Table of Contents
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us-gaap:RetainedEarningsMember 2021-06-30 iso4217:USD xbrli:shares xbrli:pure utr:Month utr:Day utr:Year iso4217:USD xbrli:shares
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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
No. 001-39987
 
 
GAMING & HOSPITALITY ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
  
84-5014306
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
   
3755 Breakthrough Way #300 Las Vegas, Nevada
  
89135
(Address of principal executive offices)
  
(Zip Code)
(800)
211-8626
(Registrant’s telephone number, including area code)
N/A
(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
Units, each consisting of one share of Class A common stock, $0.0001 par value, and
one-third
of one redeemable warrant to purchase one share of Class A common stock
  
GHACU
  
The Nasdaq Stock Market LLC
Class A common stock, par value $0.0001 per share
  
GHAC
  
The Nasdaq Stock Market LLC
Redeemable warrants, each exercisable for one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment
  
GHACW
  
The Nasdaq Stock Market LLC
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  ☒    No  ☐
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).    Yes  ☒    No  ☐
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   ☐
       
Non-accelerated
filer		   ☒    Smaller reporting company   ☒
       
         Emerging growth company   ☒
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  ☒    No  ☐
As of November 11, 2022
, there were 20,777,500 shares of Class A common stock, $0.0001 per value, and 5,000,000 shares of Class B common stock, $0.0001 par value, issued and outstanding.
 
 
 

Table of Contents

GAMING & HOSPITALITY ACQUISITION CORP.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

 

     Page  

Part I. Financial Information

      1  

Item 1. Interim Financial Statements

      1  

Condensed Balance Sheets

      1  

Unaudited Condensed Statements of Operations

      2  

Unaudited Condensed Statements of Changes in Stockholders’ Deficit

      3  

Unaudited Condensed Statements of Cash Flows

      4  

Notes to Unaudited Condensed Financial Statements

      5  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      19  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      23  

Item 4. Controls and Procedures

      23  

Part II. Other Information

      24  

Item 1. Legal Proceedings

      24  

Item 1A. Risk Factors

      24  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      24  

Item 3. Defaults Upon Senior Securities

      24  

Item 4. Mine Safety Disclosures

      24  

Item 5. Other Information

      24  

Item 6. Exhibits

      24  

Part III. Signatures

     25  

 

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
GAMING & HOSPITALITY ACQUISITION CORP.
CONDENSED BALANCE SHEETS
 
    
September 30,
2022
    
December 31,
2021
  
    
(Unaudited)
        
ASSETS
                 
Current assets
                 
Cash
    $ 702,723     $ 371,678  
Prepaid expenses
      281,821       683,197  
    
 
 
    
 
 
  
Total current assets
      984,544       1,054,875  
Investments held in Trust Account
      201,214,964       200,016,053  
    
 
 
    
 
 
  
Total assets
    $ 202,199,508     $ 201,070,928  
    
 
 
    
 
 
  
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT
                 
Current liabilities
                 
Accounts payable and accrued expenses
    $ 273,269     $ 1,277,271  
Accounts payable – related party
      —         33,333  
Convertible promissory note – related party
      2,500,000       —    
    
 
 
    
 
 
  
Total current liabilities
      2,773,269       1,310,604  
Warrant liabilities
      207,775       4,155,500  
Deferred underwriting fee payable
      7,000,000       7,000,000  
    
 
 
    
 
 
  
Total liabilities
      9,981,044       12,466,104  
    
 
 
    
 
 
  
Commitments and contingencies
                 
Class A common stock subject to possible redemption, $0.0001 par value, 20,000,000
 shares issued and outstanding, at redemption value of $10.06 and $10.00 per share as of September 30, 2022 and December 31, 2021, respectively
      201,214,964       200,000,000  
    
 
 
    
 
 
  
Stockholders’ deficit
                 
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none outstanding
      —         —    
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 777,500 shares issued and outstanding (excluding 20,000,000 shares subject to possible redemption), at September 30, 2022 and December 31, 2021, respectively
      78       78  
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,000,000 shares issued and outstanding
      500       500  
Additional paid in capital
      —         —    
Accumulated deficit
      (8,997,078 )      (11,395,754 ) 
    
 
 
    
 
 
  
Total stockholders’ deficit
      (8,996,500 )      (11,395,176 ) 
    
 
 
    
 
 
  
Total liabilities, Class A common stock subject to possible redemption,
and
stockholders’ deficit
    $ 202,199,508     $ 201,070,928  
    
 
 
    
 
 
  
See accompanying notes to the unaudited condensed financial statements.
 
1
GAMING & HOSPITALITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021
 
    
Three Months
Ended

September 30,

2022
    
Three Months
Ended

September 30,

2021
    
Nine Months
Ended

September 30,

2022
    
Nine Months
Ended

September 30,

2021
  
Operating expenses
    $ 359,268     $ 1,090,145     $ 1,354,727     $ 2,409,552  
    
 
 
    
 
 
    
 
 
    
 
 
  
Loss from operations
      (359,268 )      (1,090,145 )      (1,354,727 )      (2,409,552 ) 
Other income:
                                 
Interest income on marketable securities held in Trust Account
      903,600       2,790       1,198,911       12,011  
Change in fair value of warrant liabilities
      616,399       2,429,224       3,947,725       1,249,241  
    
 
 
    
 
 
    
 
 
    
 
 
  
Other income, net
      1,519,999       2,432,014       5,146,636       1,261,252  
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss) before income tax
    $ 1,160,731     $ 1,341,869     $ 3,791,909     $ (1,148,300 ) 
Income tax benefit (expense)
   
(178,269 )      —      
(178,269 )      —    
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss)
    $ 982,462     $ 1,341,869     $ 3,613,640     $ (1,148,300 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average number of common shares outstanding:
                                 
Class A - Public shares
      20,000,000       20,000,000       20,000,000       17,500,000  
Class A - Private shares
      777,500       777,500       777,500       680,313  
Class B - Common stock
      5,000,000       5,000,000       5,000,000       4,921,875  
Basic and diluted net income (loss) per share:
                                 
Class A - Public shares
    $ 0.04     $ 0.05     $ 0.14     $ (0.05 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Class A - Private shares
    $ 0.04     $ 0.05     $ 0.14     $ (0.05 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Class B - Common stock
    $ 0.04     $ 0.05     $ 0.14     $ (0.05 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
See accompanying notes to the unaudited condensed financial statements.
 
