The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these financial statements.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF ORGANIZATION,
BUSINESS OPERATIONS AND GOING CONCERN
Larkspur Health Acquisition
Corp. (the “Company”) was incorporated in Delaware on March 17, 2021. The Company was formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a
Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks
associated with early stage and emerging growth companies.
As of September 30, 2022,
the Company had not commenced any operations. All activity for the period from March 17, 2021 (inception) through September 30, 2022 relates
to the Company’s initial public offering (the “Initial Public Offering” or “IPO”), which is described below,
and consummation of its initial Business Combination. 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 from
the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The registration statement
for the Company’s Initial Public Offering (the “Registration Statement”) was declared effective on December 20,
2021. On December 23, 2021, the Company consummated its Initial Public Offering of 7,500,000 units (“Units” and, with
respect to the common stock included in the Units being offered, the “Public Shares”), generating gross proceeds of $75,000,000,
which is described in Note 3.
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the sale of 317,600 units (the “Private Placement Units”) at a price
of $10.00 per Private Unit in private placements to Larkspur Health LLC (the “Sponsor”).
As of December 23, 2021,
transaction costs amounted to $6,639,594 consisting of $500,000 of underwriting fees, $3,375,000 of business combination fee payable (which
are held in a trust account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”)), $2,179,470
of the excess of fair value over the purchase price of certain founder shares transferred to additional sponsor investors and $593,778
of Initial Public Offering costs. These costs were charged to additional paid-in capital or accumulated deficit to the extent additional
paid-in capital is fully depleted upon completion of the Initial Public Offering. As described in Note 6, the $3,375,000 business combination
fee is contingent upon the consummation of a Business Combination within 12 months, unless the time period to consummate a Business Combination
is extended pursuant to the Company’s amended and restated certificate of incorporation.
Following the closing of the
Initial Public Offering on December 23, 2021, an amount of $75,750,000 ($10.10 per Unit) from the net proceeds of the sale of the
Units in the Initial Public Offering and the Private Placement (as defined in Note 4) was placed in the Trust Account. The funds held
in the Trust Account may be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment
Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment
company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment
Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution
of the Trust Account, as described below.
On January 6, 2022 the underwriters
partially exercised the over-allotment option for 267,159 units. The issuance of the units resulted in gross proceeds of $2.7 million.
The remaining units expired on February 6, 2022, which resulted in the forfeiture of 214,460 founders’ shares.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 1 — DESCRIPTION OF ORGANIZATION,
BUSINESS OPERATIONS AND GOING CONCERN (cont.)
Business Combination Agreement
On July 20, 2022, the
Company entered into a Business Combination Agreement, (the “Business Combination Agreement”), with ZyVersa Therapeutics,
Inc. (“ZyVersa”), Larkspur Merger Sub Inc. (“Merger Sub”) and Stephen Glover. Upon the consummation of the transactions
contemplated by the Business Combination Agreement (the “Transactions”), Merger Sub will merge with and into ZyVersa, with
ZyVersa surviving as a wholly-owned subsidiary of the Company (the “Business Combination”). The combined company is expected
to be named ZyVersa Therapeutics, Inc.
The Business Combination Agreement
provides that the following transactions will occur:
|
● |
Immediately prior to the effective time of the Business Combination (the “Effective Time”), each share of ZyVersa’s Series A Preferred Stock that is issued and outstanding will automatically convert into a number of shares of ZyVersa’s common stock at the then-effective conversion rate, as calculated pursuant to ZyVersa’s Articles of Incorporation (the “Conversion”). |
|
● |
At the Effective Time, (a) each share of ZyVersa’s common
stock issued and outstanding (including shares of ZyVersa’s common stock resulting from the Conversion) will be canceled and converted
into a number of shares of the Company’s common stock, as determined pursuant to the terms of the Business Combination Agreement;
and (b) each share of Merger Sub common stock issued and outstanding immediately prior to the Effective Time will be converted into
and exchanged for one share of common stock of ZyVersa.
