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.
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