Agreement with Merger Sub, the Sponsor, Kustom Entertainment, and the Kustom Entertainment Stockholder.
Pursuant to the Kustom Entertainment Merger Agreement, subject to the terms and conditions set forth therein upon the Closing, Merger Sub will merge with and into Kustom Entertainment, with Kustom Entertainment continuing as the surviving corporation in the Merger and our wholly-owned subsidiary. In the Merger, all of the issued and outstanding capital stock of Kustom Entertainment immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the right for the Kustom Entertainment Stockholder to receive the Merger Consideration. Upon consummation of the Kustom Entertainment Business Combination, we will change our name to “Kustom Entertainment, Inc.”
On October 4, 2023, we issued a press release announcing that we had submitted to EDGAR, the SEC’s online portal, the Kustom Entertainment Registration Statement, which includes a preliminary proxy statement/prospectus, with respect to the Kustom Entertainment Business Combination.
For a full description of the Kustom Entertainment Merger Agreement and the proposed Kustom Entertainment Business Combination, please see “Item 1. Business” of our 2023 Annual Report.
Results of Operations
Our entire activity since inception up to March 31, 2024 relates to our formation, the Initial Public Offering, and, since the closing of the Initial Public Offering, a search for an initial Business Combination candidate. We will not be generating any operating revenues until the Closing and completion of our initial Business Combination, at the earliest.
For the three months ended March 31, 2024, we had a net loss of $316,193, which consisted of formation and operating costs of $450,593 and provision for income taxes of $26,942, offset by interest earned on investments held in Trust Account of $134,398 and interest earned on cash held in bank of $2.
For the three months ended March 31, 2023, we had a net loss of $32,464, which consisted of formation and operating costs of $190,171 and provision for income taxes of $41,579, offset by interest earned on investments held in Trust Account of $199,233 and interest earned on cash held in bank of $53.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, public health considerations, and geopolitical instability, such as the military conflicts in Ukraine and the Middle East. We cannot at this time predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
Liquidity, Capital Resources, and Going Concern
As of March 31, 2024 and December 31, 2023, we had cash of $5,784 and $162,933, respectively, and working capital deficit of $5,121,226 and working capital of $4,493,502, respectively. Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through a payment from our Sponsor of $25,000 for the Founder Shares to cover certain offering costs and the loan under an unsecured promissory note from our Sponsor of $300,000.
In addition, on July 18, 2022, we issued the July 2022 Extension Note to our Sponsor in the principal amount of $1,383,123, pursuant to which our Sponsor loaned us $1,383,123 ($0.10 per Public Share after redemptions) to deposit into the Trust Account for each Public Share that was not redeemed in connection with the July 2022 Extension. At the election of our Sponsor, up to $1,383,123 of the unpaid principal amount of the July 2022 Extension Note may be converted into Conversion Units, of which the total Conversion Units so issued shall be equal to: (i) the portion of the principal amount of the July 2022 Extension Note being converted divided by (ii) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of Units.
19
On October 19, 2022, we issued the October 2022 Extension Note to our Sponsor in the principal amount of $1,383,123, pursuant to which our Sponsor loaned us $1,383,123 to deposit into the Trust Account for each Public Share that was not redeemed in connection with the October 2022 Extension. The October 2022 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of an initial Business Combination, or (b) the date of our liquidation.
On July 21, 2023, the Company issued the 2023 Extension Note in the aggregate principal amount of up to $360,000 to the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to $360,000 to deposit into the Trust Account for the Public Stockholders that did not redeem Public Shares in the connection with the 2023 Extension. The 2023 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of our initial Business Combination, or (b) the date of our liquidation. As of March 31, 2024, $360,000 was outstanding under the 2023 Extension Note.
On July 21, 2023, we issued the 2023 Working Capital Note in the principal amount of up to $300,000 to our Sponsor. The 2023 Working Capital Note was issued in connection with advances our Sponsor may make in the future to us as Working Capital Loans. The 2023 Working Capital Note is non-interest bearing and payable upon the earlier of (i) completion of our initial Business Combination or (ii) the date that our winding up is effective. We drew $300,000 under the 2023 Working Capital Note, which was outstanding as of March 31, 2024.
