UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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As of November 17, 2023, there were
Kingswood Acquisition Corp.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2023
Table of Contents
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KINGSWOOD ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, 2023 |
| December 31, 2022 | |||
| (unaudited) |
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Assets | ||||||
Cash | $ | | $ | | ||
Prepaid taxes |
| |
| | ||
Total current assets | | | ||||
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Trust Account | | | ||||
Total Assets | $ | | $ | | ||
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT |
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| ||||
Accounts payable and accrued expenses | $ | | $ | | ||
Convertible promissory note | | | ||||
Taxes payable | | — | ||||
Deferred tax liability | — | | ||||
Excise tax payable | | — | ||||
Total current liabilities | | | ||||
Deferred underwriters’ compensation | | | ||||
Warrant liability |
| |
| | ||
Total liabilities | | |||||
Commitments and Contingencies (Note 6) |
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Class A Common Stock subject to possible redemption, | | | ||||
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Stockholders’ Deficit: |
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|
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Preferred stock, $ |
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Class A common stock, $ |
| |
| | ||
Class B common stock, $ |
| |
| | ||
Additional paid-in capital |
| — |
| — | ||
Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ deficit |
| ( |
| ( | ||
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | | $ | |
The accompanying notes are an integral part of the condensed unaudited financial statements.
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KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Operating costs | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
Other income, net: | ||||||||||||
Interest income | | | | | ||||||||
Change in fair value of convertible promissory note | ( | | ( | | ||||||||
Change in fair value of warrant liabilities | | | | | ||||||||
Total other income, net | | | | | ||||||||
(Loss) Income before provision for income taxes | ( | | ( | | ||||||||
Provision for income taxes | ( | ( | ( | ( | ||||||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | | ||||
Basic and diluted weighted average shares outstanding, Class A common stock, subject to possible redemption | |
| | |
| | ||||||
Basic and diluted net (loss) income per share | $ | ( | $ | | $ | ( | $ | | ||||
Basic and diluted weighted average shares outstanding, Class A and Class B common stock not subject to redemption | | | | | ||||||||
Basic and diluted net (loss) income per share | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of the condensed unaudited financial statements.
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KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
Class A Common Stock | Class B Common Stock | Additional | Accumulated | Stockholders’ |
| |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit |
| ||||||
Balance- January 1, 2023 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Remeasurement of Class A common stock subject to possible redemption |
| — |
| — | — | — |
| — |
| ( |
| ( | ||||||||
Net loss |
| — |
| — | — | — |
| — |
| ( |
| ( | ||||||||
Balance as of March 31, 2023 | | $ | | | $ | | $ | — | $ | ( | $ | ( | ||||||||
Excise tax payable | — | — | — | — | — | ( | ( | |||||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||||
Balance as of June 30, 2023 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Conversion of Class B shares to Class A | | | ( | ( | — | — | — | |||||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||||
Balance as of September 30, 2023 | | $ | | | $ | | $ | — | $ | ( | $ | ( |
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
Class A Common Stock | Class B Common Stock | Additional | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit | ||||||
Balance- January 1, 2022 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( | ||||||
Remeasurement of Class A common stock subject to possible redemption |
| — | — | — | — |
| — | ( | ( | ||||||||||
Net income |
| — | — | — | — |
| — | | | ||||||||||
Balance as of March 31, 2022 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Remeasurement of Class A common stock subject to possible redemption | — | — | — | — | — | ( | ( | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2022 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Remeasurement of Class A common stock subject to possible redemption | — | — | — | — | — | ( | ( | ||||||||||||
Net income | — | — | — | — | — | | | ||||||||||||
Balance as of September 30, 2022 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of the condensed unaudited financial statements.
