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.
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
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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 six months ended June 30, 2022, $60,969 was
borrowed under the Promissory Notes (see Note 5) and deposited in the Trust
Account.
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").
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 June 30, 2022, we incurred a loss from operations of
$1,648,928. Net loss for the Company of $519,951 included the loss from
operations and tax expense of $4,032, offset by the changes in fair value of
warrant liability of $1,062,919, changes in fair value of convertible promissory
note of $3,049 and interest income from the Trust Account of $67,041.
For the six months ended June 30, 2022, we incurred a loss from operations of
$2,525,125, including legal and professional fees of $2,316,997, directors' fee
of $52,500, insurance expenses of $74,384 and other general operation expenses
totalling $81,245. We also incurred $4,032 in tax expenses. In addition to the
loss from operations, we realized other income of $5,501,447 consisting of
interest income of $77,563 from the Trust and operating bank accounts, a gain on
the change in fair value of the convertible promissory note of $109,291 and a
$5,314,593 gain from a decrease in the fair value of the Company's warrant
liability. Through June 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.
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For the three months ended June 30, 2021, we incurred a loss from operations of
$257,346. Net loss for the Company of $2,770,153 included the loss from
operations, changes in fair value of warrant liability of $2,515,778 offset by
interest income from the Trust Account of $2,971.
For the six months ended June 30, 2021, we incurred a loss from operations of
$457,848. Net loss for the Company of $4,018,195 included the loss from
operations, changes in fair value of warrant liability of $3,558,042 and
transaction costs of $8,211, offset by interest income from the Trust Account of
$5,906.
At June 30, 2022, $15,105,758 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 six
months ended June 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 June 30, 2022, we had cash outside our Trust Account of $139,927,
available for working capital needs and a working capital deficit of $2,268,718
(excluding Delaware franchise taxes). We intend to use the funds held outside
the Trust Account for consummating the Business Combination.
As of June 30, 2022, we had marketable securities held in the Trust Account of
$15,105,758 consisting of mutual funds. Interest income on the balance in the
Trust Account may be used by us to pay taxes. Through June 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 six months ended June 30, 2022, cash used in operating activities was
$1,137,582. Net income of $2,972,290 was primarily driven by a change in the
fair value of the Warrants of $5,314,593, changes in fair value of convertible
promissory note of $109,291, interest income from the Trust Account of $77,563,
and an increase in accounts payable, taxes payable and accrued expenses of
$1,391,548. 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 six months ended June 30, 2021, cash used in operating activities was
$265,883. Net loss of $4,018,195 was primarily driven by a change in the fair
value of the Warrants of $3,558,042, transaction costs of $8,211, interest
earned on cash held in Trust Account of $5,844 and an increase in accounts
payable and accrued expenses of $191,903.
On March 24, 2022, our Sponsor has agreed to loan us up to $1,500,000 as may be
required (the "Working Capital Loans"). If we complete a business combination,
we would repay the Working Capital Loans. In the event that a business
combination does not close, we may use a portion of proceeds held outside the
Trust Account to repay the Working Capital Loans, but no proceeds held in the
Trust Account would be used to repay the Working Capital Loans. Such Working
Capital Loans are evidenced by a promissory note. The
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notes would either be repaid upon consummation of a business combination,
without interest, or, at the lender's discretion, or converted upon consummation
of a business combination into additional Private Warrants equal to $1.00 per
Private Warrant.
