The Securities and Exchange Commission approved a registration statement that will allow Digital Ally subsidiary Kustom Entertainment Inc. to merge with a blank-check company called Clover Leaf Capital Corp.

Clover Leaf Capital is a special purpose acquisition company (SPAC), a public shell company that investors load with capital to seek out a merger to take a company public in a quicker, cheaper manner than an initial public offering.

Clover Leaf reached an agreement with Lenexa-based Digital Ally to spin off its entertainment business.

Founded in 2004, Digital Ally’s main business is focused on providing mobile video solutions for law enforcement, the military and commercial fleets. It has a subsidiary called Shield Health Protection Products, which offers all natural cleansers, non-contact temperature screening devices, personal protective gear and other products. Another subsidiary called Digital Ally Healthcare provides medical records services.

After raising about $30 million in 2021, Digital Ally began creating subsidiaries in the entertainment industry, including a ticket broker and resale platform called TicketSmarter Inc., an entertainment promoter and manager called Kustom 440 and a private jet leasing business called BirdVu Jets. It’s these entertainment businesses that will be spun off into the SPAC to create a combined company called Kustom Entertainment.

It will have the same management team, led by CEO Stan Ross. The transaction expects Kustom Entertainment to carry an equity value of $125 million.

All shareholders of record for Digital Ally (Nasdaq: DGLY) at close of business on Aug. 12 will receive 30% of the shares of Kustom Entertainment immediately upon closing of the deal.

The deal requires approval by Clover Leaf shareholders. Clover Leaf mailed a proxy statement to its shareholders of record on July 24 and scheduled a virtual special shareholders meeting at 11 a.m. on Aug. 20.

Separately, a recent SEC filing shows Digital Ally must sell its headquarters building at 14001 Marshall Drive in Lenexa as part of an agreement to pay off a promissory note.