UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number:
HALL OF FAME RESORT & ENTERTAINMENT COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 84-3235695 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2626 Fulton Drive NW
Canton, OH 44718
(Address of principal executive offices)
(330) 458–9176
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.0001 par value per share | HOFV | Nasdaq Capital Market | ||
| Warrants to purchase 1.421333 shares of Common Stock | HOFVW | Nasdaq Capital Market |
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 10, 2022, there were 121,305,086 shares of the registrant’s Common stock, $0.0001 par value per share, issued and outstanding.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
| September
30, 2022 | December
31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | 15,913,191 | $ | 10,282,983 | ||||
| Restricted cash | 16,689,949 | 7,105,057 | ||||||
| Accounts receivable, net | 3,569,215 | 2,367,225 | ||||||
| Prepaid expenses and other assets | 3,284,943 | 8,350,604 | ||||||
| Property and equipment, net | 234,288,152 | 180,460,562 | ||||||
| Right-of-use lease assets | 7,607,835 | |||||||
| Project development costs | 139,989,064 | 128,721,480 | ||||||
| Total assets | $ | 421,342,349 | $ | 337,287,911 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Liabilities | ||||||||
| Notes payable, net | $ | 163,669,289 | $ | 101,360,196 | ||||
| Accounts payable and accrued expenses | 23,777,574 | 12,120,891 | ||||||
| Due to affiliate | 3,709,773 | 1,818,955 | ||||||
| Warrant liability | 1,322,000 | 13,669,000 | ||||||
| Financing liability | 14,720,879 | - | ||||||
| Derivative liability – interest rate swap | 128,000 | - | ||||||
| Operating lease liability | 3,408,892 | |||||||
| Other liabilities | 5,400,574 | 3,740,625 | ||||||
| Total liabilities | 216,136,981 | 132,709,667 | ||||||
| Commitments and contingencies (Note 6, 7, 8 and 9) | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $0.0001 par value; 4,917,000 shares authorized; shares issued or outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Series B convertible preferred stock, $0.0001 par value; 15,200 shares designated; 200 and 15,200 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively; liquidation preference of $218,511 as of September 30, 2022 | 2 | |||||||
| Series C convertible preferred stock, $0.0001 par value; 15,000 shares designated; 15,000 and 0 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively; liquidation preference of $15,595,000 as of September 30, 2022 | 2 | |||||||
| Common stock, $0.0001 par value; 300,000,000 shares authorized; 121,203,324 and 97,563,841 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 12,120 | 9,756 | ||||||
| Additional paid-in capital | 334,517,827 | 305,117,091 | ||||||
| Accumulated deficit | (128,390,649 | ) | (99,951,839 | ) | ||||
| Total equity attributable to HOFRE | 206,139,300 | 205,175,010 | ||||||
| Non-controlling interest | (933,932 | ) | (596,766 | ) | ||||
| Total equity | 205,205,368 | 204,578,244 | ||||||
| Total liabilities and stockholders’ equity | $ | 421,342,349 | $ | 337,287,911 | ||||
1
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Sponsorships, net of activation costs | $ | 748,033 | $ | 1,554,454 | $ | 2,020,095 | $ | 4,538,292 | ||||||||
| Event, rents and cost recoveries | 5,857,467 | 503,789 | 6,863,723 | 607,469 | ||||||||||||
| Hotel revenues | 2,058,687 | 1,423,713 | 4,572,428 | 2,615,273 | ||||||||||||
| Total revenues | 8,664,187 | 3,481,956 | 13,456,246 | 7,761,034 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Operating expenses | 13,844,467 | 8,933,714 | 28,170,446 | 21,162,494 | ||||||||||||
| Hotel operating expenses | 1,809,635 | 1,524,774 | 4,278,897 | 3,887,928 | ||||||||||||
| Commission expense | 226,031 | 224,293 | 882,774 | 651,543 | ||||||||||||
| Impairment expense | - | 1,748,448 | - | 1,748,448 | ||||||||||||
| Depreciation expense | 2,650,719 | 2,993,583 | 9,420,585 | 8,886,650 | ||||||||||||
| Total operating expenses | 18,530,852 | 15,424,812 | 42,752,702 | 36,337,063 | ||||||||||||
| Loss from operations | (9,866,665 | ) | (11,942,856 | ) | (29,296,456 | ) | (28,576,029 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | (1,670,377 | ) | (981,945 | ) | (3,805,310 | ) | (2,941,672 | ) | ||||||||
| Amortization of discount on note payable | (1,132,440 | ) | (1,326,620 | ) | (3,610,738 | ) | (3,725,347 | ) | ||||||||
| Change in fair value of warrant liability | 1,838,000 | 22,469,170 | 9,011,000 | (67,565,942 | ) | |||||||||||
| Change in fair value of interest rate swap | (128,000 | ) | - | (128,000 | ) | - | ||||||||||
| (Loss) gain on extinguishment of debt | (148,472 | ) | 390,400 | |||||||||||||
| Total other income (expense) | (1,092,817 | ) | 20,160,605 | 1,318,480 | (73,842,561 | ) | ||||||||||
| Net (loss) income | $ | (10,959,482 | ) | $ | 8,217,749 | $ | (27,977,976 | ) | $ | (102,418,590 | ) | |||||
| Preferred stock dividends | (266,000 | ) | (212,844 | ) | (798,000 | ) | (342,844 | ) | ||||||||
| Loss attributable to non-controlling interest | 101,202 | 141,011 | 337,166 | 301,221 | ||||||||||||
| Net (loss) income attributable to HOFRE stockholders | $ | (11,124,280 | ) | $ | 8,145,916 | $ | (28,438,810 | ) | $ | (102,460,213 | ) | |||||
| Net (loss) income per share, basic | $ | (0.09 | ) | $ | 0.09 | $ | (0.25 | ) | $ | (1.16 | ) | |||||
| Weighted average shares outstanding, basic | 118,437,440 | 95,044,250 | 112,327,645 | 88,382,322 | ||||||||||||
| Net (loss) income per share, diluted | $ | (0.09 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (1.16 | ) | ||||
| Weighted average shares outstanding, diluted | 118,437,440 | 102,540,809 | 112,327,645 | 88,382,322 | ||||||||||||
2
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(unaudited)
| Series
B Convertible Preferred stock | Series
C Convertible Preferred stock | Common Stock | Additional Paid-In | Retained Earnings (Accumulated | Total
Equity Attributable to HOFRE | Non-controlling | Total Stockholder’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Stockholders | Interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | 64,091,266 | $ | 6,410 | $ | 172,112,688 | $ | (6,840,871 | ) | $ | 165,278,227 | $ | (196,506 | ) | $ | 165,081,721 | |||||||||||||||||||||||||||
| Stock-based compensation on restricted stock units | - | - | - | 1,386,543 | 1,386,543 | $ | 1,386,543 | |||||||||||||||||||||||||||||||||||||
| February 12, 2021 Capital Raise, net of offering costs | - | - | 12,244,897 | 1,224 | 27,560,774 | 27,561,998 | 27,561,998 | |||||||||||||||||||||||||||||||||||||
| February 18, 2021 Overallotment, net of offering costs | - | - | 1,836,734 | 184 | 4,184,814 | 4,184,998 | 4,184,998 | |||||||||||||||||||||||||||||||||||||
| Exercise of Warrants | - | - | 16,005,411 | 1,601 | 73,570,976 | 73,572,577 | 73,572,577 | |||||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | - | (126,147,182 | ) | (126,147,182 | ) | 49,711 | (126,097,471 | ) | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | 94,178,308 | $ | 9,419 | $ | 278,815,795 | $ | (132,988,053 | ) | $ | 145,837,161 | $ | (146,795 | ) | $ | 145,690,366 | |||||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | 1,620,149 | 1,620,149 | 1,620,149 | ||||||||||||||||||||||||||||||||||||||
| Issuance of vested RSUs | - | - | 24,028 | 2 | (2 | ) | ||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | - | 669,732 | 67 | 3,116,338 | - | 3,116,405 | - | 3,116,405 | |||||||||||||||||||||||||||||||||
| Sale of Series B preferred stock and warrants | 15,200 | 2 | - | - | 15,199,998 | 15,200,000 | 15,200,000 | |||||||||||||||||||||||||||||||||||||
| Series B preferred stock dividends | - | - | - | (130,000 | ) | (130,000 | ) | (130,000 | ) | |||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | 15,671,053 | 15,671,053 | (209,921 | ) | 15,461,132 | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | 15,200 | $ | 2 | $ | 94,872,068 | $ | 9,488 | $ | 298,752,278 | $ | (117,447,000 | ) | $ | 181,314,768 | $ | (356,716 | ) | $ | 180,958,052 | |||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | - | - | - | 1,494,332 | - | 1,494,332 | - | 1,494,332 | |||||||||||||||||||||||||||||||||
| Stock-based compensation - common stock awards | - | - | - | - | 25,000 | 3 | 72,497 | - | 72,500 | - | 72,500 | |||||||||||||||||||||||||||||||||
| Issuance of vested RSUs | - | - | - | - | 50,393 | 5 | (5 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | - | - | 178,801 | 18 | (18 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | - | 100,000 | 10 | 315,150 | - | 315,160 | - | 315,160 | |||||||||||||||||||||||||||||||||
| Series B preferred stock dividends | - | - | - | - | - | - | - | (212,844 | ) | (212,844 | ) | (212,844 | ) | |||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | 8,358,760 | 8,358,760 | (141,011 | ) | 8,217,749 | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | 15,200 | $ | 2 | $ | 95,226,262 | $ | 9,524 | $ | 300,634,234 | $ | (109,301,084 | ) | $ | 191,342,676 | $ | (497,727 | ) | $ | 190,844,949 | |||||||||||||||||||||||||
| Balance as of January 1, 2022 | 15,200 | $ | 2 | $ | 97,563,841 | $ | 9,756 | $ | 305,117,091 | $ | (99,951,839 | ) | $ | 205,175,010 | $ | (596,766 | ) | $ | 204,578,244 | |||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | 1,287,695 | 1,287,695 | 1,287,695 | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation - common stock awards | - | - | 25,000 | 3 | 28,497 | 28,500 | 28,500 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | 152,971 | 15 | (15 | ) | ||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | 539,058 | 54 | (54 | ) | ||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | - | - | 12,581,986 | 1,258 | 14,233,674 | 14,234,932 | 14,234,932 | |||||||||||||||||||||||||||||||||||||
| Shares issued in connection with amendment of notes payable | - | - | 860,000 | 86 | 802,975 | 803,061 | 803,061 | |||||||||||||||||||||||||||||||||||||
| Warrants issued in connection with amendment of notes payable | - | - | - | 1,088,515 | 1,088,515 | 1,088,515 | ||||||||||||||||||||||||||||||||||||||
| Modification of Series C and Series D warrants | - | - | - | 3,736,000 | 3,736,000 | 3,736,000 | ||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | (266,000 | ) | (266,000 | ) | (266,000 | ) | |||||||||||||||||||||||||||||||||||
| Exchange of Series B preferred stock for Series C preferred stock | (15,000 | ) | (2 | ) | 15,000 | 2 | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (7,846,097 | ) | (7,846,097 | ) | (77,372 | ) | (7,923,469 | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 200 | $ | 15,000 | $ | 2 | 111,722,856 | $ | 11,172 | $ | 326,294,378 | $ | (108,063,936 | ) | $ | 218,241,616 | $ | (674,138 | ) | $ | 217,567,478 | ||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | 1,254,724 | 1,254,724 | 1,254,724 | ||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | 44,197 | 5 | (5 | ) | ||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | 2,319 | |||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with issuance of notes payable | - | - | 125,000 | 13 | 75,406 | 75,419 | 75,419 | |||||||||||||||||||||||||||||||||||||
