The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K. This discussion contains forward-looking statements reflecting our
current expectations, estimates and assumptions concerning events and financial
trends that may affect our future operating results or financial position.
Actual results and the timing of events may differ materially from those
contained in these forward-looking statements due to a number of factors,
including those discussed in the sections entitled "Risk Factors" and
"Forward-Looking Statements" appearing elsewhere in this Annual Report on
Form 10-K.
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 Public Offering
that closed on November 24, 2020 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 our initial business combination (as
described below) is not consummated, expect to continue to incur significant
costs in the pursuit of our acquisition plans. We cannot guaranty that our plan
to complete our initial business combination, including the proposed business
combination will be successful.
Recent Developments
Charter Amendments
On May 18, 2022, we convened its special meeting in lieu of an annual meeting of
stockholders at which our stockholders approved an amendment to our second
amended and restated certificate of incorporation extending the date by which we
must consummate our initial business combination from May 24, 2022 to November
24, 2022. In connection therewith, holders of 10,036,744 public shares exercised
their right to redeem such public shares for a pro rata portion of the Trust
Account. 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. Additionally, for each one-month extension, the Sponsor agreed to
contribute, as a loan, to the Company $60,969, or approximately $0.04 per public
share not redeemed in connection with such extension amendment. Through November
2022 an aggregate of $365,814 was loaned to the Company and subsequently
deposited by the Company into the Trust Account.
On November 23, 2022, we convened its special meeting in lieu of an annual
meeting of stockholders at which our stockholders approved a further amendment
to our second amended and restated certificate of incorporation extending the
date by which we must consummate our initial business combination from November
24, 2022 to May 24, 2023. In connection therewith, holders of 954,800 public
shares exercised their right to redeem such public shares for a pro rata portion
of the Trust Account. On November 21, 2022, the
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Company paid from the Trust Account an aggregate amount of $10,142,765, or
approximately $10.62 per share to such redeeming shareholders. Additionally, in
connection with such extension amendment, Wentworth agreed to pay for certain
merger related expenses, including depositing $69,218 per month, or
approximately $0.25 per share for each public share not redeemed in connection
with the extension amendment, into the Trust Account through May 2023. As of
December 31, 2022, Wentworth owes an aggregate of $198,522 to the Company for
these items.
Our Charter requires us to provide our public stockholders with the opportunity
to redeem their public shares for cash if we propose an amendment to our Charter
that would modify the substance or timing of our obligation to redeem 100% of
our public shares if we do not consummate our initial business combination by
May 24, 2023 or with respect to any other material provisions relating to
stockholders' rights or pre-initial business combination activity. If we are
unable to consummate our initial business combination by May 24, 2023, we may
seek to amend our charter to further extend the time to consummate an initial
business combination in order to effectuate our initial business combination.
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
("Holdings"), Kingswood Merger Sub, Inc., a Delaware corporation ("Kingswood
Merger Sub"), Wentworth Merger Sub, LLC, a Delaware limited liability company
("Wentworth Merger Sub"), and Wentworth Management Services LLC, a Delaware
limited liability company ("Wentworth"). Each of Holdings, Kingswood Merger Sub
and Wentworth Merger Sub are newly formed entities that were formed for the sole
purpose of entering into and consummating the transactions set forth in the
Merger Agreement. Holdings is a wholly-owned direct subsidiary of Kingswood and
both Kingswood Merger Sub and Wentworth Merger Sub are wholly-owned direct
subsidiaries of Holdings.
The business combination contemplated by the Merger Agreement is structured as a
"double dummy" transaction, pursuant to which: (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"); (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").
In connection with the Kingswood Merger, our stockholders will have the right to
receive (i) one share of Holdings common stock in exchange for each share of
Class A common stock outstanding immediately prior to the effective time of the
Kingswood Merger, and (ii) one Holdings warrant in exchange for each public
warrant of the Company outstanding immediately prior to the effective time of
the Kingswood Merger. Each such Holdings warrant will entitle the holder thereof
to purchase one share of Holdings common stock at a price of $11.50 per share
and will have terms comparable to the public warrants.
