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 |
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification Number) | ||
(Address of principal executive offices) |
(Zip Code) |
Title of Each Class: |
Trading Symbol: |
Name of Each Exchange on Which Registered: | ||
common stock and one redeemable Warrant |
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Class A common stock for $11.50 per share |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
Emerging growth company |
Table of Contents
PAGE | ||||||
1 | ||||||
Item 1. |
Unaudited Condensed Financial Statements | 1 | ||||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 29 | ||||
Item 4. |
Controls and Procedures | 29 | ||||
30 | ||||||
Item 1. |
Legal Proceedings | 30 | ||||
Item 1A. |
Risk Factors | 30 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities | 30 | ||||
Item 3. |
Defaults Upon Senior Securities | 30 | ||||
Item 4. |
Mine Safety Disclosures | 30 | ||||
Item 5. |
Other Information | 30 | ||||
Item 6. |
Exhibits | 31 | ||||
33 |
i
March 31, 2024 (Unaudited) |
December 31, 2023 |
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ASSETS |
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Current assets |
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Cash |
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Prepaid expenses |
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Total current assets |
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Other assets |
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Marketable securities held in trust account |
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Total assets |
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LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accrued offering costs |
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Accounts payable and accrued expenses |
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Due to related party |
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Convertible note – related party |
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Deferred credit – operating expenses funded by potential target |
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Income taxes payable |
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Total current liabilities |
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Deferred underwriting fee payable |
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Total liabilities |
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Commitments and Contingencies (Note 6) |
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Class A C ommon S tock S ubject to P ossible R edemption, $ |
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Stockholders’ deficit |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities, common stock subject to possible redemption, and stockholders’ deficit |
$ |
$ |
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For the three months ended March 31, |
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2024 |
2023 |
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Formation and operating costs |
$ | $ | ||||||
Loss from operations |
$ |
( |
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$ |
( |
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Other income (loss): |
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Dividend and interest income |
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Change in fair value of over-allotment liability |
— | ( |
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Income (loss) before income taxes |
( |
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Income tax provision |
( |
) | ( |
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Net income (loss) |
$ |
$ |
( |
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Weighted average shares outstanding of Class A common stock subject to possible redemption |
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Basic and diluted net income per share, Class A common stock subject to possible redemption (see Note 2) |
$ |
$ |
( |
) | ||||
Weighted average shares outstanding of Class A common stock |
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Basic and diluted net income per share, Class A Common Stock (see Note 2) |
$ |
$ |
( |
) | ||||
Weighted average shares outstanding of Class B common stock (1) |
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Basic and diluted net income (loss) per share, Class B common stock (see Note 2) |
$ |
$ |
( |
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(1) | Excludes an aggregate of up to s 5 and 7). |
Common Stock Subject to Possible Redemption |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Class A |
Class A |
Class B |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
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Balance – December 31, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
Accretion of Class A Common Stock to redemption value |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Accretion of Class A Common Stock to redemption value due to dividend and interest income earned |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Accretion of Class A Common Stock to redemption value due to extension payment |
— | — | — | — | — | — | ( |
) | ( |
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Net income |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
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Balance – March 31, 2024 |
$ |
$ |
$ |
$ |
$ |
( |
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$ |
( |
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Common Stock Subject to Possible Redemption |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Class A |
Class A |
Class B |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
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Balance – December 31, 2022 |
$ | $ | (1) |
$ |
$ |
$ |
( |
) |
$ |
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Issuance of private placement warrants |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of Class of Class A Common Stock, net of issuance costs of $ |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of public warrants, net of issuance costs of $ |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of representative shares |
— | — | — | — | — | |||||||||||||||||||||||||||||||
Accretion of Class A common stock to redemption value |
— | — | — | — | — | ( |
) | — | ( |
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Net loss |
— | — | — | — | — | — | — | ( |
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Balance – March 31, 2023 |
$ |
$ |
(1) |
$ |
$ |
$ |
( |
) |
$ |
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(1) | Includes up to s 5 and 7). |
For the three months ended March 31, |
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2024 |
2023 |
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Cash Flows from Operating Activities: |
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Net income (loss) |
$ | $ | ( |
) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities |
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Dividend and interest income |
( |
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Loss on change in fair value of overallotment option |
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Changes in current assets and liabilities |