| Warrants issued in connection with issuance of notes payable | - | - | - | 18,709 | 18,709 | 18,709 | ||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | - | - | 5,632,877 | 563 | 3,747,719 | 3,748,282 | 3,748,282 | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | - | - | - | (266,000 | ) | (266,000 | ) | - | (266,000 | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | (8,936,433 | ) | (8,936,433 | ) | (158,592 | ) | (9,095,025 | ) | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | 200 | $ | 15,000 | $ | 2 | 117,527,249 | $ | 11,753 | $ | 331,390,931 | $ | (117,266,369 | ) | $ | 214,136,317 | $ | (832,730 | ) | $ | 213,303,587 | ||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | - | - | - | 706,960 | - | 706,960 | - | 706,960 | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | - | - | 45,860 | 5 | (5 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | - | - | 108,924 | 10 | (10 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
| Sale of shares under ATM | - | - | - | - | 3,521,291 | 352 | 2,419,951 | - | 2,420,303 | - | 2,420,303 | |||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | - | - | - | (266,000 | ) | (266,000 | ) | - | (266,000 | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (10,858,280 | ) | (10,858,280 | ) | (101,202 | ) | (10,959,482 | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | 200 | $ | 15,000 | $ | 2 | 121,203,324 | $ | 12,120 | $ | 334,517,827 | $ | (128,390,649 | ) | $ | 206,139,300 | $ | (933,932 | ) | $ | 205,205,368 | ||||||||||||||||||||||||
3
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (27,977,976 | ) | $ | (102,418,590 | ) | ||
| Adjustments to reconcile net loss to cash flows provided by (used in) operating activities | ||||||||
| Depreciation expense | 9,420,585 | 8,886,648 | ||||||
| Amortization of note discounts | 3,610,738 | 3,725,349 | ||||||
| Interest paid in kind | 2,659,044 | 1,500,382 | ||||||
| Impairment expense | - | 1,748,448 | ||||||
| Loss (gain) on extinguishment of debt | 148,472 | (390,400 | ) | |||||
| Change in fair value of warrant liability | (9,011,000 | ) | 67,565,942 | |||||
| Change in fair value of interest rate swap | 128,000 | - | ||||||
| Stock-based compensation expense | 3,277,879 | 4,573,524 | ||||||
| Amortization of right of use asset | 134,111 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,201,990 | ) | (125,208 | ) | ||||
| Prepaid expenses and other assets | 719,172 | (1,648,247 | ) | |||||
| Accounts payable and accrued expenses | 16,092,721 | (2,537,410 | ) | |||||
| Operating Leases | 13,436 | |||||||
| Due to affiliates | 2,740,818 | 105,112 | ||||||
| Other liabilities | 1,659,949 | (1,231,141 | ) | |||||
| Net cash provided by (used in) operating activities | 2,413,959 | (20,245,591 | ) | |||||
| Cash Flows From Investing Activities | ||||||||
| Additions to project development costs and property and equipment | (77,862,339 | ) | (42,328,949 | ) | ||||
| Net cash used in investing activities | (77,862,339 | ) | (42,328,949 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable | 68,807,100 | 6,900,000 | ||||||
| Repayments of notes payable | (8,238,479 | ) | (25,762,598 | ) | ||||
| Payment of financing costs | (5,447,177 | ) | (515,000 | ) | ||||
| Proceeds from sale of Series B preferred stock and warrants | 15,200,000 | |||||||
| Proceeds from equity raises | 31,746,996 | |||||||
| Proceeds from exercise of warrants | 23,485,200 | |||||||
| Payment of Series B dividends | (450,000 | ) | (43,333 | ) | ||||
| Proceeds from failed sale leaseback | 15,588,519 | - | ||||||
| Proceeds from sale of common stock under ATM | 20,403,517 | |||||||
| Net cash provided by financing activities | 90,663,480 | 51,011,265 | ||||||
| Net increase (decrease) in cash and restricted cash | 15,215,100 | (11,563,275 | ) | |||||
| Cash and restricted cash, beginning of year | 17,388,040 | 40,053,461 | ||||||
| Cash and restricted cash, end of period | $ | 32,603,140 | $ | 28,490,186 | ||||
| Cash | $ | 15,913,191 | $ | 13,208,269 | ||||
| Restricted Cash | 16,689,949 | 15,281,917 | ||||||
| Total cash and restricted cash | $ | 32,603,140 | $ | 28,490,186 | ||||
4
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For
the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the year for interest | $ | 4,466,500 | $ | 2,358,770 | ||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Project development cost acquired through accounts payable and accrued expenses, net | $ | 3,346,580 | $ | 239,429 | ||||
| Settlement of warrant liability | $ | $ | 53,518,942 | |||||
| Amendment of Series C warrant liability for equity classification | $ | 3,336,000 | $ | |||||
| Amendment of Series C and D warrants | $ | 400,000 | $ | |||||
| Initial value of right of use asset upon adoption of ASC 842 | $ | 7,741,955 | $ | |||||
| Accrued Series B preferred stock dividends | $ | 348,000 | $ | 299,511 | ||||
| Amounts due to affiliate exchanged for note payable | $ | 850,000 | $ | - | ||||
| Shares issued in connection with amendment of notes payable | $ | 803,061 | $ | |||||
| Warrants issued in connection with amendment of notes payable | $ | 1,088,515 | $ | |||||
| Shares issued in connection with issuance of notes payable | $ | 75,419 | $ | |||||
| Warrants issued in connection with issuance of notes payable | $ | 18,709 | $ | - | ||||
5
Hall
of Fame Resort & Entertainment Company and Subsidiaries
(Unaudited)
Note 1: Organization and Nature of Business
Organization and Nature of Business
Hall of Fame Resort & Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise, the “Company” or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned subsidiary of our legal predecessor, Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On July 1, 2020, the Company consummated a business combination with HOF Village, LLC, a Delaware limited liability company (“HOF Village”), pursuant to an Agreement and Plan of Merger dated September 16, 2019 (as amended on November 6, 2019, March 10, 2020 and May 22, 2020, the “Merger Agreement”), by and among the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation (“Acquiror Merger Sub”), GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”), HOF Village and HOF Village Newco, LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by the Merger Agreement are referred to as the “Business Combination”.
The Company is a resort and entertainment company leveraging the power and popularity of professional football and its legendary players in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, the Company owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment, and media destination centered around the PFHOF’s campus. The Company is pursuing a differentiation strategy across three pillars, including destination-based assets, HOF Village Media Group, LLC (“Hall of Fame Village Media”), and gaming . The Company is located in the only tourism development district in the state of Ohio.
The Company has entered into several agreements with PFHOF, an affiliate of the Company, and certain government entities, which outline the rights and obligations of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits, portions of which are owned by the Company and portions of which are net leased to the Company by government and quasi-governmental entities (see Note 9 for additional information). Under these agreements, the PFHOF and the lessor entities are entitled to use portions of the Hall of Fame Village powered by Johnson Controls on a direct-cost basis.
COVID-19
Since 2020, the world has been impacted by the novel coronavirus (“COVID-19”) pandemic. The COVID-19 pandemic and measures to prevent its spread have impacted the Company’s business in a number of ways, most significantly with regard to a reduction in the number of events and attendance at events at Tom Benson Hall of Fame Stadium and ForeverLawn Sports Complex, which has also negatively impacted the Company’s ability to sell sponsorships. Further, the COVID-19 pandemic has caused a number of supply chain disruptions, which have negatively impacted the Company’s ability to obtain the materials needed to complete construction as well as increases in the costs of materials and labor. The continued impact of these disruptions and the ultimate extent of their adverse impact on the Company’s financial and operating results will continue to be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unpredictable duration and severity of the impacts of the COVID-19 pandemic, and among other things, the impact of governmental actions imposed in response to the COVID-19 pandemic as well as individuals’ and companies’ risk tolerance regarding health matters going forward and developing strain mutations.
6
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business (continued)
Liquidity
The Company has sustained recurring losses through September 30, 2022. Since inception, the Company’s operations have been funded principally through the issuance of debt and equity. As of September 30, 2022, the Company had approximately $16 million of unrestricted cash and cash equivalents and $16.7 million of restricted cash. The Company has approximately $18.7 million of debt coming due through December 31, 2023.
On March 1, 2022, the Company and ErieBank agreed to extend the MKG DoubleTree Loan (as defined in Note 4) in principal amount of $15,300,000 to September 13, 2023. See Note 4, Notes Payable, for more information on this transaction.
On March 1, 2022, the Company executed a series of transactions with affiliates of Industrial Realty Group, LLC, a Nevada limited liability company that is controlled by the Company’s director Stuart Lichter (“IRG”), and JKP Financial LLC (“JKP”), whereby the IRG affiliates and JKP extended certain of the Company’s debt in aggregate principal amount of $22,853,831 to March 31, 2024. See Note 4, Notes Payable, for more information on this transaction.
On June 16, 2022, the Company entered into a loan agreement with CH Capital Lending LLC, which is an affiliate of the Company’s director Stuart Lichter (“CH Capital Lending”), whereby CH Capital Lending agreed to lend the Company $10,500,000.
On June 16, 2022, the Company entered into a loan agreement with Stark Community Foundation, whereby Stark Community Foundation agreed to lend to the Company $5,000,000. Through September 30, 2022, the total of $5,000,000 has been provided to the Company. See Stark Community Foundation Loan under Note 4, Notes Payable, for more information on this transaction.
On July 1, 2022, the Company entered into an Energy Project Cooperative Agreement (the “EPC Agreement”) with Canton Regional Energy Special Improvement District, Inc., SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC and City of Canton, Ohio. Under the EPC Agreement, the Company was provided $33,387,844 in Property Assessed Clean Energy (“PACE”) financing.
On August 31, 2022, the Company entered into a Business Loan Agreement (the “Business Loan Agreement”) with Stark County Port Authority (“Stark Port Authority”), pursuant to which the Company borrowed $5,000,000 (the “SCPA Loan”).
On September 15, 2022, the Company entered into a Business Loan Agreement with the City of Canton, Ohio (“City of Canton”), pursuant to which the Company borrowed $5,000,000 (the “Canton Loan”).
