UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
Or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from__________ to ___________ |
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
| Accelerated filer ☐ | ||
Smaller reporting company | ||||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2022, there were
Kingswood Acquisition Corp.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2022
Table of Contents
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KINGSWOOD ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, 2022 |
| December 31, 2021 | |||
(Unaudited) | ||||||
Assets | ||||||
Cash | $ | | $ | | ||
Taxes receivable | | — | ||||
Prepaid expenses |
| |
| | ||
Total current assets | | | ||||
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Investment held in Trust Account | | | ||||
Total Assets | $ | | $ | | ||
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT |
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Accounts payable and accrued expenses | $ | | $ | | ||
Convertible promissory note | | — | ||||
Due to related party | | | ||||
Total current liabilities | | | ||||
Deferred underwriters’ compensation | | | ||||
Warrant liability |
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Total liabilities | | |||||
Commitments and Contingencies (Note 6) |
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Class A Common Stock subject to possible redemption, | | | ||||
Stockholders’ Deficit: |
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Preferred stock, $ |
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Class A common stock, $ |
| |
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Class B common stock, $ |
| |
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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.
3
KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating costs | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
Other income (expense): | ||||||||||||
Interest Income | | | | | ||||||||
Change in fair value - convertible promissory note | | — | | — | ||||||||
Transaction costs | — | — | — | ( | ||||||||
Change in fair value of warrant liabilities | | | | ( | ||||||||
Total other income (expense), net | | | | ( | ||||||||
Income (loss) before provision for income taxes | | | | ( | ||||||||
Provision for income taxes | ( | — | ( | — | ||||||||
Net income (loss) | $ | | $ | | $ | | $ | ( | ||||
Basic and diluted weighted average shares outstanding, Class A common stock, subject to possible redemption | |
| | |
| | ||||||
Basic and diluted net income (loss) per share | | | | ( | ||||||||
Basic and diluted weighted average shares outstanding, Class A and Class B common stock not subject to redemption | | | | | ||||||||
Basic and diluted net income (loss) per share | | | | ( |
The accompanying notes are an integral part of the condensed unaudited financial statements.
4
KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
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 Loss | — | — | — | — | — | | | ||||||||||||
Balance as of September 30, 2022 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( |
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
5
Class A Common Stock | Class B Common Stock | Additional | Accumulated | Stockholders’ | ||||||||||||||
| Shares | Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit | ||||||
Balance- January 1, 2021 |
| | $ | | | $ | | — | $ | ( | $ | ( | ||||||
Remeasurement of Class A common stock subject to possible redemption |
| | | |
| | |
| ( |
| ( | |||||||
Net Loss |
| — | — | — |
| — | — |
| ( |
| ( | |||||||
Balance as of March 31, 2021 | | $ | | | $ | | — | $ | ( | $ | ( | |||||||
Remeasurement of Class A common stock subject to possible redemption | — | — | — | — | — | ( | ( | |||||||||||
Net Loss | — | — | — | — | — | ( | ( | |||||||||||
Balance as of June 30, 2021 | | $ | | | $ | | — | $ | ( | $ | ( | |||||||
Remeasurement of Class A common stock subject to possible redemption | — | — | — | — | — | ( | ( | |||||||||||
Net Income | — | — | — | — | — | | | |||||||||||
Balance as of September 30, 2021 |
| | $ | | | $ | | — | $ | ( | $ | ( |
The accompanying notes are an integral part of the condensed unaudited financial statements.
6
KINGSWOOD ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||
September 30, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: | ||||||
Net Income (Loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||
Interest earned on cash held in Trust Account | ( | ( | ||||
Change in fair value of convertible note | ( | — | ||||
Change in fair value of warrant liabilities | ( | | ||||
Transaction costs | — | | ||||
Changes in working capital: | ||||||
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 | | — | ||||
Proceeds from convertible promissory note | ( | — | ||||
Net cash provided by investing activities | | — | ||||
Cash flows from financing activities: | ||||||
Redemption of Class A common stock subject to possible redemption | ( | — | ||||
Proceeds from convertible promissory note | | — | ||||
Net cash 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 | $ | | $ | | ||
Accrued deferred offering costs | $ | — | $ | |
The accompanying notes are an integral part of the condensed unaudited financial statements.