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KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022 | ||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | ( | $ | | |||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |||||||
Interest earned on Trust Account | ( | ( | |||||
Change in fair value of convertible note | | ( | |||||
Change in fair value of warrant liabilities | ( | ( | |||||
Changes in working capital: | |||||||
Deferred tax liability | ( | — | |||||
Prepaid taxes | | — | |||||
Prepaid expenses | — | | |||||
Taxes payable | — | ( | |||||
Accounts payable and accrued expenses | | | |||||
Net cash used in operating activities | ( | ( | |||||
Cash flows from investing activities: | |||||||
Cash withdrawn from Trust Account in connection with redemption | | | |||||
Investment in Trust – for extension from Wentworth | ( | — | |||||
Investment in Trust – for extension from Sponsor | ( | ( | |||||
Net cash (used in) provided by investing activities | ( | | |||||
Cash flows from financing activities: | |||||||
Redemption of Class A common stock subject to possible redemption | ( | ( | |||||
Proceeds from convertible promissory note | — | | |||||
Trust Funding – for extension from Wentworth | | — | |||||
Net cash provided by (used in) financing activities | | ( | |||||
Net change in cash | ( | ( | |||||
Cash, beginning of the period | | | |||||
Cash, end of period | $ | | $ | | |||
Supplemental disclosure of cash flow information: | |||||||
Non-cash investing and financing transactions: | |||||||
Accretion of Class A common stock subject to possible redemption | $ | | $ | | |||
Excise tax payable | $ | | $ | — | |||
Conversion of Class B shares to Class A | $ | | $ | — |
The accompanying notes are an integral part of the condensed unaudited financial statements.
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KINGSWOOD ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(Unaudited)
Note 1 — Organization and Business Operations
Kingswood Acquisition Corp. (formerly Kingswood Global Holdings Inc.) (the “Company”) is a blank check company incorporated as a Delaware corporation on July 27, 2020. The Company was formed for the purpose of acquiring, merging with, engaging in capital stock exchange with, purchasing all or substantially all of the assets of, engaging in contractual arrangements, or engaging in any other similar business combination with a single operating entity, or one or more related or unrelated operating entities operating in any sector.
The Company’s sponsor is Kingswood Global Sponsor LLC (“Sponsor”), a Delaware limited liability company.
As of September 30, 2023, the Company had not commenced any operations. All activity for the period from July 27, 2020 (inception) through September 30, 2023, relates to the Company’s formation and initial public offering (“Public Offering” or “IPO”), and, since the completion of the Public Offering, searching for a target to consummate a business combination. The Company will not generate any operating revenues until after the completion of a business combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Public Offering and placed in the Trust Account (defined below) and recognizes changes in the fair value of warrant liabilities and Initial Convertible Promissory Note (as defined below) as other income (expense). The Company has selected December 31 as its fiscal year end.
Public Offering
The Company completed the sale of
In connection with the Public Offering, the underwriters were granted a
The Company had until November 24, 2022 to complete a business combination (the “Combination Period”). If the Company is unable to consummate its initial business combination within the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than
The Company’s Initial stockholders agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if the Company fails to complete its initial business combination within the Combination Period. However, if the initial stockholders acquire public shares in or after the Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such public shares if the Company fails to complete a business combination during the Combination Period.
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Business Combination Agreement
On July 7, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Binah Capital Group, Inc., a Delaware corporation and wholly owned subsidiary of Kingswood (“Holdings”), Kingswood Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Holdings (“Kingswood Merger Sub”), Wentworth Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Holdings (“Wentworth Merger Sub”), and Wentworth Management Services LLC, a Delaware limited liability company (“Wentworth”). In addition, contemporaneously with the execution of the Merger Agreement, (i) certain holders of Wentworth’s membership units representing a majority of the Wentworth’s outstanding membership interests entered into a Wentworth Support Agreement pursuant to which such Wentworth members agreed, among other things, to approve the Merger Agreement and the transaction, (ii) the Company and Sponsor entered into a Founder Support Agreement pursuant to which certain holders of founder shares agreed to approve the Merger Agreement and the transaction and (iii) certain holders of Kingswood’s common stock, par value $
On December 30, 2022, the Company, Holdings, and Wentworth entered into a side letter agreement to the Merger Agreement revising the Merger Agreement to extend the date upon which the Merger Agreement is terminable by either the Company or Wentworth from December 30, 2022 to June 30, 2023.