7
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business (continued)
Liquidity
On September 27, 2022, the Company entered into a loan agreement with The Huntington National Bank, pursuant to which the lender agreed to loan up to $10,000,000 to the Subsidiary Borrowers, which may be drawn upon the Project achieving certain debt service coverage ratios. To date the Company has not received any funding from this loan agreement.
On September 27, 2022, the Company received approximately $14.7 million in proceeds from a failed sale-leaseback, net of financing costs and amounts held by the Landlord for future debt service. The Company recorded this transaction as a financing liability on the accompanying consolidated balance sheet. See Note 12.
On October 19, 2022, HOF Village Center for Performance, LLC and HOF Village Newco, LLC, subsidiaries of the Company, entered an Ohio Enterprise Bond Fund transaction (“OEBF”) with the State of Ohio and Stark County Port Authority. The OEBF issued $7,500,000 of Series 2022-3 bonds, the proceeds of which were loaned to the Stark County Port Authority and used to purchase Series 2022A bonds.
On November 7, 2022, the Company received approximately $49 million in net proceeds from a failed sale-leaseback, net of financing costs. See Note 13, Subsequent Events, for more information on this transaction.
The Company believes that, as a result of the Company’s demonstrated historical ability to finance and refinance debt, the transactions described above and its current ongoing negotiations, it will have sufficient cash and future financing to meet its funding requirements over the next 12 months from the issuance of these unaudited condensed consolidated financial statements. Notwithstanding, the Company expects that it will need to raise additional financing to accomplish its development plan over the next several years. The Company is seeking to obtain additional funding through debt, construction lending, and equity financing. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm its financial condition and operating results.
8
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and Rule 10 of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2021, filed on March 14, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2022.
Consolidation
The unaudited condensed consolidated financial statements include the accounts and activity of the Company and its wholly owned subsidiaries. Investments in a variable interest entity in which the Company is not the primary beneficiary, or where the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. All intercompany profits, transactions, and balances have been eliminated in consolidation.
The Company owns a 60% interest in Mountaineer GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s results of operations. The portion of Mountaineer’s net income (loss) that is not attributable to the Company is included in non-controlling interest.
9
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
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”). 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. The Company will cease to be an emerging growth company on January 30, 2023.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such an extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. 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 unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions for the Company relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, stock-based compensation, and fair value of financial instruments (including the fair value of the Company’s warrant liability). Management adjusts such estimates when facts and circumstances dictate. Actual results could differ from those estimates.
10
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Warrant Liability
The Company accounts for warrants for shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”) that are not indexed to its own stock as liabilities at fair value on the balance sheet under U.S. GAAP. Such warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other expense on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such Common Stock warrants. At that time, the portion of the warrant liability related to such Common Stock warrants will be reclassified to additional paid-in capital.
Cash and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less when purchased, to be cash equivalents. There were no cash equivalents as of September 30, 2022 and December 31, 2021, respectively. The Company maintains its cash and escrow accounts at national financial institutions. The balances, at times, may exceed federally insured limits.
Restricted cash includes escrow reserve accounts for capital improvements and debt service as required under certain of the Company’s debt agreements. The balances as of September 30, 2022 and December 31, 2021 were $16,689,949 and $7,105,057, respectively.
Accounts Receivable
Accounts receivable are generally amounts due under sponsorship and other agreements. Accounts receivable are reviewed for delinquencies on a case-by-case basis and are considered delinquent when the sponsor or debtor has missed a scheduled payment. Interest is not charged on delinquencies.
The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all delinquent accounts receivable balances and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of September 30, 2022 and December 31, 2021, the Company has recorded an allowance for doubtful accounts of $3,312,500 and $0, respectively.
11
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company follows the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue with Contracts with Customers, to properly recognize revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company generates revenues from various streams such as sponsorship agreements, rents, cost recoveries, events, hotel operation, Hall of Fantasy League, and through the sale of non-fungible tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time, recognize revenue on a straight-line basis over the time period specified in the contract. The excess of amounts contractually due over the amounts of sponsorship revenue recognized are included in other liabilities on the accompanying condensed consolidated balance sheets. Contractually due but unpaid sponsorship revenue are included in accounts receivable on the accompanying condensed consolidated balance sheet. Refer to Note 6 for more details. Revenue for rents, cost recoveries, and events are recognized at the time the respective event or service has been performed. Rental revenue for long term leases is recorded on a straight-line basis over the term of the lease beginning on the commencement date.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
The Company’s owned hotel revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales, and other ancillary goods and services (e.g., parking) related to owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. Although the transaction prices of hotel room sales, goods, and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling price of each component.
12
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Income Taxes
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2022 and December 31, 2021, no liability for unrecognized tax benefits was required to be reported.
The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts incurred for penalties and interest during the three or nine months ended September 30, 2022 and 2021. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position. The Company’s effective tax rates of zero differ from the statutory rate for the years presented primarily due to the Company’s net operating loss, which was fully reserved for all years presented.
The Company has identified its United States tax return and its state tax return in Ohio as its “major” tax jurisdictions, and such returns for the years 2018 through 2021 remain subject to examination.
Advertising
The Company expenses all advertising and marketing costs as they are incurred and records them as “Operating expenses” on the Company’s condensed consolidated statements of operations. Total advertising and marketing costs for the three months ended September 30, 2022 and 2021 were $152,233 and $125,042, respectively and for the nine months ended September 30, 2022 and 2021 were $551,579 and 472,916, respectively.
13
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Software Development Costs
The Company recognizes all costs incurred to establish technological feasibility of a computer software product to be sold, leased, or otherwise marketed as research and development costs. Prior to the point of reaching technological feasibility, all costs shall be expensed when incurred. Once the development of the product establishes technological feasibility, the Company will begin capitalizing these costs. Management exercises its judgement in determining when technological feasibility is established based on when a product design and working model have been completed and the completeness of the working model and its consistency with the product design have been confirmed through testing.
Film and Media Costs
The Company capitalizes all costs to develop films and related media as an asset, included in “project development costs” on the Company’s condensed consolidated balance sheet. The costs for each film or media will be expensed over the expected release period.
Interest Rate Swap
To estimate fair value for the Company’s interest rate swap agreements, the Company utilizes a present value of future cash flows, leveraging a model-derived valuation that uses Level 2 observable inputs such as interest rate yield curves. The changes in fair value of the Company’s interest rate swap is recorded within other income and expense on the Company’s statement of operations.
Fair Value Measurement
The Company follows FASB’s ASC 820–10, Fair Value Measurement, to measure the fair value of its financial instruments and to incorporate disclosures about fair value of its financial instruments. ASC 820–10 establishes a framework for measuring fair value and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820–10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
14
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The three levels of fair value hierarchy defined by ASC 820–10-20 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these instruments.
The Company uses Levels 1 and 3 of the fair value hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period and recognizes gains or losses on the change in fair value of the warrant liabilities as “change in fair value of warrant liabilities” in the condensed consolidated statements of operations.
The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of 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:
| Level | September 30, 2022 | December 31, 2021 | ||||||||
| Warrant liabilities – Public Series A Warrants | 1 | $ | 955,000 | $ | 4,617,000 | |||||
| Warrant liabilities – Private Series A Warrants | 3 | 10,000 | 110,000 | |||||||
| Warrant liabilities – Series B Warrants | 3 | 357,000 | 2,416,000 | |||||||
| Warrant liabilities – Series C Warrants | 3 | 6,526,000 | ||||||||
| Fair value of aggregate warrant liabilities | $ | 1,322,000 | $ | 13,669,000 | ||||||
| Fair value of interest rate swap liability | 2 | $ | 128,000 | $ | - | |||||
15
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The Series A Warrants issued to the previous shareholders of GPAQ (the “Public Series A Warrants”) are classified as Level 1 due to the use of an observable market quote in the active market. Level 3 financial liabilities consist of the Series A Warrants issued to the sponsors of GPAQ (the “Private Series A Warrants”), the Series B Warrants issued in the Company’s November 2020 follow-on public offering, and the Series C Warrants issued in the Company’s December 2020 private placement (“Series C Warrants”), for which there is no current market for these securities, and the determination of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded appropriately.
Subsequent measurement
The following table presents the changes in fair value of the warrant liabilities:
| Public Series A Warrants | Private Series A Warrants | Series B Warrants | Series C Warrants | Total
Warrant Liability | ||||||||||||||||
| Fair value as of December 31, 2021 | $ | 4,617,000 | $ | 110,000 | $ | 2,416,000 | $ | 6,526,000 | $ | 13,669,000 | ||||||||||
| Amendment of warrants to equity classification | (3,336,000 | ) | (3,336,000 | ) | ||||||||||||||||
| Change in fair value | (3,662,000 | ) | (100,000 | ) | (2,059,000 | ) | (3,190,000 | ) | (9,011,000 | ) | ||||||||||
| Fair value as of September 30, 2022 | $ | 955,000 | $ | 10,000 | $ | 357,000 | $ | $ | 1,322,000 | |||||||||||
On March 1, 2022, the Company and CH Capital Lending amended the Series C Warrants. The Amended and Restated Series C Warrants extend the term of the Series C Warrants to March 1, 2027. The exercise price of $1.40 per share was not modified, but the amendments subject the exercise price to a weighted-average antidilution adjustment. The amendments also remove certain provisions that previously caused the Series C Warrants to be accounted for as a liability.
16
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
Subsequent measurement (continued)
The key inputs into the Black Scholes valuation model for the Level 3 valuations as of September 30, 2022 and December 31, 2021 are as follows:
| September 30, 2022 | March 1, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Private Series A Warrants | Series
B Warrants | Series
C Warrants | Private Series A Warrants | Series
B Warrants | Series
C Warrants | |||||||||||||||||||
| Term (years) | 2.8 | 3.1 | 3.8 | 3.5 | 3.9 | 4.0 | ||||||||||||||||||
| Stock price | $ | 0.55 | $ | 0.55 | $ | 1.01 | $ | 1.52 | $ | 1.52 | $ | 1.52 | ||||||||||||
| Exercise price | $ | 11.50 | $ | 1.40 | $ | 1.40 | $ | 11.50 | $ | 1.40 | $ | 1.40 | ||||||||||||
| Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
| Expected volatility | 59.01 | % | 57.33 | % | 54.7 | % | 50.6 | % | 50.6 | % | 50.6 | % | ||||||||||||
| Risk free interest rate | 4.25 | % | 4.25 | % | 1.5 | % | 1.3 | % | 1.3 | % | 1.3 | % | ||||||||||||
| Number of shares | 2,103,573 | 3,760,570 | 10,036,925 | 2,103,573 | 3,760,570 | 10,036,925 | ||||||||||||||||||
| Value (per share) | $ | 0.002 | $ | 0.09 | $ | 0.33 | $ | 0.05 | $ | 0.64 | $ | 0.65 | ||||||||||||
17
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods.
Diluted net income (loss) per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants, (ii) vesting of restricted stock units and restricted stock awards, and (iii) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.
