References in this Quarterly Report on Form 10-Q for the quarter ended September
30, 2022 (the "Quarterly Report") to "we," "us" or the "Company" refer to Kairos
Acquisition Corp. References to our "management" or our "management team" refer
to our officers and directors, references to the "Sponsor" refer to Kairos Alpha
Acquisition LLC. The following discussion and analysis of our 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.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this
Quarterly Report including, without limitation, statements under this "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and the plans
and objectives of management for future operations, are forward- looking
statements. When used in this Quarterly Report, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to us or our management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of our management, as well
as assumptions made by, and information currently available to, our management.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors detailed in our
filings with the SEC. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are qualified in their
entirety by this paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed financial
statements and the notes thereto included in this Quarterly Report under "Item 1
Financial Statements". 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 in the Cayman Islands on August 26,
2020 for the purpose of effecting a merger, share exchange, asset acquisition,
share purchase, reorganization or similar business combination with one or more
businesses.
Our sponsor is Kairos Alpha Acquisition LLC, a Delaware limited liability
company. We are an emerging growth company and, as such, we are subject to all
of the risks associated with emerging growth companies.
Our registration statement for the initial public offering became effective on
January 5, 2021. On January 8, 2021, we consummated our initial public offering
of 24,000,000 units, at $10.00 per unit, generating gross proceeds of $240.0
million, and incurring offering costs of approximately $13.3 million, inclusive
of approximately $8.4 million in deferred underwriting commissions. Our
underwriters exercised the over-allotment option in full and on January 12,
2021, purchased an additional 3,600,000 units (the "Over-Allotment Units"),
generating additional gross proceeds of $36.0 million (the "Over-Allotment"),
and incurring additional offering costs of approximately $2.0 million, inclusive
of approximately $1.3 million of deferred underwriting commissions.
Simultaneously with the closing of our initial public offering, we consummated
the Private Placement of 7,300,000 Private Placement Warrants at a price of
$1.00 per Private Placement Warrant, generating gross proceeds of approximately
$7.3 million. In connection with the consummation of the sale of additional
units pursuant to the underwriters' over-allotment option on January 12, 2021,
we sold an additional 720,000 Private Placement Warrants to our sponsor at $1.00
per Private Placement Warrant generating additional gross proceeds of
approximately $0.7 million received by us on January 8, 2021.
Upon the closing of our initial public offering, the Over-Allotment, and the
Private Placement, $276.0 million ($10.00 per unit) of the net proceeds of our
initial public offering and certain of the proceeds of the Private Placement
were placed in the trust account located in the United States, with Continental
acting as trustee, and will be invested by the trustee only in United States
"government securities" within the meaning of Section 2(a)(16) of the Investment
Company Act having a maturity of 185 days or less or in money market funds
meeting certain conditions under Rule 2a-7 of the Investment Company Act, until
the earlier of (i) the completion of a business combination and (ii) the
distribution of the trust account as described below.
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Our management has broad discretion with respect to the specific application of
the net proceeds of our initial public offering and the sale of private
placement warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating an initial business combination.
There is no assurance that we will be able to complete an initial business
combination successfully. We must complete one or more initial business
combinations having an aggregate fair market value of at least 80% of the net
assets held in the trust account (excluding the amount of deferred underwriting
commissions and taxes payable on the interest earned on the trust account) at
the time of the signing of the agreement to enter into the initial business
combination. However, we will only complete an initial business combination if
the post-combination company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling interest in
the target business sufficient for us not to be required to register as an
investment company under the Investment Company Act.
If we are unable to complete a business combination by January 8, 2023, we will
(i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but not more than ten business days thereafter, redeem
the public shares, at a per-share price, payable in cash, equal to the aggregate
amount then on deposit in the trust account, including interest (which interest
shall be net of taxes payable and up to $100,000 of interest to pay dissolution
expenses), divided by the number of then issued and outstanding public shares,
which redemption will completely extinguish public shareholders' rights as
shareholders (including the right to receive further liquidation distributions,
if any) and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining shareholders and the board of
directors, liquidate and dissolve, subject in each case to our obligations under
Cayman Islands law to provide for claims of creditors and in all cases subject
to the other requirements of applicable law.
