References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Kairous Acquisition Corp. Limited. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Kairous Asia Limited. 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 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" 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 Quarterly Report
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
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
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. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's final prospectus for its Initial Public
Offering (as defined below) filed with the U.S. Securities and Exchange
Commission (the "SEC"). 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 on March 24, 2021, as a Cayman
Islands exempted company. We were incorporated for the purpose of effecting a
merger, share exchange, asset acquisition, share purchase, reorganization or
similar business combination with one or more businesses, which we refer to
throughout this Quarterly Report as our "initial business combination". We
intend to effectuate our initial business combination using cash from the
proceeds of our initial public offering (the "Initial Public Offering") and the
private placement of the Private Placement Units (as defined below), the sale of
certain forward purchase securities, our shares (other backstop agreements we
may enter into following the consummation of the Initial Public Offering or
otherwise), securities, debt or a combination of cash, equity and debt.
We held our annual meeting of shareholders on December 2, 2022 (the "2022 Annual
Meeting"). During the 2022 Annual Meeting, shareholders approved, among other
things, (x) the Amended and Restated Memorandum and Articles of Association to
extend the date by which the Company has the right to extend the time to
complete a business combination eight (8) times, as follows: (i) two (2) times
for an additional three (3) months each time from December 16, 2022 to June 16,
2023 for each three-month extension, followed by (ii) six (6) times for an
additional one (1) month each time from June 16, 2023 to December 16, 2023 for
each one-month extension; (y) an amendment to the Company's investment
management trust agreement, dated December 13, 2021, by and between the Company
and Continental Stock Transfer & Trust Company to extend the time to complete a
business combination eight (8) times, as follows: (i) two (2) times for an
additional three (3) months each time from December 16, 2022 to June 16, 2023 by
depositing $360,000 to the trust account for each three-month extension,
followed by (ii) six (6) times for an additional one (1) month each time from
June 16, 2023 to December 16, 2023 by depositing $120,000 to the trust account
for each one-month extension; and (z) elected all of the six nominees for
directors to serve until the next annual meeting of shareholders approved.
On December 14, 2022, we issued an unsecured promissory note, in an amount of
$360,000 to Kairous Asia Limited, the Company's initial public offering sponsor
("Sponsor") in exchange for Sponsor depositing such amount into the Company's
trust account in order to extend the amount of time it has available to complete
a business combination until March 16, 2023. The promissory note may be
converted, at the lender's discretion, into additional private units.
Business Combination Agreement
On December 9, 2022, the Company entered into that certain Agreement and Plan of
Merger (as may be amended, supplemented or otherwise modified from time to time,
the "Merger Agreement"), by and between the Company, KAC Merger Sub 1, a Cayman
Islands exempted company and wholly owned subsidiary of the Company
("Purchaser"), KAC Merger Sub 2, a Cayman Islands exempted company and wholly
owned subsidiary of Purchaser ("Merger Sub"), Wellous Group Limited, a Cayman
Islands exempted company (the "Target"), the shareholders of the Target (each, a
"Shareholder" and collectively, the "Shareholders"), and the principal
beneficial owners of the Target (the "Principal Owners"), pursuant to which (a)
the Company will be merged with and into Purchaser (the "Reincorporation
Merger"), with Purchaser surviving the Reincorporation Merger, and (b) Merger
Sub will be merged with and into the Target (the "Acquisition Merger"), with the
Target surviving the Acquisition Merger as a direct wholly owned subsidiary of
Purchaser (collectively, the "Business Combination"). Following the Business
Combination, Purchaser will be a publicly traded company.
Consideration
Pursuant to the Merger Agreement, Purchaser will issue 26,732,672 ordinary
shares with a deemed price per share US$10.10 for a total value of $270,000,000
("Aggregate Stock Consideration") to the Shareholders, among which, 26,465,345
ordinary shares (the "Closing Payment Shares") will be delivered to the
Shareholders at the closing and 267,327 ordinary shares will be held back by
Purchaser for one year after the closing as security for indemnification
obligation of the representations and warranties of the Company, the
Shareholders and the Principal Owners as set forth in the Merger Agreement (the
"Holdback Shares").
The Earnout
Up to an additional 5,400,000 ordinary shares may be issued to the Shareholders
as contingent post-closing earnout consideration. The earnout milestones are in
three tiers, and are based on Purchaser's performance during the years 2023
through 2027, with specific targets tied to the trading price of Purchaser's
ordinary shares, Purchaser's market capitalization and Purchaser's net profit
after tax.
The Closing
The Company and the Target have agreed that the closing of the Business
Combination (the "Closing") shall occur no later than September 30, 2023 (the
"Outside Date"). The Outside Date may be extended upon the written agreement of
Company and the Target.
Minimum Cash at Closing
The Company has agreed that as of the date of the Closing, the Company will have
minimum cash equal to no less than $5,600,000 ("Minimum Cash"). To the extent
that the Company has less than the Minimum Cash amount as of the Closing, then
the Shareholders and/or the Principal Owners shall make up the difference in
cash. To the extent that the Company has more than the Minimum Cash amount as of
the Closing, then Purchaser shall pay the difference by issuing additional
Purchaser ordinary shares to the Shareholders at a value of $10.10 per share.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the period from March 24, 2021 (inception)
through December 31, 2022 have been organizational activities and those
necessary to prepare for the Initial Public Offering and, after the Initial
Public Offering, identifying a target company for a business combination. We do
not expect to generate any operating revenues until after the completion of our
initial business combination. We will generate non-operating income in the form
of interest income on cash and cash equivalents held after the 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 three months ended December 31, 2022, we had net income of $112,194,
which resulted from operating costs of $413,891 offset by interest income on the
operating account and the investments held in a trust account (the "Trust
Account") in the amount of $526,085.