2
GAMING & HOSPITALITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
 

 
  
Class A
Common Stock
 
  
Class B
Common Stock
 
  
Additional
Paid-in

Capital
 
  
Accumulated
Deficit
 
 
Total
Stockholders’
Deficit
 
 
  
Shares
 
  
Amount
 
  
Shares
 
  
Amount
 
Balance—December 31, 2021
      777,500      $ 78        5,000,000      $ 500      $ —        $ (11,395,754 )    $ (11,395,176 ) 
Net income
      —          —          —          —          —          1,721,307       1,721,307  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Balance – March 31, 2022 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —        $ (9,674,447 )    $ (9,673,869 ) 
Net income
      —          —         
—
       
—
        —          909,871       909,871  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Balance – June 30, 2022 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —        $ (8,764,576 )    $ (8,763,998 ) 
Net income
      —          —          —          —          —          982,462       982,462  
Accretion of Class A Shares to Redemption Value
      —          —          —          —          —          (1,214,964 )      (1,214,964 ) 
Balance – September 30, 2022 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —        $ (8,997,078 )    $ (8,996,500 ) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2021
 
 
  
Class A
Common Stock
 
  
Class B
Common Stock
 
  
Additional
Paid-in

Capital
 
 
Accumulated
Deficit
 
 
Total
Stockholders’
Equity
(Deficit)
 
 
  
Shares
 
  
Amount
 
  
Shares
 
  
Amount
 
Balance—December 31, 2020
      —        $ —          5,000,000      $ 500      $ 24,500     $ (10,949 )    $ 14,051  
Issuance of common stock (private units), net of proceeds allocated to private warrant liability
      777,500        78        —          —          7,544,264       —         7,544,342  
Net loss
      —          —          —          —          —         (1,104,873 )      (1,104,873 ) 
Accretion to Class A common stock redemption amount
      —          —          —          —          (7,568,764 )      (9,708,653 )      (17,277,417 ) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance – March 31, 2021 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —       $ (10,824,475 )    $ (10,823,897 ) 
Net loss
      —          —         
—
       
—
        —         (1,385,296 )      (1,385,296 ) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance – June 30, 2021 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —       $ (12,209,771 )    $ (12,209,193 ) 
Net income
      —          —          —          —          —         1,341,869       1,341,869  
Balance – September 30, 2021 (unaudited)
      777,500      $ 78        5,000,000      $ 500      $ —       $ (10,867,902 )   $ (10,867,324 )
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
See accompanying notes to the unaudited condensed financial statements.
 
3
GAMING & HOSPITALITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021
 
    
Nine Months
Ended

September 30, 2022
    
Nine Months
Ended

September 30, 2021
  
Cash flow from operating activities:
                 
Net income (loss)
    $ 3,613,640     $ (1,148,300 ) 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                 
Interest income earned on marketable securities held in Trust Account
      (1,198,911 )      (12,011 ) 
Change in fair value of warrant liabilities
      (3,947,725 )      (1,249,241 ) 
Transaction costs allocable to warrant liabilities
      —         344,981  
Changes in operating assets and liabilities:
                 
Prepaid expenses
      401,376       (740,237 ) 
Accounts payable and accrued expenses
      (1,004,003 )      584,845  
Accounts payable – related party
      (33,332 )      —    
    
 
 
    
 
 
  
Net cash used in operating activities
      (2,168,955 )      (2,219,963 ) 
    
 
 
    
 
 
  
Cash flow from investing activities:
                 
Investment of cash in Trust Account
      —         (200,000,000 ) 
    
 
 
    
 
 
  
Net cash used in investing activities
      —         (200,000,000 ) 
    
 
 
    
 
 
  
Cash flows from financing activities:
                 
Proceeds from promissory note—Sponsor
      —         37,470  
Paydown of promissory note—Sponsor
      —         (71,706 ) 
Proceeds from convertible promissory note – related party
      2,500,000       —    
Payment of deferred offering costs
      —         (4,721,495 ) 
Proceeds from issuance of common stock (public units)
      —         200,000,000  
Proceeds from issuance of common stock (private units)
      —         7,775,000  
    
 
 
    
 
 
  
Net cash provided by financing activities
      2,500,000       203,019,269  
    
 
 
    
 
 
  
Net change in cash
      331,045       799,306  
Cash at the beginning of the period
      371,678       25,000  
    
 
 
    
 
 
  
Cash at the end of the period
    $ 702,723     $ 824,306  
    
 
 
    
 
 
  
Supplemental disclosure of
non-cash
activities:
                 
Deferred underwriting fees payable
    $ 7,000,000     $ 7,000,000  
    
 
 
    
 
 
  
Initial measurement of warrants issued in connection with the Initial Public Offering accounted for as liabilities
    $ —       $ (6,097,325 ) 
    
 
 
    
 
 
  
See accompanying notes to the unaudited condensed financial statements.
 
4
GAMING & HOSPITALITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS
Gaming & Hospitality Acquisition Corp. (the “Company”) is a blank check company incorporated as a Delaware corporation on March 4, 2020 (“Inception”). The Company was 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 (the “Business Combination”). Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on the gaming and hospitality sectors.
The Company is sponsored by Affinity Gaming Holdings, L.L.C. (the “Sponsor”), the indirect sole stockholder of Affinity Gaming, a diversified casino gaming company headquartered in Las Vegas, Nevada, with regional gaming operations in three states, an online betting presence, and digital and media platforms, and full voting control of the Sponsor is held by entities managed by affiliates of Z Capital Partners, L.L.C. On July 1, 2021, Affinity Gaming acquired Sports Information Group, LLC (d/b/a Daily Racing Form LLC) and changed its name to Affinity Interactive. Concurrently with the Business Combination, the Company currently intends to merge with Affinity Interactive. The Company cannot provide any assurance that such a merger with Affinity Interactive will occur at all, or, if it does, it cannot provide any assurance as to the timing or terms thereof. However, the Company will not complete a Business Combination with only Affinity Interactive.
As of September 30, 2022, the Company had not commenced any operations. All activity through September 30, 2022 relates to the Company’s formation and the initial public offering (the “Initial Public Offering,” or “IPO”), which is described in Note 3, and, subsequent to the IPO, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates
non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering was declared effective on February 2, 2021 (the “Effective Date”). On February 5, 2021, the Company consummated the Initial Public Offering of 20,000,000 units (the “Public Units”), which includes the exercise by the underwriter of its over-allotment option in the amount of 2,500,000 Public Units, at $10.00 per Public Unit, generating gross proceeds of $200,000,000 which is described in Note 3. Each Public Unit consists of one share of Class A common stock of the Company (the “Public Shares”) and
one-third
of one redeemable warrant (the “Public Warrants”).
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 777,500 units (the “Private Units”) at a price of $10.00 per Private Unit in a private placement to the Sponsor, generating gross proceeds of $7,775,000. Each Private Unit consists of one share of Class A common stock of the Company (the “Private Shares”) and
one-third
of one redeemable warrant (the “Private Warrants”). See Note 4.
Transaction costs amounted to $11,755,731, consisting of $4,000,000 in cash underwriting fees, $7,000,000 of deferred underwriting fees and $755,731 of other offering costs. Of these transaction costs, $344,981 were determined to be allocable to the warrant liabilities and were expensed in formation costs and other operating expenses within the condensed statements of operations.
Following the closing of the Initial Public Offering on February 5, 2021, an amount of $200,000,000 ($10.00 per Public Unit) from the gross proceeds of the sale of the Public Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (the “Trust Account”), located in the United States and will be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule
2a-7
of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be generally applied toward completing a Business Combination. Furthermore, there is no assurance that the Company will be able to successfully complete a Business Combination.
As required by the rules of The Nasdaq Stock Market (“Nasdaq”), the Business Combination will be approved by a majority of the Company’s independent directors. Nasdaq rules also require that the Company must complete one or more Business Combinations having an aggregate fair market value of at least 80% of the value of the assets held in the Trust Account (excluding deferred underwriting commissions and taxes payable on the interest income earned on the Trust Account).
 