If our estimate of the costs of completing the contemplated business combination
are less than the actual amount necessary to do so, we 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, we may need to
obtain other financing either to complete a Business Combination or because we
become obligated to redeem a significant number of public shares upon
consummation of a Business Combination, in which case we may issue additional
securities or incur debt in connection with such business combination. Subject
to compliance with applicable securities laws, we would only complete such
financing simultaneously with the completion of a Business Combination. If we
are unable to complete a Business Combination because we do not have sufficient
funds available, we will be forced to cease operations and liquidate the Trust
Account. In addition, following a Business Combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
We have until November 24, 2022 to consummate a Business Combination. It is
uncertain that we 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. Management has determined that
the mandatory liquidation, should a Business Combination not occur, and
potential subsequent dissolution raises substantial doubt about our 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.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements as of June 30, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or entered into any non-financial agreements involving assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities other than an administrative agreement to
reimburse our sponsor for office space, secretarial and administrative services
provided to members of the Company's management team by the sponsor, members of
our sponsor, and the Company's management team or their affiliates in an amount
not to exceed $10,000 per month in the event such space and/or services are
utilized and the Company does not pay a third party directly for such services,
from the date of closing of the Public Offering. Upon completion of a business
combination or the Company's liquidation, the Company will cease paying these
monthly fees.
The underwriters are entitled to a deferred fee of $0.35 per units, or
$4,025,000 in the 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.
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.
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Critical Accounting Policies
The preparation of consolidated condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated condensed financial
statements, and income and expenses during the periods reported. Actual results
could materially differ from those estimates. We have identified the following
as our critical accounting policies:
Derivative Warrant Liabilities
We account for the warrants issued in connection with our initial public
offering in accordance with Accounting Standards Codification ("ASC") 815-40,
"Derivatives and Hedging-Contracts in Entity's Own Equity" ("ASC 815"), under
which the warrants do not meet the criteria for equity classification and must
be recorded as liabilities. As the warrants meet the definition of a derivative
as contemplated in ASC 815, the Warrants are measured at fair value at inception
and at each reporting date in accordance with ASC 820, Fair Value Measurement,
with changes in fair value recognized in the Statements of Operations in the
period of change.
Convertible Promissory Note
On March 24, 2022, the Sponsor agreed to loan us up to $1,500,000 to be used for
a portion of the expenses of the Company. At the option of the Sponsor, at any
time on or prior to the maturity date, any unpaid principal amount outstanding
may be converted into whole warrants ("Conversion Warrants") to purchase Class A
common stock at a conversion price equal to $1.00 per warrant. We elected the
fair value option as the reporting value of the Convertible Promissory Note. As
a result of applying the fair value option, we record 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 consolidated
condensed 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 assumption a market participant would use in pricing the asset or
liability.
Redeemable Shares of Class A Common Stock
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption are
classified as a liability instrument and are measured at fair value.
Conditionally redeemable common stock (including common stock that feature
redemption rights that are either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely within our
control) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our redeemable Class A common stock features
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, shares of
redeemable Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' deficit section of our balance
sheets.
On May 18, 2022, we held a special meeting in lieu of an annual meeting pursuant
to which our stockholders approved extending the date by which we had to
complete a Business Combination from May 24, 2022 to November 24, 2022. In
connection with the approval of the extension, the stockholders elected to
redeem an aggregate of 10,036,744 class A common stock. As a result, an
aggregate of $102,894,278 (or approximately ($10.25 per share) was released from
the Trust Account to pay such stockholders. Accordingly, as of June 30, 2022 and
December 31, 2021, 1,463,256 and 11,500,000 shares of class A common stock
subject to possible redemption, respectively, are presented at redemption value
as temporary equity, outside of the stockholders' deficit section of our balance
sheets.
Net Income (Loss) per Share
We have 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 15,184,550 potential
common stock for outstanding warrants to purchase our stock were excluded from
diluted earnings per share for the three and six months ended June 30, 2022 and
2021 because the warrants are contingently exercisable, and the contingencies
have not yet been met. As a result, diluted net loss per common stock is the
same as basic net loss per common stock for the periods.
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Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 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) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
As we are a smaller reporting company, adoption of ASU 2020-06 will be required
for fiscal years beginning after December 15, 2023, including interim periods
with those fiscal years. The Company is still evaluating the impact of ASU
2020-06 and will adopt as required.
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