References in this Annual Report to "we," "us" or the "Company" refer to Talon 1
Acquisition Corp. References to our "management" or our "management team" refer
to our officers and directors, and references to the "Sponsor" refer to AVi8
Acquisition LLC. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
our audited financial statements and the notes thereto contained elsewhere in
this Annual Report. Certain information contained in the discussion and analysis
set forth below includes forward-looking statements that involve risks and
uncertainties.
Overview
We are a blank check company incorporated on April 20, 2021 as a Cayman Islands
exempted company. Our business purpose is to effect a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (referred to in this Annual Report as
our initial business combination). We have reviewed, and continue to review, a
number of opportunities to enter into a Business Combination with an operating
business, but we are not able to determine at this time whether we will complete
a Business Combination with any of the target business that we have review or
with any other target business.
The issuance of additional shares in connection with a business combination to
the owners of the target or other investors:
• may significantly dilute the equity interest of investors in our initial
public offering, which dilution would increase if the anti-dilution
provisions in the Class B ordinary shares resulted in the issuance of
Class A ordinary shares on a greater than one-to-one basis upon
conversion of the Class B ordinary shares;
• may subordinate the rights of holders of Class A ordinary shares if
preference shares are issued with rights senior to those afforded our
Class A ordinary shares;
• could cause a change in control if a substantial number of Class A
ordinary shares are issued, which may affect, among other things, our
ability to use our net operating loss carry forwards, if any, and could
result in the resignation or removal of our present officers and
directors;
• may have the effect of delaying or preventing a change of control of us
by diluting the share ownership or voting rights of a person seeking to
obtain control of us; and
• may adversely affect prevailing market prices for our Class A ordinary
shares and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to
bank or other lenders or the owners of a target, it could result in:
• default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt
obligations;
• acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if
the debt is payable on demand;
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• our inability to obtain necessary additional financing if the debt
contains covenants restricting our ability to obtain such financing while
the debt is outstanding;
• our inability to pay dividends on our Class A ordinary shares;
• using a substantial portion of our cash flow to pay principal and
interest on our debt, which will reduce the funds available for dividends
on our Class A ordinary shares if declared, expenses, capital
expenditures, acquisitions and other general corporate purposes;
• limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
• increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
• limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, execution
of our strategy and other purposes and other disadvantages compared to
our competitors who have less debt.
We expect to incur significant costs in the pursuit of our initial business
combination. We cannot assure you that our plans to raise capital or to complete
our initial business combination will be successful.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date.
Our only activities since inception have been organizational activities and
those necessary to prepare for our initial public offering and search for a
target for a possible business combination. We do not expect to generate any
operating revenues until after completion of our initial business combination.
We generate non-operating income in the form of interest income on investments
held in our trust account. Our expenses have increased substantially after the
closing of our initial public offering. We 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 on prospective Business
Combination candidates.
For the year ended December 31, 2022, we had a net income of $11,449,396
consisting of general and administrative costs of $3,826,521 offset by the
change in fair value of derivative warrant liabilities of $11,897,500 and income
earned in marketable securities held in Trust Account of $3,378,417.
For the period from April 20, 2021 (inception) through December 31, 2021, we had
a net loss of $468,403 consisting of formation and operating costs of $675,422,
offering costs allocated to warrant liabilities of $359,830 offset by the change
in fair value of derivative warrant liabilities of $555,100 and income earned in
marketable securities held in Trust Account of $11,749.
Recent Developments
On January 20, 2023, the Company entered into an investment advisory agreement
with Genaesis, LLC ("Genaesis") pursuant to which Genaesis will serve as the
non-exclusive transaction advisor in connection with the potential
identification and introduction of candidates to the Company for a business
acquisition, or financing or equity investment in the Company. If the Company
enters into a letter of intent with a potential target introduced by Genaesis
within 24 months of this agreement, it shall pay Genaesis a 1% "Success fee" of
the capital committed by the Company for the business acquisition.
In the event that the Company consummates a transaction facilitated by Genaesis,
Genaesis is entitled to charge appropriate expenses for its services to the
Company for placing an announcement and/or press release on their behalf.