5
The Company anticipates structuring the Business Combination in such a way so that the post-Business Combination company in which the Company’s Public Stockholders (as defined below) own shares will own or acquire 100% of the equity interests or assets of the target business. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
The Company will provide the holders of its Public Shares with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of two business days prior to the completion of the Business Combination
(at redemption value of $10.06 and
$10.00 per Public
Share as of September 30, 2022 and December 31, 2021, respectively),
including interest earned and not previously released to the Company to pay franchise and income taxes, less up to $100,000 of interest to pay dissolution expenses, divided by the number of then outstanding Public Shares, subject to certain limitations. The
per-share
amount distributed to investors who properly redeem their shares will not be reduced by deferred underwriting commissions the Company will pay to the underwriter. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Company’s Sponsor, officers and directors (the “Initial Stockholders”) have agreed to waive their redemption rights with respect to any Founder Shares (as defined below) (see Note 5) and Private Shares held by them (see Note 4) and any Public Shares they may acquire during or after the Initial Public Offering in connection with a Business Combination or otherwise.
The opportunity to redeem all or a portion of Public Shares will be provided either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require the Company to seek stockholder approval under the law or Nasdaq listing requirements.
In the event the Company conducts redemptions pursuant to the tender offer rules, the offer to redeem will remain open for at least 20 business days, in accordance with Rule
14e-1(a)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company will not be permitted to complete the Business Combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on the Public Stockholders not tendering more than a specified number of Public Shares, which number will be based on the requirement that the Company may not redeem Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon completion of the Business Combination and after payment of the deferred underwriting commissions (so that the Company is not subject to the “penny stock” rules of the Securities and Exchange Commission (the “SEC”)) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to the Business Combination. If the Public Stockholders tender more shares than the Company has offered to purchase, the Company will withdraw the tender offer and not complete the Business Combination.
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of the Business Combination and does not conduct redemptions pursuant to the tender offer rules, the amended and restated certificate of incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares, without the prior consent of the Company.
The Company has until February 5, 2023 (unless stockholders approve an amendment to the amended and restated certificate of incorporation to extend this date) to complete a Business Combination (the “Combination Period”). If the Company has not completed a Business Combination with 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 ten business days thereafter, redeem the Public Shares, at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to warrants, which will expire worthless if the Company fails to complete an initial Business Combination within the Combination Period.
 
6
In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $10.00 per Public Share and (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, in each case net of amounts to pay the Company’s franchise and income taxes, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account, nor will it apply to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.

On November 
14
, 2022, the Company filed a preliminary proxy statement in connection with a special meeting to be held for the purpose of voting on: (i) a proposal to permit the Company to liquidate and wind up early by amending the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) to (i) change the date by which the Company must consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, which we refer to as our initial business combination, from February 5, 2023 (the “Original Termination Date”) to such other date as shall be determined by the Board and publicly announced by the Company, provided that such other date shall be no sooner than the date of the effectiveness of the amendment to the Charter pursuant to the DGCL and no later than December 30, 2022 (the “Amended Termination Date”), (ii) remove the Redemption Limitation (as defined in the Charter) to allow the Company to redeem 20,000,000 shares of Class A common stock, par value $0.0001 per share, initially included in the units sold as part of the IPO (the “Public Shares”), notwithstanding the fact that such redemption would result in the Company having net tangible assets of less than $5,000,001, and (iii) allow the Company to remove up to $100,000 of interest earned on the amount on deposit in the Trust Account (as defined below) prior to redeeming the Public Shares in connection with the Special Meeting in order to pay dissolution expenses (the “Charter Amendment Proposal”); and (ii) amend the Investment Management Trust Agreement, dated February 2, 2021 (the “Trust Agreement”), by and between the Company and Continental Stock Transfer & Trust Company, a New York corporation, as trustee (“Continental”) to change the date on which Continental must commence liquidation of the trust account (the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”) from the Original Termination Date to the Early Termination Date (such proposal, the “Early Termination Trust Amendment Proposal” and together with the Charter Amendment Proposal, the “Amendment Proposals”); and (iii) to approve the adjournment of the Special Meeting from time to time to solicit additional proxies in favor of the Amendment Proposals or if otherwise determined by the chairperson of the Special Meeting to be necessary or appropriate (the “Adjournment Proposal,” and with the Charter Amendment Proposal and the Amendment Proposals, the “Proposals”).
If the Proposals are approved, and because the Company will not be able to complete an initial Business
Combination
by the Amended Termination Date, the Company will immediately after the Special Meeting, cease all operations, except for the purpose of winding up and as promptly as reasonably possible, but not more than ten business days thereafter, redeem all Public Shares (the “Mandatory Redemption”). As promptly as reasonably possible following such Mandatory Redemption, and subject to the approval of the Company’s then remaining stockholders and the Board, in accordance with applicable law, dissolve and liquidate, subject in each case to the Company’s obligations under the General Corporation Law of the State of Delaware to provide for claims of creditors and the requirements of other applicable law.
Pursuant to the amended and restated certificate, a Public Stockholder shall be
provided
with the opportunity to redeem their Public Shares for cash if the Charter Amendment Proposal is approved. Notwithstanding the foregoing, if the Charter Amendment Proposal is approved, and because the Company will not be able to complete an initial Business Combination by the Amended Termination Date, the Company will be obligated to redeem all Public Shares as promptly as reasonably possible after the Amended Termination Date. Therefore, no action is required by our Public Stockholders to redeem their Public Shares. If the Proposals are approved, the Public Shares will be automatically redeemed as part of the Mandatory Redemption.
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 8 of Regulation
S-X
of 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 comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021 as filed with the SEC on March 28, 2022, which contains the audited consolidated financial statements and notes thereto. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.
Liquidity, Capital Resources, and Going Concern
As of September 30, 2022 and December 31, 2021, the Company had $702,723 and $371,678 in cash outside of the Trust Account, respectively and $1,198,911 of interest income available in the Trust Account to pay for tax obligations as of September 30, 2022.
 In addition, as of September 30, 2022 and December 31, 2021, we had marketable securities held in the Trust Account of $201,214,964 (including $1,214,964 of interest income) and $200,016,053 (including $12,011 of interest income), respectively, consisting of investments in qualifying money market funds that invest solely in U.S. treasury securities. 
The Company’s liquidity needs to date have been satisfied through a capital contribution of $25,000 from the Sponsor to purchase the Founder Shares (as defined below), the loan under the Note (as defined below) of $500,000 (see Note 5), the Working Capital Loan (as defined below) (see Note 5), and the net proceeds from the consummation of the Private Placement not held in the Trust Account. The Company fully repaid the Note on February 4, 2021. As of September 30, 2022 and December 31, 2021, there was $2,500,000 and $0 outstanding under the Working Capital Loan, respectively.
The Company has incurred and expects to incur additional significant costs in pursuit of its financing and acquisition plans including the proposed Business Combination. In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
205-40,
“Presentation of Financial Statements-Going Concern,” the Company has until February 5, 2023 (unless stockholders approve an amendment to the amended and restated certificate of incorporation to extend this date) to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by such time. If a Business Combination is not consummated by such date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition and 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. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 5, 2023 (unless stockholders approve an amendment to the amended and restated certificate of incorporation to extend this date). The Company intends to complete a Business Combination before the mandatory liquidation date.
 