On January 22, 2024, we issued the 2024 Extension Note in the aggregate principal amount of up to $360,000 the Sponsor, pursuant to which the Sponsor agreed to loan to the Company up to $360,000 to deposit into the Company’s Trust Account for each Public Share that was not redeemed in connection with the 2024 Extension Amendment. The 2024 Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s initial Business Combination, or (b) the date of the liquidation of the Company. The Company has drawn $180,000 under the 2024 Extension Note, which was outstanding as of March 31, 2024.
On January 22, 2024, we issued the 2024 Working Capital Note in the principal amount of up to $1,000,000 to our Sponsor. The 2024 Working Capital Note was issued in connection with advances our Sponsor may make in the future to us as Working Capital Loans. The 2024 Working Capital Note is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date of our winding up is effective. We have drawn $530,750 and $415,000 under the 2024 Working Capital Note as of March 31, 2024, and December 31, 2024, respectively.
In addition, in order to finance transaction costs in connection with an initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, provide us further Working Capital Loans. $830,750.00 and $715,000 were outstanding under Working Capital Loans as of March 31, 2024 and December 31, 2023, respectively.
Until the consummation of an initial Business Combination, we will continue to use the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating, and consummating the initial Business Combination. We will need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. Our Sponsor, officers, and directors may, but are not obligated to, loan us funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.
On June 26, 2023, we instructed Continental to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit account at Morgan Stanley with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested in U.S. government securities.
Going Concern
We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. In connection with our assessment of going concern considerations in accordance with FASB ASU Topic 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” We have until July 22, 2024 to consummate an initial Business Combination. It is uncertain that we will be able to consummate an initial Business Combination by this time. If an initial Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. These conditions raise substantial doubt about our ability to continue as a going concern. The unaudited condensed financial statements and notes thereto contained elsewhere in this Report do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern and also do not include any adjustment that might result from the outcome of this uncertainty should an initial Business Combination not occur.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024 and December 31, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
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Contractual Obligations
Administrative Support Agreement
We do not have any long-term debt, capital lease obligations, operating lease obligations, or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and administrative support, pursuant to the Administrative Support Agreement. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees.
Registration Rights
The holders of the Founder Shares, Private Placement Units, and securities that may be issued upon conversion of Working Capital Loans and extension loans will have registration rights to require us to register a sale of any of the securities held by them pursuant to the Registration Rights Agreement. These holders will be entitled to make up to three demands, excluding short-form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities in other registration statements filed by us. Notwithstanding the foregoing, the underwriters of the Initial Public Offering may not exercise their demand and “piggyback” registration rights after five and seven years, respectively, after the effective date of the IPO Registration Statement and may not exercise their demand rights on more than one occasion.
Underwriting Agreement
The underwriters had a 30-day option to purchase up to 1,875,000 additional Units to cover any over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On July 22, 2021, the underwriters partially exercised their over-allotment option and purchased an additional 1,331,230 Units and forfeited the remainder of their over-allotment option as of July 28, 2021.
The underwriters are entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Initial Public Offering held in the Trust Account upon the completion of the initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:
Class A Common Stock Subject to Possible Redemption
All of the 13,831,230 Class A Common Stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the Redemption of such Public Shares in connection with our liquidation, if there is a stockholder vote or tender offer in connection with the initial Business Combination and in connection with certain amendments to our Amended and Restated Charter. In accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in FASB ASC Topic 480-10-S99. Redemption provisions not solely within our control require Common Stock subject to redemption to be classified outside of permanent equity.
If it is probable that the equity instrument will become redeemable, we have the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. We have elected to recognize the changes immediately.
Net Loss Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. We have two classes of shares, redeemable Common Stock and non-redeemable Common Stock. Our redeemable Common Stock is comprised of shares of Class A Common Stock sold in the Initial Public Offering. Our non-redeemable shares are comprised of shares of Class B Common Stock purchased by our Sponsor as well as shares of Class A Common Stock sold as part of the Private Placement Units and the Representative Shares. Earnings and losses are shared pro rata between the two classes of shares. Our statements of operations ally the two-class method in calculating net loss per share. Basic and diluted net loss per common share for redeemable Common Stock and non-redeemable Common Stock is calculated by dividing net loss, allocated proportionally to each class of Common Stock, attributable to us by the weighted average number of shares of redeemable and non-redeemable stock outstanding.
