Four Leaf Acquisition (FORL) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed financial statements and management's discussion and analysis of Four Leaf Acquisition Corporation's financial condition and results of operations Item 1. Unaudited Condensed Financial Statements This section presents Four Leaf Acquisition Corporation's unaudited condensed financial statements, including balance sheets, statements of operations, and cash flows, with detailed notes on accounting policies and financial activities Condensed Balance Sheets The condensed balance sheets show a significant increase in restricted cash held in the trust account and total current liabilities as of June 30, 2025, primarily due to pending Class A common stock redemptions Condensed Balance Sheet Highlights | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Cash | $9,804 | $28,407 | | Restricted cash - held in trust account | $19,856,826 | $- | | Marketable securities held in trust account | $11,354,936 | $30,124,557 | | Total assets | $31,347,191 | $30,187,964 | | Total current liabilities | $24,988,997 | $3,626,322 | | Total liabilities | $26,886,347 | $5,523,672 | | Class A common stock subject to possible redemption | $11,093,593 | $30,023,845 | | Total stockholders' deficit | $(6,632,749) | $(5,359,553) | Condensed Statements of Operations The company reported a net loss for the three and six months ended June 30, 2025, a reversal from net income in the prior year, primarily due to decreased dividend and interest income and increased income tax provision Condensed Statements of Operations Highlights | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Formation and operating costs | $343,812 | $424,028 | $658,628 | $876,445 | | Dividend and interest income | $320,723 | $737,335 | $637,205 | $1,495,275 | | Income tax provision | $(65,735) | $(146,651) | $(126,631) | $(321,572) | | Net income (loss) | $(88,824) | $166,656 | $(148,054) | $297,258 | | Basic and diluted net income (loss) per share, Class A common stock | $(0.02) | $0.03 | $(0.04) | $0.04 | Condensed Statements of Changes in Common Stock Subject to Possible Redemption and Stockholders' Deficit The statements reflect significant redemptions of Class A common stock in both 2024 and 2025, leading to a decrease in the amount of common stock subject to possible redemption and an increase in accumulated deficit due to net losses and accretion - Redemptions of Class A common stock subject to possible redemption totaled 1,708,386 shares for $19,856,826 as of June 30, 2025, and 2,752,307 shares for $30,194,356 as of June 30, 2024[18][20] - Accumulated deficit increased from $(5,359,694) at December 31, 2024, to $(6,632,890) at June 30, 2025, driven by Class A common stock accretion and net losses[18] Condensed Statements of Cash Flows Cash flows from operating activities remained negative, while investing activities shifted from a significant inflow in 2024 (due to redemption of investments) to an outflow in 2025 (due to extension payments) Financing activities in 2025 were positive due to promissory notes from related parties, offsetting the prior year's negative impact from stock redemptions Condensed Statements of Cash Flows Highlights (Six Months Ended June 30) | Activity | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(489,603) | $(1,066,559) | | Net cash provided by (used in) investing activities | $(450,000) | $30,144,055 | | Net cash provided by (used in) financing activities | $921,000 | $(29,087,256) | | Net change in cash | $(18,603) | $(9,760) | | Cash - end of the period | $9,804 | $862 | - Non-cash activities include accretion of Class A common stock subject to possible redemption of $926,574 in 2025 versus $3,163,170 in 2024, and excise tax liability of $198,568 in 2025 versus $301,943 in 2024[22] NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Four Leaf Acquisition Corporation, a blank check company, faces going concern doubts due to multiple business combination extensions, significant redemptions, and Nasdaq compliance challenges - The Company was incorporated on March 3, 2022, as a blank check company to effect a business combination[25] - A Merger Agreement was entered into with Xiaoyu Dida Interconnect International Limited (Smart Station) on December 17, 2024[26][65] - The business combination period has been extended multiple times, most recently until September 22, 2025 (or June 22, 2026, with further extensions), with the Sponsor depositing $75,000 for each monthly extension[41][42][43][57][62] Public Share Redemptions | Event | Date | Shares