Khosla Ventures Acquisition Co. - Quarter Report: 2023 June (Form 10-Q)

KHOSLA VENTURES ACQUISITION CO.

Quarterly Report on Form 10-Q

Table of Contents

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Khosla Ventures Acquisition Co. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Khosla Ventures SPAC Sponsor 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 Annual Report on Form 10-K 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 15, 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.

Our sponsor is Khosla Ventures SPAC Sponsor LLC, a Delaware limited liability company. The registration statement for our IPO was declared effective on March 3, 2021. On March 8, 2021, we consummated our IPO of 34,500,000 Public Shares at $10.00 per share, generating gross proceeds of $345,000,000, and incurring offering costs of $19,660,260, inclusive of $12,075,000 in deferred underwriting fees payable.

Simultaneously with the closing of the IPO, we consummated the private placement of 990,000 private placement shares at a price of $10.00 per private placement share to the sponsor, generating proceeds of $9,900,000.

Upon the closing of the IPO and the private placement, the $345,000,000 of net proceeds from the IPO and certain of the proceeds of the private placement were placed in a Trust Account (“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 or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act that invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account.

On February 10, 2023, we entered into a non-binding letter of intent for a potential initial business combination with another company. On June 2, 2023, the Company determined it no longer intends to pursue a potential initial business combination with the counterparty to the letter of intent.

On June 6, 2023, a special meeting of stockholders was held, as a result of which we and Continental Stock Transfer & Trust Company entered into Amendment No. 1 (the IMTA Amendment”) to the Investment Management Trust Agreement, dated as of March 8, 2021 (the “IMTA”). The IMTA Amendment extended the date by which we must complete a business combination to December 8, 2023 from June 8, 2023. We expect to announce additional details regarding the potential initial business combination if and when a definitive agreement is executed. No assurances can be made that we will successfully negotiate and enter into a definitive agreement with respect to the potential initial business combination, or that it will be consummated on the terms or timeframe currently contemplated, or at all. Any transaction is subject to board and equity holder approval of both companies, regulatory approvals and other customary conditions. If we are unable to complete the potential initial business combination by December 8, 2023 (33 months from the closing of the IPO), 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.

On June 12, 2023, stockholders exercised their right to redeem 33,570,544 shares of Class A common stock at a price of approximately $10.237 per share. Accordingly, as of June 30, 2023, 929,456 shares of Class A common stock subject to possible redemption were outstanding.

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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 from January 15, 2021 (inception) through June 30, 2023 were organizational activities and those necessary to prepare for the IPO and the proposed initial Business Combination. We do not expect to generate any operating revenue 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.

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For the three months ended June 30, 2023, we had a loss from operations of $475,210 which consisted of $425,210 of general and administrative expenses and $50,000 in franchise tax expense. Of the $425,210 of general and administrative expenses, $166,804 related to the amortization of Directors’ and Officers’ liability insurance, $229,550 related to legal expenses and $28,825 related to other professional services. We also recorded a $3,271,429 gain on marketable securities (net), dividends and interest, held in the Trust Account, and $698,685 in income tax expense, resulting in net income of $2,097,534.

For the three months ended June 30, 2022, we had a loss from operations of $394,160, which consisted of $344,160 of general and administrative expenses and $50,000 in franchise tax expenses. Of the $344,160 of general and administrative expenses, $180,948 was related to the amortization of Directors’ and Officers’ liability insurance, $10,732 was related to legal expense and $152,480 was related to professional services. We also recorded a $490,019 gain on marketable securities (net), dividends and interest, held in the Trust Account and a $49,393 in income tax expense, resulting in a net income of $46,466.

For the six months ended June 30, 2023, we had a loss from operations of $1,297,393 which consisted of $1,197,393 of general and administrative expenses and $100,000 in franchise tax expenses. Of the $1,197,393 of general and administrative expenses, $330,039 related to the amortization of Directors’ and Officers’ liability insurance, $649,756 related to legal expenses and $217,598 related to other professional services. We also recorded a $7,014,475 gain on marketable securities (net), dividends and interest, held in the Trust Account, and $1,474,225 in income tax expense, resulting in net income of $4,242,857.

For the six months ended June 30, 2022, we had a loss from operations of $815,355, which consisted of $715,355 of general and administrative expenses and $100,000 in franchise tax expense. Of the $715,355 of general and administrative expenses, $359,577 was related to the amortization of Directors’ and Officers’ liability insurance, $32,032 was related to legal expense and $323,746 was related to additional professional services. We also recorded a $150,000 change in fair value of derivative liabilities, $518,177 gain on marketable securities (net), dividends and interest, held in the Trust Account and a $49,393 in income expense, resulting in a net loss of $196,571.

Liquidity and Capital Resources

As of June 30, 2023, the Company had $2,401,709 in its operating bank account, out of which $2,175,249 is classified as restricted cash for estimated income and franchise tax payments. The Company had a working capital deficit of $5,797,911. As of June 30, 2023, $7,014,475 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 $12,075,000 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 Piper Sandler & Co. (representing 10% of the total deferred underwriting fees payable). The waiver is recorded in the Company’s condensed statements of changes in common stock subject to possible redemption and stockholder’s deficit against accumulated deficit.

On March 3, 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”) has agreed to purchase an aggregate of up to 2,500,000 forward-purchase shares for $10.00 per share, or an aggregate maximum amount of $25,000,000, 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.

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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. There have been no significant changes in our critical accounting estimates as compared to the critical accounting estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2022.

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.

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We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Evaluation of disclosure controls and procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that as of June 30, 2023, our disclosure controls and procedures were not effective due to material weaknesses in internal controls over financial reporting related to inaccurate accounting. Management identified errors in its historical financial statements related to the accounting for the Class A common stock, the Class K founder shares, and cash flow statement presentation. Because the Class A common stock issued in the IPO can be redeemed or become redeemable subject to the occurrence of future events considered outside of the Company’s control, the Company should have classified all of these redeemable shares in temporary equity and remeasured these redeemable shares to their redemption value (i.e., $10.00 per share) as of the end of the first reporting period after the date of the Company’s IPO. Management also concluded that it incorrectly accounted for the Class K founder shares as permanent equity versus derivative liabilities. Management also concluded that it incorrectly presented the gain on marketable securities (net), dividends and interest, held in the Trust Account as operating activities in cash flow statement versus investing activities.

To address these material weaknesses, management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting and to provide processes and controls over the internal communications within the Company, financial advisors and independent registered public accounting firm. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. We plan to provide enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Following identification of the material weaknesses and prior to filing this Quarterly Report on Form 10-Q, we completed substantive procedures for the period covered by this report. Based on these procedures, management believes that our financial statements included in this report have been prepared in accordance with U.S. generally accepted accounting principles. Our principal executive officer and principal financial and accounting officer have certified that, based on their knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented in this report.

Changes in internal control over financial reporting

As of June 30, 2023, we are in the process of implementing changes to our internal control over financial reporting to remediate such material weaknesses, as more fully described above. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Other than the changes described above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2023 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION

None.

Factors that could cause our actual results to differ materially from those in this report include the risk factors described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

There were no sales of unregistered securities during the three months ended June 30, 2023.

None.

Not Applicable.

None.

The following exhibits are filed or furnished as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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