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Prepaid expenses |
( |
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Accounts payable and accrued expenses |
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Due to related party |
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Income taxes payable |
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Net cash used in operating activities |
( |
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( |
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Cash Flows from Investing Activities |
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Investment of cash into Trust Account |
( |
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Net cash used in investing activities |
( |
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( |
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Cash Flows from Financing Activities: |
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Due from related party |
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Proceeds from convertible note – related party |
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Proceeds from promissory note – related party |
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Repayment of promissory note – related party |
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Gross proceeds from issuance of public units |
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Proceeds from issuance of Private Warrants |
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Payment of offering costs on Public Units |
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Net cash provided by financing activities |
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Net change in cash |
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Cash – beginning of the period |
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Cash – end of the period |
$ |
$ |
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Non-cash investing and financing activities: |
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Remeasurement of Class A shares subject to possible redemption |
$ | $ | ||||||
Deferred underwriting commissions |
$ | $ | ||||||
Issuance of Representative Shares for services |
$ | $ | ||||||
Offering costs included in accrued offering costs |
$ | $ |
Class A subject to possible redemption |
Class A Perm |
Class B |
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Allocation of undistributable income |
$ | $ | $ | |||||||||
Weighted average shares outstanding, basic and diluted |
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Basic and diluted net income per share |
$ | $ | $ | |||||||||
Class A subject to possible redemption |
Class A Perm |
Class B |
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Allocation of undistributable loss |
$ | ( |
) | $ | ( |
) | $ | ( |
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Weighted average shares outstanding, basic and diluted |
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Basic and diluted net loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
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Gross proceeds from sale of Public Units |
$ | |||
Less: Proceeds allocated to Public Warrants |
( |
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Less: Proceeds allocated to underwriters’ over-allotment option |
( |
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Less: Issuance costs allocated to Class A common stock subject to possible Redemption |
( |
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Accretion to redemption value |
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Class A common stock subject to possible redemption |
$ | |||
Gross proceeds from sale of Public Units |
$ | |||
Less: Proceeds allocated to Public Warrants |
( |
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Less: Proceeds allocated to underwriters’ over-allotment option |
( |
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Less: Issuance costs allocated to Class A common stock subject to possible Redemption |
( |
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Accretion to redemption value |
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Class A common stock subject to possible redemption |
$ | |||
• | 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 $ |
• | upon not less than “ redemption period”) to each warrant holder; and 30 -day |
• | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
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 Quarterly Report on 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’s”) website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Risks and Uncertainties
Recent increases in inflation and interest rates in the United States and elsewhere may lead to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate an initial business combination.
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.
21
Our sponsor is ALWA Sponsor LLC (the “Sponsor”), a Delaware limited liability company.
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”), 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 the IPO, 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.
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 is the first of up to two three-month Extensions permitted under the Company’s governing documents.
If the Company is unable to complete an initial business combination by June 22, 2024 (or by September 22, 2024, if the Company determines to exercise the second three month extension), 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.
22
The Company’s Sponsor, officers and directors (collectively, the “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 in or 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 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 March 31, 2024, we had cash of $5,244 and a working capital deficit of $1,815,886, excluding franchise and income tax liabilities of $143,700 and $618,911, respectively, 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 March 31, 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, our 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. In addition, in order to finance our 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 an initial 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 March 31, 2024, we had $1,134,100 of outstanding Working Capital Loans from our Sponsor.
As of March 31, 2024, the Company had cash in the Trust Account of $59,363,777. The Company intends 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 the Company’s capital stock or debt is used, in whole or in part, as consideration to complete its
23
initial business combination. The Company may also withdraw dividend and interest income earned in the Trust Account to pay income and franchise taxes. As of March 31, 2024, none of the principal amount in the Trust Account was withdrawn as described above. Subsequent to March 31, 2024, the Company withdrew $566,000 from the Trust in order to satisfy income 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 redeem 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 June 22, 2024 (or if we decide to exercise the second three-month extension option, September 22, 2024) unless the Company provides its 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.