Redeemed | Amount Removed from Trust Account | Per Share Value | | :-------------------------------- | :----------- | :-------------- | :------------------------------ | :-------------- | | 2024 Special Meeting | June 18, 2024 | 2,752,307 | ~$30.2 million | ~$10.97 | | 2025 Special Meeting | June 27, 2025 | 1,708,386 | ~$19.9 million | ~$11.62 | - Nasdaq issued delisting notices for failing to meet the $35 million Market Value of Listed Securities (MVLS) requirement and late Form 10-K filing, with an appeal granting an extension until October 3, 2025, to complete the business combination[73][76][77][79] - Management identified substantial doubt about the Company's ability to continue as a going concern due to liquidity conditions and potential mandatory liquidation[80][82] - The Inflation Reduction Act of 2022 imposes a 1% excise tax on stock repurchases, potentially applicable to redemptions, with the Company accruing $198,569 and $301,944 for excise tax liability for the three and six months ended June 30, 2025 and 2024, respectively[84][86][89] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the Company's significant accounting policies, covering basis of presentation, estimates, emerging growth company status, business combination costs, net income per share, and financial instrument accounting - The Company, an 'emerging growth company,' has elected to utilize the extended transition period for new or revised financial accounting standards[95][96] - Class A common stock subject to possible redemption is classified as temporary equity and accreted to redemption value, incorporating Trust Account dividend and interest income[109] - Public Warrants and Private Placement Warrants are accounted for as equity instruments[113] - The Company adopted ASU 2023-09 on January 1, 2025, with no material impact, and is evaluating ASU 2024-03 for future implications[120][121] NOTE 3 – INITIAL PUBLIC OFFERING The Company completed its IPO in March 2023, selling 5,421,000 units (including over-allotment) at $10.00 per unit, generating $54,210,000 in gross proceeds Each unit consisted of one Class A common stock and one redeemable Public Warrant - The IPO was consummated on March 16, 2023, with 5,200,000 units sold, plus an additional 221,000 units from the over-allotment option on March 17, 2023[29][123][124] - Total gross proceeds from the IPO amounted to $54,210,000[29][123] - Each unit comprised one Class A common stock share and one redeemable Public Warrant, exercisable at $11.50 per share[29][123] NOTE 4 – PRIVATE PLACEMENT Simultaneously with the IPO, the Sponsor purchased 3,576,900 Private Placement Warrants for $3,577,000, which funded the Trust Account, IPO issuance costs, and pre-business combination operations - The Sponsor purchased 3,449,500 Private Placement Warrants for $3,449,500 on March 16, 2023[30][125] - An additional 127,400 Private Placement Warrants were issued for $127,500 following partial exercise of the over-allotment option[125] - Total Private Placement Warrants amounted to 3,576,900, generating $3,577,000[30] NOTE 5 – RELATED PARTY TRANSACTIONS This note details related party transactions, including Founder Shares, private placement warrants, Sponsor-provided Working Capital Loans, and administrative support fees - The Sponsor initially paid $25,000 for 2,156,250 Class B common stock (Founder Shares), later adjusted to 1,355,250 shares after forfeitures[127][128] - Working Capital Loans from the Sponsor totaled $921,000 for the six months ended June 30, 2025, funding working capital and monthly extension payments[132] - As of June 30, 2025, $2,000,000 of outstanding Working Capital Loans are classified as Convertible note – related party, and $1,116,100 as Promissory note – related party[134][135] - The Company pays the Sponsor $10,000 monthly for administrative services, with $242,180 remaining unpaid as of June 30, 2025[136][137] NOTE 6 - COMMITMENTS AND CONTINGENCIES The Company has commitments related to registration rights for certain securities and deferred underwriting commissions payable upon completion of a business combination - Holders of Founder Shares, Private Placement Warrants, and shares from Working Capital Loans conversion are entitled to registration rights[138] - A deferred underwriting commission of $1,897,350 is payable to the underwriter upon completion of a business combination[139] NOTE 7 - STOCKHOLDERS' DEFICIT This note details the Company's capital structure, including authorized and outstanding preferred stock, Class A and B common stock, and warrants, with their