Our sponsor, as a stockholder of the Company, will have the right to receive (i)
one share of Holdings common stock in exchange for each Founder Share
outstanding immediately prior to the effective time of the Kingswood Merger, and
(ii) up to one Holdings warrant in exchange for each Private Placement Warrant
outstanding immediately prior to the effective time of the Kingswood Merger,
subject to the satisfaction of certain conditions. Each such Holdings warrant
will entitle the holder thereof to purchase one share of Holdings common stock
at a price of $11.50 per share and will have terms comparable to the private
placement warrants.
In connection with the Transactions, the consideration payable to
securityholders in Wentworth (the "Wentworth Merger Consideration") will consist
of Holdings common shares issued on the closing date of the Transactions (the
"Share Consideration"), and the assumption of all indebtedness of Wentworth as
of the closing date of the Transactions (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;
provided, however, that, in no event shall the Wentworth Merger Consideration be
less than the Minimum Wentworth Share Amount.
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The Merger Agreements contains additional representations, warranties,
covenants, conditions precedent and other terms and conditions customary for
transactions of this type, including, but not limited to approval by our
shareholders of the Merger Agreement. The terms of the Merger Agreement and
other related ancillary agreements are summarized in more detail in our Current
Report on Form 8-K filed with the SEC on July 7, 2022.
On December 30, 2022, the Company, Holdings, and Wentworth entered into a side
letter agreement to the Merger Agreement revising the Merger Agreement to extend
the termination date of the Merger Agreement from December 30, 2022 to June 30,
2023.
On March 20, 2023, Kingswood, Holdings, Kingswood Merger Sub, Wentworth Merger
Sub and Wentworth entered that certain First Amendment to the Merger Agreement
to, among other things, (i) amends and restates the definition of "Transaction
Expenses Shortfall" in the Merger Agreement to an amount equal to (x) the
Outstanding Transaction Expenses (as defined in the Merger Agreement) minus (y)
the Available Closing Date Cash (as defined in the Merger Agreement); (ii) amend
and restate the condition precedent in Section 8.03(k) of the Merger Agreement
to require that Available Closing Date Cash be sufficient to cover an amount
equal to the sum of $3,500,000 and the Outstanding Transaction Expenses; and
(iii) amend and restate the termination rights in Section 9.01(c)(B) to allow
for the termination of the Merger Agreement if the Available Closing Date Cash
is insufficient to cover the sum of $3,500,000 and the Outstanding Transaction
Expenses. Support Agreements
Contemporaneously with the execution of the Merger Agreement, (i) certain
holders of the Kingswood common stock, including our sponsor, entered into the
Founder Support Agreement, pursuant to which, among other things, such holders
agreed to approve the Merger Agreement, and (ii) securityholders of Wentworth
representing a majority of Wentworth's outstanding membership interests entered
into the Wentworth Support Agreement, pursuant to which, among other things,
such Wentworth securityholders agreed to approve the Merger Agreement.
In addition, the holders of our private placement warrants have agreed that at
the effective time of the Kingswood Merger, the aggregate number of issued and
outstanding private placement warrants held by the Sponsor Support Holders shall
be adjusted in the following manner: (i) if the aggregate of the cash remaining
in the Trust Account and proceeds from any PIPE is less than $15,000,000 then
100% of the private placement warrants will be forfeited; (ii) if the aggregate
of the cash remaining in the Trust Account and proceeds from any PIPE is equal
to or greater than $15,000,000 but less than $17,500,000 then 90% of the private
placement warrants will be forfeited; (iii) if the aggregate of the cash
remaining in the Trust Account and proceeds from any PIPE is equal to or greater
than $17,500,000 but less than $20,000,000 then 80% of the private placement
warrants would be forfeited; (iv) if the aggregate of the cash remaining in the
Trust Account and proceeds from any PIPE is equal to or greater than $20,000,000
but less than $22,500,000 then 70% of the private placement warrants will be
forfeited; (v) if the aggregate of the cash remaining in the Trust Account and
proceeds from any PIPE is equal to or greater than $22,500,000 but less than
$25,000,000 then 60% of the private placement warrants will be forfeited; (vi)
if the aggregate of the cash remaining in the Trust Account and proceeds from
any PIPE is equal to or greater than $25,000,000 but less than $27,500,000 then
50% of the private placement warrants will be forfeited; (vii) if the aggregate
of the cash remaining in the Trust Account and proceeds from any PIPE is equal
to or greater than $27,500,000 but less than $30,000,000 then 40% of the private
placement warrants will be forfeited; (viii) if the aggregate of the cash
remaining in the Trust Account and proceeds from any PIPE is equal to or greater
than $30,000,000 then 0% of the private placement warrants will be forfeited.