On March 20, 2023, the Company, Holdings, Kingswood Merger Sub, Wentworth Merger Sub and Wentworth entered that certain First Amendment to the Merger Agreement to, among other things, (i) amend and restate the definition of “Transaction Expenses Shortfall” in the Merger Agreement to an amount equal to (x) the Outstanding Transaction Expenses (as defined in the Merger Agreement) minus (y) the Available Closing Date Cash (as defined in the Merger Agreement); (ii) amend and restate the condition precedent in Section 8.03(k) of the Merger Agreement to require that Available Closing Date Cash be sufficient to cover an amount equal to the sum of $
On September 13, 2023, the Company, Holdings, Kingswood Merger Sub, Wentworth Merger Sub and Wentworth entered that certain Second Amendment to the Merger Agreement further amending, modifying, and supplementing the Merger Agreement (as amended) to, among other things:
● | add definitions for (x) “Additional Sponsor Loans” to mean an additional $ |
● | amend the definition of “Company Merger Consideration” to mean (i) |
● | delete the definitions of “Converted Company Debt Amount” and “Minimum Company Share Amount” and references to such terms in the Merger Agreement; |
● | amend and restate Section 2.09(d)(i) to provide for the forfeiture by Sponsor of |
● | amend Section 2.09(b) to provide for the escrow (or at Sponsor’s option, forfeiture) of |
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● | amend Section 2.11(d) to provide that (i) the Additional Shares of Holdings Common Stock will not be subject to the Lock-Up Agreement, and (ii) Craig Gould has the ability to release PPD Group, LCC and/or Wentworth Funding, LLC (or any of their ultimate beneficial owners who receive Holdings Common Stock) and the Holdings Common Stock owned by such holders from the obligations under the Lock-Up Agreement (as defined in the Merger Agreement) to the extent necessary to cause Holdings to satisfy the initial listing requirements of the National Exchange (as defined in the Merger Agreement) upon which the Holdings Common Stock has applied to be listed; |
● | amend Section 2.16 to provide that if the closing does not occur then the Company shall promptly reimburse Wentworth the amount of such SPAC Extension Costs (as defined in the Merger Agreement) and if Closing does not occur due to the Company’s failure to satisfy any of the conditions precedent to closing that are reasonably with the control of the Company, the Company shall reimburse and pay to Wentworth up to $ |
● | further amend Section 2.16 to provide Wentworth with the option to cause the outstanding Sponsor Loans and Additional Sponsor Loans to be repaid by Holdings at the closing either (A) through the issuance of shares of Holdings Common Stock of equal value, or (B) in immediately available funds, provided, however, that in case of clause (B) Sponsor will be required to surrender a number of shares of Holdings Common Stock of equal value otherwise issuable to it in connection with the closing of the business combination; |
● | further amend Section 2.16 to require the Outstanding SPAC Expenses (as defined in the Merger Agreement) incurred by the Company in connection with any prior business combination not consummated by the Company (“Prior Expenses”) to be allocated to Sponsor and its equityholders on a pro-rata basis, and be repaid by (A) them in exchange for the issuance to such Sponsor and its equityholders a number of shares of Holdings Common Stock of equal value, or (B) Holdings in exchange for such Sponsor and its equityholders’ surrender of a number of shares of Holdings Common Stock of equal value; |
● | further amend Section 2.16 to provide Wentworth the option (subject to the prior written consent of the Company) to pay any Outstanding Company Expenses (as defined in the Merger Agreement) owed to unrelated third parties prior to the closing, in exchange for the issuance of number of additional shares of Holdings Common Stock of equal value; |
● | amend and restate the covenants and agreements in Section 7.10 to (A) require each of Wentworth, the Company and Holdings to use their commercially reasonable best efforts to enter into and consummate subscription agreements with investors relating to a private placement of shares in Wentworth, the Company and/or Holdings, and/or the entry into backstop arrangements with potential investors, and (B) acknowledge and agree that the proposed issuance and sale by Holdings at closing of up to |
● | amend and restate the closing condition in Section 8.03(h) to require the Sponsor Loans and Additional Sponsor Loans be paid in full prior to or substantially concurrently with the closing of the business combination; |
● | amend and restate the closing condition in Section 8.03(k) to require the Available Closing Date Cash not be less than $ |
● | amend and restate the closing condition in Section 8.03(l) to require the Company Merger Consideration (as defined in the Merger Agreement) to be issued prior to or substantially concurrently with the closing of the business combination; |
● | amend the definition of “Termination Date” by replacing “June 30, 2023” with “November 24, 2023; and |
● | amend and restate the termination rights in Section 9.01(c) to allow for the termination of the Merger Agreement if the conditions specified in Section 8.03(k) and 8.03(l) are not capable of being satisfied at the closing of the business combination. |
Associated with the Merger Agreement, Wentworth has agreed to pay for certain merger related expenses and additional funding in the Trust Account. For the nine months ended September 30, 2023, Wentworth deposited $
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Proxy Statements
On May 18, 2022, the Company convened its special meeting in lieu of an annual meeting of stockholders virtually and voted in the affirmative on the proposal to extend the date by which the Company must complete its Business Combination from May 24, 2022 to November 24, 2022 (“Extension Amendment Proposal”). In connection with the Extension Amendment Proposal, shareholders holding