respective rights and conversion features - As of June 30, 2025, 1,014,517 shares of Class A common stock were outstanding, with 960,307 shares subject to possible redemption[142] - 1,355,250 shares of Class B common stock were issued and outstanding as of June 30, 2025, and December 31, 2024[143] - 5,421,000 Public Warrants and 3,576,900 Private Placement Warrants were outstanding, each exercisable for one Class A common stock at $11.50 per share[145] NOTE 8 - STOCK-BASED COMPENSATION The Company transferred Class B common stock to independent directors as compensation, with vesting contingent upon a business combination Additionally, Representative Shares were issued to the underwriter in connection with the IPO, accounted for as compensation expense - 25,000 shares of Class B common stock were transferred to each of two independent directors, vesting upon business combination consummation[151] - Total unrecognized compensation expense for unvested Founder Shares was approximately $40,500 as of June 30, 2025, and December 31, 2024[153] - 54,210 Representative Shares were issued to the underwriter, with a fair value of $270,520 accounted for as offering costs[154][155] NOTE 9 - INCOME TAXES The Company's effective tax rate varied significantly, primarily due to changes in valuation allowance related to deferred organizational costs and permanent differences from business combination costs and interest/penalties on income taxes Effective Tax Rate (ETR) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | ETR | (285)% | 47.0% | (591)% | 48% | - ETR differences from the U.S. federal statutory rate of 21% were primarily due to changes in valuation allowance for deferred organizational costs and permanent differences from business combination costs and interest/penalties[158][159] NOTE 10 - SEGMENT INFORMATION The Company operates as a single segment, with its Chief Executive Officer reviewing overall operating results, interest earned on Trust Account investments, and operating/formation costs to make resource allocation and performance assessment decisions - The Company, a blank check entity, operates as a single segment, having not commenced any operations[163] - The CODM reviews key metrics such as interest income on Trust Account investments and operating expenses, particularly professional service fees for business combinations[164][165] NOTE 11 - SUBSEQUENT EVENTS The Company did not identify any subsequent events requiring disclosure beyond those already mentioned in the notes - No additional subsequent events requiring disclosure were identified[167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operations, and liquidity, addressing blank check company challenges, the Xiaoyu Dida business combination, and associated risks including going concern issues and tax impacts Overview Four Leaf Acquisition Corporation is a blank check company seeking a business combination, having entered into a merger agreement with Xiaoyu Dida The company completed its IPO in March 2023, raising $54.21 million, with most proceeds held in a Trust Account for a future business combination The company must complete a business combination with an aggregate fair market value of at least 80% of the Trust Account assets - The Company, a blank check entity, was formed on March 3, 2022, to effect a business combination[172] - A Merger Agreement was entered into with Xiaoyu Dida Interconnect International Limited on December 17, 2024[173] - The March 2023 IPO generated $54,210,000 in gross proceeds, with $55,836,300 placed in a Trust Account[175][179] - A business combination must have an aggregate fair market value of at least 80% of the Trust Account assets[180] Extension of Combination Period & Redemptions The Company has repeatedly extended its business combination period through stockholder approvals and Sponsor deposits into the Trust Account These extensions have led to significant redemptions of public shares in both 2024 and 2025, reducing the funds available in the Trust Account - The combination period has been extended multiple times, most recently until September 22, 2025 (or June 22, 2026, with further extensions), requiring monthly $75,000 Sponsor deposits into the Trust Account[188][189][203][208] - Stockholders redeemed 2,752,307 Public Shares for approximately $30.2 million in June 2024[190] - Stockholders redeemed 1,708,386 Public Shares for approximately $19.9 million in June 2025, with payment remitted in August 2025[204] - Failure to complete a business combination by the deadline will result in Company liquidation, redeeming