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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 001-41646 | 88-1178935 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) | ||
4546 El Camino Real B10 #715, Los Altos, California | 94022 | |||
(Address of principal executive offices) | (Zip Code) |
Title of Each Class: | Trading Symbol: | Name of Each Exchange on Which Registered: | ||
Units, each consisting of one share of Class A common stock and one redeemable Warrant | FORLU | The Nasdaq Stock Market LLC | ||
Class A common stock, par value $0.0001 per share | FORL | The Nasdaq Stock Market LLC | ||
Warrants, each exercisable for one share of Class A common stock for $11.50 per share | FORLW | The Nasdaq Stock Market LLC |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
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PAGE | ||||||
1 | ||||||
Item 1. | Unaudited Condensed Financial Statements | 1 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32 | ||||
Item 4. | Controls and Procedures | 32 | ||||
34 | ||||||
Item 1. | Legal Proceedings | 34 | ||||
Item 1A. | Risk Factors | 34 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities | 34 | ||||
Item 3. | Defaults Upon Senior Securities | 34 | ||||
Item 4. | Mine Safety Disclosures | 34 | ||||
Item 5. | Other Information | 34 | ||||
Item 6. | Exhibits | 34 | ||||
36 |
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June 30, | ||||||||
2024 | December 31, | |||||||
(Unaudited) | 2023 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 862 | $ | 10,622 | ||||
Prepaid expenses | 55,500 | 49,842 | ||||||
Total current assets | 56,362 | 60,464 | ||||||
Other assets | ||||||||
Marketable securities held in trust account | 29,414,956 | 58,063,737 | ||||||
Total assets | 29,471,318 | 58,124,201 | ||||||
LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accrued offering costs | 97,440 | 97,440 | ||||||
Accounts payable and accrued expenses | 724,206 | 402,663 | ||||||
Due to related party | 122,180 | 62,180 | ||||||
Convertible note - related party | 1,379,100 | 272,000 | ||||||
Deferred credit - operating expenses funded by potential target | 191,250 | 191,250 | ||||||
Excise tax liability | 301,943 | — | ||||||
Income taxes payable | 199,562 | 443,990 | ||||||
Total current liabilities | 3,015,681 | 1,469,523 | ||||||
Deferred underwriting fee payable | 1,897,350 | 1,897,350 | ||||||
Total liabilities | 4,913,031 | 3,366,873 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Class A common stock subject to possible redemption, $0.0001 par value; 26,000,000 shares authorized; 2,668,693 shares at $ 10.88 redemption value shares issued and outstanding as of June 30, 2024 and 5,421,000 shares at $10.34 redemption value shares issued and outstanding as of December 31, 2023 | 29,036,234 | 56,067,420 | ||||||
Stockholders’ deficit | ||||||||
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 26,000,000 shares authorized; 54,210 shares issued and outstanding (excluding 2,668,693 and 5,421,000 shares subject to possible redemption as of June 30, 2024 and December 31, 2023, respectively) | 5 | 5 | ||||||
Class B common stock, $0.0001 par value; 4,000,000 shares authorized; 1,355,250 shares issued and outstanding as of June 30, 2024 and December 31, 2023 | 136 | 136 | ||||||
Accumulated deficit | (4,478,088 | ) | (1,310,233 | ) | ||||
Total stockholders’ deficit | (4,477,947 | ) | (1,310,092 | ) | ||||
Total liabilities, common stock subject to possible redemption, and stockholders’ deficit | $ | 29,471,318 | $ | 58,124,201 | ||||
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Formation and operating costs | $ | 424,028 | $ | 253,135 | $ | 876,445 | $ | 311,519 | ||||||||
Loss from operations | $ | (424,028 | ) | $ | (253,135 | ) | $ | (876,445 | ) | $ | (311,519 | ) | ||||
Other income: | ||||||||||||||||
Dividend and interest income | 737,335 | 666,505 | 1,495,275 | 728,325 | ||||||||||||
Change in fair value of over-allotment liability | — | 173,764 | — | 134,583 | ||||||||||||
Income before income taxes | 313,307 | 587,134 | 618,830 | 551,389 | ||||||||||||
Income tax provision | (146,651 | ) | (134,023 | ) | (321,572 | ) | (141,062 | ) | ||||||||
Net income | $ | 166,656 | $ | 453,111 | $ | 297,258 | $ | 410,327 | ||||||||
Weighted average shares outstanding of Class A common stock subject to possible redemption | 5,027,813 | 5,421,000 | 5,224,407 | 3,203,459 | ||||||||||||
Basic and diluted net income per share, Class A common stock subject to possible redemption (see Note 2) | $ | 0.03 | $ | 0.07 | $ | 0.04 | $ | 0.09 | ||||||||
Weighted average shares outstanding of Class A common stock | 54,210 | 54,210 | 54,210 | 32,035 | ||||||||||||
Basic and diluted net income per share, Class A Common Stock (see Note 2) | $ | 0.03 | $ | 0.07 | $ | 0.04 | $ | 0.09 | ||||||||
Weighted average shares outstanding of Class B common stock (1) | 1,355,250 | 1,355,250 | 1,355,250 | 1,332,356 | ||||||||||||
Basic and diluted net income per share, Class B common stock (see Note 2) | $ | 0.03 | $ | 0.07 | $ | 0.04 | $ | 0.09 |
(1) | Following the expiration of the underwriters’ remaining over-allotment option on April 30, 2023, the remaining 139,750 shares of Class B common stock were forfeited ( see Notes 5 and 7), resulting in the Sponsor and directors holding 1,355,250 shares of Class B common stock. |
Common Stock Subject to Possible | ||||||||||||||||||||||||||||||||||||||||
Redemption | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||
