The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and the notes related thereto contained elsewhere in this report. 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
"Cautionary Note Regarding Forward-Looking Statements," "Item 1A. Risk Factors"
and elsewhere in this report.
Overview
As of September 30, 2021, we were a blank check company formed under the laws of
the State of Delaware on September 30, 2020. We were incorporated for the
purpose of entering into a merger, capital stock exchange, asset acquisition,
stock purchase, recapitalization, reorganization or other similar business
combination with one or more businesses or entities. On June 21, 2021, we
entered into the Business Combination Agreement and on November 30, 2021 the
Codere Business Combination was consummated.
Recent Developments
Codere Business Combination
On June 21, 2021, we entered into the Business Combination Agreement with Codere
Newco, SEJO, Holdco and Merger Sub, which provided for the Codere Business
Combination that resulted, among other things, in the Company and SEJO becoming
wholly-owned subsidiaries of Holdco. In connection with the Codere Business
Combination, Holdco filed the Form F-4 with the SEC that includes a proxy
statement with respect to our special meeting of stockholders which was held on
November 18, 2021 to approve the Business Combination Agreement, among other
matters, as well as a prospectus of Holdco with respect to the issuance of
Holdco securities in the Codere Business Combination.
On November 30, 2021, the Nasdaq Stock Market LLC filed a Form 25 (Notification
of Removal from Listing) with the SEC relating to the delisting of our units,
warrants and Class A common stock. As a result, our units, warrants and Class A
common stock were delisted on the Nasdaq. On December 14, 2021, we filed a Form
15 certifying the deregistration of our units, warrants and Class A common stock
under Section 12(g) of the Exchange Act and suspension of our duty to file
reports under Sections 13 and 15(d) of the Exchange Act. The Company's reporting
obligations under Section 15(d) of the Exchange Act have been suspended.
Business Combination Agreement
Pursuant to the Business Combination Agreement, following the effectiveness of
the transactions contemplated by the Exchange at the Exchange Effective Time and
the Merger on the Merger Effective Time, the parties consummated the Codere
Business Combination and SEJO and the Company became direct wholly-owned
subsidiaries of Holdco. Pursuant to the Business Combination Agreement, each of
the following transactions occurred in the following order:
? pursuant to the Contribution and Exchange Agreement, Codere Newco,
effective on the Exchange Effective Time, contributed its SEJO Ordinary
Shares constituting all the issued and outstanding share capital of SEJO
to Holdco in exchange for additional Holdco Ordinary Shares, which were
subscribed for by Codere Newco. As a result of the Exchange, SEJO became a
wholly-owned subsidiary of Holdco and Holdco continued to be a
wholly-owned subsidiary of Codere Newco at the Exchange Effective Time;
? after the Exchange and immediately prior to the Merger Effective Time,
each share of the Company's Class B common stock automatically converted
into and exchanged for one share of the Company's Class A common stock
pursuant to the Class B Conversion;
? on the Closing Date, pursuant to the Merger, Merger Sub merged with and
into the Company, with the Company surviving such merger and becoming a
direct wholly-owned subsidiary of Holdco and, in connection therewith, the
Company's corporate name changed to "Codere Online U.S. Corp.";
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? in connection with the Merger, all shares of the Company's Class A common
stock issued and outstanding immediately prior to the Merger Effective
Time, but after the Class B Conversion, were contributed to Holdco in
exchange for the Merger Consideration (as defined in the Business
Combination Agreement) in the form of one Holdco Ordinary Share for each
share of the Company's Class A common stock pursuant to the Holdco Capital
Increase, as set forth in the Business Combination Agreement; and
? as of the Merger Effective Time, each warrant of the Company that was
outstanding immediately prior to the Merger Effective Time no longer
represented a right to acquire one share of the Company's DD3 Class A
common stock and instead represented the right to acquire one Holdco
Ordinary Share on substantially the same terms.