|
|
● |
Effective as of the Effective Time, each ZyVersa warrant, to the extent then outstanding and unexercised, will automatically, without any action on the part of the holder thereof, be assumed and converted into a warrant to acquire a number of shares of the Registrant’s common stock at an adjusted exercise price per share, in each case, as determined pursuant to the terms of the Business Combination Agreement. |
|
● |
Each ZyVersa stock option that is outstanding and unexercised as of immediately prior to the Effective Time, whether or not vested, will be assumed and converted into an option to purchase a number of shares of the Registrant’s common stock, as determined pursuant to the terms of the Business Combination Agreement. |
|
● |
Each ZyVersa note that is outstanding as of immediately prior to the Effective Time which by its terms will not convert into ZyVersa’s common stock in connection with the Transactions, if any, will be assumed by the Company and will remain outstanding pursuant to the terms and conditions then in effect. |
The consummation of the Transactions
are subject to the satisfaction or waiver of certain customary closing conditions contained in the Business Combination Agreement, including,
among other things, the Company and ZyVersa shall have received aggregate commitments of at least $10.0 million in connection with the
sale of securities pursuant to the Stock Purchase Agreement entered into on July 20, 2022, as amended, by and between the Company and
the purchasers listed on the signatory pages thereto.
The parties to the Business
Combination Agreement have made customary representations and warranties, and have agreed to certain customary covenants in the Business
Combination Agreement, including, among others, covenants with respect to the conduct of the Company, ZyVersa and Merger Sub, and their
subsidiaries, prior to the closing of the Transactions.
The Business Combination Agreement
may be terminated by the Company or ZyVersa, under certain circumstances, including, among others, (i) by mutual written consent of the
Company and ZyVersa, (ii) by either the Company or ZyVersa if the Effective Time shall not have occurred prior to December 15, 2022,
(iii) by either the Company or ZyVersa if any Governmental Order has become final and non-appealable and has the effect of making
consummation of the Transactions illegal or otherwise preventing or prohibiting consummation of the Transactions, (iv) by either the Company
or ZyVersa if any of the required proposals fail to receive the requisite vote for approval at the Company’s Shareholders’
Meeting, (v) by the Company, in the event that ZyVersa’s shareholders don’t consent to the Transactions, (vi) by the Company
upon ZyVersa breaching any representation, covenant or agreement; or (vii) by ZyVersa upon the Company breaching any representation, covenant
or agreement.
The Company expects to account
for the Business Combination as a reverse recapitalization, whereby ZyVersa is deemed to be the accounting acquirer.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS
AND GOING CONCERN (cont.)
The Company’s management
has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private
Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or
more initial Business Combinations with one or more operating businesses or assets with a fair market value equal to at least 80% of the
net assets held in the Trust Account (as defined below) (excluding the deferred underwriting commissions and taxes payable on the interest
earned on the Trust Account). The Company will only complete a Business Combination if the post-transaction company owns or acquires 50%
or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient
for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment
Company Act”). Upon the closing of the Initial Public Offering, management has agreed that an amount equal to at least $10.10 per
Unit sold in the Initial Public Offering, including proceeds of the Private Placement Units, will be held in a trust account (“Trust
Account”), located in the United States and invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16)
of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out
as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined
by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held
in the Trust Account, as described below.
The Company will provide the
holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their
Public Shares either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means
of a tender offer in connection with the Business Combination. The decision as to whether the Company will seek stockholder approval of
a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their
Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.10 per Public Share, plus
any pro rata interest then in the Trust Account, net of taxes payable). There will be no redemption rights upon the completion of a Business
Combination with respect to the Company’s warrants.
All of the Public Shares contain
a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there
is a stockholder vote or tender offer in connection with the Company’s Business Combination and in connection with certain amendments
to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”). In accordance
with the rules of the U.S. Securities and Exchange Commission (the “SEC”) and its guidance on redeemable equity instruments,
which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of a company require common stock subject
to redemption to be classified outside of permanent equity. Given that the Public Shares will be issued with other freestanding instruments
(i.e., public warrants), the initial carrying value of Class A common stock classified as temporary equity will be the allocated proceeds
determined in accordance with ASC 470-20. The Class A common stock is subject to ASC 480-10-S99. If it is probable that the equity instrument
will become redeemable, the Company has the option to either (i) 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 (ii) 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.
The accretion or remeasurement will be treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained
earnings, additional paid-in capital). While redemptions cannot cause the Company’s net tangible assets to fall below $5,000,001,
the Public Shares are redeemable and will be classified as such on the balance sheet until such date that a redemption event takes place.