Class A | Class A | Class B | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||
Balance - December 31, 2023 | 5,421,000 | $ | 56,067,420 | 54,210 | $ | 5 | 1,355,250 | $ | 136 | $ | — | $ | (1,310,233 | ) | $ | (1,310,092 | ) | |||||||||||||||||||||||
Accretion of Class A common stock to redemption value | — | 1,439,127 | — | — | — | — | — | (1,439,127 | ) | (1,439,127 | ) | |||||||||||||||||||||||||||||
Accretion of Class A common stock to redemption value due to dividend and interest income earned | — | 552,520 | — | — | — | — | — | (552,520 | ) | (552,520 | ) | |||||||||||||||||||||||||||||
Accretion of Class A common stock to redemption value due to extension payment | — | 542,100 | — | — | — | — | — | (542,100 | ) | (542,100 | ) | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 130,602 | 130,602 | |||||||||||||||||||||||||||||||
Balance - March 31, 2024 | 5,421,000 | $ | 58,601,167 | 54,210 | $ | 5 | 1,355,250 | $ | 136 | $ | — | $ | (3,713,378 | ) | $ | (3,713,237 | ) | |||||||||||||||||||||||
Accretion of Class A common stock to redemption value due to dividend and interest income earned | — | 554,423 | — | — | — | — | — | (554,423 | ) | (554,423 | ) | |||||||||||||||||||||||||||||
Accretion of Class A common stock to redemption value due to extension payment | — | 75,000 | — | — | — | — | — | (75,000 | ) | (75,000 | ) | |||||||||||||||||||||||||||||
Redemptions of Class A common stock subject to possible redemption | (2,752,307 | ) | (30,194,356 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Excise tax | — | — | — | — | — | — | — | (301,943 | ) | (301,943 | ) | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 166,656 | 166,656 | |||||||||||||||||||||||||||||||
Balance - June 30, 2024 | 2,668,693 | $ | 29,036,234 | 54,210 | $ | 5 | 1,355,250 | $ | 136 | $ | — | $ | (4,478,088 | ) | $ | (4,477,947 | ) | |||||||||||||||||||||||
Common Stock Subject to Possible | Retained Earnings (Accumulated | |||||||||||||||||||||||||||||||||||||||
Redemption | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||
Class A | Class A | Class B | Paid-in | Stockholders’ | ||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Equity | ||||||||||||||||||||||||||||||||
Balance - December 31, 2022 | — | $ | — | — | $ | — | 1,495,000 | (1) | $ | 150 | $ | 24,850 | $ | (6,306 | ) | $ | 18,694 | |||||||||||||||||||||||
Issuance of private placement warrants | — | — | — | — | — | — | 3,577,000 | — | 3,577,000 | |||||||||||||||||||||||||||||||
Issuance of Class A common stock, net of issuance costs of $3,928,774 | 5,421,000 | 48,928,489 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Issuance of Public Warrants, net of issuance costs of $ 90,31 3 | — | — | — | — | — | — | 1,127,840 | — | 1,127,840 | |||||||||||||||||||||||||||||||
Issuance of Representative Shares | — | — | 54,210 | 5 | — | — | 270,515 | — | 270,520 | |||||||||||||||||||||||||||||||
Accretion of Class A common stock to redemption value | — | 314,307 | — | — | — | — | (314,307 | ) | — | (314,307 | ) | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (42,784 | ) | (42,784 | ) | |||||||||||||||||||||||||||||
Balance - March 31, 2023 | 5,421,000 | $ | 49,242,796 | 54,210 | $ | 5 | 1,495,000 | (1) | $ | 150 | $ | 4,685,898 | $ | (49,090 | ) | $ | 4,636,963 | |||||||||||||||||||||||
Accretion of Class A common stock to redemption value | — | 2,231,134 | — | — | — | — | (2,231,134 | ) | — | (2,231,134 | ) | |||||||||||||||||||||||||||||
Forfeiture of Class B common stock due to expiration of over-allotment option | — | — | — | — | (139,750 | ) | (14 | ) | 14 | — | — | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 453,111 | 453,111 | |||||||||||||||||||||||||||||||
Balance - June 30, 2023 | 5,421,000 | $ | 51,473,930 | 54,210 | $ | 5 | 1,355,250 | $ | 136 | $ | 2,454,778 | $ | 404,021 | $ | 2,858,940 | |||||||||||||||||||||||||
(1) | Includes up to 139,750 shares of Class B common stock subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriter (see Notes 5 and 7). |
For the six months ended June 30, | ||||||||
2024 | 2023 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 297,258 | $ | 410,327 | ||||
Adjustments to reconcile net income to net cash used in operating activities | ||||||||
Dividend and interest income | (1,495,275 | ) | (728,325 | ) | ||||
Loss on change in fair value of overallotment option | — | (134,583 | ) | |||||
Changes in current assets and liabilities | ||||||||
Prepaid expenses | (5,658 | ) | (50,417 | ) | ||||
Accounts payable and accrued expenses | 321,544 | 246,761 | ||||||
Due to related party | 60,000 | 5,000 | ||||||
Income taxes payable | (244,428 | ) | 141,062 | |||||
Net cash used in operating activities | (1,066,559 | ) | (110,175 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Investment of cash into Trust Account | — | (55,836,300 | ) | |||||
Exention payments deposited into Trust Account | (617,100 | ) | — | |||||
Redemption of investments | 30,761,155 | — | ||||||
Net cash provided by (used in) investing activities | 30,144,055 | (55,836,300 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from convertible note - related party | 1,107,100 | — | ||||||
Redemption of Class A common stock subject to possible redemption | (30,194,356 | ) | — | |||||
Proceeds from promissory note | — | 84,000 | ||||||
Repayment of promissory note | — | (395,500 | ) | |||||
Gross proceeds from issuance of public units | — | 54,210,000 | ||||||
Proceeds from issuance of Private Warrants | — | 3,577,000 | ||||||