For or the three months ended December 31, 2021, we had a net loss of $15,214,
which resulted from operating costs of $15,446 partially offset by interest
income on investments held in a trust account (the "Trust Account") in the
amount of $232.
For the six months ended December 31, 2022, we had net income of $271,478 ,
which resulted from operating costs of $610,199 offset by interest income on the
operating account and the investments held in a trust account (the "Trust
Account") in the amount of $881,677.
For the six months ended December 31, 2021, we had a net loss of $20,938, which
resulted from operating costs of $21,170 partially offset by interest income on
investments held in a trust account (the "Trust Account") in the amount of $232.
3
Liquidity and Capital Resources
On December 16, 2021, we consummated an Initial Public Offering of 7,800,000
Units (the "Units") generating gross proceeds to the Company of $78,000,000.
Simultaneously with the closing of the Initial Public Offering, the Company
consummated the private sale (the "Private Placement") of an aggregate of
357,143 Units (the "Private Placement Units") to Kairous Asia Limited (the
"Sponsor") at a purchase price of $10.00 per Private Placement Units, generating
gross proceeds to the Company in the amount of $3,571,430.
For the six months ended December 31, 2022, net cash used in operating
activities was $351,693, which was due to net income of $271,478 and interest
income on investments held in the Trust Account of $881,658, partially offset by
changes in operating assets and liabilities of $258,487.
As of December 31, 2022, we had cash of $131,272 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 an initial business combination.
As of December 31, 2022, the Company had insufficient liquidity to meet its
future obligations. As of December 31, 2022, the Company had working capital
deficit of $475,584 and cash of $131,272. The Company has a history of losses,
an accumulated deficit and has not generated cash from operations to support its
ongoing business plan. The Company has incurred and expects to continue to incur
significant costs in pursuit of its acquisition plans and will not generate any
operating revenues until after the completion of its initial business
combination. In addition, the Company expects to have negative cash flows from
operations as it pursues an initial business combination target.
In connection with the Company's assessment of going concern considerations in
accordance with Accounting Standard Update ("ASU") No. 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern,"
management has determined that its history of losses and insufficient liquidity
raise substantial doubt about the ability to continue as a going concern. In
addition to if the Company is unsuccessful in consummating an initial business
combination within 24 months from the closing of the IPO (less than 12 months
within filing of these condensed financial statements), the Company is required
to cease all operations, redeem the public shares and thereafter liquidate and
dissolve. The condensed financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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, excluding the deferred underwriting commissions, to complete an initial
business combination. To the extent that capital stock or debt is used, in whole
or in part, as consideration to complete an initial 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 growth strategies. If an initial business combination
agreement requires the Company to use a portion of the cash in the Trust Account
to pay the purchase price or requires the Company to have a minimum amount of
cash at closing, the Company will need to reserve a portion of the cash in the
Trust Account to meet such requirements or arrange for third-party financing.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2022.
Contractual Obligations
Registration Rights
The holders of the founder shares, Private Placement Units, shares being issued
to the underwriters of the Initial Public Offering, and units that may be issued
on conversion of Working Capital Loans (and in each case holders of their
component securities, as applicable) will be entitled to registration rights
pursuant to a registration rights agreement to be signed prior to or on the
effective date of Initial Public Offering requiring the Company to register such
securities for resale. The holders of these securities will be entitled to make
up to three demands, excluding short form registration 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
completion of a Business Combination and rights to require the Company to
register for resale such securities pursuant to Rule 415 under the Securities
Act. However, the registration rights agreement provides that the Company will
not be required to effect or permit any registration or cause any registration
statement to become effective until the securities covered thereby are released
from their lock-up restrictions. The Company will bear the expenses incurred in
connection with the filing of any such registration statements.
4
Underwriting Agreement
The Company granted the underwriter a 45-day option to purchase up to 1,125,000
additional Units to cover over-allotments, if any, at the Initial Public
Offering price, less the underwriting discounts and commissions, which the
underwriter partially exercised in full, and the additional Units were issued on
December 16, 2021.
The underwriter was paid a cash underwriting discount of $0.20 per Unit, or
$1,559,900 in the aggregate. In addition, the underwriter is entitled to a
deferred fee of $0.35 per Unit, or $2,730,000 in the aggregate. 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 a business combination,
subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of 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 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:
Ordinary Shares Subject to Possible Redemption
All of the 7,800,000 ordinary shares sold as part of the Units in the Initial
Public Offering contain a redemption feature which allows for the redemption of
such Public Shares in connection with the Company's liquidation, if there is a
shareholder vote or tender offer in connection with a business combination and
in connection with certain amendments to the Company's Amended and Restated
Certificate of Incorporation. In accordance with SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC 480-10-S99,
redemption provisions not solely within the control of the Company require
ordinary shares subject to redemption to be classified outside of permanent
equity. Therefore, all ordinary shares have been classified outside of permanent
equity.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable ordinary shares to equal the redemption
value at the end of each reporting period. Increases or decreases in the
carrying amount of redeemable ordinary shares are affected by charges against
additional paid in capital and accumulated deficit.
Net Income (Loss) Per Ordinary Share
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of ordinary shares outstanding during the period,
excluding ordinary shares subject to forfeiture. As of December 31, 2022 and
2021, 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.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's financial statements.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2022.
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