Codere Newco held 30,000,000 Holdco Ordinary Shares upon consummation of the
Exchange.
At the Merger Effective Time, each share of the Company's Class A common stock
issued and outstanding immediately prior to the Merger Effective Time was
exchanged for one validly issued and fully paid Holdco Ordinary Share.
The terms of the Business Combination Agreement and other related ancillary
agreements entered into in connection with the closing of the Codere Business
Combination (the "Closing") are summarized in more detail in our Current Report
on Form 8-K filed with the SEC on June 22, 2021 and in the Form F-4.
Warrant Amendment Agreement
In connection with the Closing of the Codere Business Combination, the Company,
Holdco and Continental Stock Transfer & Trust Company, as warrant agent, entered
into an agreement at Closing (the "Warrant Amendment Agreement") to amend the
warrant agreement, dated as of December 7, 2020, by and between the Company and
Continental, as warrant agent, governing the Company's warrants entered into by
the Company, Holdco and Continental, as warrant agent (the "Original Warrant
Agreement"), pursuant to which, among others, as of the Merger Effective Time,
(i) each of the issued Company's warrants that was outstanding immediately prior
to the Merger Effective Time ceased to represent a right to acquire one share of
the Company's Class A common stock and instead represented the right to acquire
one Holdco Ordinary Share on substantially the same terms as set forth in the
Original Warrant Agreement and (ii) the Company assigned to Holdco all of the
Company's right, title and interest in and to the Original Warrant Agreement and
Holdco assumed, and agreed to pay, perform, satisfy and discharge in full, all
of the Company's liabilities and obligations under the Original Warrant
Agreement arising from and after the Merger Effective Time.
Subscription Agreements
Contemporaneously with the execution and delivery of the Business Combination
Agreement, the Company entered into two separate Subscription Agreements with
DD3 Capital and Larrain, in each case to which Holdco is also a party, pursuant
to which the Company issued and sold, in a private placement that closed
immediately prior to the Merger, (i) an aggregate of 500,000 shares of the
Company's Class A common stock, for an aggregate purchase price of $5,000,000,
at a price of $10.00 per each share of the Company's Class A common stock, to
DD3 Capital and its permitted transferees, and (ii) an aggregate of 1,224,000
shares of the Company's Class A common stock, for an aggregate purchase price of
$12,240,000, at a price of $10.00 per each share of the Company's Class A common
stock, to Larrain and its permitted transferees (collectively, the "PIPE" and
the shares of the Company's Class A common stock issued in connection with the
PIPE, the "PIPE Shares").
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Forward Purchase Agreements
In connection with the Codere Business Combination, (i) Baron elected to
purchase an aggregate of 2,500,000 shares of the Company's Class A common stock
for an aggregate purchase price of $25,000,000, at a price of $10.00 per each
share of the Company's Class A common stock, pursuant to the terms of the Baron
Forward Purchase Agreement, and (ii) MG elected to purchase an aggregate of
2,500,000 shares of the Company's Class A common stock for an aggregate purchase
price of $25,000,000, at a price of $10.00 per each share of the Company's Class
A common stock, pursuant to the terms of the MG Forward Purchase Agreement, in
each case in a private placement that occurred immediately prior to the Merger.
Among other terms, (i) we agreed not to enter into any agreement with any other
investor or prospective investor on terms that are more favorable to such other
investor or prospective investor than the terms provided to Baron or MG, as
applicable, and (ii) certain closing conditions were amended in part to align
with the closing conditions in the Business Combination Agreement, including
that the terms of the Business Combination Agreement (as the same existed on the
date of the amendments to the forward purchase agreements) shall not have been
amended or modified in a manner, and no waiver thereunder shall have occurred,
that would reasonably be expected to be materially adverse to the economic
benefits that Baron or MG would reasonably expect to receive under their
respective forward purchase agreement, without Baron's or MG's written consent,
as applicable.
