TALON 1 ACQUISITION CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-K)

References in this annual report to “we”, “our” or the “Company” mean Talon 1 Acquisition Corp. References to our “management” or “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 financial condition and results of operations of the Company should be read in conjunction with the unaudited summary financial statements and accompanying notes contained elsewhere in this annual report. Certain information contained in the discussion and analysis presented below includes forward-looking statements that involve risks and uncertainties.

Overview

We are a blank check company incorporated on April 20, 2021 like a Cayman Islands
exempt company. Our business objective is to effect a merger, capital exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more companies (referred to in this annual report as our initial business combination). We have not selected any specific target company, and we, or anyone on our behalf, have entered into substantive discussions, directly or indirectly, with any target company regarding an initial business combination.

Issuance of additional shares in a business combination to target owners 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 or otherwise incur material debt from a bank or other lenders or 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 pursuing our initial business combination. We cannot assure you that our plans to raise capital or 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. 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.

For the period of April 20, 2021 (creation) until December 31, 2021we had a net loss of $468,403which resulted primarily from operating and incorporation costs and bid costs related to warrant liabilities, partially offset by a change in fair value of derivative warrant liabilities.

Cash and capital resources

Until the completion of our initial public offering, our only source of liquidity was capital contributions from related parties of $95,972 and $26,000
from September 20, 2021 and May 3, 2021 respectively.

At November 8, 2021we completed our initial public offering of 20,000,000 units (the “Units” and, with respect to the Class A common shares included in the Sold Units, the “Public Shares”), at $10.00 per unit, generating gross proceeds of $200,000,000. Concurrent with the closing of our initial public offering, the underwriters exercised the over-allotment option in full, generating gross proceeds of $30,000,000.

Simultaneously with the closing of our IPO, the Company completed the sale of 13,250,000 warrants at a price of $1.00 by private placement mandate in a private placement with our limited partner 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 wetrust account managed by Continental Stock Transfer and Trust Companyacting as trustee.

For the period of April 20, 2021 (creation) until December 31, 2021net cash used in operating activities was $1,374,456.

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From December 31, 2021we had marketable securities held in the trust account of $235,757,582 (of which approximately $7,582 interest income) consisting of securities held in we government bonds with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Companies Act which invest only in we government cash.

From December 31, 2021we had money $1,090,391 held outside the trust account. We intend to use funds held outside the trust account primarily to identify and assess target companies, perform commercial due diligence on potential target companies, travel to and from offices, factories or similar locations of potential target companies or their representatives or owners, review material corporate documents and agreements of potential target companies, and structure, negotiate and finalize a business combination.

We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business prior to our initial business
combination. 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.

Off-Balance
Sheet Arrangements

We did not have any
off-balance
sheet arrangements as of December 31, 2021.

Contractual obligations

We have no long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay our limited partner a monthly $10,000
for office space and administrative support. We began to incur these costs on
November 3, 2021 and will continue to incur these fees monthly until the initial business combination or our liquidation is complete.

Critical accounting policies

The preparation of summary financial statements and related disclosures in accordance with generally accepted accounting principles The United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenues and expenses during the reported periods. Actual results could differ materially from these estimates. We have identified the following critical accounting policies:

Net loss per common share

Net loss per common share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. At
December 31, 2021the Company did not hold any dilutive securities and

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other contracts that could eventually be exercised or converted into ordinary shares and then participate in the results of the Company. Therefore, diluted earnings per share is the same as basic earnings 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 Financial Accounting Standards Board ("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. ASU
2020-06
is effective January 1, 2022 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
The Company is currently assessing the impact, if any, that ASU
2020-06
would have on its financial position, results of operations or cash flows.

Management does not believe that other recently issued but not yet effective accounting standards, if currently adopted, would have a material impact on our summary financial statements.

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