The Company will not redeem
Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001 (so that it does not then become subject
to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the
agreement relating to the Business Combination. If the Company seeks stockholder approval of the Business Combination, the Company will
proceed with a Business Combination if a majority of the outstanding shares voted are voted in favor of the Business Combination, or such
other vote as required by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange listing
requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its
certificate of incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules
of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a
Business Combination. If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements,
or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction
with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval
in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares
purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder
may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed
transaction.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS
AND GOING CONCERN (cont.)
Notwithstanding the foregoing,
if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules,
the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person
with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate
of 15% of the Public Shares, without the prior consent of the Company.
The holders of the Founder
Shares have agreed (a) to waive their redemption rights with respect to the Founder Shares and Public Shares held by them in connection
with the completion of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation (i) to
modify the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination or to
redeem 100% of its Public Shares if the Company does not complete a Business Combination within the Combination Period (as defined below)
or (ii) with respect to any other provision relating to stockholders’ rights or pre-business combination activity, unless the
Company provides the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
If the Company has not completed
a Business Combination within 12 months from the closing of the Initial Public Offering (or up to 18 months from the closing of the Initial
Public Offering at the election of the Company in two separate three month extensions subject to satisfaction of certain conditions) (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 pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding
Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive
further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the
approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in
each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless
if the Company fails to complete a Business Combination within the Combination Period.
The holders of the Founders
Shares have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination
within the Combination Period. However, if the holders of Founder Shares acquire Public Shares in or after the Initial Public Offering,
such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination
within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note
6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such
event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the
Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution
will be less than the Initial Public Offering price per Unit ($10.00).
In order to protect the amounts
held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party 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) $10.10 per Public Share or (ii) such lesser amount per Public
Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.10 per Public Share due to reductions
in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims
by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the
Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to
be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.
The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by
endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective
target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to monies held in the Trust Account.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS
AND GOING CONCERN (cont.)
Going Concern Consideration
In connection with the Company’s
assessment of going concern considerations in accordance with Account Standards Update (“ASU”) 2014-15, “Disclosures
of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Combination
Period is less than one year from the date of the issuance of the financial statements. There is no assurance that the Company’s
plans to consummate a business combination will be successful within or the Company’s available funds will be sufficient to fund
our operations through the Combination Period. As a result, there is substantial doubt about the entity’s ability to continue as
a going concern within one year after the date that the financial statements are issued or are available to be issued as well as the liquidity
to fund operations. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.
Risks and Uncertainties
Management is currently evaluating
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, close of the Initial Public Offering and/or search for a target
company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited
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 Securities
and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial
reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position,
results of operations, or cash flows.
The accompanying unaudited
financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K.
In the opinion of the Company’s
management, the unaudited financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 include
all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the financial position of the Company
as of September 30, 2022 and its results of operations and cash flows for the three and nine months ended September 30, 2022. The results
of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for
the full fiscal year ending December 31, 2022 or any future interim period.
Emerging Growth Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as
modified by the Jumpstart Our Business Startups Act of 2012, as amended (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, 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.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company
nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Use of Estimates
The preparation of financial
statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly
from those estimates.
Cash and cash equivalents
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents as of September 30, 2022.
Investments held in Trust Account
As of September 30, 2022,
the Company had $78,911,942 in Investments held in the Trust Account. The Company classifies these investments as trading securities which
are recorded at fair value with realized and unrealized gains and losses recorded in the statement of operations.
Offering Costs Associated with a Public
Offering
The Company complies with
the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of
Offering.” Offering costs of $593,778 consist principally of costs incurred in connection with formation and preparation for
the Initial Public Offering. These costs, together with the underwriter discount of $500,000 and deferred business combination fee payable
of $3,375,000, were charged to additional paid-in capital upon completion of the Initial Public Offering.
Income Taxes
The Company follows the asset
and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company’s effective tax rate was 7.5% and 0.0% for the three
months ended September 30, 2022 and 2021, respectively, and 2.7% and 0.0% for the three months ended September 30, 2022 and for the period
from March 17, 2021 (inception) through September 30, 2021, respectively. The effective tax rate differs from the statutory tax rate of
0% for the three and nine months ended September 30, 2022 and 2021, due to changes in the valuation allowance on the deferred tax assets.