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On January 27, 2023, at an extraordinary general meeting ("Extraordinary General
Meeting") of the Company's stockholders, the Company's stockholders approved the
amendment to the Company's investment management trust agreement, dated as of
November 3, 2021, by and between the Company and Continental Stock Transfer &
Trust Company, LLC (the "Trust Agreement Amendment"). Pursuant to the Trust
Agreement Amendment, the Company will deposit into the Company's trust account
(the "Trust Account"), for each one-month extension, $330,000.
In connection with the Trust Agreement Amendment, AVi8 Acquisition LLC (the
"Sponsor") has agreed to make available to the Company an aggregate amount of up
to US$4,000,000 pursuant to a promissory note in favor of the Sponsor (the
"Note").
The Sponsor may elect to convert up to $1,500,000 of the outstanding principal
balance of the Note into warrants to purchase shares of Class A ordinary shares
of the Company at a conversion price equal to $1.00 per warrant. The terms of
such warrants issued in connection with such conversion shall be identical to
the warrants issued to the Sponsor in connection with the Company's initial
public offering that closed on November 8, 2021. The Note does not bear
interest. In the event that the Company does not consummate a business
combination, the Note will be repaid only from amounts remaining outside of the
Company's trust account, if any.
The proceeds of the Note will be used by the Company to deposit additional funds
to the trust account in connection with the extension of the amount of time the
Company has available to complete a business combination and to fund the
Company's operations.
At the Extraordinary General Meeting, the shareholders of the Company approved
an amendment (the "Charter Amendment") to the Company's Amended and Restated
Memorandum and Articles of Association to extend the date by which the Company
must consummate an initial business combination up to nine (9) times for an
additional one (1) month each time from February 8, 2023 to November 8, 2023
(which is 24 months from the closing of the Company's initial public offering).
Under Cayman Islands law, the Charter Amendment took effect upon approval by the
shareholders. The Company plans to file the Charter Amendment with the Cayman
Islands General Registry within 15 days of the Extraordinary General Meeting.
At the Extraordinary General Meeting, holders of 24,144,029 ordinary shares,
comprised of 18,394,029 Class A ordinary shares, par value $0.0001 per share
("Class A Ordinary Shares"), and 5,750,000 Class B ordinary shares, par value
$0.0001 per share (together with Class A Ordinary Shares, the "Ordinary
Shares"), were present in person or by proxy, representing approximately 83.98%
of the voting power of the 28,750,000 issued and outstanding ordinary shares of
Talon ("Outstanding Shares") entitled to vote at the Extraordinary General
Meeting as of the close of business on January 9, 2023, which was the record
date for the Extraordinary General Meeting.
In connection with the Extraordinary General Meeting, shareholders properly
elected to redeem an aggregate of 13,317,392 Class A Ordinary Shares at a
redemption price of approximately $10.41 per share (the "Redemption"), for an
aggregate redemption amount of approximately $138,639,176. Following such
redemptions, approximately $100,799,675 will remain in the Talon trust account
(the "Trust Account"), not including the extension payment of $330,000.
At the Extraordinary General Meeting, the Company's shareholders approved the
proposal to amend the Company's Amended and Restated Memorandum and Articles of
Association (the "Extension Amendment") to give the Company the right to extend
the date by which it has to consummate a business combination from February 8,
2023 up to 9 times for an additional one (1) month each time up to November 8,
2023 (i.e., for a period of time ending up to 24 months after the consummation
of its initial public offering).
Liquidity and Capital Resources
On November 8, 2021, we consummated our initial public offering of 20,000,000
units (the "Units" and, with respect to the Class A ordinary shares included in
the Units sold, the "Public Shares"), at $10.00 per Unit, generating gross
proceeds of $200,000,000. Simultaneously with the closing of our initial public
offering, the underwriters fully exercised the over-allotment option, generating
gross proceeds of $30,000,000.
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Simultaneously with the closing of our initial public offering, the Company
consummated the sale of 13,250,000 warrants at a price of $1.00 per Private
Placement Warrant in a private placement to our Sponsor generating gross
proceeds of $13,250,000.