7
KINGSWOOD ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Note 1 — Organization and Business Operations
Kingswood Acquisition Corp. (formerly Kingswood Global Holdings Inc.) (the “Company”) is a newly organized 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 (“Business Combination”).
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from July 27, 2020 (inception) through September 30, 2022, 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 convertible promissory notes 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 will have 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.
8
Proxy Statement
On May 18, 2022, the Company convened its special meeting in lieu of an annual meeting of stockholders (the “Special Meeting”) virtually, with respect to the voting on the proposal to extend the date by which the Company must complete its Business Combination from May 24, 2022 to November 24, 2022. A total of
The Company will hold a special meeting of the holders of record of shares of Class A common stock and shares of Class B common stock of the Company (“Special Meeting”), par value $
● | Proposal No. 1 — The “Extension Amendment Proposal” — to consider and vote upon a proposal to amend the Company’s second amended and restated certificate of incorporation (the “Charter”) pursuant to a second amendment to the Charter in the form set forth in Annex A to the accompanying Proxy Statement (the “Extension Amendment” and such proposal, the “Extension Amendment Proposal”) to extend the date (the “Extension”) by which the Company must (1) effectuate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (an “initial business combination”), (2) cease its operations except for the purpose of winding up if it fails to complete such initial business combination and (3) redeem |
● | Proposal No. 2 — The “Adjournment Proposal” — to consider and vote upon a proposal to adjourn the Special Meeting of the Company stockholders to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote. |
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 Company’s 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 $
Liquidity, Capital Resources, and Going Concern
As of September 30, 2022, the Company had cash of $
9
On March 24, 2022, the Company’s Sponsor has agreed to loan the Company up to $
If the Company’s estimate of the costs of completing the Business Combination 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 November 24, 2022 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 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 November 24, 2022.
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 financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements. 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 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 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
10
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 period ended December 31, 2021.
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 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 statements with another public company which is neither 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 financial statements in conformity with US GAAP requires 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 financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
11
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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these condensed financial statements is the determination of the fair value of the warrant liabilities. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
Marketable securities held in Trust Account
At September 30, 2022 and December 31, 2021, the assets held in the Trust Account were held in a money market fund. Money market funds are characterized as Level 1 investments within the fair value hierarchy under ASC 820 (as defined below). All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Warrant Liabilities
The Company evaluated its Warrants, (which are discussed in Note 4 and Note 9) 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 Sponsor agreed to loan the Company up to $
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, 2022 and December 31, 2021, 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.
12
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 9 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 is 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 pursuant to which the 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
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, 2022 and December 31, 2021, the Class A common stock reflected in the accompanying unaudited condensed balance sheets are reconciled in the following table.
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
As of beginning of the period | $ | | $ | | ||
Less: |
|
|
|
| ||
Redemptions |
| ( |
| — | ||
Plus: |
|
|
|
| ||
Remeasurement adjustment of carrying value to redemption value |
| |
| | ||
Class A common stock subject to possible redemption | $ | | $ | |
13
Offering Costs
The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A—“Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Public Offering. Offering costs are charged to temporary equity or the statement of operations based on the relative value of the Public Warrants to the proceeds received from the Units sold upon the completion of the IPO.
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
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, 2022 and December 31, 2021, 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, 2022.
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.
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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.
Net Income (Loss) 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 | |||||||||||
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| 2022 |
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Net income (loss) available to Redeemable Class A | $ | | $ | | $ | | $ | ( | ||||
Basic and diluted weighted average shares outstanding, Class A common stock, subject to possible redemption | | | | | ||||||||
Basic and diluted net income (loss) per share, redeemable Class A common stock | | | | ( | ||||||||
Net income (loss) 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 income (loss) per share, Class A and Class B common stock | | | | ( |
Recent Accounting Pronouncements
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 condensed financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
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Note 3 — Initial Public Offering
Pursuant to the Public Offering on November 24, 2020, the Company sold
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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or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder Shares held by the initial stockholders or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than
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 amended and restated certificate of incorporation (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
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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or (2) if the Company consummates a transaction after the initial Business Combination which results in the Company’s stockholders having the right to exchange their shares for cash, securities or other property, the Founder Shares will be released from the lock-up.
