Flag Ship Acquisition Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Flag Ship Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Whale Management Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. The Company’s securities filings can be accessed on the EDGAR section of 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. Overview We are a blank check company incorporated in the Cayman Islands on May 14, 2018, formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We intend to effectuate our Business Combination using cash derived from the proceeds of our initial public offering and the sale of the private units, our shares, debt or a combination of cash, shares and debt. We expect to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. We completed our initial public offering (the “IPO”) in June 2024. Upon the closing of the IPO and exercise of the over-allotment option by underwriters as well as the sale of the private placement units, a total of $69,000,000, including $1,725,000 of deferred underwriting commissions and after deducting of the other underwriting commissions and expenses for the IPO, was placed in a U.S.-based trust account (the “Trust Account”) maintained by Wilmington Trust National Association, acting as trustee, and will be invested only in specified U.S. government treasury bills or in specified money market funds. We will provide our public shareholders with the opportunity to redeem all or a portion of their ordinary shares upon the completion of our initial business combination either (i) in connection with a shareholder meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under the law or stock exchange listing requirement. There will be no redemption rights upon the completion of our initial business combination with respect to our rights. The Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to their founder shares, private placement shares and any public shares they may acquire during or after our IPO in connection with the completion of our initial business combination. 21 Extensions of Time Period We originally had until September 20, 2025 to consummate a business combination. However, our Sponsor was allowed to extend the time frame for us to complete a business combination by up to an additional 9 months (for a total period of up to 24 months from our initial public offering) provided that it (or its designee) deposits the required amount of funds into the Trust Account for each monthly extension. Holders of our securities do not have to right to approve or disapprove any such monthly extension. Further, holders of our securities do not have the right to seek or obtain redemption in connection with any such extension. Currently, we have up to 24 months from the closing of the IPO, or June 20, 2026, to complete our initial business combination. In order to extend the time available for Flag Ship to consummate a business combination, the Sponsor or its affiliates or designees were initially required to deposit into the Trust Account $230,000 (approximately $0.033 per public share in either case) on or prior to the date of the applicable deadline for each one month extension, and up to an aggregate of $2,070,000, or $0.30 per public share. On August 26, 2025, we held an Extraordinary General Meeting of shareholders (the “Extraordinary General Meeting”), at which the shareholders approved a proposal to reduce the payment from $0.033 per each outstanding public share (for each monthly extension) to an amount equal to the lesser of (i) $60,000 for all outstanding public shares and (ii) $0.033 for each outstanding public share. The first monthly extension fee was payable by September 20, 2025 and each subsequent monthly extension fee must be deposited into the trust account by the 20th of each succeeding month until June 20, 2026. Extension payments of $60,000 for each monthly extension have been deposited into the Trust Account covering extensions through June 20, 2026. In connection with the vote to approve the reduction of the Monthly Extension Fee, holders of 3,837,483 ordinary shares of the Company properly exercised their right to redeem their shares for cash for an aggregate redemption amount of approximately $40,447,071. If we are unable to consummate our initial business combination within the prescribed time frame, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the Trust Account and as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, the rights will be worthless. In connection with the pending expiration of the current deadline to consummate an initial business combination, the Company anticipates holding an extraordinary general meeting on June 11, 2026 to seek shareholder approval of a proposal to extend the deadline to consummate a business combination for up to twelve (12) additional one-month periods, from June 20, 2026 to June 20, 2027. Prior GFT Business Combination Agreement and Proposed Bluechip Transaction On April 18, 2025, we entered into an Agreement and Plan of Merger (the “GFT Merger Agreement”) with Great Future Technology Inc., a Cayman Islands exempted company limited by shares (“GFT”) and GFT Merger Sub Limited, a Cayman Islands exempted company limited by shares and a wholly-owned subsidiary of GFT (“Merger Sub”). The GFT Merger Agreement contemplated, among other things, the Company merging with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of GFT. On December 11, 2025, the parties entered into the First Amendment to the GFT Merger Agreement to extend the Outside Date from December 31, 2025 to June 20, 2026. On May 3, 2026, the Company and GFT mutually terminated the GFT Merger Agreement. No termination fee was payable by either party. On May 8, 2026, the Company entered into a letter of intent with Bluechip & Co. Holdings, a Cayman Islands exempt company, in connection with a proposed business combination transaction (the “Proposed Transaction”). The Letter of Intent provides for an exclusive negotiation period, during which the Company is conducting due diligence on Bluechip and the parties are negotiating the terms of a definitive agreement. The parties have agreed to a ninety (90) day period of mutual exclusivity, which may be extended under certain conditions specified in the Letter of Intent. The Letter of Intent includes binding provisions regarding exclusivity and other related transaction provisions governing the parties’ negotiations. The Proposed Transaction remains subject to the completion of due diligence, the negotiation and execution of definitive agreements, satisfaction of customary closing conditions, and approval by the boards and shareholders of the parties. There can be no assurance that the parties will enter into a definitive agreement or that the Proposed Transaction will be consummated. 