The Inflation Reduction Act
(“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur
after December 31, 2022 and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income.
The CAMT will be effective for us beginning in fiscal year 2024. We currently are not expecting the IRA to have a material adverse impact
on our financial statements.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (cont.)
ASC 740 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022 or December 31, 2021.
The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation
from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Net Loss per Common Share
The Company complies with
accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. The Company has two classes of stock,
which are referred to as Class A Common Stock and Class B Common Stock. Income and losses are shared pro rata between the two classes
of stock. Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares
of common stock outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from income
(loss) per common share as the redemption value approximates fair value.
The calculation of diluted
loss per share of common stock does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering,
and (ii) the Private Placement since the exercise of the warrants is contingent upon the occurrence of future events. As of September
30, 2022 and September 30, 2021, the Company did not have any dilutive securities or other contracts that could, potentially, be exercised
or converted into common stock and then share in the earnings of the Company. As a result, diluted net loss per common share is the same
as basic net loss per common share for the periods presented.
The following table reflects
the calculation of basic and diluted net loss per common share (in dollars, except per share amounts):
| |
For the Three Months | | |
For the Nine Months | |
| |
Ended September 30, 2022 | | |
Ended September 30, 2022 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Basic and diluted net loss per common share | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net loss | |
$ | (547,607 | ) | |
$ | (131,480 | ) | |
$ | (1,444,749 | ) | |
$ | (347,983 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average common shares outstanding | |
| 8,087,431 | | |
| 1,941,790 | | |
| 8,082,471 | | |
| 1,940,562 | |
Basic and diluted net loss per common share | |
$ | (0.07 | ) | |
$ | (0.07 | ) | |
$ | (0.18 | ) | |
$ | (0.18 | ) |
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times,
may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account.
Fair Value of Financial Instruments
Fair value is defined as the
price that would be received for sale of an asset or paid to transfer of a liability, in an orderly transaction between market participants
at the measurement date. US GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
Level 1, defined
as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
Level 2, defined
as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar
instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined
as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as
valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (cont.)
The following table presents
information about the Company’s assets and liabilities that are measured at fair value at September 30, 2022 and December 31, 2021,
and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | |
Level | | |
September 30, 2022 | | |
December 31, 2021 | |
Assets: | |
| | |
| | |
| |
Investments held in Trust Account | |
| 1 | | |
$ | 78,911,942 | | |
$ | 75,750,000 | |
Derivative Financial Instruments
The Company evaluates its
financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance
with ASC Topic 815, “Derivatives and Hedging.” For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with
changes in the fair value reported in the statements 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. The over-allotment option is deemed to be a freestanding financial instrument
indexed on the contingently redeemable shares and is accounted for as a liability pursuant to ASC 480. The warrants issued in connection
with the Initial Public Offering and the Private Placement are recorded in equity as they qualify for equity treatment under ASC
815-40.
Class A common stock subject to possible redemption
The Company accounts for its Class A common stock subject to possible
redemption in accordance with the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity.” Common stock
subject to mandatory redemption is classified as a liability instrument and are measured at fair value. Conditionally redeemable common
stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity. The Company’s Class A common stock feature certain redemption rights
that are considered by the Company to be outside of the Company’s control and subject to the occurrence of uncertain future events.
Accordingly, at September 30, 2022 and December 31, 2021, the shares of Class A common stock subject to possible redemption in the amount
of $78,556,033 and $75,750,000, respectively, are presented as temporary equity, outside of the stockholders’ equity section
of the Company’s balance sheet. The increase of $2,806,033 during the nine months ended
September 30, 2022 in the Class A common stock subject to possible redemption is a remeasurement adjustment to the redemption value of
$107,727 and proceeds from the partial exercise of the over-allotment option of $2,698,306.
Recent Accounting Standards
In August 2020, the FASB issued
Accounting Standards Update (“ASU”) No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity (“ASU 2020-06”)”, which simplifies accounting for convertible instruments
by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required
for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation
in certain areas. ASU 2020-06 is effective for the Company on January 1, 2023. The Company does not expect the adoption of the ASU to
have a material impact on the Company’s financial position, results of operations or cash flows.
Management does not believe
that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the
Company’s financial statements.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 3 — INITAL PUBLIC OFFERING
Pursuant to the Initial Public
Offering, the Company sold 7,500,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock
and three-fourths of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase
one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 7).