For the three months ended September 30, 2021, the Company calculated net income per share, diluted, as follows:
| For
the Three Months Ended September 30, 2021 | ||||
| Numerator for net income per share | ||||
| Net income attributable to common stock – basic | $ | 8,145,916 | ||
| Reverse: change in fair value of warrant liabilities | (16,363,170 | ) | ||
| Net loss available to common stockholders – diluted | $ | (8,217,254 | ) | |
| Denominator for net income per share | ||||
| Weighted average shares outstanding – basic | 95,044,250 | |||
| Warrants to purchase shares of common stock, treasury method | 7,496,560 | |||
| Weighted average shares outstanding – diluted | 102,540,809 | |||
| Net income per share – basic | $ | 0.09 | ||
| Net income per share – diluted | $ | (0.08 | ) | |
For the three and nine months ended September 30, 2022, and for the nine months ended September 30, 2021, the Company was in a loss position and therefore all potentially dilutive securities would be anti-dilutive and the calculations are presented on the accompanying condensed consolidated statements of operations.
18
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Common Share (continued)
For the three and nine months ended September 30, 2022 and 2021, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Warrants to purchase shares of Common Stock | 44,137,349 | 27,214,854 | 44,137,349 | 41,012,349 | ||||||||||||
| Unvested restricted stock awards | - | 238,643 | - | 238,643 | ||||||||||||
| Unvested restricted stock units to be settled in shares of Common Stock | 2,815,589 | 2,869,754 | 2,815,589 | 2,869,754 | ||||||||||||
| Shares of Common Stock issuable upon conversion of convertible notes | 24,589,120 | 3,401,180 | 24,589,120 | 3,401,180 | ||||||||||||
| Shares of Common Stock issuable upon conversion of Series B Preferred Stock | 65,359 | 4,967,320 | 65,359 | 4,967,320 | ||||||||||||
| Shares of Common Stock issuable upon conversion of Series C Preferred Stock | 10,000,000 | 10,000,000 | ||||||||||||||
| Total potentially dilutive securities | 81,607,417 | 38,691,751 | 81,607,417 | 52,489,246 | ||||||||||||
Recent Accounting Standards
In February 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01 (collectively “ASU 2016-02”). ASU 2016-02 requires recognition of right-of-use assets and lease liabilities on the balance sheet. In June 2020, FASB issued ASU 2020-05, further extending the effective date by one year making it effective for the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. Most prominent among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use asset and a lease liability for operating leases. The right-of-use asset and lease liability are initially measured based on the present value of committed lease payments. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Expenses related to operating leases are recognized on a straight-line basis, while those related to financing leases are recognized under a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately in the statement of operations. Similarly, lessors are required to classify leases as sales-type, finance, or operating with classification affecting the pattern of income recognition. As the Company is an emerging growth company and following private company deadlines, the Company implemented this ASU beginning on January 1, 2022.
Classification for both lessees and lessors is based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. ASU 2016-02 also requires qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from leases.
19
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Recent Accounting Standards (continued)
In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which requires an entity (a lessee or lessor) to provide transition disclosures under Topic 250 upon adoption of Topic 842. In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic 326): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases. The ASU adds and amends SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. This new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within fiscal years beginning after December 15, 2022. Upon the adoption of ASC 842 on January 1, 2022, the Company recognized a right of use asset of approximately $7.7 million and corresponding lease liability of approximately $3.4 million. The initial recognition of the ROU asset included the reclassification of approximately $4.4 million of prepaid rent as of January 1, 2022. See Note 11 for additional disclosure regarding the Company’s right of use assets and lease liabilities.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, which is fiscal 2023 for us, with early adoption permitted. The Company adopted this ASU on January 1, 2022, which did not have a significant impact on the Company’s financial statements.
In August 2020, the FASB 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, which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU No. 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU No. 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. The required use of the “if-converted” method will not impact the Company’s diluted earnings per share as long as the Company is in a net loss position. The guidance in ASU No. 2020-06 is required for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2021, for public business entities. Early adoption is permitted, but no earlier than annual reporting periods beginning after December 15, 2020, including interim periods within those annual reporting periods. The Company early adopted this guidance for the fiscal year beginning January 1, 2022, and did so on a modified retrospective basis, without requiring any adjustments.
20
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Subsequent Events
Subsequent events have been evaluated through November 14, 2022, the date the condensed consolidated financial statements were issued. Except for as disclosed in Notes 1 and 13, no other events have been identified requiring disclosure or recording.
Note 3: Property and Equipment
Property and equipment consists of the following:
| Useful Life | September 30, 2022 |
December 31, 2021 |
||||||||
| Land | $ | 12,414,473 | $ | 4,186,090 | ||||||
| Land improvements | 25 years | 43,063,468 | 31,194,623 | |||||||
| Building and improvements | 15 to 39 years | 233,725,546 | 192,384,530 | |||||||
| Equipment | 5 to 10 years | 4,148,825 | 2,338,894 | |||||||
| Property and equipment, gross | 293,352,312 | 230,104,137 | ||||||||
| Less: accumulated depreciation | (59,064,160 | ) | (49,643,575 | ) | ||||||
| Property and equipment, net | $ | 234,288,152 | $ | 180,460,562 | ||||||
| Project development costs | $ | 139,989,064 | $ | 128,721,480 | ||||||
For the three months ended September 30, 2022 and 2021, the Company recorded depreciation expense of $2,650,719 and $2,993,581, respectively, and for the nine months ended September 30, 2022 and 2021, of $9,420,585 and $8,886,648, respectively. For the nine months ended September 30, 2022 and 2021, the Company incurred $52,560,589 and $39,514,231 of capitalized project development costs, respectively.
For the three and nine months ended September 30, 2022, the Company transferred $27,687,727 and $40,556,269 from Construction in Progress to Fixed Assets, respectively.
Included in project development costs are film development costs of $464,000 and $464,000 as of September 30, 2022 and December 31, 2021, respectively.
21
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net
Notes payable, net consisted of the following at September 30, 2022:
| Gross | Discount | Net | Interest Rate | Maturity Date | ||||||||||||||
| TIF loan | $ | 9,345,000 | $ | (1,569,914 | ) | $ | 7,775,086 | 5.20 | % | 7/31/2048 | ||||||||
| Preferred equity loan | 3,600,000 | 3,600,000 | 7.00 | % | Various | |||||||||||||
| City of Canton Loan | 3,500,000 | (5,630 | ) | 3,494,370 | 5.00 | % | 7/1/2027 | |||||||||||
| New Market/SCF | 2,999,989 | 2,999,989 | 4.00 | % | 12/30/2024 | |||||||||||||
| Constellation EME | 1,336,377 | 1,336,377 | 6.05 | % | 12/31/2022 | |||||||||||||
| JKP Capital Loan | 8,990,869 | (529,490 | ) | 8,461,379 | 12.00 | % | 3/31/2024 | |||||||||||
| MKG DoubleTree Loan | 15,300,000 | 15,300,000 | 6.55 | % | 9/13/2023 | |||||||||||||
| Convertible PIPE Notes | 25,919,595 | (8,890,345 | ) | 17,029,250 | 10.00 | % | 3/31/2025 | |||||||||||
| Canton Cooperative Agreement | 2,670,000 | (169,926 | ) | 2,500,074 | 3.85 | % | 5/15/2040 | |||||||||||
| CH Capital Loan | 8,721,661 | (942,922 | ) | 7,778,739 | 12.00 | % | 3/31/2024 | |||||||||||
| Constellation EME #2 | 3,773,201 | 3,773,201 | 5.93 | % | 4/30/2026 | |||||||||||||
| IRG Split Note | 4,273,543 | (289,930 | ) | 3,983,613 | 8.00 | % | 3/31/2024 | |||||||||||
| JKP Split Note | 4,273,543 | (253,045 | ) | 4,020,498 | 8.00 | % | 3/31/2024 | |||||||||||
| ErieBank Loan | 17,982,720 | (552,126 | ) | 17,430,594 | 5.75 | % | 6/15/2034 | |||||||||||
| PACE Equity Loan | 8,250,966 | (274,230 | ) | 7,976,736 | 6.05 | % | 12/31/2046 | |||||||||||
| PACE Equity CFP | 1,059,993 | (27,586 | ) | 1,032,407 | 6.05 | % | 12/31/2046 | |||||||||||
| CFP Loan | 4,000,000 | (81,378 | ) | 3,918,622 | 6.50 | % | 4/30/2023 | |||||||||||
| Stark County Community Foundation | 5,000,000 | 5,000,000 | 6.00 | % | 5/31/2029 | |||||||||||||
| CH Capital Bridge Loan | 7,000,000 | 7,000,000 | 12.00 | % | 3/31/2024 | |||||||||||||
| Stadium PACE Loan | 33,387,844 | (4,117,551 | ) | 29,270,293 | 6.00 | % | 7/31/2048 | |||||||||||
| Stark County Infrastructure Loan | 5,000,000 | 5,000,000 | 6.00 | % | 8/30/2029 | |||||||||||||
| City of Canton Infrastructure Loan | 5,000,000 | (11,939 | ) | 4,988,061 | 6.00 | % | 6/30/2029 | |||||||||||
| Total | $ | 181,385,301 | $ | (17,716,012 | ) | $ | 163,669,289 | |||||||||||
22
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Notes payable, net consisted of the following at December 31, 2021:
| Gross | Discount | Net | ||||||||||
| TIF loan | $ | 9,451,000 | $ | (1,611,476 | ) | $ | 7,839,524 | |||||
| Preferred equity loan | 3,600,000 | 3,600,000 | ||||||||||
| City of Canton Loan | 3,500,000 | (6,509 | ) | 3,493,491 | ||||||||
| New Market/SCF | 2,999,989 | 2,999,989 | ||||||||||
| Constellation EME | 5,227,639 | 5,227,639 | ||||||||||
| JKP Capital loan | 6,953,831 | 6,953,831 | ||||||||||
| MKG DoubleTree Loan | 15,300,000 | (83,939 | ) | 15,216,061 | ||||||||
| Convertible PIPE Notes | 24,059,749 | (11,168,630 | ) | 12,891,119 | ||||||||
| Canton Cooperative Agreement | 2,670,000 | (174,843 | ) | 2,495,157 | ||||||||
| Aquarian Mortgage Loan | 7,400,000 | (439,418 | ) | 6,960,582 | ||||||||
| Constellation EME #2 | 4,455,346 | 4,455,346 | ||||||||||
| IRG Note | 8,500,000 | 8,500,000 | ||||||||||
| ErieBank Loan | 13,353,186 | (598,966 | ) | 12,754,220 | ||||||||
| PACE Equity Loan | 8,250,966 | (277,729 | ) | 7,973,237 | ||||||||
| Total | $ | 115,721,706 | $ | (14,361,510 | ) | $ | 101,360,196 | |||||
During the three months ended September 30, 2022 and 2021, the Company recorded amortization of note discounts of $1,132,440 and $1,326,620, respectively, and for the nine months ended September 30, 2022 and 2021, of $3,610,738 and $3,725,347, respectively.
During the nine months ended September 30, 2022 and 2021, the Company recorded paid-in-kind interest of $2,659,044 and $1,500,382, respectively.