Payment of offering costs on Public Units | — | (1,382,072 | ) | |||||
Net cash provided by (used in) financing activities | (29,087,256 | ) | 56,093,428 | |||||
Net change in cash | (9,760 | ) | 146,953 | |||||
Cash - beginning of the period | 10,622 | 1,280 | ||||||
Cash - end of the period | $ | 862 | $ | 148,233 | ||||
Non-cash investing and financing activities: | ||||||||
Accretion of Class A common stock subject to possible redemption | $ | 3,163,170 | $ | 2,545,441 | ||||
Deferred underwriting commissions | $ | — | $ | 1,897,350 | ||||
Issuance of Representative Shares for services | $ | — | $ | 270,515 | ||||
Offering costs included in accrued offering costs | $ | — | $ | 150,552 | ||||
Excise tax liability | $ | 301,943 | $ | — |
Class A subject to possible redemption | Class A Perm | Class B | ||||||||||
Allocation of undistributable income | $ | 130,166 | $ | 1,404 | $ | 35,086 | ||||||
Weighted average shares outstanding, basic and diluted | 5,027,813 | 54,210 | 1,355,250 | |||||||||
Basic and diluted net income per share | $ | 0.03 | $ | 0.03 | $ | 0.03 | ||||||
Class A subject to possible redemption | Class A Perm | Class B | ||||||||||
Allocation of undistributable income | $ | 234,100 | $ | 2,430 | $ | 60,728 | ||||||
Weighted average shares outstanding, basic and diluted | 5,224,407 | 54,210 | 1,355,250 | |||||||||
Basic and diluted net income per share | $ | 0.04 | $ | 0.04 | $ | 0.04 | ||||||
Class A subject to possible redemption | Class A Perm | Class B | ||||||||||
Allocation of undistributable income | $ | 359,612 | $ | 3,596 | $ | 89,903 | ||||||
Weighted average shares outstanding, basic and diluted | 5,421,000 | 54,210 | 1,355,250 | |||||||||
Basic and diluted net income per share | $ | 0.07 | $ | 0.07 | $ | 0.07 | ||||||
Class A subject to possible redemption | Class A Perm | Class B | ||||||||||
Allocation of undistributable income | $ | 287,764 | $ | 2,878 | $ | 119,685 | ||||||
Weighted average shares outstanding, basic and diluted | 3,203,459 | 32,035 | 1,332,356 | |||||||||
Basic and diluted net income per share | $ | 0.09 | $ | 0.09 | $ | 0.09 | ||||||
Gross proceeds from sale of Public Units | $ | 54,210,000 | ||
Less: Proceeds allocated to Public Warrants | (1,218,153 | ) | ||
Less: Proceeds allocated to underwriters’ over-allotment option | (134,584 | ) | ||
Less: Issuance costs allocated to Class A common stock subject to possible redemption | (3,928,774 | ) | ||
Less: Redemption of Class A common stock | (30,194,356 | ) | ||
Accretion to redemption value | 10,302,101 | |||
Class A common stock subject to possible redemption | $ | 29,036,234 |
Gross proceeds from sale of Public Units | $ | 54,210,000 | ||
Less: Proceeds allocated to Public Warrants | (1,218,153 | ) | ||
Less: Proceeds allocated to underwriters’ over-allotment option | (134,584 | ) | ||
Less: Issuance costs allocated to Class A common stock subject to possible Redemption | (3,928,774 | ) | ||
Accretion to redemption value | 7,138,931 | |||
Class A common stock subject to possible redemption | $ | 56,067,420 | ||
• | 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. |
• | in whole and not in part; |
• | at a price of $0.01 per warrant; |
• | upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable (the “30-day redemption period”) to each warrant holder; and |
• | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, rights issuances, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three days before the Company sends the notice of redemption to the warrant holders. |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “our,” “us” or “we” refer to Four Leaf Acquisition Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. The Company’s securities filings can be accessed on the EDGAR section of the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Risks and Uncertainties
Results of operations and the Company’s 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 its control. The business could be impacted by various social and political circumstances in the U.S. and around the world (including wars and other forms of conflict, including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the U.S. and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market volatility and economic uncertainties or deterioration in the U.S. and worldwide. Specifically, the conflict between Russia and Ukraine and the Israel-Hamas war and resulting market volatility could adversely affect the Company’s ability to complete a business combination. In response to the conflict between Russia and Ukraine and Israel and Hamas, the U.S. and other countries have imposed sanctions or other restrictive actions which could have a material adverse effect on the Company’s ability to complete a Business Combination and the value of the Company’s securities. The Company cannot at this time fully 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. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Overview
We are a blank check company incorporated in Delaware on March 3, 2022, for the purpose of acquiring, merging with, engaging in capital stock exchange with, purchasing all or substantially all of the assets of, engaging in contractual arrangements, or engaging in any other similar business combination with a single operating entity, or one or more related or unrelated operating entities operating in any sector. We are an emerging growth company and, as such, are subject to all the risks associated with emerging growth companies.