On January 6, 2022 the underwriters
partially exercised the over-allotment option for 267,159 units. The issuance of the units resulted in gross proceeds of $2.7 million.
The remaining units expired on February 6, 2022, which resulted in the forfeiture of 214,460 founders’ shares.
NOTE 4 — PRIVATE PLACEMENTS
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the private sale of 317,600 Private Placement Units at a price of $10.00 per Private
Placement Unit ($3,176,000) to the Sponsor (the “Private Placement”). Each Private Placement Unit consists of one share of
Class A common stock and three-fourths of one redeemable warrant (“Private Warrant”). Each Private Warrant is exercisable
to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 7). The proceeds from
the sale of the Private Placement Units were added to the net proceeds from the Initial Public Offering held in the Trust Account. If
the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement
Units held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law)
and the Private Warrants will expire worthless. The Private Warrants (including the Class A common stock issuable upon exercise of
the Private Warrants) will not be transferable, assignable or salable until after the completion of an Initial Business Combination, subject
to certain exceptions.
NOTE 5 — RELATED PARTIES
Founder Shares
During the period ended December
31, 2021, the Sponsor’s investors received a total of 2,156,250 of the Company’s Class B common stock (as adjusted, the
“Founder Shares”) for an aggregate purchase price of $25,000. The Founder Shares included an aggregate of up to 281,250 shares
subject to forfeiture to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the number
of Founder Shares will equal, on an as-converted basis, approximately 20% of the Company’s issued and outstanding shares of common
stock after the Initial Public Offering. On January 6, 2022 the underwriters partially exercised the over-allotment option for 267,159
units. The issuance of the units resulted in gross proceeds of $2.7 million. The remaining units expired on February 6, 2022, which resulted
in the forfeiture of 214,460 founders shares.
The holders of the Founder
Shares have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur
of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the
last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days
after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other
similar transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash,
securities or other property.
On November 18, 2021, Larkspur
Health LLC transferred 231,423 founder shares to certain additional sponsor investors and the representative transferred 110,723 founder
shares to certain additional sponsor investors. The Company accounted for the excess of fair value over the purchase price, which totaled
$2,179,470, as an offering cost with an offset to additional paid-in capital or accumulated deficit to the extent additional paid-in capital
is fully depleted.
Promissory Note
On May 7, 2021, the Company
issued unsecured promissory notes to the Sponsor’s investors, which were amended and restated on October 7, 2021 (the “Promissory
Notes”), pursuant to which the Company may borrow up to an aggregate principal amount of $750,000. The Promissory Notes are non-interest
bearing and payable on the earlier of (i) December 31, 2021 or (ii) the consummation of the Initial Public Offering. Upon closing
the Initial Public Offering in December the Promissory Notes were converted into Class A Common Stock.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 5 — RELATED PARTIES (cont.)
Related Party Loans
In order to finance transaction
costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working
Capital Loans would be evidenced by the Promissory Notes. The notes may be repaid upon completion of a Business Combination, without interest.
Such Units would be identical to the Private Placement Units. In the event that a Business Combination does not close, the Company may
use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account
would be used to repay the Working Capital Loans. As of September 30, 2022 and December 31, 2021, there was no amount outstanding under
the Working Capital Loans.
Accounting Services
A firm owned by the Company’s
Chief Financial Officer has an agreement to provide accounting and financial consulting services $0 and to the Company. The Company did
not incur any costs for the period from March 17, 2021 (Inception) through September 30, 2021. The Company incurred $5,250 of
costs during the three and nine months ended September 30, 2022. There is no amount outstanding as of September 30, 2022 or December 31,
2021.