7
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 auditor 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.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company intends to take advantage of the benefits of this extended transition period.
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 the accompanying unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation, or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimates, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ from those estimates.
Inflation Reduction Act of 2022
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 (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. 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. The IR Act applies only to repurchases that occur after December 31, 2022.
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.
 
8
At this time, it has been determined that none of the IR Act tax provisions have an impact to the Company’s fiscal 2022 tax provision. The Company will continue to monitor for updates to the Company’s business along with guidance issued with respect to the IR Act to determine whether any adjustments are needed to the Company’s tax provision in future periods.
Net Income (Loss) Per Common Share
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” The Company has three classes of shares, which are referred to below as Class A common stock subject to redemption,
Non-redeemable
Class A common stock, and Class B common stock. Income and losses are shared pro rata between the three classes of shares. Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company has not considered the effect of warrants sold in the Initial Public Offering in the calculation of diluted income (loss) per share, since the exercise of the warrants are contingent upon the occurrence of future events. For the three and nine months ended September 30, 2022 and September 30, 2021, the Company did not have any dilutive warrants, securities or other contracts that could potentially, be exercised or converted into common shares. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented.
 
9
A reconciliation of net income (loss) per common share as adjusted for the portion of income that is attributable to common shares subject to redemption is as follows:
 
   
For the three
months ended
September 30, 2022
    
For the three
months ended
September 30, 2021
  
   
Class A
common stock
subject to
redemption
    
Non-redeemable
Class A
common stock
    
Class B
Common
Stock
    
Class A
common stock
subject to
redemption
    
Non-redeemable
Class A
common stock
    
Class B
Common
Stock
  
Basic and diluted net income per common stock
                                                
Numerator:
                                                
Allocation of net income
   $ 762,263     $ 29,633     $ 190,566     $ 1,041,117     $ 40,473     $ 260,279  
Denominator:
                                                
Basic and diluted weighted average shares outstanding
     20,000,000       777,500       5,000,000       20,000,000       777,500       5,000,000  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Basic and diluted net income per common stock
   $ 0.04     $ 0.04     $ 0.04     $ 0.05     $ 0.05     $ 0.05  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  

 
 
For the nine
months ended
September 30, 2022
 
 
For the nine
months ended
September 30, 2021
 
 
 
Class A
common stock
subject to
redemption
 
 
Non-redeemable
Class A
common stock
 
 
Class B
Common
Stock
 
 
Class A
common stock
subject to
redemption
 
 
Non-redeemable
Class A
common stock
 
 
Class B
Common
Stock
 
Basic and diluted net income (loss) per common stock
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
Allocation of net income (loss)
   $ 2,803,717     $ 108,994     $ 700,929     $ (869,928 )   $ (33,818 )   $ (244,554 )
Denominator:
                                                
Basic and diluted weighted average shares outstanding
     20,000,000       777,500       5,000,000       16,243,094       631,450       4,882,597  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Basic and diluted net income (loss) per common stock
   $ 0.14     $ 0.14     $ 0.14     $ (0.05
)
   $ (0.05
)
   $ (0.05
)
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. At September 30, 2022 and December 31, 2021, the assets held in the Trust Account were held in marketable securities deemed to be cash equivalents. The Company had no cash equivalents in its operating account as of September 30, 2022 and December 31, 2021.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”). Shares of Class A common stock subject to mandatory redemption are classified as a liability instrument and are measured at redemption value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets. The Company determined the common stock subject to possible redemption to be equal to the redemption value of approximately $10.06 per share of Class A common stock.
 
10
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. The Class A common stock reflected in the condensed balance sheets is reconciled in the following table as of September 30, 2022 and December 31, 2021:
 
Gross proceeds
    $
200,000,000
  
Less: Proceeds allocated to Public Warrants
      (5,866,667 ) 
Less: Class A common stock issuance costs
      (11,410,750 ) 
Add: Accretion of carrying value to redemption value
      17,277,417  
    
 
 
  
Class A common stock subject to possible redemption, December 31, 2021
    $ 200,000,000  
Add: Accretion of carrying value to redemption value
   
1,214,964  
 
 
 
 
 
Class A common stock subject to possible redemption, September 30, 2022
    $ 201,214,964  
 
 
 
 
 
Offering Costs
Offering costs consist principally of underwriting, legal, and other expenses incurred through the Initial Public Offering that are directly related to the Initial Public Offering. Offering costs of approximately $11.4 million were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as
non-operating
expenses in the condensed statements of operations. Offering costs associated with the Class A common stock were charged against the carrying value of the shares of Class A common stock upon the completion of the Initial Public Offering.
Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).
The Company evaluated the Public Warrants and the Private Warrants (collectively, the “Warrants”) (Note 3, Note 4, Note 8 and Note 9) in accordance with ASC
815-40,
“Derivatives and Hedging — Contracts in Entity’s Own Equity,” and concluded that a provision in the warrant agreement, dated February 2, 2021, between the Company and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agreement”), related to certain 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, the Warrants are recorded as derivative liabilities on the condensed balance sheet and measured at fair value at Inception (on the date of the IPO) and at each reporting date in accordance with ASC Topic 820, “Fair Value Measurement,” with changes in fair value recognized in the condensed statement of operations in the period of change.
Income Taxes
The Company accounts for income taxes under ASC Topic 740, “Income Taxes,” (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of September 30, 2022, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since Inception.
 
