References to the "Company," "Kismet Acquisition Three Corp.," "Kismet Three,"
"our," "us" or "we" refer to Kismet Acquisition Three Corp. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited interim condensed
financial statements and the notes thereto contained elsewhere in this 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
This Quarterly Report on Form 10-Q (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"). We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our Annual Report on Form
10-K for the year ended December 31, 2021 (the "2021 Annual Report") and our
other SEC filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on September 15, 2020. We were incorporated for the purpose of acquiring,
engaging in a share exchange, share reconstruction and amalgamation, contractual
control arrangement with, purchasing all or substantially all of the assets of,
or engaging in any other similar initial business combination with one or more
businesses or entities (the "Business Combination"). 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 Kismet Sponsor Limited, a British Virgin Islands company
("Sponsor"). The registration statement for our initial public offering (the
"Initial Public Offering") was declared effective on February 17, 2021. On
February 22, 2021, we consummated our Initial Public Offering of 28,750,000
units (the "Units" and, with respect to the Class A ordinary shares included in
the Units being offered, the "Public Shares"), including 3,750,000 additional
Units to cover the over-allotment option, at $10.00 per Unit, generating gross
proceeds of $287.5 million, and incurring offering costs of approximately $16.2
million, of which approximately $10.1 million was for deferred underwriting
commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 5,166,667 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.50 per Private Placement Warrant with the Sponsor, generating
gross proceeds of approximately $7.8 million, and incurring offering costs of
approximately $7,000.
Upon the closing of the Initial Public Offering and the Private Placement,
$287.5 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of a portion of the proceeds of the Private Placement were
placed in a trust account ("Trust Account") with Continental Stock Transfer &
Trust Company acting as trustee and invested U.S. government treasury
obligations with a maturity of 185 days or less or in money market funds meeting
certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which invest only in direct U.S.
government treasury obligations, as determined by the Company, until the earlier
of (i) the completion of a Business Combination and (ii) the distribution of the
Trust Account as described below.
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 a Business Combination. Our initial
Business Combination must be with one or more operating businesses or assets
with a fair market value equal to at least 80% of the net assets held in the
Trust Account (excluding the deferred underwriting commissions and taxes
payable, if any, on the income accrued on the trust account) at the time the
Company signs a definitive agreement in connection with the initial Business
Combination. However, we will only complete a Business Combination if the
post-transaction company owns or acquires 50% or more of the outstanding voting
securities of the target or otherwise acquires a controlling interest in the
target sufficient for it 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 February 22, 2023 (the
"Combination Period"), 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 earned on the funds held in the Trust Account and
not previously released to us to pay our taxes that were paid by us or are
payable by us, if any (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 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 the case of clauses (ii) and (iii)
to the Company's obligations under Cayman Islands law to provide for claims of
creditors and the requirements of other applicable law.
20
Liquidity and Going Concern
As of March 31, 2022, we had approximately $74,000 in our operating bank account
and working capital deficit of approximately $1.1 million.
Our liquidity needs to date have been satisfied through a contribution of
$25,000 from the Sponsor to cover certain expenses in exchange for the issuance
of Class B ordinary shares, par value $0.001 per share (the "Founder Shares"), a
loan of approximately $126,000 from the Sponsor pursuant to a promissory note
originally issued on September 23, 2020 and amended on January 22, 2021 (the
"Note"), and a portion of the proceeds from the consummation of the Private
Placement not held in the Trust Account. We repaid the Note in full on February
24, 2021. Subsequent to the repayment, the facility was no longer available to
us. In addition, in order to finance transaction costs in connection with a
Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of
our officers and directors may, but are not obligated to, provide us loans in
order to finance transaction costs in connection with a Business Combination
("Working Capital Loans"). As of March 31, 2022 and December 31, 2021, there
were no amounts outstanding under any Working Capital Loans.
We may need to raise additional capital through loans or additional investments
from our Sponsor, our officers or directors or their affiliates. Our Sponsor,
officers, directors or their affiliates, may, but are not obligated to, loan our
Company funds, from time to time or at any time, in whatever amount they deem
reasonable in their sole discretion, to meet our working capital needs.
Accordingly, 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,
reducing overhead expenses, and extending the terms and due dates of certain
accrued expenses and other liabilities. We cannot provide any assurance that new
financing will be available to us on commercially acceptable terms, if at
all. In connection with our assessment of going concern considerations in
accordance with Financial Accounting Standards Board's ("FASB") Accounting
Standards Codification ("ASC") Topic 205-40, "Presentation of Financial
Statements - Going Concern," we have determined that the mandatory liquidation
and subsequent dissolution raises substantial doubt about our 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
February 22, 2023. The 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 ongoing military conflict
between Russia and Ukraine and the COVID-19 pandemic on the Company and has
concluded that while it is reasonably possible that the conflict and the virus
could have a negative effect on our financial position, results of our
operations and/or search for a target company, 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.