22 Results of Operations Our entire activity since inception up to March 31, 2026 related to our formation, the preparation for the initial public offering, and since the closing of the initial public offering, the search for a prospective target for our initial business combination and activities in support of consummating our initial business combination, including negotiating and pursuing a business combination with GRT and subsequently GFT, each of which was terminated. The Company is currently engaged in exclusive negotiations with Bluechip & Co. Holdings pursuant to a Letter of Intent relating to a potential business combination and is conducting due diligence in connection therewith. We will not generate any operating revenues until the closing and completion of our initial business combination, at the earliest. We will generate non-operating income in the form of interest and dividend income from the amount held in the Trust Account. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, our initial business combination. For the three months ended March 31, 2026, we had net income of $159,828, which consisted of interest and dividends earned on cash and investments held in the Trust Account of $290,462, partially offset by formation, general and administrative expenses of $130,634. For the three months ended March 31, 2025, we had net income of $577,698, which consisted of interest and dividends earned on cash and investments held in the Trust Account of $739,769, partially offset by formation, general and administrative expenses of $162,071. Liquidity, Capital Resources and Going Concern On June 20, 2024, we consummated the IPO of 6,900,000 Units, generating gross proceeds of $69,000,000. Simultaneously with the closing of the initial public offering, we consummated the sale of 238,000 private units (the “Private Units”) to the Sponsor at a price of $10.00 per Private Unit generating gross proceeds of $2,380,000. Following the IPO and the sale of the Private Units, a total of $69,000,000 was placed in the Trust Account. We incurred $3,448,233 in transaction costs, including $1,380,000 of underwriting fees, $1,725,000 of deferred underwriting fees and $343,233 of other offering costs. For the three months ended March 31, 2026, net cash used in operating activities was $34,740. Net income of $159,828 was mainly impacted by interest and dividends earned on cash and investments held in the trust account of $290,462. As of March 31, 2026, we had cash and investments held in the Trust Account of $33,430,500. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest and dividends earned on the Trust Account, excluding deferred underwriting commissions, to complete our Business Combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete a Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. As of March 31, 2026, we had cash of $1,811 held outside of the Trust Account and a working capital deficit of $1,629,435. We intend to use the funds loaned to us under the 2024 Note (defined below) and the funds held outside the Trust Account primarily to pursue the proposed business combination with Bluechip & Co. Holdings pursuant to the Letter of Intent entered into on May 8, 2026, and if necessary, to identify and evaluate alternative 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. In order to fund working capital deficiencies or finance transaction costs in connection with a 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. Such working capital loans would be evidenced by promissory notes. If we complete a Business Combination, we may repay such notes out of the proceeds of the Trust Account released to us. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such notes, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of notes may be convertible into units, at a price of $10.00 per unit, at the option of the lender. The units would be identical to the Private Units. 23 On August 30, 2024, we issued an unsecured promissory note (the “2024 Note”) in the principal amount of up to $1,000,000 to our Sponsor pursuant to which we may borrow additional funds. The 2024 Note bears no interest and was initially due on the earlier of: (i) December 31, 2025 or (ii) the date on which we consummate our initial business combination. The principal balance may be prepaid at any time. Once an amount is drawn down under the 2024 Note, it shall not be available for future drawdown requests even if prepaid. The 2024 Note is subject to customary events of default, the occurrence of certain of which entitles the Sponsor to declare, by written notice to us, the unpaid principal balance of the 2024 Note and all other sums payable with regard to the 2024 Note becoming immediately due and payable. On August 21, 2025, we and our Sponsor agreed to amend and restate the 2024 Note to solely raise the principal balance from $1,000,000 to $1,200,000. On January 28, 2026, we and our Sponsor agreed to further amend and restate the 2024 Note (the “Amended 2024 Note”) to raise the principal balance from $1,200,000 to $2,000,000 and extend the maturity date to the earlier of (i) December 31, 2026 or (ii) the date on which we consummate our initial business combination. Other than the foregoing terms, the Amended 2024 Note has the same terms as the Amended 2024 Note. As of March 31, 2026, there was $1,540,219 outstanding under the Amended 2024 Note. In order to extend the time available for the Company to consummate a Business Combination, the initial shareholders or their affiliates or designees were initially required to deposit into the Trust Account $230,000 (approximately $0.033 per public share in either case) on or prior to the date of the applicable deadline for each one month extension, and up to an aggregate of $2,070,000, or $0.30 per public share. On August 26, 2025, through the Extraordinary General Meeting, the shareholders approved the proposal to reduce the extension payment from $0.033 per each outstanding public share (for each monthly extension) to an amount equal to the lesser of (i) $60,000 for all outstanding public shares and (ii) $0.033 for each outstanding public share. Any such payments would be made in the form of a loan. As of March 31, 2026 and December 31, 2025, the extension loan balance was $300,000 and $240,000, respectively; such amounts are included in “Promissory Notes – Related Party” presented on the balance sheets included in the financial statements filed with this Quarterly Report on Form 10-Q. We have incurred and expect to continue to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of the consummation of a business combination. In order to complete a Business Combination, we will need to raise additional capital through loans or additional investments from our Sponsor, shareholders, officers, directors, or third parties. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. 