23
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Accrued Interest on Notes Payable
As of September 30, 2022 and December 31, 2021, accrued interest on notes payable, were as follows:
| September
30, 2022 | December
31, 2021 | |||||||
| TIF loan | $ | 33,159 | $ | 22,208 | ||||
| Preferred equity loan | 48,825 | 203,350 | ||||||
| New Market/SCF | 48,500 | 89,682 | ||||||
| City of Canton Loan | 1,533 | 5,979 | ||||||
| JKP Capital Note | 1,251,395 | |||||||
| Canton Cooperative Agreement | 69,902 | 39,416 | ||||||
| CH Capital Loan | 55,652 | |||||||
| IRG Split Note | 28,490 | |||||||
| JKP Split Note | 28,490 | |||||||
| ErieBank Loan | 31,910 | 26,706 | ||||||
| PACE Equity Loan | 410,950 | 30,824 | ||||||
| Stark Community Foundation | 44,167 | - | ||||||
| CH Capital Bridge Loan | 269,000 | - | ||||||
| Stark County Infrastructure Loan | 6,667 | - | ||||||
| City of Canton Infrastructure Loan | 12,500 | |||||||
| Stadium PACE Loan | 500,818 | - | ||||||
| Total | $ | 1,590,563 | $ | 1,669,560 | ||||
The amounts above were included in “accounts payable and accrued expenses” on the Company’s consolidated balance sheets.
For more information on the notes payable above, please see Note 4 of the Company’s Annual Report on Form 10-K, as filed on March 14, 2022.
24
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
JKP Capital Loan
On June 24, 2020, HOF Village and HOFV Hotel II executed a loan evidenced by a promissory note (the “JKP Capital Loan”) in favor of JKP Financial, LLC (“JKP”) for the principal sum of $7,000,000. The JKP Capital Loan bears interest at a rate of 12% per annum and matured on December 2, 2021, on which date all unpaid principal and accrued and unpaid interest was due. The JKP Capital Loan is secured by the membership interests in HOFV Hotel II held by HOF Village.
On March 1, 2022, the Company amended the JKP Capital Loan. The Second Amendment to JKP Capital Loan (i) revises the outstanding principal balance of the JKP Capital Loan to include interest that has accrued and has not been paid as of March 1, 2022, and (ii) extends the maturity of the JKP Capital Loan to March 31, 2024, and (iii) amends the JKP Capital Loan to be convertible into shares of Common Stock at a conversion price of $1.09 per share, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment.
As part of the consideration for the Second Amendment to JKP Capital Loan, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act: (i) 280,000 shares of Common Stock to JKP and (ii) a Series F Warrant to purchase 1,000,000 shares of Common Stock to JKP.
The Company accounted for this transaction as an extinguishment, given that a substantive conversion feature was added to the JKP Capital Loan. The Company recorded the relative fair value of the shares of Common Stock and Series F Warrants as a discount against the JKP Capital Loan. The following assumptions were used to calculate the fair value of Series F Warrants:
| Term (years) | 5.0 | |||
| Stock price | $ | 1.01 | ||
| Exercise price | $ | 1.09 | ||
| Dividend yield | 0.0 | % | ||
| Expected volatility | 51.2 | % | ||
| Risk free interest rate | 1.6 | % | ||
| Number of shares | 1,000,000 |
25
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
MKG DoubleTree Loan
On September 14, 2020, the Company entered into a construction loan agreement with Erie Bank, a wholly owned subsidiary of CNB Financial Corporation, a Pennsylvania corporation, as lender. The Company has applied and been approved for a first mortgage loan for $15.3 million (“MKG DoubleTree Loan”) with a variable interest rate of 1.75% plus the prime commercial rate, at which no time can it drop below 5%, for the purpose of renovating the McKinley Grand Hotel in the City of Canton, Ohio. The initial maturity date is 18 months after the exercised loan date, March 13, 2022, and the agreement includes an extended maturity date of September 13, 2022, should HOFRE need more time with an extension fee of 0.1% of the then outstanding principal balance. The MKG DoubleTree Loan has certain financial covenants whereby the Company must maintain a minimum tangible net worth of $5,000,000 and minimum liquidity of not less than $2,000,000. These covenants are to be tested annually based upon the financial statements at the end of each fiscal year.
On March 1, 2022, HOF Village Hotel II, LLC, a subsidiary of the Company, entered into an amendment to the MKG DoubleTree Loan with the Company’s director, Stuart Lichter, as guarantor, and ErieBank, a division of CNB Bank, a wholly owned subsidiary of CNB Financial Corporation, as lender, which extended the maturity to September 13, 2023. The Company accounted for this amendment as a modification, and expensed approximately $38,000 in loan modification costs.
CH Capital Loan (formerly known as Aquarian Mortgage Loan)
On December 1, 2020, the Company entered into a mortgage loan (the “Aquarian Mortgage Loan”) with Aquarian Credit Funding, LLC (“Aquarian”), as administrative agent and with Investors Heritage Life Insurance Company and Lincoln Benefit Life Company, as lenders, for $40,000,000 of gross proceeds. The Aquarian Mortgage Loan bears interest at 10% per annum. Upon the occurrence and during the continuance of an event of default, Aquarian may, at its option, take such action, without notice or demand, that Aquarian deems advisable to protect and enforce its rights against the Company, including declaring the debt to become immediately due and payable.
On August 30, 2021, the Company and Aquarian amended the terms of the Aquarian Mortgage Loan whereby the Company paid $20 million to Lincoln Benefit Life Company. In accordance with such payment, Lincoln Benefit Life Company was removed as a lender and the aggregate principal of the Aquarian Mortgage Loan was reduced to $20 million as of September 30, 2021. The Company and Aquarian also agreed to extend the maturity date of the Aquarian Mortgage Loan to March 31, 2022.
On December 15, 2021, the Company repaid approximately $13 million of the Aquarian Mortgage Loan.
On March 1, 2022, CH Capital Lending purchased and acquired, the Company’s $7.4 million Aquarian Mortgage Loan (as thereafter amended and acquired by CH Capital Lending, the “CH Capital Loan”).
26
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CH Capital Loan (formerly known as Aquarian Mortgage Loan) (continued)
On March 1, 2022, immediately after CH Capital Lending became the lender and administrative agent under the CH Capital Loan, the maturity date of the Term Loan was extended to March 31, 2024. Also under the amendment, the Term Loan was made convertible into shares of Common Stock at a conversion price of $1.50 per share, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment. Certain current and historical fees and expenses were added to the principal amount of the CH Capital Loan so that the new principal amount is $8,347,839. The interest rate was increased from 10% to 12%. Of such 12% per annum interest: (i) 8% per annum shall be payable monthly and (ii) 4% per annum shall accumulate and be payable on the maturity date.
As part of the consideration for the amendment: (i) the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act: (A) 330,000 shares of Common Stock to CH Capital Lending, and (B) a warrant to purchase 1,000,000 shares of Common Stock (“Series E Warrant”) to CH Capital Lending, (ii) the Company was required to, subject to approval of its board of directors, create a series of preferred stock, to be known as 7.00% Series C Convertible Preferred Stock (“Series C Preferred Stock”), and, upon the request of CH Capital Lending, exchange each share of the Company’s Series B Convertible Preferred Stock, that is held by CH Capital Lending for one share of Series C Preferred Stock, and (iii) the Company and CH Capital Lending amended and restated the Series C Warrants and Series D Warrants that the Company issued to CH Capital Lending.
The Series E Warrants have an exercise price of $1.50 per share, subject to adjustment. The exercise price is subject to a weighted-average antidilution adjustment. The Series E Warrants may be exercised from and after March 1, 2023, subject to certain terms and conditions set forth in the Series E Warrants. Unexercised Series E Warrants will expire on March 1, 2027. The Series E Warrants shall be cancelled without any further action on the part of the Company or the holder, in the event that the Company repays in full on or before March 1, 2023, the CH Capital Loan.
The Company accounted for this transaction as an extinguishment, given that a substantive conversion feature was added to the CH Capital Loan. The Company recorded the relative fair value of the shares of Common Stock and Series E Warrants as a discount against the CH Capital Loan. The following assumptions were used to calculate the fair value of Series E Warrants:
| Term (years) | 5.0 | |||
| Stock price | $ | 1.01 | ||
| Exercise price | $ | 1.50 | ||
| Dividend yield | 0.0 | % | ||
| Expected volatility | 51.2 | % | ||
| Risk free interest rate | 1.6 | % | ||
| Number of shares | 1,000,000 |
27
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CH Capital Loan (formerly known as Aquarian Mortgage Loan) (continued)
On August 5, 2022, the Company and CH Capital amended the CH Capital Loan to increase the principal amount of the loan to reflect (a) certain legal and other fees incurred as part of the previous amendment on March 1, 2022; and (b) to reflect paid-in-kind interest through July 31, 2022. The amount of the principal was increased to $8,751,763.
IRG Note
On November 23, 2021, the Company, and IRG entered into a promissory note (the “IRG Note”) pursuant to which IRG made a loan to the Company in the aggregate amount of $8,500,000. Interest will accrue on the outstanding balance of the Note at a rate of 8% per annum, compounded monthly. The Company will pay interest to IRG under the Note on the first day of each month, in arrears. The Note has a maturity date of June 30, 2022.
On March 1, 2022, pursuant to an Assignment of Promissory Note, dated March 1, 2022, IRG assigned (a) a one-half (½) interest in the IRG Note to IRG (the “IRG Split Note”) and (b) a one-half (½) interest in the IRG Note to JKP (the “JKP Split Note”). See “IRG Split Note” and “JKP Split Note”, below.
IRG Split Note
On March 1, 2022, the Company entered into a First Amended and Restated Promissory Note with IRG, which amended and restated the IRG Split Note (the “Amended IRG Split Note). The Amended IRG Split Note extended the maturity to March 31, 2024. Under the Amended IRG Split Note , the principal and accrued interest are convertible into shares of Common Stock at a conversion price of $1.50 per share, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment. The principal amount of the Amended IRG Split Note is $4,273,543.
As part of the consideration for the Amended IRG Split Note, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act: (i) 125,000 shares of Common Stock to IRG, LLC, and (ii) a Series E Warrant to purchase 500,000 shares of Common Stock to IRG.
The Series E Warrants shall be cancelled without any further action on the part of the Company or the holder, in the event that the Company repays in full, on or before March 1, 2023, the Amended IRG Split Note.
28
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
IRG Split Note (continued)
The Company accounted for this transaction as an extinguishment, given that a substantive conversion feature was added to the Amended IRG Split Note. The Company recorded the relative fair value of the shares of Common Stock and Series E Warrants as a discount against the JKP Capital Loan. The following assumptions were used to calculate the fair value of Series E Warrants:
| Term (years) | 5.0 | |||
| Stock price | $ | 1.01 | ||
| Exercise price | $ | 1.50 | ||
| Dividend yield | 0.0 | % | ||
| Expected volatility | 51.2 | % | ||
| Risk free interest rate | 1.6 | % | ||
| Number of shares | 500,000 |
JKP Split Note
On March 1, 2022, the Company entered into a First Amended and Restated Promissory Note with JKP, which amended and restated the JKP Split Note (the “Amended JKP Split Note”). The Amended JKP Split Note extended the maturity to March 31, 2024. Under the Amended JKP Split Note, the principal and accrued interest are convertible into shares of Common Stock at a conversion price of $1.09 per share, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment. The principal amount of the Amended JKP Split Note is $4,273,543.