11
Components of Equity
Upon consummation of the IPO, the Company issued Class A common stock and Warrants. The Company allocated the proceeds received from the issuance using the
with-and-without
method. Under that method, the Company first allocated the proceeds to the Warrants based on their initial fair value measurement of $6,097,325 and then allocated the remaining proceeds, net of underwriting discounts and offering costs of $11,410,750, to the Class A common stock. The 20,000,000 shares of Class A common stock are presented within temporary equity, as these shares are subject to redemption upon the occurrence of events not solely within the Company’s control.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limits of $250,000. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
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.
Recently Issued 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. Under the Company’s current filing status, ASU
2020-06
is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU
2020-06
would have on its financial position, results of operations or cash flows.
The Company’s management does not believe that there are any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 20,000,000 Public Units at $10.00 per Public Unit (which includes the exercise by the underwriter of its over-allotment option of 2,500,000 Public Units). Each Public Unit consists of one Public Share and
one-third
of one Public Warrant. Each whole Public Warrant entitles the holder thereof to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to certain adjustments. See Note 7.
 
12
NOTE 4. PRIVATE PLACEMENT UNITS
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
777,500
Private Units at a price of $
10.00
per Private Unit (including
50,000
Private Units purchased in connection with the exercise of the underwriter’s over-allotment option). Each Private Unit is identical to the Public Units sold in the Initial Public Offering, except as described in Note 7. A portion of the proceeds from the sale of the Private Units were added to the net proceeds from the Initial Public Offering held in the Trust Account.
There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Founder Shares or the Private Shares, and the Private Warrants will expire worthless if the Company does not consummate a Business Combination by February 5, 2023 (unless stockholders approve an amendment to the amended and restated certificate of incorporation to extend this date).
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In June 2020, the Sponsor purchased 4,312,500 shares of Class B common stock (the “Founder Shares”) for an aggregate purchase price of $25,000. On February 2, 2021, the Company effected a stock dividend of 0.15942029 of a share of Class B common stock for each outstanding share of Class B common stock, resulting in the Sponsor holding an aggregate of 5,000,000 Founder Shares. All share and
per-share
amounts have been retroactively restated to reflect the effect of the stock dividend. As a result of the underwriter’s election to fully exercise their over-allotment option, a total of 625,000 of Founder Shares are no longer subject to forfeiture.
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within any
30-trading
day period commencing at least 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, or other similar transaction that results in all of the stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Director Compensation
On February 5, 2021, the Company agreed to pay an aggregate of $375,000 in
one-time
cash bonus payments to its independent directors, which was recognized as general and administrative expense by the Company and included in formation costs and other operating expenses in the condensed statements of operations.
Administrative Support Agreement
The Company entered into an agreement dated as of February 2, 2021, pursuant to which the Company will pay Affinity Interactive, a Nevada corporation and affiliate of its Sponsor, an aggregate monthly fee of $33,333 for office space, utilities, secretarial and administrative support services, and reimbursement of a portion of compensation paid by Affinity Interactive to the Company’s officers and reimbursement of expenses. Upon completion of the Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. The Company had expensed $99,999 and $299,997 of fees
for
the three and nine months ended September 30, 2022, respectively, and
$99,999 and
$266,664
 of fees
for
the three and nine months ended September 30, 2021, respectively. The Company had accrued $
0 and $366,663
 of these fees as of each of September 30, 2022 and December 31, 2021, respectively, which are presented within accounts payable - related party on the condensed balance sheets. 
Advances from Sponsor
On February 2, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate principal amount of $500,000 to pay for certain Initial Public Offering expenses. The Promissory Note was
non-interest
bearing and payable on the earlier of (i) June 30, 2021 or (ii) the consummation of the Initial Public Offering. On February 4, 2021, the outstanding balance of $71,706 in borrowings outstanding under the Promissory Note was repaid. There were no amounts outstanding under the Promissory Note as of September 30, 2022 and no further drawdowns are permitted.
 
13
Related Party Loans
On November 11, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Working Capital Loan”), pursuant to which the Company may borrow up to an aggregate principal amount of $5,000,000. The Working Capital Loan is
non-interest
bearing and will be repaid upon completion of a Business Combination, or at the Sponsor’s discretion, up to $1,500,000 of notes may be converted upon completion of a Business Combination into Private Units at a price of $10.00 per Private Unit. There were no drawdowns on this note as of December 31, 2021. On January 26, 2022, the Company borrowed $1,500,000 under the Working Capital Loan for general working capital purposes. On September 26, 2022, the Company borrowed an additional $1,000,000 under the Working Capital Loan.
The conversion feature included in the Working Capital Loan is considered an embedded derivate, is recorded as a debt discount and measured to fair value at issuance and is remeasured to fair value at the end of each reporting period. The value of the conversion feature is de minimis at issuance and as of September 30, 2022.
Related Party Consulting Agreement
The Company entered into an agreement dated as of October 28, 2021 (the “Consulting Agreement”), pursuant to which ZCG Consulting, an affiliate of the Sponsor, will provide the Company with consulting services in connection with its search for a potential target company for a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination. Fees are expensed as incurred and are payable upon receipt. For the three and nine months ended September 30, 2022, the Company had incurred $0 and $8,525, respectively, in fees under the Consulting Agreement.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the
COVID-19
pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the Founder Shares, Private Units and units that may be issued upon conversion of working capital loans have registration rights pursuant to a registration rights agreement entered into on February 2, 2021 requiring the Company to register a sale of any of the Company’s securities held by them (in the case of the Founder Shares, only after conversion to the Company’s Class A common stock). These holders are 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 have certain “piggy-back” registration rights to include their securities in other registration statements filed by the Company.
Underwriting Agreements
The underwriters were paid a cash underwriting discount of 2.0% of the gross proceeds of the Initial Public Offering, or $4,000,000. The underwriter is entitled to a deferred fee of $0.35 per Public Unit, or $7,000,000 in the aggregate. The deferred commission was placed in the Trust Account and will be paid in cash upon the closing of a Business Combination, subject to the terms of the underwriting agreement.
 
14
NOTE 7. STOCKHOLDERS’ DEFICIT
The Company is authorized to issue the following shares of capital stock, each with a par value of $0.0001 per share:
Class A Common Stock: 100,000,000 shares
Class B Common Stock: 10,000,000 shares
Preferred Stock: 1,000,000 shares
Preferred Stock
Shares of preferred stock may be issued from time to time in one or more series, with voting and other rights and preferences determined by the Company’s board of directors. At September 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Class A and Class B Common Stock
Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of stockholders, except as required by law.
Shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Business Combination on a
one-for-one
basis, subject to adjustment for stock splits, stock dividends, rights issuances, subdivisions, reorganizations, and recapitalizations.
In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts sold in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an
as-converted
basis, 20% of the sum of (i) the total number of all shares of common stock outstanding upon completion of the Initial Public Offering plus (ii) the sum of (a) all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the Business Combination (excluding (1) any shares or equity-linked securities issued, or to be issued, to any seller in the Business Combination, the Private Units and (2) any Private Units issued to the Sponsor or its affiliates upon conversion of loans made to the Company minus (b) the number of Public Shares redeemed by Public Stockholders.
Pursuant to and concurrently with the Initial Public Offering, the Company sold 20,000,000 Public Units and 777,500 Private Units. At September 30, 2022 and December 31, 2021, there were 777,500 shares of Class A common stock issued and outstanding, excluding 20,000,000 shares of Class A common stock subject to possible redemption (see Note 2), and 5,000,000 shares of Class B common stock issued and outstanding.
Founder Shares and Private Shares
Holders of Founder Shares and Private Shares have the same stockholder rights as Public Stockholders, except that:
 
  •  
Founder Shares and Private Shares are subject to certain transfer restrictions, as described in more detail below.
 