Our sponsor is ALWA Sponsor LLC (the “Sponsor”), a Delaware limited liability company.
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The registration statement for the Company’s initial public offering (“IPO”) was declared effective on March 16, 2023. On March 16, 2023, the Company consummated its IPO of 5,200,000 units (“Units”). On March 17, 2023, the underwriters partially exercised their over-allotment option and purchased 221,000 additional Units. Each Unit consists of one share of Class A common stock, $0.0001 par value per share (“Class A common stock” or “Public Shares”), and one redeemable warrant exercisable into one share of Class A common stock at an exercise price of $11.50 per share (“Public Warrant”). The Units were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $54,210,000.
Simultaneously with the consummation of the IPO and the sale of the Units, the Company consummated the private placement (“Private Placement”) of 3,576,900 warrants (“Private Placement Warrants”) to the Sponsor at a price of approximately $1.00 per Placement Warrant, generating total proceeds of $3,577,000.
Transaction costs amounted to $4,019,087 consisting of $2,710,500 of underwriting commissions, the Representative Shares (as defined below), and $1,038,067 of other offering costs. At the IPO date, cash of $974,028 was held outside of the Trust Account (as defined below) and is available for the payment of the Note (as defined herein) when necessary, payment of accrued offering costs and for working capital purposes.
In conjunction with this Public Offering, the Company issued to the underwriter 54,210 shares of Class A common stock for nominal consideration (the “Representative Shares”). The fair value of the Representative Shares accounted for as compensation under Accounting Standards Codification (“ASC”) 718, “Compensation—Stock Compensation” (“ASC 718”) is included in the offering costs. The estimated fair value of the Representative Shares as of the IPO date totaled $270,520.
Following the closing of the IPO, an amount of $55,836,300 ($10.30 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), to 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 meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its tax obligations, the proceeds from the IPO will not be released from the Trust Account until the earlier of: (a) the completion of the Company’s initial business combination, or (b) the redemption of the Company’s Public Shares if the Company is unable to complete its initial business combination in the prescribed time frame.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the Private Placement Warrants, 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 having an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the taxes payable on interest earned and less any interest earned thereon that is released for taxes) at the time of the agreement to enter into the initial business combination. However, 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 an interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act 1940.
In connection with any proposed initial business combination, the Company will either: (1) seek stockholder approval of such initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), or (2) provide its stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), in each case subject to the limitations described herein.
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If the Company engages in a tender offer, such tender offer will be structured so that each stockholder may tender all of his, her or its shares rather than a pro rata portion of his, her or its shares. The decision as to whether the Company will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to the Company in a tender offer will be made by the Company, solely in the Company’s 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 otherwise require us to seek stockholder approval. If the Company determines to allow stockholders to sell their shares to the Company in a tender offer, it will file tender offer documents with the U.S. Securities and Exchange Commission (“SEC”) which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules.
The Company will proceed with a business combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a business combination and, if the Company seeks stockholder approval, a majority of the issued and outstanding shares voted are voted in favor of the business combination.
If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its second amended and restated certificate of incorporation, as amended (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a business combination.
If, however, stockholder approval of the transactions is required by law, or the Company decides to obtain stockholder approval for business or legal 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. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its initial business combination and the Company does not conduct redemptions in connection with its initial business combination pursuant to the tender offer rules, the Certificate of Incorporation will provide 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 shares sold in the IPO (“Excess Shares”). However, the Company’s stockholders will not be restricted to vote all of their shares (including Excess shares) for or against the initial business combination. Additionally, such stockholders will not receive redemption distributions with respect to the Excess Shares if the Company completes the initial business combination.
The Company’s Sponsor, officers and directors (collectively, the “Initial Stockholders”) have agreed not to propose any amendment to the Certificate of Incorporation that would affect the Company’s public stockholders’ ability to convert or sell their shares to the Company in connection with a business combination as described herein or affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a business combination by August 22, 2024 (or June 22, 2025 if the additional extensions options are exercised by the Company) unless the Company provides its public stockholders with the opportunity to convert their shares of Class A common stock upon the approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest not previously released to the Company but net of franchise and income taxes payable up to the interest income from the Trust Account, divided by the number of then outstanding public shares.