As part of the consideration for the Amended JKP Split Note, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act: (i) 125,000 shares of Common Stock to JKP, and (ii) a Series F Warrant to purchase 500,000 shares of Common Stock to JKP.
The Series F Warrants have an exercise price of $1.09 per share, subject to adjustment. The exercise price is subject to a weighted-average antidilution adjustment. The Series F Note Warrants may be exercised from and after March 1, 2022, subject to certain terms and conditions set forth in the Series F Warrants. Unexercised Series F Warrants will expire on March 1, 2027.
The Company accounted for this transaction as an extinguishment, given that a substantive conversion feature was added to the Amended JKP Split Note. The Company recorded the relative fair value of the shares of Common Stock and Series F Warrants as a discount against the Amended JKP Split Note. The following assumptions were used to calculate the fair value of Series F Warrants:
| Term (years) | 5.0 | |||
| Stock price | $ | 1.01 | ||
| Exercise price | $ | 1.09 | ||
| Dividend yield | 0.0 | % | ||
| Expected volatility | 51.2 | % | ||
| Risk free interest rate | 1.6 | % | ||
| Number of shares | 500,000 |
29
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CFP Loan
On April 27, 2022, Midwest Lender Fund, LLC, a limited liability company wholly owned by our director Stuart Lichter (“MLF”), loaned $4,000,000 (the “CFP Loan”) to HOF Village Center For Performance, LLC (“HOF Village CFP”). Interest accrues on the outstanding balance of the CFP Loan at 6.5% per annum, compounded monthly. The CFP Loan matures on April 30, 2023 or if HOF Village CFP exercises its extension option, April 30, 2024. The CFP Loan is secured by a mortgage encumbering the Center For Performance.
As part of the consideration for making the Loan, on June 8, 2022, the Company issued to MLF: (A) 125,000 shares (the “Commitment Fee Shares”) of Common Stock, and (B) a warrant to purchase 125,000 shares of Common Stock (“Series G Warrants”). The exercise price of the Series G Warrants will be $1.50 per share. The Series G Warrants will become exercisable one year after issuance, subject to certain terms and conditions set forth in the Series G Warrants. Unexercised Series G Warrants will expire five years after issuance. The exercise price of the Series G Warrants will be subject to a weighted-average antidilution adjustment.
The Company recorded the relative fair value of the shares of Common Stock and Series G Warrants as a discount against the CFP Loan. The following assumptions were used to calculate the fair value of Series G Warrants:
| Term (years) | 5.0 | |||
| Stock price | $ | 0.62 | ||
| Exercise price | $ | 1.50 | ||
| Dividend yield | 0.0 | % | ||
| Expected volatility | 52.4 | % | ||
| Risk free interest rate | 3.0 | % | ||
| Number of shares | 125,000 |
PACE Equity CFP
On April 28, 2022, the City of Canton, in coordination with the Canton Regional Energy Special Improvement District, approved legislation that will enable the Company to receive $3,200,000 in Property Assessed Clean Energy (“PACE”) financing in conjunction with the implementation of various energy-efficient improvements at the Center for Performance. Through September 30, 2022, the Company received $1,059,994 of this financing.
Stark County Community Foundation
On June 16, 2022, the Company entered into a loan agreement with Stark pursuant to which Stark agreed to lend $5,000,000 to the Company. Of this amount, the Company borrowed $5,000,000 (the “SCF Loan”) through September 30, 2022. The interest rate applicable to the SCF Loan is 6.0% annum. Interest payments are paid annually on December 31 of each year. The SCF Loan is unsecured and matures on May 31, 2029. The Company may prepay the SCF Loan without penalty.
30
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Stark County Community Foundation (continued)
Events of default under the loan include without limitation: (i) a payment default, (ii) the Company’s failure to complete the infrastructure development for Phase II on or before December 31, 2024, and (iii) the Company’s failure, following notice from Stark, to comply with any non-monetary covenant contained in the loan agreement. Upon the occurrence of an event of default under the Business Loan Agreement: (a) interest due will increase by 5% per annum; and (b) Stark may, at its option, declare the Company’s obligations under the Business Loan Agreement to be immediately due and payable.
The loan agreement contains customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including furnish Stark with such financial statements and other related information at such frequencies and in such detail as Stark may reasonably request and use all SCF Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens, mergers and acquisitions, and standard prohibitions on change of control.
CH Capital Bridge Loan
On June 16, 2022, The Company and its subsidiaries HOF Village Retail I, LLC and HOF Village Retail II, LLC, as borrowers (the “Borrowers”), borrowed $10,500,000 (the “CH Capital Bridge Loan”) from CH Capital Lending. The CH Capital Bridge Loan is evidenced by a Promissory Note issued by the Borrowers to CH Capital Lending. Interest accrues on the Note at 12% per annum, compounded monthly. The maturity date of the Note was September 10, 2022. Borrowers have the right to prepay all or any portion of the principal amount of the Note at any time before the maturity date without penalty. Under the Note, the net proceeds of a financing that occurs after the date of the Note shall be used to prepay the Note. The Note is secured by: (i) a mortgage on real property on which the Company is building its Fan Engagement Zone (an 82,000-square-foot promenade located strategically within the campus footprint, which will include restaurants, retailers and experiential offerings) and (ii) a pledge and security interest in all of the membership interests of HOF Village Waterpark, LLC, and HOF Village Hotel I, LLC held by Newco, each of which is direct or indirect wholly-owned subsidiary of the Company.
In September 2022, the Company repaid $3,500,000 on the CH Capital Bridge Loan. As of September 30, 2022, the Company had not yet repaid the balance of the loan. On November 8, 2022, the Company amended the CH Capital Bridge Loan to, among other things, extend the maturity date of the loan to March 31, 2024. See Note 13 Subsequent Events for more information.
Upon the occurrence of an event of default under the Note, including without limitation Borrowers’ failure to pay, on or before the due date any amount owing to CH Capital Lending under the Note or Borrowers’ failure, following notice from CH Capital Lending, to comply with any non-monetary covenant contained in the CH Capital Bridge Loan, (i) interest due will increase by 5% per annum; and (ii) CH Capital Lending may, at its option, declare Borrowers’ obligations under the Note to be immediately due and payable.
31
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Stadium PACE Loan
On July 1, 2022, HOF Village Stadium, LLC (the “Lessee”), a wholly-owned subsidiary of the Company that leases the Tom Benson Hall of Fame Stadium (“Stadium”) from Stark County Port Authority, entered into the EPC Agreement with Canton Regional Energy Special Improvement District, Inc. (the “ESID”), SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC (“Investor”), and City of Canton, Ohio.
Under the EPC Agreement, the Investor provided $33,387,844 (the “Project Advance”) PACE financing to finance the costs of the special energy improvement projects at the Stadium described in the Canton Regional Energy Special Improvement District Project Plan that have been completed (as supplemented, the “Plan”). Of the Project Advance, $29,565,729 was disbursed to Lessee, $3,221,927 was retained by Investor as capitalized interest, and $600,187 was used to pay closing costs. Pursuant to the EPC Agreement, the Lessee agreed to make special assessment payments in an aggregate amount that will provide revenues sufficient to repay the Project Advance plus interest and certain costs (the “Special Assessments”). The Special Assessments have been levied in the amounts necessary to amortize the Project Advance, together with interest at the annual rate of 6.0% and a $6,542 semi-annual administrative fee to the ESID over 50 semi-annual payments of $1,314,913 to be collected beginning approximately on January 31, 2024 and continuing through approximately July 31, 2048.
In connection with entering into the EPC Agreement, the Company obtained the consent and agreement of Cuyahoga River Capital LLC (“CRC”), pursuant to an agreement, dated June 27, 2022 (the “Consent Agreement”). CRC holds 100% of the interest in the Development Finance Authority of Summit County Tax-Exempt Development Revenue Bonds, Series 2018 (Hall of Fame Village - Stadium and Youth Fields TIF Project), issued in the original principal amount of $10,030,000 the “Series 2018 Bonds”). Pursuant to the Consent Agreement, upon the closing of the EPC Agreement the Company deposited $9,895,197 into a bank account at The Huntington National Bank (“Huntington”) subject to a deposit account control agreement (the “DACA”) executed by Huntington and CRC as secured party (the “Pledged Account”). Under the Consent Agreement, in the event the Series 2018 Bonds are outstanding on December 29, 2022, the Company will repurchase the Series 2018 Bonds. The Company granted CRC a lien on the Pledged Account to secure the Company’s obligations under the Consent Agreement. In the event the Series 2018 Bonds are redeemed and/or defeased prior to December 29, 2022, upon such redemption or defeasance the Consent Agreement shall automatically terminate, and CRC shall instruct Huntington to release the DACA.
Stark County Infrastructure Loan
On August 31, 2022, the Company entered into an unsecured loan agreement with Stark County Port Authority, pursuant to which we borrowed $5,000,000 (“SCPA Loan”). The interest rate applicable to the SCPA Loan is six percent (6.0%) per annum (compounded quarterly). Interest payments under the SCPA Loan are paid quarterly beginning on December 31, 2022. The SCPA Loan matures on August 30, 2029 and the Company may prepay without penalty.
32
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Stark County Infrastructure Loan (continued)
Events of default under the SCPA Loan include without limitation: (i) a payment default, (ii) our failure to complete the infrastructure development for Phase II on or before December 31, 2024, or (iii) our failure to comply with any non-monetary covenant contained in the loan agreement, subject to a cure period. Upon the occurrence of default beyond any applicable grace or cure period: (a) interest due will increase by 5% per annum; and (b) Stark County Port Authority may, at its option, declare our obligations under the loan agreement to be immediately due and payable.
The SCPA Loan contains customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including furnish Stark County Port Authority with such financial statements and other related information at such frequencies and in such detail as Stark County Port Authority may reasonably request and use all SCPA Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens, mergers and acquisitions, and standard prohibitions on change of control.
City of Canton Infrastructure Loan
On September 15, 2022, the Company entered into a business loan agreement with City of Canton, pursuant to which the Company borrowed $5,000,000. The interest rate applicable to the Canton Loan is six percent (6%) per annum (compounded quarterly). Interest payments under the Canton Loan are paid quarterly beginning on December 31. The Canton Loan is unsecured and matures on June 30, 2029. The Company may prepay the Canton Loan without penalty.
Events of default under the business loan agreement include without limitation: (i) a payment default, (ii) the Company’s failure to complete the infrastructure development for Phase II on or before December 31, 2024, and (iii) the Company’s failure to comply with any non-monetary covenant contained in the business loan agreement, subject to the applicable cure period. Upon the occurrence of an event of default under the business loan agreement beyond any applicable grace or cure period: (a) interest due will increase by 5% per annum; and (b) City of Canton may, at its option, declare the Company’s obligations under the business loan agreement to be immediately due and payable.