  •  
The Initial Stockholders have agreed to
 
  •  
waive redemption rights with respect to Founder Shares, Private Shares, and any Public Shares held by them in connection with the completion of the initial Business Combination;
 
  •  
waive redemption rights with respect to Founder Shares, Private Shares, and any Public Shares held by them in connection with a stockholder vote to approve an amendment to the amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with the initial Business Combination or to redeem 100% of its Public Shares if the Company does not complete a Business Combination within the Combination Period or (B) with respect to any other provisions relating to stockholders’ rights or
pre-initial
Business Combination activity; and
 
  •  
waive their rights to liquidating distributions from the Trust Account with respect to Founder Shares if the Company fails to complete the initial Business Combination during the Combination Period, although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold.
 
15
  •  
Founder Shares are shares of Class B common stock that will automatically convert into shares of Class A common stock at the time of the initial Business Combination, or at any time prior thereto at the option of the holder, on a
one-for-one
basis, subject to certain adjustments.
 
  •  
Holders of Founder Shares and Private Shares are entitled to registration rights.
Additionally, Founder Shares are subject to certain transfer restrictions as described in Note 5, and, prior to the initial Business Combination, only holders of the Founder Shares have the right to vote on the election of directors and holders of a majority of Founder Shares may remove a member of the board of directors for any reason.
With respect to any other matter submitted to a vote of stockholders, holders of Founder Shares and holders of Public Shares will vote together as a single class, with each share entitling the holder to one vote.
NOTE 8. WARRANT LIABILITIES
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 expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation. Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of (a) 12 months from the closing of the Initial Public Offering or (b) 30 days after the completion of a Business Combination. Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the units, and only whole Public Warrants will trade. The Public Warrants will expire five years from the completion of a Business Combination or earlier upon redemption or liquidation.
Once the Public Warrants become exercisable, the Company may redeem them (except as described for Private Warrants discussed below):
 
  •  
in whole and not in part;
 
  •  
at a price of $0.01 per Public Warrant;
 
  •  
upon a minimum of 30 days’ prior written notice of redemption; and
 
  •  
if, and only if, the last reported sale price of Class A common stock for any 20 trading days within a
30-trading
day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Public Warrant holders equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like).
The Private Warrants will be
non-redeemable
(except in certain instances) and exercisable on a cashless basis so long as they are held by the Company’s Sponsor or its permitted transferees. If the Private Units are held by someone other than the Company’s Sponsor or its permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants included in the Public Units being sold in this offering. If holders of Private Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their Private Warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the Private Warrants, multiplied by the difference between the exercise price of the Private Warrants and the “fair market value” by (y) the fair market value.
If, and only if, the last reported sale price of Class A common stock for any 20 trading days within a
30-trading
day period ending on the third trading day prior to the date on which the Company sends the notice of redemption equals or exceeds $10.00 per share, but is less than $18.00 per share (as adjusted for stock splits, stock dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like), the warrants may be redeemed at $0.10 per Public Warrant.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price 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 Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the completion of a Business Combination (net of redemptions), and (z) the volume- weighted average trading price of its Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company completes its Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the Public Warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $10.00 and $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 100% and 180% of the higher of the Market Value and the Newly Issued Price, respectively.
 
16
The Company is not registering the shares of Class A common stock issuable upon exercise of the Public Warrants at this time. However, the Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants, and the Company will use its best efforts to cause the same to become effective within 60 business days after the closing of the initial Business Combination, and to maintain the effectiveness of such registration statement and a current prospectus relating to those shares of Class A common stock until the Public Warrants expire or are redeemed, as specified in the Warrant Agreement; provided that if shares of Class A common stock are at the time of any exercise of a Public Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants is not effective by the 60th business day after the closing of the initial Business Combination, Public Warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise Public Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. If that exemption, or another exemption, is not available, holders will not be able to exercise their Public Warrants on a cashless basis.
The Private Warrants are identical to the Public Warrants, except that the Private Warrants:
 
  •  
Will be
non-redeemable
 
  •  
May not, subject to certain limited exceptions, be transferred, assigned, or sold by the Sponsor until 30 days after the completion of the initial Business Combination (including the shares of Class A common stock issuable upon exercise of the Private Warrants)
 
  •  
May be exercised on a cashless basis, so long as they are held by the Sponsor or its permitted transferees
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
 
Description
   
Level
     
September 30, 2022
     
December 31, 2021
  
Assets:
                           
Marketable securities held in Trust Account
      1      $ 201,214,964      $ 200,016,053  
Liabilities:
                           
Private Warrants
      2      $ 7,775      $ 155,500  
Public Warrants
      2      $ 200,000      $ 4,000,000  
Warrants
The Warrants are accounted for as liabilities in accordance with ASC 815 and are presented within warrant liabilities on the condensed balance sheet. The warrant liabilities 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 in the condensed statements of operations. Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs.
The Public Warrants and Private Warrants were initially valued using a Monte Carlo simulation model which is considered to be a Level 3 fair value measurement. The estimated fair value of Public Warrants was transferred from a Level 3 measurement to a Level 1 measurement when the Public Warrants were separately listed and traded in an active market in April 2021. The estimated fair value of the Private Warrants were transferred from a Level 3 measurement to a Level 2 fair value measurement in July 2021. As the transfer of Private Warrants to anyone who is not a permitted transferee would result in the Private Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Warrant is equivalent to that of each Public Warrant.
As of September 30, 2022, the Private Warrants and Public Warrants were determined to be $0.03 per warrant for aggregate values of $7,775 and $200,000
 respectively. 
There were no
 Level 3 measurements as of September 30, 2022 or December 31, 2021. The estimated fair value of the Public Warrants transferred from a Level 3 measurement a Level 1 fair value measurement as of April 1, 2021, and from a Level 1 measurement to a Level 2 fair value measurement as of September 30, 2022. 
 