On November 23, 2022, the Company convened its special meeting in lieu of an annual meeting of stockholders virtually and voted in the affirmative on the proposal to extend the date by which the Company must complete its initial business combination from November 24, 2022 to May 24, 2023 (the “Extension Amendment Proposal 2”). In connection with the Extension Amendment Proposal 2, shareholders holding
On May 18, 2023, the Company convened a special meeting of stockholders virtually and voted in the affirmative on the proposal to extend the date by which the Company must complete its initial Business Combination from May 24, 2023 to August 24, 2023 (the “Extension Amendment Proposal 3”). In connection with the Extension Amendment Proposal 3, shareholders holding
On August 17, 2023, the Company convened a special meeting of stockholders virtually and voted in the affirmative on the proposal to extend the date by which the Company must complete its initial Business Combination from August 24, 2023 to November 24, 2023 (the “Extension Amendment Proposal 4”). In connection with the Extension Amendment Proposal 4, a shareholder holding
On November 17, 2023, the Company held a special meeting at which the Company’s stockholders approved extending the date by which the Company must complete its initial Business Combination from November 24, 2023 to February 24, 2024. See Note 9 – Subsequent Events. In connection with the approval of the extension, stockholders elected to redeem
In connection with such extension and pursuant to the Merger Agreement, Wentworth agreed to deposit $
Additionally, at such special meeting the Company’s stockholders approved further amendments to the Company’s second amended and restated certificate of incorporation to provide holders of the Company’s Class B common stock the right to convert their shares of Class B common stock into shares of Class A common stock on a
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Following the aforementioned conversion and redemptions, the Company had
For the three months ended September 30, 2023, Wentworth deposited $
Liquidity, Capital Resources, and Going Concern
As of September 30, 2023, the Company had cash of $
On March 24, 2022, the Company and Sponsor entered into a convertible promissory note (the “Initial Convertible Promissory Note”) pursuant to which Sponsor agreed to loan the Company up to $
On October 6, 2023, the Company and the Sponsor amended and restated the Initial Convertible Promissory Note and entered into an additional convertible promissory note – see Note 9 – Subsequent Events.
If the Company’s estimate of the costs of completing the Merger Agreement are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate the business prior to a Business Combination. Moreover, in addition to the access to the Working Capital Loans, the Company may need to obtain other financing either to complete a Business Combination or because the Company redeemed a significant number of public shares upon consummation of a business combination, in which case the Company may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of a business combination. If the Company is unable to complete a business combination because the Company does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following a business combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
The Company has until February 24, 2024 (as extended) to consummate a business combination. It is uncertain that the Company will be able to consummate a business combination by this time. If a business combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution, unless time for which the business combination is otherwise extended as further outlined above under the heading “Proxy Statement”. Management has determined that the mandatory liquidation, should a business combination not occur, and potential subsequent dissolution, as well as the Company’s working capital deficiency raises substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is considered to be one year from the issuance of the financial statements. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after February 24, 2024 (as extended).
On November 17, 2023, the Company held a special meeting at which the Company’s stockholders approved extending the date by which the Company must complete its initial Business Combination from November 24, 2023 to February 24, 2024. See Note 9 – Subsequent Events. In connection with the approval of the extension, stockholders elected to redeem
Risks and Uncertainties
Management is continuing to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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The continuing military conflict between the Russian Federation the Ukraine and the military action between Hamas and Israel have created and are expected to create global economic consequences. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited condensed financial statements.
Consideration of Inflation Reduction Act Excise Tax
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise, (ii) the structure of a business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a business combination and in the Company’s ability to complete a business combination.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2022.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement
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declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statement with another public company which is neither classified as an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The more significant accounting estimates included in these unaudited condensed financial statements is the determination of fair value of the warrant liabilities and the Initial Convertible Promissory Note. Such estimates may be subject to change as more current information becomes available and accordingly, the actual results could differ significantly from those estimates.