Results of Operations
Our entire activity from August 26, 2020 (inception) through January 6, 2021,
was in preparation for an initial public offering, and since the consummation of
our initial public offering on January 6, 2021 through September 30, 2022, our
activity has been limited to the search for a prospective initial business
combination. We will not generate any operating revenues until the closing and
completion of our initial business combination, at the earliest.
For the three months ended September 30, 2022, we had net income of
approximately $1.5 million, which consisted of approximately $1.2 million in
interest income from investments held in trust account, and approximately
$518,000 in change in fair value of Working Capital Loan - related party,
partially offset by approximately $260,000 of general and administrative
expenses inclusive of administrative expenses with related party of $60,000 and
approximately $23,000 of interest expense on the Working Capital Loan - related
party.
For the three months ended September 30, 2021, we had net income of
approximately $3.5 million, which consisted of $4.4 million in change in fair
value of derivative warrant liabilities, and approximately $4,000 in interest
income from investments held in trust account, partially offset by approximately
$865,000 of general and administrative expenses inclusive of administrative
expenses with related party.
For the nine months ended September 30, 2022, we had net income of approximately
$11.2 million, which consisted of approximately $10.0 million in change in fair
value of derivative warrant liabilities, approximately $1.7 million in interest
income from investments held in trust account, and approximately $525,000 in
change in fair value of Working Capital Loan - related party, partially offset
by approximately $965,000 of general and administrative expenses, inclusive of
administrative expenses with related party of $180,000, and approximately
$53,000 of interest expense on the Working Capital Loan - related party.
For the nine months ended September 30, 2021, we had net income of approximately
$6.3 million, which consisted of $8.9 million in change in fair value of
derivative warrant liabilities, and approximately $12,000 in interest income
from investments held in trust account, partially offset by approximately $1.9
million of general and administrative expenses inclusive of administrative
expenses with related party, and approximately $777,000 of financing costs
associated with derivative warrant liabilities.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $98,000 in cash and a working
capital deficit of approximately $284,000.
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Our liquidity needs up to the closing our initial public offering had been
satisfied through the payment of $25,000 from our sponsor to cover for certain
expenses on behalf of us in exchange for the issuance of the Founder Shares, and
a loan of approximately $280,000 pursuant to such note issued to our sponsor. We
fully repaid such note to our sponsor on January 8, 2021. Subsequent to the
closing of our initial public offering and Over-Allotment, the proceeds from the
consummation of the private placement not held in the trust account have been
used to satisfy our liquidity. In addition, in order to fund working capital
deficiencies or finance transaction costs in connection with an initial business
combination, our sponsor could, but is not obligated to, provide us working
capital loans.
On November 16, 2021, we entered into an unsecured promissory note with HS
Chronos in the principal amount up to $1,500,000, the "Working Capital Loan Line
of Credit." Interest accrues on the unpaid principal balance of this Working
Capital Loan Line of Credit at the rate of eleven percent (11%) per annum and is
repayable in full on the earlier of (i) date on which we consummate the initial
business combination or (ii) January 8, 2023. If we do not complete an initial
business combination, the Working Capital Loan Line of Credit shall not be
repaid and all amounts owed under it will be forgiven except to the extent that
we have funds available to it outside of its trust account established in
connection with its initial public offering. Upon the consummation of an initial
business combination, HS Chronos shall have the option, but not the obligation,
to convert the principal balance of the Working Capital Loan Line of Credit, in
whole or in part, to warrants of our Company equal to: the portion of the
principal amount of the Working Capital Loan Line of Credit being converted
divided by $1.00, rounded down to the nearest whole number of warrants. As of
September 30, 2022 and December 31, 2021, there was approximately $963,000 and
$188,000, respectively, of outstanding principal borrowings under the Working
Capital Loan Line of Credit, presented at fair value of approximately $430,000
and $179,000, respectively, with approximately $537,000 and $1.3 million,
respectively, available to be drawn.
In addition, in order to fund working capital deficiencies or finance
transaction costs in connection with an initial business combination, our
sponsor or an affiliate of our sponsor, other Initial Shareholders, or certain
of our officers and directors may, but are not obligated to, loan us funds as
may be required (the "Working Capital Loans"). If we complete an initial
business combination, we would repay the Working Capital Loans out of the
proceeds of the trust account released to us. Otherwise, the Working Capital
Loans would be repaid only out of funds held outside the trust account. In the
event that an initial business combination does not close, we may use a portion
of proceeds held outside the trust account to repay the Working Capital Loans,
but no proceeds held in the trust account would be used to repay the Working
Capital Loans. As of September 30, 2022 and December 31, 2021, there were no
other Working Capital Loans other than the Working Capital Loan Line of Credit
described above.