Contractual Obligations
Administrative Services Agreement
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, except that, commencing on February 17,
2021, through the earlier of consummation of the initial Business Combination
and the liquidation, we agreed to pay an affiliate of the Sponsor $10,000 per
month for office space, utilities, secretarial support and administrative
services. Fees for such services for the three months ended March 31, 2022 and
2021 were waived.
Results of Operations
Our entire activity since inception up to March 31, 2022, was in preparation for
our formation and the Initial Public Offering, and since the closing of the
Initial Public Offering, the search for business combination candidates. We will
not be generating any operating revenues until the closing and completion of our
initial Business Combination at the earliest.
For the three months ended March 31, 2022, we had a net income of approximately
$4.5 million, which consisted of approximately $26,000 of net gain on the
investments held in trust account and a non-operating gain of approximately $4.6
million of resulting from the change in fair value of derivative assets and
liabilities, partially offset by approximately $165,000 of general and
administrative expenses.
For the three months ended March 31, 2021, we had a net loss of approximately
$472,000, which consisted of approximately $78,000 general and administrative
expenses and approximately $495,000 in offering costs associated with issuance
of warrants, partially offset by approximately $4,000 of net gain on the
investments held in trust account and approximately $96,000 in change in the
fair value of derivative assets and liabilities.
21
Commitments and Contingencies
Registration Rights
The holders of the Founder Shares and Private Placement Warrants (and any Class
A ordinary shares issuable upon the exercise of the Private Placement Warrants
and warrants that may be issued upon conversion of Working Capital Loans) are
entitled to registration rights pursuant to a registration rights agreement
dated February 17, 2021. The holders of these securities are entitled to make up
to three demands, excluding short form demands, that we register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
completion of the initial Business Combination. We will bear the expenses
incurred in connection with the filing of any such registration statements.
Pursuant to the Forward Purchase Agreement (defined below), we agreed to use our
commercially reasonable efforts (i) to file within 30 days after the closing of
the initial Business Combination a registration statement with the SEC for a
secondary offering of the Forward Purchase Shares (as defined below) and the
Forward Purchase Warrants (as defined below) (and underlying Class A ordinary
shares), (ii) to cause such registration statement to be declared effective
promptly thereafter but in no event later than sixty (60) days after the initial
filing, and (iii) to maintain the effectiveness of such registration statement
until the earliest of (A) the date on which the Sponsor or its assignees cease
to hold the securities covered thereby and (B) the date all of the securities
covered thereby can be sold publicly without restriction or limitation under
Rule 144 under the Securities Act. In addition, the Forward Purchase Agreement
provides for "piggy-back" registration rights to the holders of forward purchase
securities to include their securities in other registration statements filed by
us.
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering, we entered
into a forward purchase agreement (the "Forward Purchase Agreement") with the
Sponsor, which provides for the purchase of $20.0 million of units (the "Forward
Purchase Units"), which at the option of the Sponsor can be increased to $50.0
million, with each Forward Purchase Unit consisting of one Class A ordinary
share (the "Forward Purchase Shares") and one-third of one warrant to purchase
one Class A ordinary share at $11.50 per share (the "Forward Purchase
Warrants"), for a purchase price of $10.00 per Forward Purchase Unit, in a
private placement to occur concurrently with the closing of the initial Business
Combination. The purchase under the Forward Purchase Agreement is required to be
made regardless of whether any Class A ordinary shares are redeemed by the
public shareholders. The forward purchase securities will be issued only in
connection with the closing of the initial Business Combination. The proceeds
from the sale of forward purchase securities may be used as part of the
consideration to the sellers in the initial Business Combination, expenses in
connection with the initial Business Combination or for working capital in the
post-transaction company.
Underwriting Agreement
We granted the underwriters a 45-day option from February 17, 2021 to purchase
up to 3,750,000 additional Units at the Initial Public Offering price less the
underwriting discounts and commissions. On February 22, 2021, the underwriters
fully exercised their over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or
approximately $5.8 million in the aggregate, paid upon the closing of the
Initial Public Offering. In addition, $0.35 per Unit, or approximately $10.1
million in the aggregate will be 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.
22
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("GAAP") 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 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 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 three months ended March 31, 2022.
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.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (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 a result, the financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of 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.
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