Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including
those set forth under “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere
in this Annual Report on Form 10-K.
We are a blank check company incorporated on June
18, 2021, under the laws of the British Virgin Islands for the purpose of acquiring, engaging in a share exchange, share reconstruction
and amalgamation, purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other
similar business combination with one or more businesses. We have not selected any specific business combination target and we have not,
nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We
intend to effectuate our initial business combination using cash from the proceeds of the Initial Public Offering and the private placement
of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination and (pursuant
to backstop agreements we may enter into following the consummation of the Initial Public Offering or otherwise), shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
Liquidity and Capital Resources
As of December 31, 2024, we had cash of $54,548
and investments held in the Trust Account of $70,373,065. Until the consummation of the Initial Public Offering, the only source of liquidity
was an initial purchase of ordinary shares by our Sponsor, monies loaned by the Sponsor under a certain unsecured promissory note and
advances from our Sponsor.
On July 27, 2023, we consummated the Initial Public
Offering of 14,950,000 ordinary units (the “Public Units”), which includes the full exercise by the underwriter of its over-allotment
option in the amount of 1,950,000 Public Units, at $10.00 per Public Unit, generating gross proceeds of $149,500,000. Simultaneously with
the closing of the Initial Public Offering, we consummated the sale of 678,575 units (the “Private Placement Units”) at a
price of $10.00 per Private Placement Unit in a private placement to KVC Sponsor LLC (the “Sponsor”), generating gross proceeds
of $6,785,750.
Following the Initial Public Offering and the
exercise of the over-allotment option, a total of $151,368,750 was placed in the Trust Account. We incurred $6,597,980 in initial public
offering related costs, including $2,990,000 of underwriting fees, $2,990,000 of deferred underwriting fees and $617,980 of initial public
offering costs.
We intend to use substantially all of the net
proceeds of the Initial Public Offering, including the funds held in the Trust Account, to acquire a target business or businesses and
to pay our expenses relating thereto. To the extent that our capital stock is used in whole or in part as consideration to effect our
business combination, the remaining proceeds held in the Trust Account, as well as any other net proceeds not expended, will be used as
working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including
continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development
of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred
prior to the completion of our business combination if the funds available to us outside of the Trust Account were insufficient to cover
such expenses.
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.
If we are unable to consummate the Company’s
Initial Business Combination by March 27, 2025 (unless further extended), the Company will, as promptly as possible but not more than
ten business days thereafter, redeem 100% of the Company’s outstanding public shares for a pro rata portion of the funds held in
the Trust Account, including a pro rata portion of any interest earned on the funds held in the Trust Account and not necessary to pay
taxes, and then seek to liquidate and dissolve. However, the Company may not be able to distribute such amounts as a result of claims
of creditors which may take priority over the claims of the Company’s public shareholders. In the event of dissolution and liquidation,
the Company’s warrants will expire and will be worthless.
Additionally, 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 it on commercially acceptable terms, if at all. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern if a Business Combination is not consummated
by March 27, 2025 (unless further extended). These consolidated financial statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a
going concern.
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Results of Operations
Our entire activity from inception up to July
27, 2023 was in preparation for the Initial Public Offering. Since the Initial Public Offering, our activity has been limited to the evaluation
of business combination candidates, and we will not be generating any operating revenues until the closing and completion of our initial
business combination. We expect to 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. We expect our expenses to increase substantially after this period.
For the year ended December 31, 2024, we had a
net income of $7,409,180, which was comprised of dividend and interest earned on the marketable securities held in Trust Account of $8,869,907
and interest income of $26, offset by operating costs of $1,460,753. The dividend income has increased compared with 2023 mainly due to
the Company has completed the Initial Public Offering, the net proceeds deposited into trust account to earn dividend income in full year.
For the year ended December 31, 2023, we had a
net income of $1,454,758, which was comprised of dividend earned on the marketable securities held in Trust Account of $1,933,397 and
interest income of $37, offset by operating costs of $478,676. The dividend income has increased compared with 2022 mainly due to the
Company has completed the Initial Public Offering, the net proceeds deposited into trust account to earn dividend income during the year.
In addition, the company has unrealized gain in investments held in Trust Account of $1,521,171 which was realized in 2024.
Off-balance Sheet Financing Arrangements
We have no obligations, assets or liabilities
which would be considered off-balance sheet arrangements as of December 31, 2024 or 2023. We do not participate in transactions that create
relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial
assets.
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 our Sponsor a monthly fee of $10,000
for general and administrative services, including office space, utilities and administrative services to the Company. We began incurring
these fees on August 1, 2023 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination
and the Company’s liquidation. Also, we are committed to the below:
Registration Rights
The holders of the Founder Shares, the Private
Placement Units (and their underlying securities) and the units that may be issued upon conversion of the working capital loans (and their
underlying securities) are entitled to registration rights pursuant to a registration rights agreement signed on the effective date of
the Public Offering. The holders of a majority of these securities are entitled to make up to two demands that the Company register such
securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three
months prior to the date on which these ordinary shares are to be released from escrow. The holders of a majority of the Private Placement
Units and warrants issued in payment of working capital loans made to the Company (or underlying securities) can elect to exercise these
registration rights at any time after the Company consummates a Business Combination. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the completion of a Business Combination. The Company
will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company is committed to pay the Deferred Discount
of 2% of the gross offering proceeds of the Initial Public Offering, in the amount of $2,990,000, to the underwriter upon the Company’s
consummation of the Business Combination. The underwriter is not entitled to any interest accrued on the Deferred Discount, and has waived
its right to receive the Deferred Discount if the Company does not close a Business Combination.
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Critical Accounting Policies
The preparation of consolidated financial statements
and related disclosures in conformity with accounting principles generally accepted in the United States of America (“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 consolidated financial statements, and income and expenses during the reporting periods. Actual
results could materially differ from those estimates. The Company has identified the following critical accounting policies:
Warrants
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing
Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The
assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether
the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net
cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This
assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly
period end date while the warrants are outstanding.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.
For warrants that are recorded as a component of equity, they are measured at their fair value at the time of issuance and are not remeasured
at subsequent reporting dates. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants
are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations.
As the warrants issued upon the Initial Public
Offering and private placements meet the criteria for equity classification under ASC 480, therefore, the warrants are classified as equity.
Ordinary Shares Subject To Possible Redemption
The Company accounts for its ordinary shares subject
to possible redemption in accordance with the guidance in ASC Topic 480 “ Distinguishing Liabilities from Equity .” Ordinary
share subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable
ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject
to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.
At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain
redemption rights that are subject to occurrence of uncertain future events and considered to be outside of the Company’s control.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share
in accordance with ASC Topic 260, Earnings per Share. In order to determine the net income (loss) attributable to both the redeemable
shares and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable ordinary
shares and non-redeemable ordinary shares and the undistributed income (loss) is calculated using the total net income (loss) less any
dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding
between the redeemable and non-redeemable ordinary shares. Any remeasurement of the accretion to the redemption value of the ordinary
shares subject to possible redemption was considered to be dividends paid to the public stockholders. Accretion associated with the redeemable
shares of ordinary share is excluded from earnings per share as the redemption value approximates fair value. As of December 31, 2024
and 2023, the Company has not considered the effect of the warrants sold in the Initial Public Offering and private warrants to purchase
an aggregate of 15,628,575 and 15,628,575 shares, respectively, in the calculation of diluted net income (loss) per share, since the exercise
of the warrants is contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive and the Company
did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares
and then share in the earnings of the Company.