A total of $235,750,000 of the proceeds from our initial public offering, a
portion of the sale of the private placement warrants, the sale of the
over-allotment units and the sale of the over-allotment warrants were placed in
a U.S.-based trust account maintained by Continental Stock Transfer & Trust
Company, acting as trustee.
As of December 31, 2022, we had cash and marketable securities held in the Trust
Account of $239,110,999 consisting of securities held in U.S. government
treasury obligations with a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule2a-7 under the Investment Company Act
which invest only in direct U.S. government treasury.
As of December 31, 2022, we had cash of $92,674 held outside the Trust Account.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination.
The Company has incurred and expects to continue to incur significant costs in
pursuit of its financing and acquisition plans. As of December 31, 2022, the
Company had $239,110,999 cash and investments held in its Trust Account for use
in a potential Business Combination. The Company had until February 8, 2023 to
complete a Business Combination, however, the Company has since extended this
date to November 8, 2023. If a Business Combination is not consummated by this
date, there will be a mandatory liquidation, should a Business Combination not
occur, and potential subsequent dissolution.
As of December 31, 2022, the Company had $92,674 in cash and working capital
deficit of $335,839. The Company has incurred and expects to continue to incur
significant costs in pursuit of its acquisition plans. However, if our estimates
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 our initial Business Combination. In order to fund
working capital deficiencies or finance transaction costs in connection with an
intended initial Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete our initial Business
Combination, we would repay such loaned amounts. In the event that our initial
Business Combination does not close, we may use a portion of the working capital
held outside the Trust Account to repay such loaned amounts but no proceeds from
our Trust Account would be used for such repayment. Up to $1,500,000 of such
loans may be convertible into warrants of the post Business Combination entity
at a price of $1.00 per warrant at the option of the lender. The warrants would
be identical to the private placement warrants. The terms of such loans, if any,
have not been determined and no written agreements exist with respect to such
loans. Prior to the completion of our initial Business Combination, we do not
expect to seek loans from parties other than our Sponsor or an affiliate of our
Sponsor as we do not believe third parties will be willing to loan such funds
and provide a waiver against any and all rights to seek access to funds in our
Trust Account.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. No adjustments have been made to the carrying amounts of
assets or liabilities as a result of this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2022.
Commitments and Contractual Obligations
We do not have any long term debt obligations, capital lease obligations,
operating lease obligations, purchase
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obligations or other long term liabilities, other than an agreement to pay our
Sponsor a monthly fee of $10,000 for office space and administrative support. We
began incurring these fees on November 3, 2021 and will continue to incur these
fees monthly until the earlier of the completion of the initial business
combination or our liquidation. Effective March 31, 2021, we entered into a
termination agreement with our sponsor to terminate the Administrative Support
Agreement (and any accrued obligations pursuant thereto). Since our initial
public offering, we have not made any payments under the Administrative Support
Agreement and have paid for services rendered and expenses advanced by our
sponsor on an as-needed basis.
Critical Accounting Policies
The preparation of 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 financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss)
by the weighted-average number of ordinary shares outstanding during the period.
On December 31, 2022, the Company did not have any dilutive securities and other
contracts that could, potentially, be exercised or converted into ordinary
shares and then share in the earnings of the Company. As a result, diluted
income (loss) per share is the same as basic income (loss) per share for the
period presented.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives in
accordance with ASC 815, Derivatives and Hedging. For derivative financial
instruments that are accounted for as assets or liabilities, the derivative
instrument is initially recorded at its fair value on the grant date and is then
re-valued at each reporting date, with changes in the fair value reported in the
statements of operations. Derivative instruments are classified in the balance
sheet as current or non-current based on whether or not net-cash settlement or
conversion of the instrument could be required within 12 months of the balance
sheet date.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update ("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) ("ASU 2020-06")
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. As a smaller reporting company, ASU 2020-06 is
effective January 1, 2024, for fiscal years beginning after December 15, 2023,
and should be applied on a full or modified retrospective basis, with early
adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06
on January 1, 2022. Adoption of the ASU did not impact the Company's financial
position, results of operations or cash flows.
The Company's management does not believe that any other recently issued, but
not yet effective, accounting standards updates, if currently adopted, would
have a material effect on the Company's audited financial statements.
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