Based on the foregoing, our management believes that we will have sufficient
working capital and borrowing capacity from the Working Capital Loan Line of
Credit and from our Initial Shareholders or an affiliate of our Initial
Shareholders, or certain of our officers and directors to meet our needs through
an initial business combination. However, in connection with our assessment of
going concern considerations in accordance with the Financial Accounting
Standards Board ("FASB") Accounting Standards Update ("ASU") Topic 2014-15,
"Disclosures of Uncertainties about an Entity's Ability to Continue as a Going
Concern," our management has determined that the mandatory liquidation and
subsequent dissolution 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 should we be required to liquidate after
January 8, 2023. The unaudited condensed financial statements do not include any
adjustment that might be necessary if we are unable to continue as a going
concern.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the unaudited condensed financial statements. The unaudited condensed financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. The impact of this action and related sanctions
on the world economy is not determinable as of the date of this Quarterly
Report. Further, the specific impact of this action on our financial condition,
results of operations, and cash flows is also not determinable as of the date of
this Quarterly Report.
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Other Contractual Obligations
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement Warrants, and securities that
may be issued upon conversion of Working Capital Loans, if any, are entitled to
registration rights pursuant to a registration and shareholder rights agreement.
The holders of these securities are entitled to make up to three demands,
excluding short form demands, that we register such securities. These holders
will be entitled to make up to three demands, excluding short form demands, that
we register such securities. In addition, these holders will have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of our initial business combination. We will bear
the expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final
prospectus to purchase up to 3,600,000 additional units at our initial public
offering price less the underwriting discounts and commissions. On January 12,
2020, the underwriters fully exercised the over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per unit,
excluding 1,980,000 units purchased by HS Chronos, or approximately $5.1 million
in the aggregate, paid upon the closing of our initial public offering. In
addition, $0.35 per unit, or approximately $9.7 million in the aggregate is
payable to the underwriters for deferred underwriting commissions. The deferred
fee will become payable to the underwriters from the amounts held in the trust
account solely in the event that we complete a business combination, subject to
the terms of the underwriting agreement.
Contingent Fee Arrangement
We have entered into fee arrangements with an advisor in connection with our
search for a prospective initial business combination. A portion of the fees in
connection with the services rendered as of September 30, 2022 and December 31,
2021, amounting to approximately $1.8 million and $1.6 million, respectively,
only become due and payable upon the closing of a business combination, which
was not probable and therefore not included as liabilities on the accompanying
balance sheets.
Administrative Support Agreement
We agreed to pay our sponsor a total of $20,000 per month, commencing on the
effective date of our initial public offering, for office space, utilities,
secretarial and administrative support, of which Mr. de St. Paer, our Chief
Financial Officer, will be paid $10,000 per month. Upon completion of the
initial business combination or our liquidation, we will cease paying these
monthly fees. For the three and nine months ended September 30, 2022 and 2021,
we incurred approximately $60,000 and $180,000, respectively, in each period,
for expenses in connection with the Administrative Support Agreement, included
as administrative expenses - related party on the accompanying condensed
statements of operations. As of September 30, 2022 and December 31, 2021, there
were $40,000 payable for such expenses.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. A summary of our significant accounting policies is
included in Note 2 to our unaudited condensed financial statements in Part I,
Item 1 of this Quarterly Report. Certain of our accounting policies are
considered critical, as these policies are the most important to the depiction
of our unaudited condensed financial statements and require significant,
difficult or complex judgments, often employing the use of estimates about the
effects of matters that are inherently uncertain. Such policies are summarized
in the Management's Discussion and Analysis of Financial Condition and Results
of Operations section in our 2021 Annual Report on Form 10-K filed with the SEC
on March 31 2022. There have been no significant changes in the application of
our critical accounting policies during the nine months ended September 30,
2022.
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Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I,
Item 1 of this Quarterly Report for a discussion of recent accounting
pronouncements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing 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 such, our unaudited condensed financial
statements may not be comparable to companies that comply with public company
effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) 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, (iii) 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 (iv) 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.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial business combination.
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