Class A common stock and extinguishing public stockholders' rights[208] Liquidity, Capital Resources and Going Concern The Company has limited cash outside the Trust Account and a significant working capital deficit, raising substantial doubt about its ability to continue as a going concern Its liquidity relies on proceeds from the IPO, private placement, and Working Capital Loans from the Sponsor, which are crucial for covering operational expenses and extension payments - As of June 30, 2025, the Company had $9,804 in cash and a working capital deficit of $4,597,916 (excluding tax liabilities)[211] - The Company's ability to operate for the next 12 months is insufficient without a business combination or additional capital[218] - The Sponsor provided $3,116,100 in outstanding Working Capital Loans as of June 30, 2025, to finance operations and transaction costs[213] - Management identified substantial doubt about the Company's ability to continue as a going concern due to liquidity conditions and potential mandatory liquidation[218] Results of Operations The Company reported a net loss for the three and six months ended June 30, 2025, a decline from net income in the prior year This shift is primarily attributed to a decrease in dividend and interest income from the Trust Account, which was impacted by significant redemptions in 2024, despite a decrease in formation and operating costs Net Income (Loss) and Key Drivers (YoY Comparison) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net income (loss) | $(88,824) | $166,656 | $(255,480) | | Dividend and interest income | $320,723 | $737,335 | $(416,612) | | Formation and operating costs | $343,812 | $424,028 | $(80,216) | | Income tax expense | $65,735 | $146,651 | $(80,916) | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net income (loss) | $(148,054) | $297,258 | $(445,312) | | Dividend and interest income | $637,205 | $1,495,275 | $(858,070) | | Formation and operating costs | $658,628 | $876,445 | $(217,817) | | Income tax expense | $126,631 | $321,572 | $(194,941) | - The decrease in dividend and interest income is primarily due to a reduced Trust Account balance following June 2024 redemptions[223] Commitments and Contractual Obligations The Company has contractual obligations including registration rights for certain securities, deferred underwriting commissions payable upon business combination, and monthly administrative support fees to the Sponsor - Registration rights are granted to holders of Founder Shares, Private Placement Warrants, and shares from Working Capital Loans conversion[224] - A deferred underwriting commission of $1,897,350 is payable upon completion of an initial business combination[225] - The Company pays $10,000 monthly to the Sponsor for administrative services, with $242,180 unpaid as of June 30, 2025[226] Critical Accounting Policies and Estimates Management's preparation of financial statements requires significant estimates, particularly for the excise tax liability related to Class A common stock redemptions The Company classifies common stock subject to redemption as temporary equity and accounts for warrants as equity instruments - Significant estimates include the excise tax liability for Class A common stock redemptions at the 2025 and 2024 Special Meetings[227] - Class A common stock subject to possible redemption is classified as temporary equity and accreted to redemption value[230] - Public Warrants and Private Placement Warrants are accounted for as equity instruments[229] Recently Adopted and Issued Accounting Pronouncements The Company adopted ASU 2023-09 on January 1, 2025, with no material impact, and is currently evaluating ASU 2024-03, which requires additional expense disaggregation disclosures, for its potential future impact - ASU 2023-09 (Income Taxes) was adopted on January 1, 2025, with no material impact[232] - ASU 2024-03 (Expense Disaggregation Disclosures), effective for annual periods beginning after December 15, 2026, is being evaluated for potential impact[233] JOBS Act As an 'emerging growth company' under the JOBS Act, the Company benefits from relaxed reporting requirements, including delayed adoption of new accounting standards and exemptions from certain Sarbanes-Oxley and Dodd-Frank provisions - The Company qualifies as an 'emerging growth company' under the JOBS Act[235] - The Company elected to delay the adoption of new or revised accounting standards, aligning with private company effective dates[235] - Exemptions include non-compliance with auditor attestation requirements