Initial Extension of Period to Complete Initial Business Combination
On March 19, 2024, the Company extended the period of which it is able to consummate an initial business combination by a period of three months, or until June 22, 2024 (the “Initial Extension”). In connection with the Initial Extension, the Company’s sponsor deposited an aggregate of $542,100 into the Company’s Trust Account, in return for a non-convertible unsecured promissory note (the “Extension Note”). The Extension Note bears no interest and is repayable in full upon the consummation of an initial business combination. If the Company does not consummate a business combination, the Extension Note will not be repaid, and all amounts owed under the Extension Note will be forgiven except to the extent that there are funds available to the Company outside of the Trust Account. The Initial Extension was the first of the two three-month Extensions permitted under the Company’s governing documents.
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2024 Special Meeting of the Stockholders
The Company convened a special meeting of stockholders on June 18, 2024 (the “2024 Special Meeting”), at which the Company’s stockholders approved the amendment to the Company’s Certificate of Incorporation to provide the Company’s board of directors with the right to extend the Combination Period up to an additional twelve (12) times for one (1) month each time from June 22, 2024 to June 22, 2025 (the “2024 Extension Amendment”). The Company also entered into an amendment (the “2024 Trust Amendment” and together with the 2024 Extension Amendment, the “2024 Charter Amendments”) to the Trust Agreement in order to allow the Company to extend the Combination Period up to an additional twelve (12) times for one (1) month each time from June 22, 2024 to June 22, 2025 by depositing into the Trust Account, for each one-month extension, $75,000 (the “Extension Payment”).
In connection with the 2024 Charter Amendments, the holders of the Company’s Public Shares were given the opportunity to redeem their Public Shares for a pro rata share of the funds on deposit in the Trust Account, including any interest earned on the Trust Account deposits (net of taxes payable), divided by the number of then outstanding Public Shares. Stockholders holding 2,752,307 Public Shares exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, approximately $30.2 million (approximately $10.97 per share) were removed from the Company’s Trust Account to pay such redeeming stockholders.
On June 20, 2024, the Company further extended the period it has to consummate an initial business combination by a period of one month, or until July 22, 2024 (the “First 2024 Monthly Extension”). In connection with the one-month extension, the Company’s Sponsor deposited $75,000 into the Company’s Trust Account.
On July 16, 2024, the Company further extended the period it has to consummate an initial business combination by a period of one month, or until August 22, 2024 (the “Second 2024 Monthly Extension”). In connection with the one-month extension, the Company’s Sponsor deposited $75,000 into the Company’s Trust Account.
If the Company is unable to complete an initial business combination by August 22, 2024 (or June 22, 2025 if the additional extensions options are exercised by the Company), 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 shares of Class A common stock subject to possible redemption, 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 (less any income or franchise tax obligations and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding shares of Class A common stock, 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 remaining stockholders and the board of directors, liquidate and dissolve, 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.
The Company’s Initial Stockholders agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Class B common stock held by them if the Company fails to complete its initial business combination within the Combination Period. However, if the Initial Stockholders acquire Public Shares after the IPO date, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a business combination within the prescribed time frame. The underwriter has 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 IPO 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 (1) $10.30 per Public Share or (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes. This liability will not apply with respect 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
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claims under the Company’s indemnity of the underwriter of the IPO 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 the Company’s independent registered public accounting firm), prospective target businesses or 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.
Liquidity, Capital Resources and Going Concern
At June 30, 2024, we had cash of $862 and a working capital deficit of $2,579,796, excluding the franchise and income tax liabilities, as these tax liabilities will be paid using the dividend and interest income earned in the Trust Account.
We have neither engaged in any operations nor generated any revenues to date. Our only activities from March 3, 2022 (inception) to June 30, 2024 were organizational activities and those necessary to consummate the IPO and identify a target company for a business combination. We do not expect to generate any operating revenues until after the completion of our business combination. We have generated and expected to generate non-operating income in the form of dividend and interest income on marketable securities held in the Company’s Trust Account. We have incurred and expect to incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Our liquidity needs prior to the consummation of the IPO were satisfied through the proceeds of $25,000 from the sale of the Founder Shares, and loans from our Sponsor. Subsequent to the consummation of the IPO, the Company’s liquidity needs have been and will continue to be satisfied through the net proceeds held outside of the Trust Account from the consummation of the IPO and the Private Placement, and the Working Capital Loans provided by the Sponsor (see below). In order to finance the Company’s operations as well as transaction costs in connection with an initial business combination, our Sponsor, an affiliate of our Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required, up to $2,000,000 (“Working Capital Loans”). The Working Capital Loans are to be repaid upon consummation of a business combination, without interest, or, at the lender’s option, up to $2,000,000 of the outstanding Working Capital Loans are convertible into warrants at a price of $1.00 per warrant. As of June 30, 2024 (unaudited), we had $1,379,100 of outstanding Working Capital Loans from our Sponsor.