Trust Account
At September 30, 2023, assets held in the Trust Account were held in a demand deposit account and at December 31, 2022, assets held in the Trust Account were held in a money market mutual funds. Demand deposit accounts and money market mutual funds are characterized as Level 1 investments within the fair value hierarchy under ASC 820 (as defined below). Gains and losses resulting from the change in fair value of assets held in Trust Account are included in interest income in the accompanying statements of operations. The estimated fair values of assets held in Trust Account are determined using available market information. At September 30, 2023 and December 31, 2022, the Company had $
Prepaid taxes
Prepaid taxes at September 30, 2023 and December 31, 2022 include $
Warrant Liabilities
The Company evaluated its Warrants, (which are discussed in Note 4 and Note 8) in accordance with ASC 815-40, “Derivatives and Hedging; Contracts in Entity’s Own Equity” (“ASC 815-40”) and concluded that a provision in the Warrant Agreement related to certain transfers, tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815-40, the Warrants are recorded as derivative liabilities on the Balance Sheet and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the period of change.
Convertible Promissory Note
On March 24, 2022, the Company and Sponsor entered into the Initial Convertible Promissory Note pursuant to which Sponsor agreed to loan the Company up to $
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Company records each draw with a gain or loss recognized at issuance, and subsequent changes in fair value are recorded as change in fair value of convertible promissory note on the statement of operations. The fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s assumptions a market participant would use in pricing the asset or liability. At September 30, 2023 and December 31, 2022, the Company had drawn down $
On October 6, 2023, the Company and the Sponsor amended and restated the Initial Convertible Promissory Note and entered into an additional convertible promissory note – see Note 9 – Subsequent Events.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At September 30, 2023 and December 31, 2022, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The Company follows the guidance in ASC Topic 820, “Fair Value Measurement”, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The Fair Value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the Measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
See Note 8 for additional information on assets and liabilities measured at fair value.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Redeemable common stock is classified as temporary equity. Non-redeemable common stock is classified as permanent equity. The Company’s common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ deficit section of the Company’s balance sheets.
On May 18, 2022, the Company held a special meeting in lieu of an annual meeting at which the Company’s stockholders approved extending the date by which the Company had to complete a Business Combination from May 24, 2022 to November 24, 2022. In connection with the approval of the extension, stockholders elected to redeem an aggregate of
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On November 23, 2022, the Company held a special meeting in lieu of an annual meeting at which the Company’s stockholders approved extending the date by which the Company had to complete a Business Combination from November 24, 2022 to May 24, 2023. In connection with the approval of the extension, stockholders elected to redeem an aggregate of
On May 18, 2023, the Company convened a special meeting at which the Company’s stockholders approved extending the date by which the Company had to complete a Business Combination from May 24, 2023 to August 24, 2023. In connection with the approval of the extension, stockholders elected to redeem an aggregate of
On August 17, 2023, the Company convened a special meeting of stockholders virtually and voted in the affirmative on the proposal to extend the date by which the Company must complete its initial Business Combination from August 24, 2023 to November 24, 2023 (the “Extension Amendment Proposal 4”). In connection with the Extension Amendment Proposal 4, a shareholder holding
On November 17, 2023, the Company held a special meeting at which the Company’s stockholders approved extending the date by which the Company must complete its initial Business Combination from November 24, 2023 to February 24, 2024. See Note 9 – Subsequent Events. In connection with the approval of the extension, stockholders elected to redeem
Accordingly, as of September 30, 2023 and December 31, 2022,
The Company recognizes changes in redemption value immediately as they occur. Immediately upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable common stock resulted in charges against additional paid-in capital and accumulated deficit.
At September 30, 2023 and December 31, 2022, the Class A common stock reflected in the accompanying balance sheets are reconciled in the following table.