The business loan agreement contains customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including furnish City of Canton with such financial statements and other related information at such frequencies and in such detail as City of Canton may reasonably request and use all Canton Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens, mergers and acquisitions, and standard prohibitions on change of control.
33
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Huntington Loan
On September 27, 2022, HOF Village Retail I, LLC and HOF Village Retail II, LLC, subsidiaries of the Company, as borrowers (the “Subsidiary Borrowers”), entered into a loan agreement with The Huntington National Bank, pursuant to which the lender agreed to loan up to $10,000,000 to the Subsidiary Borrowers, which may be drawn upon the Project achieving certain debt service coverage ratios.
The Loan is evidenced by a Promissory Note, dated September 27, 2022 (the “Note”), issued by the Subsidiary Borrowers to the Lender. Under the Note, the outstanding amount of the Loan bears interest at a per annum rate equal to the Term SOFR (as defined in the Note) plus a margin ranging from 2.60% to 3.50% per annum. The Subsidiary Borrowers may prepay the Loan without penalty. The Loan is secured by an open end mortgage (leasehold), assignment of leases and rents, security agreement, and fixture filing given by the Subsidiary Borrowers and granting a valid and subsisting first lien on Subsidiary Borrower’s leasehold interest in the Land (defined below), and a security interest in the personal property and fixtures (collectively, the “Collateral”).
The Loan matures on September 27, 2024 (the “Initial Maturity Date”). However, Subsidiary Borrowers have the option (the “Extension Option”) to extend the Initial Maturity Date for an additional thirty six (36) months, provided that, among other things, (i) Subsidiary Borrowers pay to Lender an extension fee equal to 0.15% of the then outstanding principal balance of the Loan; and (ii) the Project has achieved a 1.30:1.00 debt service coverage ratio.
Repayment of the Loan is guaranteed pursuant to a Guaranty of Payment, dated September 27, 2022 (the “Guaranty of Payment”), by our director Stuart Lichter, and Stuart Lichter, Trustee of the Stuart Lichter Trust u/t/d dated November 13, 2011 (collectively, the “Guarantor”), in favor of the Lender. The Company and the Subsidiary Borrowers entered into a letter agreement with the Guarantor, dated September 27, 2022 (the “Guaranty Fee Letter Agreement”), agreeing pay the Guarantor a fee of 2.5% of the Loan proceeds disbursed by Lender to the Subsidiary Borrowers as and when Loan proceeds are disbursed to Subsidiary Borrowers.
Events of default under the Loan Agreement include without limitation: (i) a payment default, (ii) the failure of the Subsidiary Borrowers to comply with any non-monetary covenant contained in the Loan Agreement, subject to applicable cure period, (iii) one or more final, unappealable judgments for the payment of money are entered against the Subsidiary Borrowers in amounts aggregating in excess of $50,000 or against any Guarantor in amounts aggregating in excess of $50,000, (iv) the death or incapacity of the Guarantor without Subsidiary Borrowers providing a replacement guarantor within 90 days, or (v) Lender reasonably determines that a material adverse change has occurred with respect to the Subsidiary Borrowers’ financial condition, results of operations, business or prospects or the Subsidiary Borrowers’ ability to pay the Loan in accordance with the terms thereof or the value of the Collateral or the priority of Lender’s lien on any Collateral. Upon the occurrence of an event of default under the Loan Agreement beyond any applicable grace or cure period: (a) interest due will increase by 5% per annum; and (b) Lender may, at its option, declare the Subsidiary Borrowers’ obligations under the Loan Agreement to be immediately due and payable, and (c) Lender may appropriate and apply to the payment of the Note or of any sums due under the Loan Agreement, any and all accounts or money of Subsidiary Borrowers then or thereafter in the possession of Lender, or its Affiliates.
34
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Huntington Loan (continued)
The Loan Agreement contains customary affirmative and negative covenants for this type of loan, including without limitation: (i) affirmative covenants, including furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, additional liens, mergers and acquisitions, and standard prohibitions on change of control. In addition, (a) the Subsidiary Borrowers must establish and maintain all operating deposit accounts with the Lender, (b) the Loan to value ratio must be no more than sixty five percent ( 65%) based upon a current appraisal of the Property, subject to certain exceptions, and (c) Subsidiary Borrowers must enter into one or more hedging contracts in form and substance reasonably acceptable to Lender, protecting against fluctuations in interest rates, in an amount equal to the face amount of the Note.
In connection with entering into the Loan Agreement the Subsidiary Borrowers paid customary fees and expenses.
As of September 30, 2022, the Company has not drawn under the loan agreement.
Additionally, in connection with the Huntington Loan, on September 27, 2022, the Company entered into an interest rate swap agreement with a notional amount of $10 million to hedge a portion of the Company’s outstanding Secured Overnight Financing Rate (“SOFR”) debt with a fixed interest rate of 4.0%. The effective date of the interest rate swap is October 1, 2024 and the termination date is September 27, 2027.
Future Minimum Principal Payments
The minimum required principal payments on notes payable outstanding as of September 30, 2022 are as follows:
| For the years ending December 31, | Amount | |||
| 2022 (three months) | $ | 8,780,840 | ||
| 2023 | 16,889,801 | |||
| 2024 | 35,375,531 | |||
| 2025 | 32,284,792 | |||
| 2026 | 2,028,797 | |||
| Thereafter | 86,025,540 | |||
| Total Gross Principal Payments | $ | 181,385,301 | ||
| Less: Discount | (17,716,012 | ) | ||
| Total Net Principal Payments | $ | 163,669,289 | ||
The Company has various debt covenants that require certain financial information to be met. If the Company does not meet the requirements of the debt covenants, the Company will be responsible for paying the full outstanding amount of the note immediately. As of September 30, 2022, the Company was in compliance with all relevant debt covenants.
35
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020, the Company’s stockholders approved an amendment to the Company’s charter to increase the authorized shares of Common Stock from 100,000,000 to 300,000,000. Consequently, the Company’s charter allows the Company to issue up to 300,000,000 shares of Common Stock and to issue and designate its rights, without stockholder approval, of up to 5,000,000 shares of preferred stock, par value $0.0001.
Series A Preferred Stock Designation
On October 8, 2020, the Company filed a Certificate of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of the Series A Preferred Stock. The number of authorized shares of Series A Preferred Stock is 52,800.
Series B Preferred Stock Designation
On May 13, 2021, the Company filed a Certificate of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of the 7.00% Series B Preferred Stock (as defined below). The number of authorized shares of Series B Preferred Stock is 15,200.
The Company had 200 and 15,200 shares of 7.00% Series B Convertible Preferred Stock (“Series B Preferred Stock”) outstanding and 15,200 and 15,200 shares authorized as of September 30, 2022 and December 31, 2021, respectively. On the third anniversary of the date on which shares of Series B Preferred Stock are first issued (the “Automatic Conversion Date”), each share of Series B Preferred Stock, except to the extent previously converted pursuant to an Optional Conversion (as defined below), shall automatically be converted into shares of Common Stock (the “Automatic Conversion”). At any time following the date on which shares of Series B Preferred Stock are first issued, and from time to time prior to the Automatic Conversion Date, each holder of Series B Preferred Stock shall have the right, but not the obligation, to elect to convert all or any portion of such holder’s shares of Series B Preferred Stock into shares of Common Stock, on terms similar to the Automatic Conversion (any such conversion, an “Optional Conversion”).
36
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
7.00% Series C Convertible Preferred Stock
On March 28, 2022, the Company filed a Certificate of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of its Series C Preferred Stock. The number of authorized shares of Series C Preferred Stock is 15,000.
On March 28, 2022, in accordance with the previously announced Amendment Number 6 to Term Loan Agreement by and among the Company and CH Capital Lending, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with CH Capital Lending, pursuant to which the Company exchanged in a private placement (the “Private Placement”) each share of the Company’s Series B Convertible Preferred Stock, that is held by CH Capital Lending for one share of the Company’s Series C Preferred Stock, resulting in the issuance of 15,000 shares of Series C Preferred Stock to CH Capital Lending. The Series C Preferred Stock is convertible into shares of the Company’s common stock. The shares of Series B Preferred Stock exchanged, and the Series C Preferred Stock acquired, have an aggregate liquidation preference of $15 million plus any accrued but unpaid dividends to the date of payment.
2020 Omnibus Incentive Plan
On July 1, 2020, in connection with the closing of the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved by the Company’s stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of Common Stock authorized for issuance under the 2020 Omnibus Incentive Plan was 1,812,727 shares. On June 2, 2021, the Company held its 2021 Annual Meeting whereby the Company’s stockholders approved an amendment to the 2020 Omnibus Incentive Plan to increase by four million the number of shares of Common Stock, that will be available for issuance under the 2020 Omnibus Incentive Plan, resulting in a maximum of 5,812,727 shares that can be issued under the amended 2020 Omnibus Inventive Plan. The amendment to the 2020 Omnibus Incentive Plan was previously approved by the Board of Directors of the Company, and the amended 2020 Omnibus Incentive Plan became effective on June 2, 2021. As of September 30, 2022, 2,086,018 shares remained available for issuance under the 2020 Omnibus Incentive Plan.
37
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Equity Distribution Agreement
On September 30, 2021, the Company entered into an Equity Distribution Agreement with Wedbush Securities Inc. and Maxim Group LLC with respect to an at-the-market offering program under which the Company may, from time to time, offer and sell shares of the Company’s Common Stock having an aggregate offering price of up to $50 million. From January 1 through September 30, 2022, approximately 21.7 million shares were sold resulting in net proceeds to the Company totaling approximately $20.4 million. The remaining availability under the Equity Distribution Agreement as of September 30, 2022 was approximately $25.7 million.
Issuance of Restricted Stock Awards
The Company’s activity in restricted Common Stock was as follows for the nine months ended September 30, 2022:
| Number of shares | Weighted average grant date fair value | |||||||
| Non–vested at January 1, 2022 | 238,643 | $ | 9.31 | |||||
| Granted | 337,436 | $ | 0.95 | |||||
| Vested | (576,079 | ) | $ | 4.41 | ||||
| Non–vested at September 30, 2022 | $ | |||||||
For the three months ended September 30, 2022 and 2021, stock-based compensation related to restricted stock awards was $177,411 and $554,547, respectively, and for the nine months ended September 30, 2022 and 2021, $1,630,871 and $1,885,733, respectively. Stock-based compensation related to restricted stock awards was included in is a component of “Operating expenses” in the condensed consolidated statement of operations. As of September 30, 2022, unamortized stock-based compensation costs related to restricted share arrangements were $0.
