References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Khosla Ventures Acquisition Co. III. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Khosla Ventures SPAC Sponsor III LLC. 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 of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (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 "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 ("IPO") 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 formed under the laws of the State of Delaware on
January 29, 2021, for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our initial
Business Combination using cash from the proceeds of the IPO and the sale of the
private placement shares and forward-purchase shares, our capital stock, debt or
a combination of cash, stock and debt. We are an emerging growth company and, as
such, we are subject to all of the risks associated with emerging growth
companies.
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Our sponsor is Khosla Ventures SPAC Sponsor III LLC, a Delaware limited
liability company. The registration statement for our IPO was declared effective
on March 23, 2021. On March 26, 2021, we consummated our IPO of 56,330,222
Public Shares at $10.00 per share, generating gross proceeds of $563,302,226,
and incurring offering costs of $31,705,310, inclusive of $19,715,578 in
deferred underwriting fees payable.
Simultaneously with the closing of the IPO, we consummated the private placement
of 1,426,605 private placement shares at a price of $10.00 per private placement
share to the sponsor, generating proceeds of $14,266,050.
Upon the closing of the IPO and the private placement, the $563,302,226 of net
proceeds from the IPO and certain of the proceeds of the private placement were
placed in a trust account located in the United States with Continental Stock
Transfer & Trust Company acting as trustee and invested only in United States
"government securities" within the meaning of Section 2(a)(16) of the Investment
Company Act having a maturity of 180 days or less, classified as trading
securities. Trading securities are presented on the balance sheet at fair value
at the end of each reporting period. Gains and losses resulting from the change
in fair value of these securities is included in gain on marketable securities,
dividends and interest held in the trust account in the accompanying statements
of operations. The fair value for trading securities is determined using quoted
market prices in active markets.
If we are unable to complete a Business Combination by March 26, 2023 (24 months
from the closing of the IPO), or June 26, 2023 (27 months from the closing of
the IPO), if we have executed a letter of intent, agreement in principle or
definitive agreement for an initial Business Combination by March 26, 2023, and
our stockholders have not amended the certificate of incorporation to extend
such period, we will (i) cease all operations except for the purpose of winding
up; (ii) as promptly as reasonably possible but no more than ten business days
thereafter subject to lawfully available funds therefor, 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 earned on the funds
held in the Trust Account and not previously released to us to pay our taxes as
well as expenses relating to the administration of the Trust Account (less up to
$100,000 of interest to pay dissolution expenses) divided by the number of the
then outstanding public shares, which redemption will completely extinguish
public stockholders' rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law; and
(iii) as promptly as reasonably possible following such redemption, subject to
the approval of the remaining stockholders and the board of directors, liquidate
and dissolve, subject in each case to our obligations under Delaware law to
provide for claims of creditors and the requirements of other applicable law.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations (other than searching for a Business
Combination after our IPO) nor generated any revenues to date. Our only
activities through September 30, 2022 were organizational activities and those
necessary to prepare for the IPO. We do not expect to generate any operating
revenues until after the completion of our Business Combination. We expect to
generate non-operating income in the form of interest income on marketable
securities held after the IPO. 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 September 30, 2022, we had a loss from operations of
$378,616, which consisted of $328,616 of general and administrative expenses,
and $50,000 in franchise tax expenses. Of the $328,616 of general and
administrative expenses, $212,642 was related to the amortization of Directors'
and Officers' liability insurance, $39,230 was related to legal expense and
$76,744 was related to professional services. We also incurred a gain on
marketable securities of $2,547,203 and $524,412 of income tax expense,
resulting in net income of $1,644,175 for the three months ended September 30,
2022.
For the three months ended September 30, 2021, we had a loss from operations of
$402,100, which consisted of $352,100 of general and administrative expenses,
and $50,000 in franchise tax expenses. Of the $352,100 of general and
administrative expenses, $212,642 was related to the amortization of Directors'
and Officers' liability insurance, and $8,434 was related to legal expense and
$131,024 was related to professional services. We also incurred a change in fair
value of derivative liabilities of $9,900,000 and a gain on marketable
securities of $8,654, resulting in net income of $9,506,554 for the three months
ended September 30, 2021.
For the nine months ended September 30, 2022, we had a loss from operations of
$1,414,925, which consisted of $1,280,217 in general and administrative
expenses, and $134,708 in franchise tax expenses. Of the $1,280,217 of general
and administrative expenses, $630,993 was related to the amortization of
Directors' and Officers' liability insurance, $238,525 was related to legal
expense and $410,699 was related to professional services. We also incurred a
$6,250,000 change in fair value of derivative liabilities, a $3,393,261 gain on
marketable securities, and $648,154 of income tax expense, resulting in net
income of $7,580,182 for the nine months ended September 30, 2022.