| September 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
As of beginning of the period | $ | | $ | | ||
Less: |
|
|
| |||
Redemptions |
| ( |
| ( | ||
Plus: |
|
|
| |||
Remeasurement adjustment of carrying value to redemption value (1) |
| |
| | ||
Class A common stock subject to possible redemption | $ | | $ | |
(1) | The period ended September 30, 2023, includes deposits of $ |
Stock Based Compensation
The Company complies with ASC 718 Compensation — Stock Compensation regarding founder shares acquired by directors of the Company at prices below fair value. The acquired shares shall vest upon the Company consummating an initial business combination (the “Vesting Date”). If prior to the Vesting Date, the director ceases to be a director, the shares will be forfeited and funds paid for the shares shall be refunded. The founder shares owned by the director (1) may not be sold or transferred, until
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The shares were issued in October 2020 and November 2020 (“Grant Dates”), and the shares vest, not upon a fixed date, but upon consummation of an initial business combination. Since the approach in ASC 718 is to determine the fair value without regard to the vesting date, the Company has determined the valuation of the Class B shares as of the Grant Dates. The valuation resulted in a fair value of $
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of September 30, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it. Our effective tax rate was (
While ASC 740 identifies usage of an effective annual tax rate for purposes of an interim provision, it does allow for estimating individual elements in the current period if they are significant, unusual or infrequent. Computing the effective tax rate for the Company is complicated due to the potential impact of the Company’s change in fair value of warrants (or any other change in fair value of a complex financial instrument), the timing of any potential business combination expenses and the actual interest income that will be recognized during the year. The Company has taken a position as to the calculation of income tax expense in a current period based on ASC 740-270-25-3 which states, “If an entity is unable to estimate a part of its ordinary income (or loss) or the related tax (benefit) but is otherwise able to make a reasonable estimate, the tax (or benefit) applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported.” The Company believes its calculation to be a reliable estimate and allows it to properly take into account the usual elements that can impact its annualized book income and its impact on the effective tax rate. As such, the Company is computing its taxable income (loss) and associated income tax provision based on actual results through September 30, 2023.
The Company is taking the position that the deferred tax asset related to the unutilized net operating loss (“NOL”) should still be fully reserved. While interest rates have increased, the actual amount of interest income for tax purposes may differ significantly due to the timing of treasuries purchased, whether the Company invests in treasuries or potential unrealized interest income based on maturity. Additionally, the NOL utilization is limited to 80% so the approach and estimate used in the interim period is conservative in nature while reviewing the pertinent facts unique to the Company’s income tax situation.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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Net (Loss) Income Per Common Share
The Company has two classes of stock, which are referred to as redeemable Class A common stock and non-redeemable Class A and Class B common stock. Earnings and losses are shared pro rata between the two classes of stock. The
Three Months Ended | Nine Months Ended | |||||||||||
| September 30, |
| September 30, | |||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
|
| |||||||||||
Net (loss) income available to Redeemable Class A | $ | ( | $ | | $ | ( | $ | | ||||
Basic and diluted weighted average shares outstanding, Class A common stock, subject to possible redemption | | | | | ||||||||
Basic and diluted net (loss) income per share, redeemable Class A common stock | $ | ( | $ | | $ | ( | $ | | ||||
Net (loss) income available to non-redeemable Class A and Class B common stock | ( | | ( | | ||||||||
Basic and diluted weighted average shares outstanding, non-redeemable Class A and Class B common stock | | | | | ||||||||
Basic and diluted net (loss) income per share, non-redeemable Class A and Class B common stock | $ | ( | $ | | $ | ( | $ | |
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on its financial statements.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging --Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The provisions of ASU 2020-06 are applicable to the Company for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Note 3 — Initial Public Offering
Pursuant to the Public Offering on November 24, 2020, the Company sold
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from the closing of the Public Offering and will expire
Simultaneously with the closing of the Public Offering, the underwriters elected to exercise their full over-allotment option of
Upon closing the Public Offering and the sale of the Over-Allotment Units, a total of $
Warrants
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a)
The Company may call the Public Warrants for redemption:
● | in whole and not in part; |
● | at a price of $ |
● | upon not less than |
● | if, and only if, the reported closing price of the Class A common stock equals or exceeds $ |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis”, as described in the warrant agreement. Additionally, in no event will the Company be required to net cash settle any Warrants. If the Company is unable to complete the initial business combination within the combination period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
If (x) the Company issues additional common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $
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of the higher of the Market Value and the Newly Issued Price, and the $
Note 4 — Private Placement
On November 24, 2020, simultaneously with the closing of the Public Offering and the closing of the exercise of the over-allotment option, the Sponsor and one of the Company’s directors purchased an aggregate of
The Private Warrants are identical to the Public Warrants sold in the Public Offering except that the Private Warrants, so long as they are held by the Sponsor or their permitted transferees, (i) will not be redeemable by the Company, (ii) may not (including the shares of Class A common stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until
The Company’s Sponsor has agreed to: (i) waive its redemption rights with respect to its Founder Shares and public shares in connection with the completion of the Company’s initial business combination; (ii) waive its redemption rights with respect to its Founder Shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s Charter (A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the Company’s initial business combination or to redeem
In accordance with the Second Amendment to the Merger Agreement, the Sponsor has agreed to forfeit
Note 5 — Related Party Transactions
Founder Shares
In August 2020, the Sponsor paid $
The initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (i)
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In October 2020 and November 2020 (“Grant Dates”) the Sponsor transferred a total of
Convertible Promissory Note
In order to finance transaction costs in connection with a business combination, on March 24, 2022, the Company and Sponsor entered into the Initial Convertible Promissory Note pursuant to which Sponsor agreed to loan the Company up to $
On October 6, 2023, the Company and the Sponsor amended and restated the Initial Convertible Promissory Note and entered into an additional convertible promissory note - see Note 9 - Subsequent Events.