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 Sponsor agreed to loan the Company up to $
Administrative Service Fee
Commencing on the date of the final prospectus for the Public Offering, the Company has 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 three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by the Company, subject to certain limitations. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a
On November 24, 2020, the Company paid a fixed underwriting discount of $
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aggregate, will be payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an initial Business Combination, subject to the terms of the underwriting agreement.
Business Combination
In connection with the initial Business Combination, the company engaged Oppenheimer & Co. Inc. and SPAC Advisory Partners LLC 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.
Note 7 — Stockholders’ Deficit
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,
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, 2022 and December 31, 2021 due to the short maturities of such instruments.
Since all of the Company’s permitted investments consist of U.S. Money Market funds, fair values of these investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets. The Company’s warrant liability for the Private Warrants, Working Capital Loan Option 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 fair values of the Private Warrant liability, Working Capital Loan Option and Convertible Promissory Note are classified within Level 3 of the fair value hierarchy. The Company’s warrant liability for the Public Warrants is based on quoted prices in an active market for identical assets.
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The fair value of the Public Warrant liability is classified within Level 1 of the fair value hierarchy. At June 30, 2021 the Company reclassified the Public Warrants from a Level 3 to a Level 1 classification.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at September 30, 2022 and December 31, 2021:
September 30, 2022 |
| Level 1 |
| Level 2 |
| Level 3 | |||
Assets: |
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|
| |||
U.S. Mutual Funds held in Trust Account(1) | $ | | $ | — | $ | — | |||
Liabilities: |
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|
|
| ||||
Convertible Promissory Note | $ | — | $ | — | $ | | |||
Private Placement Warrants | $ | — | $ | — | $ | | |||
Public Warrants | $ | | $ | — | $ | — |
December 31, 2021 |
| Level 1 |
| Level 2 |
| Level 3 | |||
Assets: |
|
|
|
|
|
| |||
U.S. Mutual Funds held in Trust Account (1) |
| $ | | $ | — | $ | — | ||
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Liabilities: |
|
|
|
| |||||
Private Placement Warrants | $ | — | $ | — | $ | | |||
Public Warrants | $ | | $ | — | $ | — |
(1) | The fair value of the U.S. Mutual Funds held in Trust Account approximates the carrying amount primary due to their short-term nature. |
Warrants, and Convertible Promissory Note
The Warrants and Convertible Promissory Note are accounted for as liabilities in accordance with ASC 815-40 on the condensed balance sheets. The warrant liabilities and Convertible Promissory Note are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities and convertible promissory note in the statement of operations.
Measurement
On September 30, 2022 and December 31, 2021 the Company’s Public Warrants were separately trading in an active market and valuation of the Company’s Public Warrant liability was determined based upon the closing market price at September 28, 2022 and December 31, 2021, respectively.
On September 30, 2022 and December 31, 2021, the Company used a modified Black-Scholes model to value the Private Warrants. The Warrants were classified within Level 3 of the fair value hierarchy at the measurement date due to the use of unobservable inputs.
The key inputs into the modified Black Scholes option pricing model for the Private Placement Warrants were as follows:
September 30, | December 31, | ||||||
Input |
| 2022 |
| 2021 |
| ||
Stock price | $ | | $ | |
| ||
Exercise price | $ | | $ | | |||
Term (years) |
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| |||||
Risk free rate |
| | % |
| | % | |
Dividend yield |
| — | % |
| — | % | |
Volatility |
| | % |
| | % |
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On September 30, 2022, the Company used a yield-to-maturity bond pricing model to value the Convertible Promissory Note. The Convertible Promissory Note was classified within Level 3 of the fair value hierarchy at the measurement date due to the use of unobservable inputs.