As of June 30, 2024 (unaudited), we had cash in the Trust Account of $29,414,956. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions of $1,897,350) to complete its initial business combination, to the extent that our capital stock or debt is used, in whole or in part, as consideration to complete its initial business combination. We may also withdraw dividend and interest income earned in the Trust Account to pay income and franchise taxes. As of June 30, 2024 (unaudited), we have withdrawn $566,800 from the Trust Account in order to satisfy income tax obligations. As of June 30, 2024 (unaudited), no funds have been withdrawn from the Trust Account to satisfy the Company’s Delaware franchise tax obligations.
The Initial Stockholders have agreed not to propose any amendment to our Certificate of Incorporation that would affect our public stockholders’ ability to convert or sell their shares to us in connection with a business combination as described herein or affect the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete a business combination by August 22, 2024 (or June 22, 2025 if the additional extension options are exercised by the Company) unless we provide our public stockholders with the opportunity to redeem their shares of Class A common stock upon the approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest not previously released to the Company but net of franchise and income taxes payable, divided by the number of then outstanding Public Shares.
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The $862 held outside of the Trust Account and a working capital deficit of $2,579,796 excluding franchise and income tax liabilities as of June 30, 2024 will not be sufficient to allow the Company to operate for at least the next 12 months from the issuance of these financial statements, assuming that a business combination is not consummated during that time. Giving effect to the 2024 Charter Amendments discussed above, the Company has until August 22, 2024 (or June 22, 2025 if the additional extension options are exercised by the Company), to complete an initial business combination, subject to the Company making the required Trust Account deposits. If an initial business combination is not consummated by August 22, 2024 (or June 22, 2025 if the additional extension options are exercised by the Company), there will be a mandatory liquidation and subsequent dissolution of the Company. The Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor 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 and provide for the required monthly extension Trust Account deposits. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern, assuming a business combination is not consummated. Our 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.
We believe that the proceeds raised in the IPO and the funds potentially available from loans from the Sponsor or any of their affiliates will be sufficient to allow us to meet the expenditures required for operating our business. However, if the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to the initial business combination. Moreover, we may need to obtain additional financing either to complete the initial business combination or because we become obligated to redeem a significant number of Public Shares upon completion of the initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination.
Results of Operations
Since the IPO, the Company’s activity has been limited to the search for a prospective initial business combination. The Company will not generate any operating revenues until the closing and completion of an initial business combination, at the earliest.
For the three months ended June 30, 2024, the Company had net income of $166,656, which was primarily related to $737,335 of dividend and interest income earned in the Trust Account, offset by $424,028 of formation and general and administrative costs and $146,651 of income tax expense. For the three months ended June 30, 2023, we had net income of $453,111, which was primarily related to $666,505 of dividend and interest income earned in the Trust Account and $173,764 gain related to the change in fair market value of the over-allotment liability, offset by $253,135 of formation and operating costs and $134,023 of income tax expense.
For the six months ended June 30, 2024, the Company had net income of $297,258, which was primarily related to $1,495,275 of dividend and interest income earned in the Trust Account, offset by $876,445 of formation and general and administrative costs and $321,572 of income tax expense. For the six months ended June 30, 2023, the Company had a net income of $410,327, which was primarily related to $728,325 of dividend and interest income earned in the Trust Account and $134,583 gain related to the change in fair market value of the over-allotment liability, offset by $311,519 of formation and operating costs and $141,062 of income tax expense.
The increase in income tax expense during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily attributed to the increase in dividend and interest income earned in the Trust Account due to the increase in interest rates. The increase in income tax expense during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributed to the increase in dividend and interest income earned on the balances in the Trust held for six months in 2024 as compare to three and a half months in 2023. Formation and operating costs increased during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 primarily due to increases in accounting and legal expenses and general business expenses related to operating as a public company. The decrease related to the change in fair value of the over-allotment liability during the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was due to the over-allotment option being expired as of April 30, 2023. This resulted in a gain and increased net income during the three and six months ended June 30, 2023. No such event occurred during the three and six months ended June 30, 2024.
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Commitments and Contractual Obligations:
Registration Rights
The holders of the Founder Shares, Private Placement Warrants, warrants that may be issued upon conversion of Working Capital Loans, any shares of Class A common stock issuable upon the exercise of the Private Placement warrants and warrants that may be issued upon conversion of the Working Capital Loans and Class A common stock issuable upon conversion of the Founder Shares, are entitled to registration rights pursuant to a registration rights agreement to be signed at the effective date of the IPO, requiring us to register such securities for resale (in the case of the Founder Shares, only after conversion of the Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form 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 the completion of the initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering securities.
Underwriting Agreement
$1,897,350 in the aggregate (reflecting the partial exercise by the underwriter of its over-allotment option), will be payable to the underwriter for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes an initial business combination, subject to the terms of the underwriting agreement.
Administrative Support Agreement
On March 22, 2023, the Company entered into the administrative support agreement under which it pays the Sponsor a total of $10,000 per month, up until the completion of the Company’s initial business combination or liquidation, for secretarial and administrative services. The Company’s expenses related to the administrative support agreement were $30,000 and $60,000 for the three and six months ended June 30, 2024, respectively. The Company’s expenses related to the administrative support agreement were $30,000 for the three and six months ended June 30, 2023. Upon completion of the initial business combination or the Company’s liquidation, the Company will cease paying these monthly fees. As of June 30, 2024 (unaudited), $122,180 of amounts due to the Sponsor under the Administrative Support Agreement remain unpaid, and are included in Due to Related Party on the condensed balance sheets.