17
NOTE 10. SUBSEQUENT EVENTS
Management has evaluated subsequent events to determine if events or transactions occurring through the date the condensed financial statements were issued require potential adjustment to or disclosure in the unaudited condensed financial statements and has concluded that all such events that would require recognition or disclosure have been recognized or disclosed.
On November
14
, 2022, the Company filed a preliminary proxy statement in connection with a special meeting to be held for the purpose of voting on: (i) a proposal to permit the Company to liquidate and wind up early by amending the Charter to (i) change the date by which the Company must consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, which we refer to as our initial business combination, from 
February 5, 2023
 
(the “Original Termination Date”) to such other date as shall be determined by the Board and publicly announced by the Company, provided that such other date shall be no sooner than the date of the effectiveness of the amendment to the Charter pursuant to the DGCL and no later than December 30, 2022 (the “Amended Termination Date”), (ii) remove the Redemption Limitation (as defined in the Charter) to allow the Company to redeem 20,000,000 shares of Class A common stock, par value $0.0001 per share, initially included in the units sold as part of the IPO (the “Public Shares”), notwithstanding the fact that such redemption would result in the Company having net tangible assets of less than $5,000,001, and (iii) allow the Company to remove up to $100,000 of interest earned on the amount on deposit in the Trust Account (as defined below) prior to redeeming the Public Shares in connection with the Special Meeting in order to pay dissolution expenses (the “Charter Amendment Proposal”); and (ii) amend the Investment Management Trust Agreement, dated February 2, 2021 (the “Trust Agreement”), by and between the Company and Continental Stock Transfer & Trust Company, a New York corporation, as trustee (“Continental”) to change the date on which Continental must commence liquidation of the trust account (the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”) from the Original Termination Date to the Early Termination Date (such proposal, the “Early Termination Trust Amendment Proposal” and together with the Charter Amendment Proposal, the “Amendment Proposals”); and (iii) to approve the adjournment of the Special Meeting from time to time to solicit additional proxies in favor of the Amendment Proposals or if otherwise determined by the chairperson of the Special Meeting to be necessary or appropriate (the “Adjournment Proposal,” and with the Charter Amendment Proposal and the Amendment Proposals, the “Proposals”).
If the Proposals are approved, and because the Company will not be able to complete an initial Business Combination by the Amended Termination Date, the Company will immediately after the Special Meeting, cease all operations, except for the purpose of winding up and as promptly as reasonably possible, but not more than ten business days thereafter, redeem all Public Shares (the “Mandatory Redemption”). As promptly as reasonably possible following such Mandatory Redemption, and subject to the approval of the Company’s then remaining stockholders and the Board, in accordance with applicable law, dissolve and liquidate, subject in each case to the Company’s obligations under the General Corporation Law of the State of Delaware to provide for claims of creditors and the requirements of other applicable law.
Pursuant to the amended and restated certificate, a Public Stockholder shall be provided with the opportunity to redeem their Public Shares for cash if the Charter Amendment Proposal is approved. Notwithstanding the foregoing, if the Charter Amendment Proposal is approved, and because the Company will not be able to complete an initial Business Combination by the Amended Termination Date, the Company will be obligated to redeem all Public Shares as promptly as reasonably possible after the Amended Termination Date. Therefore, no action is required by our Public Stockholders to redeem their Public Shares. If the Proposals are approved, the Public Shares will be automatically redeemed as part of the Mandatory Redemption.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this Quarterly Report on Form 10-Q to “we,” “us” or the “Company” refer to Gaming & Hospitality Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Affinity Gaming Holdings, L.L.C. 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 on Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under the headings “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022 and “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q filed with the SEC on May 13, 2022 (the “Q1 Form 10-Q”).

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 of 1933 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 Form 10-Q including, without limitation, 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 “Item 1A. Risk Factors” section of our Form 10-K and “Item 1A. Risk Factors” of our Q1 Form 10-Q. 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 formed under the laws of the State of Delaware on March 4, 2020 (“Inception”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). We intend to effectuate our Business Combination using cash from the proceeds of the IPO and the sale of the Private Units, our capital stock, debt or a combination of cash, stock and debt.

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our initial Business Combination will be successful.

 

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Recent Developments:

On November 14, 2022, the Company filed a preliminary proxy statement in connection with a special meeting to be held for the purpose of voting on: (i) a proposal to permit the Company to liquidate and wind up early by amending the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) to (i) change the date by which the Company must consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, which we refer to as our initial business combination, from February 5, 2023 (the “Original Termination Date”) to such other date as shall be determined by the Board and publicly announced by the Company, provided that such other date shall be no sooner than the date of the effectiveness of the amendment to the Charter pursuant to the DGCL and no later than December 30, 2022 (the “Amended Termination Date”), (ii) remove the Redemption Limitation (as defined in the Charter) to allow the Company to redeem 20,000,000 shares of Class A common stock, par value $0.0001 per share, initially included in the units sold as part of the IPO (the “Public Shares”), notwithstanding the fact that such redemption would result in the Company having net tangible assets of less than $5,000,001, and (iii) allow the Company to remove up to $100,000 of interest earned on the amount on deposit in the Trust Account (as defined below) prior to redeeming the Public Shares in connection with the Special Meeting in order to pay dissolution expenses (the “Charter Amendment Proposal”); and (ii) amend the Investment Management Trust Agreement, dated February 2, 2021 (the “Trust Agreement”), by and between the Company and Continental Stock Transfer & Trust Company, a New York corporation, as trustee (“Continental”) to change the date on which Continental must commence liquidation of the trust account (the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”) from the Original Termination Date to the Early Termination Date (such proposal, the “Early Termination Trust Amendment Proposal” and together with the Charter Amendment Proposal, the “Amendment Proposals”); and (iii) to approve the adjournment of the Special Meeting from time to time to solicit additional proxies in favor of the Amendment Proposals or if otherwise determined by the chairperson of the Special Meeting to be necessary or appropriate (the “Adjournment Proposal,” and with the Charter Amendment Proposal and the Amendment Proposals, the “Proposals”).

If the Proposals are approved, and because the Company will not be able to complete an initial Business Combination by the Amended Termination Date, the Company will immediately after the Special Meeting, cease all operations, except for the purpose of winding up and as promptly as reasonably possible, but not more than ten business days thereafter, redeem all Public Shares (the “Mandatory Redemption”). As promptly as reasonably possible following such Mandatory Redemption, and subject to the approval of the Company’s then remaining stockholders and the Board, in accordance with applicable law, dissolve and liquidate, subject in each case to the Company’s obligations under the General Corporation Law of the State of Delaware to provide for claims of creditors and the requirements of other applicable law.

Pursuant to the amended and restated certificate, a Public Stockholder shall be provided with the opportunity to redeem their Public Shares for cash if the Charter Amendment Proposal is approved. Notwithstanding the foregoing, if the Charter Amendment Proposal is approved, and because the Company will not be able to complete an initial Business Combination by the Amended Termination Date, the Company will be obligated to redeem all Public Shares as promptly as reasonably possible after the Amended Termination Date. Therefore, no action is required by our Public Stockholders to redeem their Public Shares. If the Proposals are approved, the Public Shares will be automatically redeemed as part of the Mandatory Redemption.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from Inception through September 30, 2022 were organizational activities, those necessary to prepare for the IPO, described below, and, subsequent to the IPO, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination, at the earliest. We expect to generate non-operating income in the form of interest income on marketable securities held after the IPO in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended September 30, 2022, we had net income of $982,462, which consisted of operating costs of $359,268, interest income on marketable securities held in our Trust Account of $903,600, income tax expense of $178,269, and a gain due to a decrease in fair value of warrant liabilities of $616,399.