Baron Support Agreement
Contemporaneously with the execution and delivery of the Business Combination
Agreement, we entered into the Investor Support Agreement with Baron (the "Baron
Support Agreement"), pursuant to which Baron irrevocably waived its redemption
rights with respect to 996,069 public shares acquired by Baron in our initial
public offering (the "Baron IPO Shares") and agreed not to (a) redeem, or
exercise any of its redemption rights with respect to, any Baron IPO Shares in
connection with our special meeting of stockholders to approve the Business
Combination Agreement and the Codere Business Combination and (b) to certain
transfer restrictions with respect to the Baron IPO Shares. The Baron Support
Agreement and the obligations of Baron under the Baron Support Agreement
automatically terminated upon the Closing of the Codere Business Combination.
The Baron Support Agreement was subject to customary conditions, covenants,
representations and warranties.
Pursuant to the Business Combination Agreement, we undertook not to amend,
modify, waive or otherwise change any of the Baron Support Agreement, Forward
Purchase Agreements and Subscription Agreements without the prior written
consent of SEJO, such consent not to be unreasonably withheld, delayed or
conditioned.
Results of Operations
We have neither engaged in any operations nor generated any revenues as of the
end of the period covered by this report. Our only activities through September
30, 2021 were organizational activities, those necessary to prepare for our
initial public offering, described below, and, after our initial public
offering, identifying a target company for our initial business combination. We
do not expect to generate any operating revenues. At September 30, 2021, we
generate non-operating income in the form of interest income on marketable
securities held in the trust account, and 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 in connection with searching
for, and completing, our initial business combination, including the Codere
Business Combination.
For the period from September 30, 2020 (inception) through September 30, 2021,
we had a net loss of $1,580,128, which consisted of operating costs of
$1,521,995, a change in fair value of warrant liability of $114,700 offset by
interest earned on marketable securities held in the trust account of $50,181
and an unrealized gain on marketable securities held in the trust account of
$6,386.
Liquidity and Management's Plan
Until the consummation of our initial public offering, our only source of
liquidity was an initial purchase of founder shares by our sponsor and loans
from our sponsor.
On December 10, 2020, we consummated our initial public offering of 12,500,000
units, at $10.00 per unit, which included the partial exercise by the
underwriters of their over-allotment option in the amount of 1,500,000 units,
generating gross proceeds of $125,000,000. Simultaneously with the closing of
our initial public offering, we consummated the private placement of an
aggregate of 370,000 private units to our sponsor and the forward purchase
investors at a price of $10.00 per private unit, generating gross proceeds of
$3,700,000.
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Following our initial public offering, including the partial exercise of the
over-allotment option, and the private placement, a total of $125,000,000 was
placed in the trust account. We incurred $2,966,508 in transaction costs,
including $2,500,000 of underwriting fees and $466,508 of other offering costs.
For the period from September 30, 2020 (inception) through September 30, 2021,
net cash used in operating activities was $530,132. Net loss of $1,580,128 was
affected by interest earned on marketable securities held in the trust account
of $50,181 and an unrealized gain on marketable securities held in the trust
account of $6,386, offset by a change in fair value of warrant liability of
$114,700 and offering costs allocable to warrant liability of $396. Changes in
operating assets and liabilities used $991,467 of cash for the period.
As of September 30, 2021, we had marketable securities held in the trust account
of $125,056,567 (including approximately $50,181 of interest income, net of
unrealized gain) consisting of securities held in a money market fund that
invests in U.S. Treasury securities with a maturity of 185 days or less.
Interest income on the balance in the trust account may be used by us to pay
taxes. Through September 30, 2021, we did not withdraw any interest earned on
the trust account to pay our taxes. We used substantially all of the funds held
in the trust account, including any amounts representing interest earned on the
trust account (less income taxes payable), to complete our initial business
combination and to pay our expenses relating thereto, including a fee payable to
EarlyBirdCapital upon consummation of our initial business combination for
assisting us in connection with our initial business combination, as described
below.