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder
Shares, Private Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of common stock issuable
upon the exercise of the Private Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder
Shares) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective
date of the Initial Public Offering requiring the Company to register such securities for resale (in the case of the Founder Shares, only
after conversion to shares of Class A common stock). The holders of these securities will be entitled to make up to three demands,
excluding short form registration demands, that the Company register such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to completion of a Business Combination and rights to require
the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights
agreement provides that the Company will not be required to effect or permit any registration or cause any registration statement to become
effective until the securities covered thereby are released from their lock-up restrictions. The Company will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters
a 45-day option from the date of Initial Public Offering to purchase up to 1,125,000 additional Units to cover over-allotments, if any,
at the Initial Public Offering price less the underwriting discounts and commissions. The over-allotment option is deemed to be a freestanding
financial instrument indexed on the contingently redeemable shares and is accounted for as a liability pursuant to ASC 480. It is recorded
as a $0 and $76,588 liability at September 30, 2022 and December 31, 2021, respectively. On January 6, 2022 the underwriters partially
exercised the over-allotment option for 267,159 units. The issuance of the units resulted in gross proceeds of $2.7 million. The remaining
units expired on February 6, 2022, which resulted in the forfeiture of 214,460 founders’ shares.
The underwriters are entitled
to a cash underwriting discount of $500,000 in the aggregate payable upon the closing of the Initial Public Offering. In addition, the
underwriters will be entitled to a business combination fee of $3,375,000 in the aggregate. The business combination fee will become payable
to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination,
subject to the terms of the underwriting agreement.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 7 — STOCKHOLDERS’ DEFICIT
Preferred Stock —
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting
and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30,
2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Class A Common
Stock — The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001
per share. Holders of Class A common stock are entitled to one vote for each share. As of September 30, 2022 and December 31, 2021,
there were 317,600 shares of Class A common stock issued and outstanding (excluding 7,767,159 and 7,500,000 shares accounted for
as temporary equity).
Class B Common
Stock — The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001
per share. As of September 30, 2022 and December 31, 2021, there were 1,941,790 and 2,156,250 shares of Class B common stock issued and
outstanding. Holders of Class B common stock are entitled to one vote for each share.
Only holders of the Class B
common stock will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A common
stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of our shareholders
except as otherwise required by law. In connection with our initial business combination, we may enter into a stockholder agreement or
other arrangements with the stockholders of the target or other investors to provide for voting or other corporate governance arrangements
that differ from those in effect upon completion of this offering.
The shares of Class B
common stock will automatically convert into Class A common stock at the time of a Business Combination, or earlier at the option
of the holder, on a one-for-one basis, subject to adjustment. 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 issued in the Initial Public Offering and related to the closing of a
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 then-outstanding shares of Class B common stock agree to waive such adjustment
with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion
of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number
of all shares of common stock outstanding upon the completion of Initial Public Offering plus all shares of Class A common stock
and equity-linked securities issued or deemed issued in connection with a Business Combination (net of the number of shares of Class A
common stock redeemed in connection with a Business Combination), excluding any shares or equity-linked securities issued or issuable
to any seller of an interest in the target to us in a Business Combination.
Warrants —
Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units
and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) the completion of a Business Combination
and (b) 12 months from the closing of the Initial Public Offering. The Public Warrants will expire five years after the completion of
a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated
to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant
exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable
upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available,
subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No
warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking
to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws
of the state of residence of the exercising holder, or an exemption from registration is available.
The Company has agreed that
as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use
its commercially reasonable efforts to file, and within 60 business days following a Business Combination to have declared effective,
a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to
maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding
the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such
that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may,
at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance
with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain
in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable
blue sky laws to the extent an exemption is not available.
LARKSPUR HEALTH ACQUISITION CORP.
NOTE 7 — STOCKHOLDERS’ DEFICIT
(cont.)
Redemption of Warrants
When the Price per Share of Class A Common Stock Equals or Exceeds $18.00 — Once the warrants become exercisable,
the Company may redeem the outstanding Public Warrants:
|
● |
in whole and not in part; |
|
● |
at a price of $0.01 per Public Warrant; |
|
● |
upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period to each warrant holder; and |
|
● |
if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganization, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to warrant holders. |
If and when the warrants become
redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities
for sale under all applicable state securities laws.
If the Company calls the Public
Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public
Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common stock
issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary
dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not
be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required
to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and
the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect
to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with
respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
The Private Warrants, which
are classified as equity, are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the
Private Warrants and the Class A common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable
or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Further, there are no redemption
rights or liquidating distributions from the trust account with respect to the private shares or private warrants, which will expire worthless
if we do not consummate a business combination within 24 months from the closing of this offering.
NOTE 8 — SUBSEQUENT EVENTS
The Company evaluated subsequent
events and transactions that occurred after the balance sheet date through the date that the financial statements were issued. Based upon
this review the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.