The key inputs into the pricing model for the Convertible Promissory Note was as follows:
| September 30, | |||
Input | 2022 | |||
Amount due at maturity | $ | | ||
Term (years) | | |||
Probability of a successful business combination | | % | ||
Present value factor | |
The Company’s use of models required the use of subjective assumptions:
● | The risk-free interest rate assumption was based on the five-year U.S. Treasury rate, which was commensurate with the contractual term of the Private Warrants and the Working Capital Loan Option. An increase in the risk-free interest rate, in isolation, would result in an increase in the fair value measurement of the Private Warrant and the Working Capital Loan Option and vice versa. |
● | An increase in the expected term, in isolation, would result in an increase in the fair value measurement of the warrant liabilities and vice versa. |
● | The volatility assumption was based on the implied volatility from a set of comparable publicly-traded warrants as determined based on the size and proximity of other similar business combinations. An increase in the expected volatility, in isolation, would result in an increase in the fair value measurement of the Private Warrant and the Working Capital Loan Option and vice versa. |
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our financial instruments classified as Level 3:
Fair value at December 31, 2021 |
| $ | |
Borrowing - Convertible Promissory Note | | ||
Change in value of Convertible Promissory Note | ( | ||
Change in fair value - Private Warrant Liabilities | ( | ||
Fair Value at March 31, 2022 | $ | | |
Change in value of Convertible Promissory Note | ( | ||
Change in fair value of private warrants | ( | ||
Fair Value at June 30, 2022 | $ | | |
Borrowing - Convertible Promissory Note | | ||
Change in value of Convertible Promissory Note | ( | ||
Change in fair value of private warrants | ( | ||
Fair Value at September 30, 2022 | $ | |
Fair value at December 31, 2020 |
| $ | |
Public warrants reclassified to level 1 (1) |
| ( | |
Change in fair value |
| | |
Fair Value at March 31, 2021 | $ | | |
Change in fair value | | ||
Fair Value at June 30, 2021 | $ | | |
Change in fair value | ( | ||
Fair Value at September 30, 2021 | |
(1) | Assumes the Public Warrants were reclassified on September 30, 2021. |
Note 9 — Subsequent Events
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The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as disclosed above, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Kingswood Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Kingswood Global 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 on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of 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 quarterly report on Form 10-Q including 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 for the period ended December 31, 2021 filed with the SEC on March 31, 2022. 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 incorporated as a Delaware corporation on July 27, 2020 and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Simultaneously with the consummation of the Public Offering, we consummated the private sale of an aggregate of 6,481,550 warrants, each exercisable to purchase one share of Class A common stock, par value $0.0001 per share (“Class A common stock”) at $11.50 per share, to Kingswood Global Sponsor LLC, our sponsor, and one of the Company’s directors at a price of $1.00 per warrant, generating gross proceeds, before expenses, of approximately $6,481,550 (the “Private Placement”). We intend to consummate an initial business combination using cash from the proceeds of our initial public offering (the “Public Offering”) that closed on November 24, 2020 (the “Closing Date”) and the Private Placement, and from additional issuances of, if any, our equity and our debt, or a combination of cash, equity and debt.
We have incurred, and in the event the Proposed Business Combination (as defined below) is not consummated, expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plan to complete our initial Business Combination, including the proposed Business Combination will be successful.
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Recent Developments
Proxy Statement
Our amended and restated certificate of incorporation was amended with a stockholder vote to extend the time required to consummate a Business Combination. On May 18, 2022, the Company convened its special meeting in lieu of an annual meeting of stockholders (the “Special Meeting”) virtually, with respect to the voting on the proposal to extend the date by which the Company must complete its Business Combination from May 24, 2022 to November 24, 2022. A total of 14,479,000 shares of the Company’s Class A common stock and Class B common stock, or 79% of the Company’s outstanding stock as of May 18, 2022, the record date for the Special Meeting, were represented virtually or by proxy at the Special Meeting. In connection with the Extension Amendment, shareholders holding 10,036,744 Public Shares exercised their right to redeem such Public Shares for a pro rata portion of the Trust Account (the “Extension Redemption”). On May 20, 2022, the Company paid from the Trust Account an aggregate amount of $102,894,278, or approximately $10.25 per share to redeeming shareholders in the Extension Redemption. For each one-month extension, the Sponsor agreed to contribute, as a loan, to the Company $60,969 or approximately $0.04 per share for each Public Share not redeemed in connection with the Extension Amendment (the “Contribution”). Monthly Contributions in the amount of $60,969 are payable monthly through the Company’s extension date in November 2022 (if the Sponsor fully extends the term the Company has to complete an initial Business Combination). For the nine months ended September 30, 2022, $243,874 was deposited in the Trust Account.
The Company will hold a Special Meeting of the holders of record of shares of Class A common stock and shares of Class B common stock of the Company, par value $0.0001 per share (“Class B common stock”), at a date to be determined, but no later than the current extension date of November 24, 2022, to vote on the two proposals outlined below.