Critical Accounting Policies and Estimates:
The preparation of the unaudited condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Significant assumptions include the fair value of the Company’s Public Warrants and Representative Shares, at their issuance dates, the valuation of the over-allotment option provided to the underwriters and the excise tax liability in connection with redemption of Class A common stock. Actual results could differ from those estimates
Derivative Financial Instruments
The Company issued warrants to its investors, and the over-allotment option to the underwriter. The Company accounts for financial instruments as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the instruments and applicable authoritative guidance in ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the instruments are
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freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own stock and whether the holders of the instruments could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.
At the IPO date, the Public Warrants and Private Placement Warrants were accounted for as equity instruments as they meet all of the requirements for equity classification under ASC 815 based on current expected terms, which are subject to change. The over-allotment option was accounted for as a liability under ASC 480, as it is an option exercisable into redeemable shares.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). Class A common stock subject to mandatory redemption (if any) are 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 sold as part of the IPO, feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption are classified as temporary equity and are accreted from the initial carrying amount to the redemption value over the period from the date of issuance to the earliest redemption date of the instrument on a straight-line basis. Subsequent to the IPO date, the accretion also includes the dividend and interest income earned in the Trust Account in excess of income and franchise taxes.
The change in the carrying value of Class A common stock subject to possible redemption resulted in charges against additional paid-in capital. Subsequent to the IPO date, the Company accretes a portion of the accretion that reflects a redemption in excess of fair value, and dividend and interest income earned in the Trust Account in excess of income and franchise taxes.
Recent Accounting Standards
In August 2020, the FASB issued ASU 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. This guidance changes how entities account for convertible instruments and contracts in an entity’s own equity and simplifies the accounting for convertible instruments by removing certain separation models for convertible instruments. This guidance also modifies the guidance on diluted earnings per share calculations. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, but allows for early adoption. The Company adopted ASU 2020-06 on January 1, 2024 which had no impact on its financial statements.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” that addresses requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2024. The amendments in this ASU must be applied on a retrospective basis to all prior periods presented in the financial statements and early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of this standard will have on its financial statements.
Management does not believe that any additional recently issued, but not yet effective, accounting standards, if currently adopted, would have a material impact on the Company’s unaudited condensed financial statements.
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JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be 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, our 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, the Company is 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”, the Company chooses to rely on such exemptions the Company may not be required to, among other things, (i) provide an independent registered public accounting firm’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 PCAOB regarding mandatory audit firm rotation or a supplement to the report of independent registered public accounting firm 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 Officers’ compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of the IPO or until the Company is no longer an “emerging growth company,” whichever is earlier.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
On December 27, 2022, the U.S. Department of the Treasury issued Notice 2023-2 (the “Notice”) as interim guidance until publication of forthcoming proposed regulations on the excise tax. Although the guidance in the Notice does not constitute proposed or final Treasury regulations, taxpayers may generally rely upon the guidance provided in the Notice until the issuance of the forthcoming proposed regulations. Certain of the forthcoming proposed regulations (if issued) could, however, apply retroactively. The Notice generally provides that if a covered corporation completely liquidates and dissolves, distributions in such complete liquidation and other distributions by such covered corporation in the same taxable year in which the final distribution in complete liquidation and dissolution is made are not subject to the excise tax.
Because any redemptions of our stock in connection with a business combination, extension vote or otherwise will occur after December 31, 2022, the redemptions that take place after that date, including the redemption on June 18, 2024 in connection with the 2024 Special Meeting, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with any such redemptions would depend on a number of factors, including (i) the fair market value of the such redemptions, together with any other redemptions or repurchases we consummate in the same taxable year, (ii) the structure of any business combination and the taxable year in which it occurs (including redemptions in connection with the Special Meeting), (iii) the nature and amount of any equity issuances, in connection with a business combination or otherwise, issued within the same taxable year, (iv) whether we completely liquidate and dissolve within the taxable year of such redemptions, and (v) legal uncertainties regarding how the excise tax applies to transactions like the business combination (and, if applicable, a complete liquidation and dissolution of the Company) and the content of final and proposed regulations and further guidance from the Treasury. The foregoing could cause a reduction in the cash available on hand to complete a business combination and in our ability to complete a business combination. The proceeds placed in the trust account and the interest earned thereon will not be used to pay for the excise tax that may be levied on the Company in connection with such redemptions. The Company further confirms that it will not utilize any funds from the trust account to pay any such excise tax.
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On June 18, 2024, the Company’s stockholders redeemed 2,752,307 Class A common stock shares for a total of $30,194,356. The Company evaluated the classification and accounting of the stock redemptions under ASC 450, “Contingencies”. The Company evaluated the current status and probability of the excise taxes becoming payable under the guidance in ASC 450, “Contingencies”, and determined that a contingent liability should be calculated and recorded. During the three and six months ended June 30, 2024, the Company accrued $301,944 of excise tax liability related to the June 18, 2024, redemptions. The excise tax liability totaled $301,944 and $0 as of June 30, 2024 (unaudited), and December 31, 2023, respectively.