The calculation of diluted loss per share of Common Stock does not consider the effect of the rights issued in connection with the Initial Public Offering since exercise of the rights is contingent upon the occurrence of future events and the inclusion of such rights would be anti-dilutive. Accretion of the carrying value of Class A Common Stock to redemption value is excluded from net loss per redeemable share because the redemption value approximates fair value. As a result, diluted loss per share is the same as basic loss per share for the periods presented.
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Recent Accounting Pronouncements
In August 2020, the FASB issued ASU Topic 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We are reviewing what impact, if any, adoption will have on our financial position, results of operations, or cash flows.
In December 2023, the FASB issued ASU Topic 2023-09, “Income Taxes” (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. Our Management does not believe the adoption of ASU 2023-09 will have a material impact on its consolidated financial statements and disclosures.
Our Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the unaudited condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our Management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the quarterly period ended March 31, 2024, due to the following material weaknesses identified in the prior reporting periods:
| (i) | Accounting for complex financial instruments including those requiring us to apply complex accounting principles as a means of differentiating between liability, temporary equity, and permanent equity classification; |
| (ii) | controls needed to ensure the timeliness, completeness and accuracy of accruals; and |
| (iii) | controls needed to ensure the accuracy of the provision for income tax and the Delaware franchise tax; |
| (iv) | controls over the financial reporting process which failed to identify a material out of period adjustment that resulted in the restatement of previously issued financial statements; and |
| (v) | controls over compliance with the provisions of the Trust Agreement related to the use of funds withdrawn from the Trust Account for payment of the Company’s tax liabilities. |
In light of the material weaknesses described above, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements including making greater use of third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We believe our efforts will enhance our controls relating to accounting for complex financial instruments and internal controls related to timeliness, completeness, and accuracy of accruals, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practice may evolve over time.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
Other than as discussed above, there have been no changes to our internal control over financial reporting during the quarterly period ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
To the knowledge of our Management Team, there is no material litigation currently pending or contemplated against us or any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. For additional risks relating to our operations, see the section titled “Risk Factors” contained in our (i) IPO Registration Statement, (ii) 2023 Annual Report, and (iii) Definitive Proxy Statements on Schedule 14A filed with the SEC on July 7, 2023 and January 3, 2024, and (iv) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023, as filed with the SEC on May 16, 2023, August 14, 2023 and November 14, 2023, respectively. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
For risks related to Kustom Entertainment and the Kustom Entertainment Business Combination, please see the Kustom Entertainment Registration Statement.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Use of Proceeds
For a description of the use of proceeds generated in our Initial Public Offering and Private Placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, as filed with the SEC on August 15, 2022. There has been no material change in the planned use of proceeds from our Initial Public Offering and Private Placement as described in the IPO Registration Statement. The specific investments in our Trust Account may change from time to time.
On June 26, 2023, we instructed Continental to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested in U.S. government securities.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On January 17, 2024, we held the 2024 Special Meeting and our stockholders approved, among other things, the 2024 Extension Amendment, which extended the date by which we must consummate a Business Combination from January 22, 2024 (which was 30 months from the closing of the Initial Public Offering) to July 22, 2024 (or such earlier date as determined by the Board). In connection with the vote to approve the 2024 Extension Amendment, Public Stockholders holding 202,360 Public Shares properly exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. We paid cash in the aggregate amount of $2,369,636, or approximately $11.71 per share to such redeeming Public Stockholders.
The following table contains monthly information about the repurchases of our equity securities for the three months ended March 31, 2024:
| Period | (a) Total number of shares (or units) purchased | (b) Average price paid per share (or unit) | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | ||||||||||||
| January 1 – January 31, 2024 | 202,360 | $ | 11.71 | — | — | |||||||||||
| February 1 – February 29, 2024 | — | — | — | — | ||||||||||||
| March 1 – March 31, 2024 | — | — | — | — | ||||||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Trading Arrangements
During the quarterly period ended March 31, 2024,
none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act)
Additional Information
On May 9, 2024, our Company, Kustom Entertainment, and the Kustom Entertainment Stockholder entered into the Termination Agreement, pursuant to which the parties terminated the Indemnification Agreement.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Report.
| * | Filed herewith. |
| ** | Furnished herewith. |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 22, 2024. |
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 7, 2024. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CLOVER LEAF CAPITAL CORP. | ||
| Date: May 15, 2024 | By: | /s/ Felipe MacLean |
| Name: | Felipe MacLean | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 15, 2024 | By: | /s/ Luis A. Guerra |
| Name: | Luis A. Guerra | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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