In accordance with the Second Amendment to the Merger Agreement, Wentworth has the option to cause the outstanding Initial Convertible Promissory Note and the additional convertible promissory note to be repaid by at the closing either (A) through the issuance of shares of Company Common Stock of equal value, or (B) in immediately available funds, provided, however, that in case of clause (B) Sponsor will be required to surrender a number of shares of Company Common Stock of equal value otherwise issuable to it in connection with the closing of the business combination;
Administrative Service Fee
Commencing on the date of the final prospectus for the Public Offering, the Company agreed to pay the Sponsor up to $
Note 6 — Commitments
Registration Rights
The holders of (i) the Founder Shares, which were issued in a private placement prior to the closing of the Public Offering, (ii) Private Warrants, which were issued in a private placement simultaneously with the closing of the Public Offering, and the common stock underlying such Private Warrants and (iii) Private Warrants that may be issued upon conversion of Working Capital Loans (and the securities underlying such securities) have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement. These holders of these securities will be entitled to make up to
Underwriting Agreement
The Company granted the underwriters a
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2020, the underwriters fully exercised the over-allotment option to purchase
A deferred underwriting discount of $
Business Combination
In connection with the initial Business Combination, the Company engaged Oppenheimer & Co. Inc. (“Oppenheimer”) and SPAC Advisory Partners LLC (“SAP”) to act as its financial advisors, each will be entitled to customary fees in such capacity, with payment due at, and conditioned upon, the closing of the Business Combination. Oppenheimer & Co. Inc. will be due
Business Combination Closing Costs
The Merger Agreement provides that if the closing does not occur then the Company shall promptly reimburse Wentworth the amount of such SPAC Extension Costs (as defined in the Merger Agreement) and if Closing does not occur due to the Company’s failure to satisfy any of the conditions precedent to closing that are reasonably with the control of the Company, the Company shall reimburse and pay to Wentworth up to $
Note 7 — Stockholders’ Deficit
On August 17, 2023, Sponsor converted
Preferred Stock — The Company is authorized to issue
Class A Common Stock — The Company is authorized to issue
Class B Common Stock — The Company is authorized to issue
Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, except as required by law or stock exchange rule.
The Class B common stock will automatically convert into Class A common stock on the first business day following the consummation of the initial business combination at a ratio such that the number of Class A common stock issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis,
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issued pursuant to a forward purchase agreement), excluding any shares of Class A common stock or equity-linked securities or rights exercisable for or convertible into Class A common stock issued, deemed issued, or to be issued, to any seller in the initial business combination and any private shares issued to the Sponsor, members of the Company’s management team or any of their affiliates upon conversion of Working Capital Loans, minus (c) the number of shares of Class A common stock redeemed in connection with the initial business combination, provided that such conversion of shares of Class B common stock shall never be less than the initial conversion ratio. In no event will the Class B common stock convert into Class A common stock at a rate of less than
Note 8 — Recurring Fair Value Measurements
The fair value of the Company’s certain assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet. The fair values of cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses, due to related parties are estimated to approximate the carrying values as of September 30, 2023 and December 31, 2022 due to the short maturities of such instruments.
Since all of the Company’s permitted assets in the Trust Account consist of demand deposits at September 30, 2023 and U.S. Money Market funds at December 31, 2022, fair values of these assets are determined utilizing quoted prices (unadjusted) in active markets for identical assets. The Company’s warrant liability for the Private Warrants and Convertible Promissory Note is based on valuation models utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair values. The Company’s warrant liability for the Public Warrants is based on quoted prices in an active market for identical assets.