If we are unable to complete an initial business combination by June 22, 2024 (or if we determine to exercise the second three-month extension option, by September 22, 2024), we 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 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 our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The $5,244 held outside of the Trust Account as of March 31, 2024, will not be sufficient to allow us to operate for at least the next 12 months from the issuance of the financial statements, assuming that a business combination is not consummated during that time. We may need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. Additionally, we have until June 22, 2024 (or September 22, 2024, if the Company decides to extend by an additional three months), to consummate a business combination. It is uncertain that we will be able to consummate a business combination by this time. If a business combination is not consummated by such date and an extension is not requested by our Sponsor, there will be a mandatory liquidation and subsequent dissolution of the Company. 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 Initial Public Offering 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.
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For the three months ended March 31, 2024, the Company had net income of $130,602, which was primarily related to $757,940 of dividend and interest income earned in the Trust Account, offset by $452,417 of formation and operating costs and $174,921 of income tax expense.
For the three months ended March 31, 2023, we had net loss of $42,784, which was primarily related to $58,384 of formation and operating costs, $39,181 of loss related to the change in fair value of the over-allotment liability, $7,039 of income tax expense, partially offset by $61,820 of dividend and interest income earned in the Trust Account. The increase in dividend and interest income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due to the deposit from the proceeds from the IPO into the Trust Account on March 22, 2023.
The increase in income tax expense during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributed to the increase in dividend and interest income earned in the Trust Account. Formation and operating costs increased during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 primarily due to increases in accounting and legal expenses and general business expenses related to operating as a public company. The decrease in the loss related to the change in fair value of the over-allotment liability during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due to the over-allotment option being expired as of April 30, 2023.
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 an administrative support agreement under which it will pay 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 for the three months ended March 31, 2024. For the three months ended March 31, 2023, the Company’s expenses related to the administrative support agreement were immaterial. Upon completion of the initial business combination or the Company’s liquidation, the Company will cease paying these monthly fees. As of March 31, 2024, $92,180 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.
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Critical Accounting Policies and Estimates
The preparation of unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. No critical accounting estimates were identified. Critical accounting policies are identified below.
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 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.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share” (“ASC 260”). Net income (loss) per share is computed by dividing net loss by the weighted average number of shares of Class A common stock outstanding during the applicable period.
The Company’s unaudited condensed statements of operations include a presentation of net income (loss) per share subject to redemption in a manner similar to the two-class method of net income (loss) per share. With respect to the accretion of the Class A common stock subject to possible redemption and consistent with ASC 480-10-S99-3A, the Company deemed the fair value of the Class A common stock subject to possible redemption to approximate the contractual redemption value and the accretion has no impact on the calculation of net income (loss) per share. The Company’s Public Warrants and Private Placement Warrants (see Note 3) could, potentially, be exercised or converted into Class A common stock and then share in the earnings of the Company. However, these warrants were excluded when calculating diluted income (loss) per share as the contingencies associated with the warrants had not been satisfied as of the end of the reporting periods presented. As a result, diluted income (loss) per share is the same as basic income (loss) per share for the periods presented.
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.
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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 did not have a material 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.
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.
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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.
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 of 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 March 31, 2024, the Company received from the Sponsor $862,100 in Working Capital Loans, of which $542,000 to fund the Initial 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 March 31, 2024 and December 31, 2023, the Company had $1,134,100 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.
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Administrative Support Agreement
On March 22, 2023, the Company entered into an administrative support agreement under which it will pay 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 for the three months ended March 31, 2024. For the three months ended March 31, 2023, the Company’s expenses related to the administrative support agreement were immaterial. Upon completion of the initial business combination or the Company’s liquidation, the Company will cease paying these monthly fees. As of March 31, 2024, $92,180 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 March 31, 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.
The Company’s management has concluded that there was a material weakness in its internal control over financial reporting related to the Company’s review and approval of cash disbursements.
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.
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Item 6. Exhibits.
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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 15th day of May, 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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