Related Party Transactions:
Founder Shares
In May 2022, the Sponsor paid $25,000, or approximately $0.011 per share, to cover certain offering costs in consideration for 2,156,250 shares of Class B common stock, par value $0.0001 (the “Founder Shares”). On May 10, 2022, the Sponsor surrendered 287,500 Founder Shares, for no consideration, resulting in the Sponsor and directors continuing to hold 1,868,750 Founder Shares. On August 26, 2022, the Sponsor transferred 25,000 Founder Shares to each of Rahul Mewawalla and Stephen Markscheid, each of which are members of the Company’s Board of Directors. The awards will vest simultaneously with the closing of an initial business combination, provided the director has continuously served on the Company’s Board of Directors through the closing of such initial business combination.
On March 16, 2023, the Sponsor forfeited an aggregate of 373,750 Founder Shares for no consideration, resulting in the Sponsor and directors holding an aggregate of 1,495,000 Founder Shares, of which up to 195,000 was subject to forfeiture to the extent the over-allotment option was not exercised in full by the underwriter prior to its expiration date on April 30, 2023.
On March 17, 2023, upon the partial exercise their over-allotment option by the underwriters, the forfeiture lapsed for 55,250 Founder Shares. Following the expiration of the underwriters’ remaining over-allotment option on April 30, 2023, the remaining 139,750 Founder Shares were forfeited, resulting in our Sponsor and directors holding an aggregate of 1,355,250 Founder Shares.
Private Placement
On March 16, 2023, in the private placement that occurred simultaneously with the IPO, the Sponsor purchased an aggregate of 3,449,500 Private Placement Warrants at a price of $1.00 per warrant, for an aggregate purchase price of $3,449,500.
On March 17, 2023, the underwriters partially exercised their over-allotment option resulting in the Company issuing 127,400 Private Placement Warrants, generating an additional $127,500 in gross proceeds.
Each Private Placement Warrant entitles the holder to purchase one share of Class A common stock, subject to adjustment. The proceeds from the Private Placement of the Private Placement Warrants funded the trust account, IPO issuance costs and will fund the future operations prior to the business combination. If the Company does not complete an initial business combination within the Combination Period, the remaining proceeds, after payments from the sale of the Private Placement Warrants, will be included in the liquidating distribution to the public stockholders and the Private Placement Warrants will be worthless.
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Working Capital 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, up to $2,000,000 (“Working Capital Loans”). If the Company completes a business combination, the Company will repay the Working Capital Loans. Up to $2,000,000 of such loans may be converted into warrants, at a price of $1.00 per warrant at the option of the lender, upon consummation of the Company’s initial business combination. 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.
During the three months ended June 30, 2024, the Company received from the Sponsor $245,000 in Working Capital Loans, of which $75,000 was to fund the First 2024 Monthly Extension. During the six months ended June 30, 2024, the Company received from the Sponsor $1,107,100 in Working Capital Loans, of which $542,000 was funded the Initial Extension and $75,000 was utilized to fund the First 2024 Monthly Extension. The Working Capital Loans are to be repaid upon the consummation of a business combination, without interest, or, at the lender’s option, up to $2,000,000 of the outstanding Working Capital Loans are convertible into Private Placement Warrants at a price of $1.00 per warrant. As of June 30, 2024 (unaudited) and December 31, 2023, the Company had $1,379,100 and $272,000, respectively, of outstanding Working Capital Loans from the Sponsor, included in Convertible note – related party in the accompanying unaudited condensed balance sheets.
Administrative Support Agreement
On March 22, 2023, the Company entered into the administrative support agreement under which it pays the Sponsor a total of $10,000 per month, up until the completion of the Company’s initial business combination or liquidation, for secretarial and administrative services. The Company’s expenses related to the administrative support agreement were $30,000 and $60,000 for the three and six months ended June 30, 2024, respectively. The Company’s expenses related to the administrative support agreement were $30,000 for the three and six months ended June 30, 2023. Upon completion of the initial business combination or the Company’s liquidation, the Company will cease paying these monthly fees. As of June 30, 2024 (unaudited), $122,180 of amounts due to the Sponsor under the Administrative Support Agreement remain unpaid and are included in Due to Related Party on the condensed balance sheets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures were not effective due to the material weakness in internal controls over financial reporting related to the Company’s review and approval of cash disbursements.
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To address this material weakness management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting.
• | The Company implemented additional controls related to vender verification. |
• | The Company implemented additional reviews of each payment made by several authorized individuals. |
We can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control Over Financial Reporting
Other than changes that have resulted from the material weakness remediation activities noted above, there has been no change in the internal control over financial reporting, during the most recently completed fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
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32.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing. |
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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 on this 14th day of August, 2024.
FOUR LEAF ACQUISITION CORPORATION | ||
By: | /s/ Angel Orrantia | |
Name: Angel Orrantia | ||
Title: Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Coco Kou | |
Name: Coco Kou | ||
Title: Chief Financial Officer | ||
(Principal Financial Officer) |
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