As of September 30, 2021, we had cash of $268,360 held outside the trust
account. We used the funds held outside the trust account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete our initial business combination.
Management believed that the funds which the Company had available at September
30, 2021 were insufficient to sustain operations for a period of at least one
(1) year from the issuance date of this financial statement. Accordingly,
substantial doubt about the Company's ability to continue as a going concern
existed.
On June 21, 2021, the Company entered into the Business Combination Agreement
and subsequently on November 30, 2021, the Codere Business Combination closed,
which provided the Company access to additional capital that is sufficient to
sustain operations and meet obligations as they become due within one year. As
such, substantial doubt has been alleviated.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
As of September 30, 2021, we did not have any long-term debt obligations,
capital lease obligations, operating lease obligations, purchase obligations or
other long-term liabilities, other than an agreement to pay our sponsor a
monthly fee of $10,000 for office space, utilities and administrative support.
We began incurring these fees on December 7, 2020 and continued to incur these
fees monthly until the Closing.
We engaged EarlyBirdCapital as an advisor in connection with our initial
business combination to assist us in holding meetings with our stockholders to
discuss the potential business combination and the target business' attributes,
introduce us to potential investors that are interested in purchasing our
securities in connection with our initial business combination, assist us in
obtaining stockholder approval for our initial business combination and assist
us with our press releases and public filings in connection with our initial
business combination. We paid EarlyBirdCapital a cash fee for such services upon
the consummation of our initial business combination in an amount of 3.5% of the
gross proceeds of our initial public offering, or $4,375,000.
We are also party to the forward purchase agreements and have entered into the
Business Combination Agreement, the Subscription Agreements and the Baron
Support Agreement in connection with the Codere Business Combination, among
other agreements in connection with the Codere Business Combination, as
described above.
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Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with United States generally accepted accounting principles ("GAAP")
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for the private warrants in accordance with the guidance contained in
Accounting Standards Codification ("ASC") 815 under which the private warrants
do not meet the criteria for equity treatment and must be recorded as
liabilities. Under ASC 815-40, the private warrants are not indexed to our
common stock in the manner contemplated by ASC 815-40 because the holder of the
instrument is not an input into the pricing of a fixed-for-fixed option on
equity shares. Accordingly, we classify the private warrants as liabilities at
their fair value and adjust the private warrants to fair value at each reporting
period. These liabilities are subject to re-measurement at each balance sheet
date until exercised, and any change in fair value is recognized in our
statement of operations. The private warrants are valued using a modified Black
Scholes model.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption 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 our
control) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our Class A common stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, at September 30, 2021,
Class A common stock subject to possible redemption is presented at redemption
value as temporary equity, outside of the stockholders' equity section of our
condensed balance sheet.
Net Loss Per Common Share
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Shares of common
stock subject to possible redemption at September 30, 2021, which are not
currently redeemable and are not redeemable at fair value, have been excluded
from the calculation of basic net loss per common share since such shares, if
redeemed, only participate in their pro rata share of the trust account
earnings. We have not considered the effect of the public warrants or the
private warrants in the calculation of diluted loss per share, since the
exercise of the warrants is contingent upon the occurrence of future events and
the inclusion of such warrants would be anti-dilutive. As a result, diluted net
loss per common share is the same as basic net loss per common share for the
periods presented.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board issued ASU No. 2020-06,
"Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU
2020-06"), which simplifies accounting for convertible instruments by removing
major separation models required under current GAAP. ASU 2020-06 removes certain
settlement conditions that are required for equity contracts to qualify for the
derivative scope exception and it also simplifies the diluted earnings per share
calculation in certain areas. ASU 2020-06 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal
years, with early adoption permitted. We are currently assessing the impact, if
any, that ASU 2020-06 would have on our financial position, results of
operations or cash flows.
Management does not believe that any other 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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