For the nine months ended September 30, 2022, we had a net income of $3,613,640, which consisted of operating costs of $1,354,727, interest income on marketable securities held in our Trust Account of $1,198,911, income tax expense of $178,269, and a gain due to a decrease in fair value of warrant liabilities of $3,947,725.

For the three months ended September 30, 2021, we had a net income of $1,341,869, which consisted of operating costs of $1,090,145, interest income on marketable securities held in our Trust Account of $2,790, and a loss due to an increase in fair value of warrant liabilities of $2,429,224.

For the nine months ended September 30, 2021, we had a net loss of $1,148,300, which consisted of operating costs of $2,409,552, interest income on marketable securities held in our Trust Account of $12,011, and a loss due to an increase in fair value of warrant liabilities of $1,249,241.

Liquidity and Capital Resources

On February 5, 2021, we consummated the IPO of 20,000,000 Public Units at a price of $10.00 per Public Unit, including 2,500,000 Public Units sold pursuant to the full exercise of the underwriter’s over-allotment option, generating gross proceeds of $200,000,000. Simultaneously with the closing of the IPO, we consummated the sale of 777,500 Private Units to the Sponsor at a price of $10.00 per Private Unit, generating gross proceeds of $7,775,000.

Following the IPO, the exercise of the over-allotment option and the sale of the Private Units, a total of $200,000,000 was placed in the Trust Account. We incurred $11,755,731 in transaction costs, including $4,000,000 of underwriting fees, $7,000,000 of deferred underwriting fees and $755,731 of other costs. Of these transaction costs, $344,981 were determined to be allocable to the warrant liabilities and were expensed in formation costs and other operating expenses within the condensed statements of operations.

As of September 30, 2022 and December 31, 2021, we had marketable securities held in the Trust Account of $201,214,964 (including $1,214,964 of interest income) and $200,016,053 (including $12,011 of interest income), respectively, consisting of investments in qualifying money market funds that invest solely in U.S. treasury securities.

For the nine months ended September 30, 2022, cash used in operating activities was $2,168,955. Net income of $3,613,640 was affected by interest income on marketable securities held in our Trust Account of $1,198,911, change in fair value of warrant liabilities of $3,947,725, and changes in operating assets and liabilities, which used $635,961 of cash.

For the nine months ended September 30, 2021, cash used in operating activities was $2,219,963. Net loss of $1,148,300 was affected by interest income on marketable securities held in our Trust Account of $12,011, transaction costs allocable to warrant liabilities of $344,981, change in fair value of warrant liabilities of $1,249,241, and changes in operating assets and liabilities, which used $155,392 of cash.

 

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We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

As of September 30, 2022 and December 31, 2021, we had cash of $702,723 and $371,678 held outside the Trust Account, respectively. We intend to use the funds held outside the Trust Account primarily for working capital purposes and to identify and evaluate target businesses, perform business due diligence on prospective target businesses, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination. In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment.

On November 11, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Working Capital Loan”), pursuant to which the Company may borrow up to an aggregate principal amount of $5,000,000. The Working Capital Loan is non-interest bearing and will be repaid upon completion of an initial Business Combination, or, at the Sponsor’s discretion, up to $1,500,000 of the balance of the Working Capital Loan may be converted upon completion of an initial Business Combination into Private Units at a price of $10.00 per Private Unit. On January 26, 2022, the Company borrowed $1,500,000 under the Working Capital Loan for general working capital purposes. On September 26, 2022, the Company borrowed an additional $1,000,000 under the Working Capital Loan.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. If we are unable to complete our Business Combination within the time period set forth in our amended and restated certificate of incorporation because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. Management has determined that the liquidity condition and 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. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2022.

Contractual Obligations

On November 11, 2021, the Sponsor issued an unsecured promissory note to the Company evidencing the Working Capital Loan, pursuant to which the Company may borrow up to an aggregate principal amount of $5,000,000. The Working Capital Loan is non-interest bearing and will be repaid upon completion of an initial Business Combination, or, at the Sponsor’s discretion, up to $1,500,000 of the balance of the Working Capital Loan may be converted upon completion of an initial Business Combination into Private Units at a price of $10.00 per Private Unit. On January 26, 2022, the Company borrowed $1,500,000 under the Working Capital Loan for general working capital purposes. On September 26, 2022, the Company borrowed an additional $1,000,000 under the Working Capital Loan.

We have an agreement to pay Affinity Interactive, an affiliate of the Sponsor, a monthly fee of $33,333 for office space, utilities, secretarial and administrative support services, reimbursement of a portion of the compensation paid by Affinity Interactive, an affiliate of our Sponsor, to our officers in consideration of the time dedicated to us by each of Ms. Higgins, our Chief Executive Officer, Mr. Fiocco, our Chief Operating Officer and Secretary, and Mr. Scrivens, our Chief Financial Officer, and reimbursement of expenses. We began incurring these fees on February 3, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation in accordance with its amended and restated certificate of incorporation.

 

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The underwriters are entitled to a deferred fee of $0.35 per Public Unit, or $7,000,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.

Critical Accounting Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company has identified the following as its critical accounting policies.

Common Stock Subject to Possible Redemption

We account for common stock subject to possible redemption in accordance with the guidance in ASC 480. Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events.

Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of stockholders’ deficit section of our condensed balance sheets.

Net Income (Loss) Per Share of Common Stock

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has three classes of shares, which are referred to as Class A common stock subject to redemption, Non-redeemable Class A common stock, and Class B common stock. Income and losses are shared pro rata among the three classes of shares. Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, has been excluded from the calculation of basic net income (loss) per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income (loss) is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.

Warrant Liabilities

We account for the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the applicable authoritative guidance in ASC 480, and ASC 815. The assessment considers whether they are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the holders of the warrants could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the warrants and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a non-cash gain or loss on the statements of operations.

 

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Recent Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2022, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three-month period up to September 30, 2022, covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Form 10-K and Q1 Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

No.

   

Description of Exhibit

31.1*    Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*    Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002.
32.2**    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101.SCH*    Inline XBRL Taxonomy Extension Schema.
101.CAL*    Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*    Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*    Inline XBRL Taxonomy Extension Labels Linkbase.
101.PRE*    Inline XBRL Taxonomy Extension Presentation Linkbase.
104*    Cover Page Interactive Data File

 

*

Filed herewith.

**

These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

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Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    GAMING & HOSPITALITY ACQUISITION CORP.
Date: November 14, 2022     By:  

/s/ Mary Elizabeth Higgins

    Name:   Mary Elizabeth Higgins
    Title:   Chief Executive Officer and Director
      Principal Executive Officer
Date: November 14, 2022     By:  

/s/ Andrei Scrivens

    Name:   Andrei Scrivens
    Title:   Chief Financial Officer
      Principal Financial and Accounting Officer

 

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