● | Proposal No. 1 — The “Extension Amendment Proposal” — to consider and vote upon a proposal to amend the Company’s second amended and restated certificate of incorporation (the “Charter”) pursuant to a second amendment to the Charter in the form set forth in Annex A to the accompanying Proxy Statement (the “Extension Amendment” and such proposal, the “Extension Amendment Proposal”) to extend the date (the “Extension”) by which the Company must (1) effectuate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (an “initial business combination”), (2) cease its operations except for the purpose of winding up if it fails to complete such initial business combination and (3) redeem 100% of the Company’s Class A common stock (“Class A common stock”) included as part of the units sold in the Company’s initial public offering that was consummated on November 24, 2020 (the “IPO”), from November 24, 2022 to May 24, 2023 (the “Extension” and such date, the “Extended Date”); and |
● | Proposal No. 2 — The “Adjournment Proposal” — to consider and vote upon a proposal to adjourn the Special Meeting to a later date oor dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote (the “Adjournment Proposal”). |
Proposed Business Combination
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”).
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Business Combination Agreement
Pursuant to the Merger Agreement, (i) Kingswood Merger Sub will merge with and into the Company (the “Kingswood Merger”), with the Company surviving the Kingswood Merger as a wholly owned subsidiary of Holdings (the “Kingswood Surviving Company”); and (ii) simultaneously with the Kingswood Merger, Wentworth Merger Sub will merge with and into Wentworth (the “Wentworth Merger”), with Wentworth surviving the Wentworth Merger as a wholly-owned subsidiary of Holdings (the “Wentworth Surviving Company”). Kingswood Surviving Company will acquire, and Holdings will contribute to Kingswood Surviving Company (the “Holdings Contribution”) all units of the Wentworth Surviving Company directly held by Holdings after the Wentworth Merger, such that, following the Holdings Contribution, the Wentworth Surviving Company will be a wholly-owned subsidiary of the Kingswood Surviving Company (together with the Kingswood Merger, the Wentworth Merger and the other transactions related thereto, the “Transactions”).
The aggregate consideration payable to certain holders of Wentworth’s membership interests for the Transactions (the “Wentworth Merger Consideration”) consists of Holdings common shares issued on the Closing Date (the “Share Consideration”), and the assumption of all indebtedness of Wentworth as of the Closing Date (the “Assumed Indebtedness”). The Wentworth Merger Consideration is equal to the quotient of: (a) the difference of (i) Enterprise Value, minus (ii) Closing Wentworth Indebtedness, minus (iii) Sponsor Share Value, minus (iv) Outstanding Transaction Expenses, minus (v) Wentworth Class B Redemption Amount, divided by (b) the Per Share Price, subject to the Minimum Company Share Amount.
The Business Combination Agreements contains customary representations and warranties, covenants and closing conditions, including, but not limited to approval by our shareholders of the Business Combination Agreement. The terms of the Business Combination Agreement and other related ancillary agreements to be entered into in connection with the Closing are summarized in more detail in our Current Report on Form 8-K filed with the SEC on July 7, 2022. Capitalized terms used in this Quarterly Report on Form 10-Q but not otherwise defined herein have the meanings given to them in the Business Combination Agreement.
Results of Operations
For the three months ended September 30, 2022, we incurred a loss from operations of $736,011. Net income for the Company of $229,989 included the changes in fair value of warrant liability of $759,227, changes in fair value of convertible promissory note of $140,888 and interest income from the Trust Account of $67,094, offset by loss from operations and tax expense of $1,209.
For the nine months ended September 30, 2022, we incurred a loss from operations of $3,261,136, including legal and professional fees of $2,936,487, directors’ fee of $78,750, insurance expenses of $112,192 and other general operating expenses totaling $133,707. We also incurred $5,241 in tax expenses. In addition to the loss from operations, we realized other income of $6,468,656 consisting of interest income of $144,657 from the Trust and operating bank accounts, a gain on the change in fair value of the convertible promissory note of $250,179 and a $6,073,820 gain from a decrease in the fair value of the Company’s warrant liability. Through September 30, 2022, our efforts have been limited to organizational activities, activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters. We have not generated any income, other than interest income earned on the proceeds held in the Trust and operating bank accounts. Additionally, we recognize non-cash gains and losses within other income (expense) related to changes in recurring fair value measurement of our warrant liabilities at each reporting period.