For the period from January 29, 2021 (inception) through September 30, 2021, we
had a loss from operations of $843,108, which consisted of $25,000 in formation
costs, $668,108 in general and administrative expenses, and $150,000 in
franchise tax expenses. Of the $668,108 of general and administrative expenses,
$422,973 was related to the amortization of Directors' and Officers' liability
insurance, $8,434 was related to legal expense and $236,701 was related to
professional services. We also incurred $47,887,500 in financing expenses on
derivative classified instruments, offset by a $36,600,000 change in fair value
of derivative liabilities, and a $17,214 gain on marketable securities,
resulting in a net loss of $12,113,394 for the period from January 29, 2021
(inception) through September 30, 2021.
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Liquidity and Capital Resources
As of September 30, 2022, the Company had $0 in its operating bank account,
$566,723,383 in securities held in the Trust Account to be used for a Business
Combination or to repurchase or redeem its common stock in connection therewith
and working capital deficit of $1,045,143. As of September 30, 2022, $3,421,157
of the amount on deposit in the Trust Account represented interest income, which
is available for payment of franchise taxes and expenses in connection with the
liquidation of the Trust Account. In addition, the Working Capital Loan and
advances from related parties are available to the Company to fund operations.
If the Company is unable to raise additional capital, it may be required to take
additional measures to conserve liquidity, which could include, but not
necessarily be limited to, suspending the pursuit of a Business Combination. The
Company cannot provide any assurance that new financing will be available to it
on commercially acceptable terms, if at all.
As a result of the above, in connection with the Company's assessment of going
concern considerations in accordance with Accounting Standards Update ("ASU")
2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as
a Going Concern," management has determined that the liquidity conditions raise
substantial doubt about the Company's ability to continue as a going concern
through approximately one year from the date of filing. These 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.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
The underwriters are entitled to a deferred fee of $0.35 per public share, or
$19,715,578 in the aggregate. The deferred fee will be waived by the
underwriters in the event that the Company does not complete a Business
Combination, subject to the terms of the underwriting agreement.
On September 21, 2022, the Company received an executed deferred underwriting
fees waiver letter from Goldman Sachs & Co. LLC, informing the Company of its
decision to waive any entitlement it may have to its deferred underwriting fees
payable held in the Trust Account in respect of any Business Combination. The
waiver does not cover deferred underwriting fees payable to Citigroup Global
Markets Inc. (representing 50% of the total deferred underwriting fees payable).
The waiver is recorded in the Company's condensed statements of change in common
stock subject to possible redemption and stockholder's deficit against
accumulated deficit.
On March 23, 2021, we entered into a forward-purchase agreement pursuant to
which the sponsor (together with any permitted transferees under the
forward-purchase agreement, the "Khosla Entities") have agreed to purchase an
aggregate of up to 1,000,000 forward-purchase shares for $10.00 per share, or an
aggregate maximum amount of $10,000,000, in a private placement that will close
simultaneously with the closing of the initial Business Combination. The Khosla
Entities will purchase a number of forward-purchase shares that will result in
gross proceeds to us necessary to enable us to consummate our initial Business
Combination and pay related fees and expenses, after first applying amounts
available to us from the Trust Account (after paying the underwriting fees
payable and giving effect to any redemptions of Public Shares) and any other
financing source obtained by us for such purpose at or prior to the consummation
of our initial Business Combination, plus any additional amounts mutually agreed
by us and the Khosla Entities to be retained by the post-Business Combination
company for working capital or other purposes. The Khosla Entities' obligation
to purchase forward-purchase shares will, among other things, be conditioned on
the Business Combination (including the target assets or business, and the terms
of the Business Combination) being reasonably acceptable to the Khosla Entities
and on a requirement that such initial Business Combination is approved by a
unanimous vote of our board of directors. In determining whether a target is
reasonably acceptable to the Khosla Entities, we expect that the Khosla Entities
would consider many of the same criteria as we will consider but will also
consider whether the investment is an appropriate investment for the Khosla
Entities.
Critical Accounting Estimates
The preparation of 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 not identified any critical accounting estimates other than
the following.
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Class K Founder Shares Derivative Liabilities
Please refer to additional information in filed 10- K for the fiscal year ended
December 31, 2021 within Financial Statements Note 4 and Note 7.
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 our
financial statements. See Note 2 in the footnotes to the financial statements.
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