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. These conditions raise substantial doubt about our ability to continue as a going concern one year from the issuance date of the unaudited financial statements. The unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty. In connection with our assessment of going concern considerations in accordance with FASB ASC Topic 205-40, “Presentation of Financial Statements—Going Concern,” management has determined that mandatory liquidation, should a business combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern for a reasonable period of time, which is considered to be one year from the issuance date of the unaudited financial statements. The current business combination deadline is June 20, 2026. The Company is seeking shareholder approval at the June 11, 2026 Extraordinary General Meeting to extend the deadline by up to twelve additional monthly periods. There can be no assurance that shareholders will approve such extension. Our management plans to address this uncertainty through the initial business combination as discussed above. There is no assurance that our plans to consummate the initial business combination will be successful or successful by the deadline of completing an initial business combination as described above. The unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty. Contractual Obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for certain general and administrative services, including office space, utilities and administrative services, provided to the Company. We began incurring these fees on June 20, 2024, and will continue to incur these fees monthly until the earlier of the completion of a Business Combination or the Company’s liquidation. 24 Registration Rights Pursuant to a registration rights agreement entered into on June 17, 2024, the holders of the insider shares, private placement units (including securities contained therein), and units (including securities contained therein) that may be issued on conversion of working capital loans or extension loans (and) are entitled to registration rights pursuant to a registration rights agreement signed on the effective date of our initial public offering requiring us to register such securities for resale. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. We will bear the expenses incurred in connection with the filing of any such registration statements. Underwriting Agreement The underwriters are entitled to a deferred underwriting fee of 2.5% of the gross proceeds of the IPO, or $1,725,000, which will be paid upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement. Administrative Services Agreement We entered into an agreement with our sponsor, pursuant to which we agreed to pay our sponsor a total of $10,000 per month for secretarial and administrative support services provided to us through the earlier of consummation of the initial business combination and our liquidation. In addition, our sponsor, officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf. 2024 Note On August 30, 2024, the Company issued the 2024 Note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $1,000,000. The 2024 Note bears no interest and was repayable in full upon the earlier of consummation of the initial business combination of the Company or December 31, 2025. The issuance of the 2024 Note was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amended 2024 Note On August 21, 2025, the Company and Sponsor agreed to amend and restate the August 2024 Promissory Note to raise the principal balance from $1,000,000 to $1,200,000 (the “Amended Note”). Other than the increased principal amount, the Amended Note has the same terms as the 2024 Note. Second Amended 2024 Note On January 28, 2026, the Company and Sponsor agreed to further amend and restate the August 2024 Promissory Note (the “Second Amended 2024 Note”) to raise the principal balance from $1,200,000 to $2,000,000. The Second Amended 2024 Note bears no interest and is repayable in full upon the earlier of (i) December 31, 2026 or (ii) the consummation of the initial business combination of the Company. Other than the increased principal amount and extended maturity date, the Second Amended 2024 Note has the same terms as the Amended 2024 Note. The issuance of the Second Amended 2024 Note was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. 25 Extension Payments Pursuant to the terms of our Amended and Restated Memorandum and Articles of Association and the trust agreement entered into between us and Wilmington Trust, National Association and Vstock Transfer LLC in connection with our IPO, in order for the time available for us to consummate our initial business combination to be extended, our sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, we were initially required to deposit into the trust account $230,000 ($0.033 per public share) on or prior to the date of the applicable deadline. On August 26, 2025, the Company held an extraordinary general meeting of shareholders (the “Extraordinary General Meeting”) and obtained approval by ordinary resolution, the reduction of the monthly fee payable by the Company’s sponsor and/or its designee into the trust account to extend the date by which the Company must consummate its initial business combination from $0.033 per each outstanding public share (for each monthly extension) to an amount equal to the lesser of (i) $60,000 for all outstanding public shares and (ii) $0.033 for each outstanding public share. The first monthly extension fee must be made by September 20, 2025 while each subsequent monthly extension fee must be deposited into the trust account by the 20th of each succeeding month until June 20, 2026. The Sponsor has deposited $60,000 monthly into the Trust Account for each extension since September 2025. As of the filing date of this Quarterly Report, extension payments have been made to extend the current deadline through June 20, 2026. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP 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 the reported amounts of income and expenses during the periods reported. Actual results could materially differ from those estimates. A critical accounting estimate to our unaudited financial statements includes the valuation of ordinary shares subject to possible redemption. We have not identified any critical accounting estimates. Recent Accounting Pronouncements Our management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited financial statements. Off-Balance Sheet Arrangements As of March 31, 2026, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. JOBS Act We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected 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 financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. As an “emerging growth company”, we are not required to, among other things, (1) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (2) 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, (3) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (4) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier. 26