For the three months ended September 30, 2021, we incurred a loss from operations of $382,547, including legal and professional fees of $283,440, directors’ fee of $26,250, insurance expenses of $37,809 and other general operating expenses totaling $35,048. Net income for the Company of $3,026,639 included the changes in fair value of warrant liability of $3,406,196 and interest income from the Trust Account of $2,990, offset by the loss from operations. In addition to the net income, the Company incurred other income of $3,409,186 consisting of interest income of $2,990 from the Trust and operating bank accounts and a $3,406,196 gain from a decrease in the fair value of the Company’s Warrant liability. Through September 30, 2021, our efforts have been limited to organizational activities, activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters. We have not generated any income, other than interest income earned on the proceeds held in the Trust and operating bank accounts.
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For the nine months ended September 30, 2021, we incurred a loss from operations of $840,395, including legal and professional fees of $477,506, directors’ fee of $105,000, insurance expenses of $112,192 and other general operation expenses totaling $145,697. In addition to the loss from operations, we incurred other net expenses of $151,161 consisting of interest income of $8,896 from the Trust and operating bank accounts, $151,846 loss from an increase in the fair value of the Company’s Warrant liability, and $8,211 in Company offering costs. Through September 30, 2021, our efforts have been limited to organizational activities, activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters. We have not generated any income, other than interest income earned on the proceeds held in the Trust and operating bank accounts.
At September 30, 2022, $15,355,738 was held in the Trust Account (including $4,025,000 of deferred underwriting discounts and commissions).
Except for the withdrawal of interest to pay our taxes and up to $100,000 to pay dissolution expenses, if any, our amended and restated certificate of incorporation (the “Charter”) provides that none of the funds held in trust will be released from the Trust Account until such time as or under the following circumstances (i) the completion of an initial business combination; (ii) the redemption of any of the shares of Class A common stock included in the units sold in the Public Offering (the “Units”) properly submitted in connection with a stockholder vote to amend the Charter to modify the substance or timing of the Company’s obligation to redeem 100% of the common stock included in the Units being sold in the Public Offering if the Company does Offering if the Company does not complete an initial business combination within 18 months from the closing of the Public Offering or with respect to any other material provisions relating to stockholders’ rights or pre-initial business combination activity or (iii) the redemption of 100% of the shares of Class A common stock included in the Units sold in the Public Offering if we are unable to complete a business combination within such 18 month period. Through December 31, 2020, we have not withdrawn any funds from interest earned on the trust proceeds. Other than the deferred underwriting discounts and commissions, no amounts are payable to the underwriters of the Public Offering in the event of a business combination.
We have also agreed to reimburse an affiliate of the sponsor for office space, secretarial and administrative services provided to members of our management team, in an amount not to exceed $10,000 per month in the event that such space and/or services are utilized and we do not pay a third party directly for such services. Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees. For the three and nine months ended September 30, 2022 and 2021, no amounts for these administrative services were charged to the statement of operations or paid.
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, we had cash outside our Trust Account of $252,481, available for working capital needs and a working capital deficit of $3,454,666 (excluding federal income and Delaware franchise taxes). We intend to use the funds held outside the Trust Account for consummating the Business Combination.
As of September 30, 2022, we had marketable securities held in the Trust Account of $15,355,738 consisting of mutual funds. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2022, we did not withdraw any interest earned on the Trust Account to pay our taxes. All remaining cash was held in the Trust Account and is generally unavailable for our use, prior to an initial business combination.
For the nine months ended September 30, 2022, cash used in operating activities was $1,452,123. Net income of $3,202,279 was primarily driven by a change in the fair value of the Warrants of $6,073,820, changes in fair value of convertible promissory note of $250,179, interest income from the Trust Account of $144,609, and an increase in accounts payable, taxes payable and accrued expenses of $1,814,206. On May 20, 2022, 10,036,744 shares of our class A common stock were redeemed. As a result, we withdrew $102,894,278 from the Trust account.
For the nine months ended September 30, 2021, cash used in operating activities was $378,298. Net loss of $991,556 was primarily driven by a change in the fair value of the Warrants of $151,846 and an increase in accounts payable and accrued expenses of $341,194
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