Results of Operations
For the year ended December 31, 2022, we incurred a loss from operations of
$4,784,480, including legal and professional fees of $4,164,702, directors' fee
of $105,000, insurance expenses of $132,740 and other general operating expenses
totaling $382,038. In addition to the loss from operations, we realized other
income of $6,173,524 consisting of interest income of $255,057 from the Trust
and operating bank accounts, a gain on the change in fair value of the
convertible promissory note of $148,338 and a $5,770,129 gain from a decrease in
the fair value of the Company's warrant liability. For the year ended December
31, 2022, our efforts have been limited to activities relating to identifying
and evaluating prospective acquisition candidates, activities related to
consummating the business combination 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 and convertible promissory note at each reporting period.
For the year ended December 31, 2021, we incurred a loss from operations of
$1,208,657, including legal and professional fees of $570,523, directors' fee of
$131,250, insurance expenses of $150,000 and other general operation expenses
totaling $356,884. In
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addition to the loss from operations, we incurred other net income of $762,922
consisting of interest income of $11,906 from the Trust and operating bank
accounts, $759,227 gain from a decrease in the fair value of the Company's
warrant liability, offset by $8,211 in offering costs. Through December 31,
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. 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.
At December 31, 2022, $5,514,494 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 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 by May 24, 2023 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 by May 24, 2023, as
extended. Through December 31, 2022, we have not withdrawn any funds from
interest earned on the trust proceeds to pay taxes. 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.
Liquidity, Capital Resources and Going Concern
As of December 31, 2022, we had cash outside our Trust Account of $277,511,
available for working capital needs and a working capital deficit of $4,923,435
(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 December 31, 2022, we had marketable securities held in the Trust Account
of $5,514,494 consisting of a money market mutual funds. Interest income on the
balance in the Trust Account may be used by us to pay taxes. Through December
31, 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. Subsequent to
December 31, 2022, cash held in the money market mutual funds were transferred
to a demand deposit account within the Trust Account.
For the year ended December 31, 2022, cash used in operating activities was
$1,625,934. Net income of $1,352,234 was primarily driven by a change in the
fair value of the Warrants of $5,770,129, changes in fair value of convertible
promissory note of $148,338, interest income from the Trust Account of $254,973,
and change in working capital of $3,195,272. On May 20, 2022 and November 21,
2022, 10,036,744 and 954,800 shares, respectively, of our class A common stock
were redeemed. As a result, we withdrew $113,037,043 from the Trust account.
For the year ended December 31, 2021, cash used in operating activities was
$619,361. Net loss of $445,735 was primarily driven by a change in the fair
value of the warrants of $759,227, interest earned on cash held in Trust Account
of $11,786, transaction costs of $8,211 and changes in working capital of
$589,176.
On March 24, 2022, our Sponsor 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 note will 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
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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 May 24, 2023 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 unless time for which the business
combination is otherwise extended as further outlined above under the heading
"Charter Amendments". Management has determined that the mandatory liquidation,
should a business combination not occur, and potential subsequent dissolution
and our working capital deficiency 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 May 24, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements as of December 31, 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.
Critical Accounting Policies
The preparation of 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,
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disclosure of contingent assets and liabilities at the date of the financial
statements, and income and expenses during the periods reported. Actual results
could materially differ from those estimates. 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 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, 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 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.
On November 23, 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 November 24, 2022 to May
24, 2023. In connection with the approval of the extension, stockholders elected
to redeem an aggregate of 954,800 class A common stock. As a result, an
aggregate of $10,142,765 (or approximately ($10.62 per share) was released from
the Trust Account to pay such stockholders. Accordingly, as of December 31, 2022
and 2021, 508,456 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 the 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 year ended December 31, 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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BINAH CAPITAL GROUP, INC. 