of Sarbanes-Oxley Act Section 404 and reduced executive compensation disclosures[236] Inflation Reduction Act of 2022 The Inflation Reduction Act of 2022 introduced a 1% excise tax on stock repurchases, which may apply to the Company's redemptions of Class A common stock The Company has accrued excise tax liabilities for redemptions in 2024 and 2025, noting that Trust Account funds will not be used to pay this tax - The IRA imposes a 1% excise tax on certain stock repurchases by publicly traded U.S. domestic corporations, effective January 1, 2023[237] - Redemptions on June 18, 2024, and June 27, 2025, may be subject to this excise tax[239] - The Company accrued $198,569 and $301,944 for excise tax liability related to the June 27, 2025, and June 18, 2024 redemptions, respectively[242] - Trust Account proceeds and interest will not be used to pay the excise tax[239] Related Party Transactions This section reiterates related party transactions, including the Sponsor's Founder Shares investment, private placement warrants, Working Capital Loans, and administrative support agreement - The Sponsor initially acquired Class B common stock (Founder Shares) and later forfeited some, resulting in 1,355,250 shares held by the Sponsor and directors[243][245] - The Sponsor purchased 3,576,900 Private Placement Warrants for $3,577,000[246] - Working Capital Loans from the Sponsor totaled $921,000 for the six months ended June 30, 2025, with $3,116,100 outstanding as of June 30, 2025[249][252] - The Company pays the Sponsor $10,000 monthly for administrative services, with $242,180 due as of June 30, 2025[253][254] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Four Leaf Acquisition Corporation is not required to provide quantitative and qualitative disclosures about market risk - The Company, as a smaller reporting entity, is not required to provide market risk disclosures[255] Item 4. Controls and Procedures The Company's disclosure controls were ineffective as of June 30, 2025, due to a material weakness in cash disbursement review, specifically the mistaken use of restricted Trust Account funds, with remediation efforts underway - Disclosure controls and procedures were not effective as of June 30, 2025[257] - A material weakness exists in internal controls over financial reporting concerning the review and approval of cash disbursements[257][258] - Approximately $117,610 of restricted Trust Account funds were mistakenly used for general operating expenses[258] - Remediation efforts include implementing additional controls for vendor verification and payment reviews, and opening a separate bank account for restricted funds[259][261] PART II. OTHER INFORMATION This section covers other required information, including legal proceedings, risk factors, unregistered sales of equity, defaults, mine safety disclosures, and a list of exhibits Item 1. Legal Proceedings The Company reported no legal proceedings - No legal proceedings were reported[264] Item 1A. Risk Factors As a smaller reporting company, Four Leaf Acquisition Corporation is not required to provide risk factor disclosures under this item - The Company, as a smaller reporting entity, is not required to provide risk factor information[265] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities The Company reported no unregistered sales of equity securities or use of proceeds from registered securities - No unregistered sales of equity securities or use of proceeds from registered securities were reported[266] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities were reported[267] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[268] Item 5. Other Information The Company reported no other information - No other information was reported[269] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including promissory notes, certifications of principal executive and financial officers, and XBRL interactive data files - Exhibits include Promissory Notes dated August 21, 2025, issued to ALWA Sponsor, LLC[270] - Certifications of Principal Executive Officer and Principal Financial Officer are furnished pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[270] - XBRL Instance Document and Taxonomy Extension Documents are included[270] SIGNATURES The report is duly signed on behalf of Four Leaf Acquisition Corporation by its Chief Executive Officer, Bala Padmakumar, and Chief Financial Officer, Coco Kou, on August 27, 2025 - The report was signed by Bala Padmakumar, Chief Executive Officer, and Coco Kou, Chief Financial Officer, on August 27, 2025[272][273]