Issuance of Restricted Stock Units
During the nine months ended September 30, 2022, the Company granted an aggregate of 1,953,220 Restricted Stock Units (“RSUs”) to its employees and directors, of which 639,093 were granted under the 2020 Omnibus Incentive Plan and 1,314,127 were granted as inducement awards. The RSUs were valued at the value of the Company’s Common Stock on the date of grant, which was a range of $0.55 to $1.16 for these awards. The RSUs granted to employees vest one third on the first anniversary of their grant, one third on the second anniversary of their grant, and one third on the third anniversary of their grant. The RSUs granted to directors vest one year from the date of grant.
38
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Issuance of Restricted Stock Units (continued)
The Company’s activity in RSUs was as follows for the nine months ended September 30, 2022:
| Number
of shares | Weighted
average grant date fair value | |||||||
| Non–vested at January 1, 2022 | 2,207,337 | $ | 2.34 | |||||
| Granted | 1,953,220 | $ | 0.94 | |||||
| Vested | (693,332 | ) | $ | 2.32 | ||||
| Forfeited | (651,636 | ) | $ | 2.34 | ||||
| Non–vested at September 30, 2022 | 2,815,589 | $ | 1.35 | |||||
For the three months ended September 30, 2022 and 2021, the Company recorded $529,549 and $848,108, respectively, in employee and director stock-based compensation expense, and for the nine months ended September 30, 2022 and 2021, $1,618,508 and $2,615,301, respectively. Employee and director stock-based compensation expense is a component of “Operating expenses” in the condensed consolidated statement of operations. As of September 30, 2022, unamortized stock-based compensation costs related to restricted stock units were $2,669,106 and will be recognized over a weighted average period of 0.9 years.
Warrants
The Company’s warrant activity was as follows for the nine months ended September 30, 2022:
| Number
of Shares | Weighted Average Exercise Price (USD) | Weighted Average Contractual Life (years) | Intrinsic Value (USD) | |||||||||||||
| Outstanding - January 1, 2022 | 41,012,349 | $ | 7.82 | 3.59 | ||||||||||||
| Granted | 3,125,000 | $ | 1.30 | |||||||||||||
| Outstanding – September 30, 2022 | 44,137,349 | $ | 7.36 | 3.11 | $ | |||||||||||
| Exercisable – September 30, 2022 | 42,512,349 | $ | 7.59 | 3.06 | $ | |||||||||||
Amended and Restated Series C Warrants
On March 1, 2022, in connection with the amendment to the IRG Split Note (as described in Note 4), the Company amended its Series C Warrants to extend the term of the Series C Warrants to March 1, 2027. The exercise price of $1.40 per share remains unchanged, but the amendments subject the exercise price to a weighted-average antidilution adjustment. The amendments also remove certain provisions regarding fundamental transactions, which subsequently allowed the Series C Warrants to be derecognized as a liability and classified as equity.
39
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Amended and Restated Series C Warrants (continued)
The Company accounted for this modification as a cost of the IRG Split Note, whereby the Company calculated the incremental fair value of the Series C Warrants and recorded them as a discount against the IRG Split Note. The following assumptions were used to calculate the fair value of Series C Warrants immediately before and after modification:
| Original Series C Warrants | Modified Series C Warrants | |||||||
| Term (years) | 3.8 | 5.0 | ||||||
| Stock price | $ | 1.01 | $ | 1.01 | ||||
| Exercise price | $ | 1.40 | $ | 1.40 | ||||
| Dividend yield | 0.0 | % | 0.0 | % | ||||
| Expected volatility | 54.7 | % | 50.8 | % | ||||
| Risk free interest rate | 1.5 | % | 1.5 | % | ||||
| Number of shares | 10,036,925 | 10,036,925 | ||||||
| Aggregate fair value | $ | 3,336,000 | $ | 3,648,000 | ||||
Amended and Restated Series D Warrants issue to CH Capital Lending
On March 1, 2022, in connection with the amendment to the CH Capital Loan (as described in Note 4), the Company amended the Series D Warrants issued to CH Capital Lending to extend the term of such Series D Warrants to March 1, 2027. The exercise price of $6.90 per share remains unchanged, but the amendments subject the exercise price to a weighted-average antidilution adjustment.
The Company accounted for this modification as a cost of the CH Capital Loan, whereby the Company calculated the incremental fair value of the Series D Warrants and recorded them as a discount against the CH Capital Loan. The following assumptions were used to calculate the fair value of Series D Warrants immediately before and after modification:
| Original Series D Warrants | Modified Series D Warrants | |||||||
| Term (years) | 2.3 | 5.0 | ||||||
| Stock price | $ | 1.01 | $ | 1.01 | ||||
| Exercise price | $ | 6.90 | $ | 6.90 | ||||
| Dividend yield | 0.0 | % | 0.0 | % | ||||
| Expected volatility | 63.5 | % | 50.8 | % | ||||
| Risk free interest rate | 1.3 | % | 1.6 | % | ||||
| Number of shares | 2,450,980 | 2,450,980 | ||||||
| Aggregate fair value | $ | 50,000 | $ | 138,000 | ||||
40
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments
Johnson Controls, Inc.
On July 2, 2020, the Company entered into an Amended and Restated Sponsorship and Naming Rights Agreement (the “Naming Rights Agreement”) among Newco, PFHOF and Johnson Controls, Inc. (“JCI”), that amended and restated the Sponsorship and Naming Rights Agreement, dated as of November 17, 2016 (the “Original Sponsorship Agreement”). Among other things, the Amended Sponsorship Agreement: (i) reduced the total amount of fees payable to Newco during the term of the Amended Sponsorship Agreement from $135 million to $99 million; (ii) restricted the activation proceeds from rolling over from year to year with a maximum amount of activation proceeds in one agreement year to be $750,000; and (iii) renamed the “Johnson Controls Hall of Fame Village” to “Hall of Fame Village powered by Johnson Controls”. This is a prospective change, which the Company reflected beginning in the third quarter of 2020.
JCI has a right to terminate the Naming Rights Agreement if the Company does not provide evidence to JCI by October 31, 2021 that it has secured sufficient debt and equity financing to complete Phase II, or if Phase II is not open for business by January 2, 2024, in each case subject to day-for-day extension due to force majeure and a notice and cure period. In addition, under the Naming Rights Agreement JCI’s obligation to make sponsorship payments to the Company may be suspended commencing on December 31, 2020, if the Company has not provided evidence reasonably satisfactory to JCI on or before December 31, 2020, subject to day-for-day extension due to force majeure, that the Company has secured sufficient debt and equity financing to complete Phase II.
Additionally, on October 9, 2020, Newco, entered into a Technology as a Service Agreement (the “TAAS Agreement”) with JCI. Pursuant to the TAAS Agreement, JCI will provide certain services related to the construction and development of the Hall of Fame Village powered by JCI (the “Project”), including, but not limited to, (i) design assist consulting, equipment sales and turn-key installation services in respect of specified systems to be constructed as part of Phase 2 and Phase 3 of the Project and (ii) maintenance and lifecycle services in respect of certain systems constructed as part of Phase 1, and to be constructed as part of Phase 2 and Phase 3, of the Project. Under the terms of the TAAS Agreement, Newco has agreed to pay JCI up to an aggregate of approximately $217 million for services rendered by JCI over the term of the TAAS Agreement. As of September 30, 2022 and December 31, 2021, approximately $195 million and $199 million, respectively, was remaining under the TAAS Agreement.
41
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Johnson Controls, Inc. (continued)
As of September 30, 2022, scheduled future cash to be received under the Naming Rights Agreement is as follows:
| Unrestricted | Activation | Total | ||||||||||
| 2022 (three months) | $ | 4,000,000 | $ | 750,000 | $ | 4,750,000 | ||||||
| 2023 | 4,000,000 | 750,000 | 4,750,000 | |||||||||
| 2024 | 4,250,000 | 750,000 | 5,000,000 | |||||||||
| 2025 | 4,250,000 | 750,000 | 5,000,000 | |||||||||
| 2026 | 4,250,000 | 750,000 | 5,000,000 | |||||||||
| Thereafter | 35,531,251 | 6,000,000 | 41,531,251 | |||||||||
| Total | $ | 56,281,251 | $ | 9,750,000 | $ | 66,031,251 | ||||||
As services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the Amended Sponsorship Agreement. During the three and nine months ended September 30, 2021, the Company recognized $1,130,708 and $3,364,155, respectively, of net sponsorship revenue related to the Naming Rights Agreement.
On May 10, 2022, the Company received from JCI a notice of termination (the “TAAS Notice”) of the TAAS Agreement effective immediately. The TAAS Notice states that termination of the TAAS Agreement by JCI is due to Newco’s alleged breach of its payment obligations. Additionally, JCI in the TAAS Notice demands the amount which is the sum of: (i) all past due payments and any other amounts owed by Newco under the TAAS Agreement; (ii) all commercially reasonable and documented subcontractor breakage and demobilization costs; and (iii) all commercially reasonable and documented direct losses incurred by JCI directly resulting from the alleged default by the Company and the exercise of JCI’s rights and remedies in respect thereof, including reasonable attorney fees.
Also on May 10, 2022, the Company received from JCI a notice of termination (“Naming Rights Notice”) of the Name Rights Agreement, effective immediately. The Naming Rights Notice states that the termination of the Naming Rights Agreement by JCI is due to JCI’s concurrent termination of the TAAS Agreement. The Naming Rights Notice further states that the Company must pay JCI, within 30 days following the date of the Naming Rights Notice, $4,750,000. The Company has not made such payment to date. The Naming Rights Notice states that Newco is also in breach of its covenants and agreements, which require Newco to provide evidence reasonably satisfactory to JCI on or before October 31, 2021, subject to day-for-day extension due to force majeure, that Newco has secured sufficient debt and equity financing to complete Phase II.
42
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Johnson Controls, Inc. (continued)
The Company disputes that it is in default under either the TAAS Agreement or the Naming Rights Agreement. The Company believes JCI is in breach of the Naming Rights Agreement and the TAAS Agreement due to their failure to make certain payments in accordance with the Naming Rights Agreement, and, on May 16, 2022, provided notice to JCI of these breaches. The Company is pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against JCI’s allegations and pursue its own claims. The ultimate outcome of this dispute cannot presently be determined. However, in management’s opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the accompanying condensed consolidated financial statements. During the three and nine months ended September 30, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of September 30, 2022 in the amount of $3,312,500. The balances due under the Naming Rights Agreement as of September 30, 2022 and December 31, 2021 amounted to $5,197,917 and $1,885,417, respectively.
Other Sponsorship Revenue
The Company has additional revenue primarily from sponsorship programs that provide its sponsors with strategic opportunities to reach customers through our venue including advertising on our website. Sponsorship agreements may contain multiple elements, which provide several distinct benefits to the sponsor over the term of the agreement and can be for a single or multi-year term. These agreements provide sponsors various rights such as venue naming rights, signage within our venues, and advertising on our website and other benefits as detailed in the agreements.
As of September 30, 2022, scheduled future cash to be received under the agreements, excluding the Johnson Controls Naming Rights Agreement, is as follows:
Year ending December 31,
| 2022 (three months) | $ | 654,759 | ||
| 2023 | 2,814,220 | |||
| 2024 | 2,406,265 | |||
| 2025 | 2,317,265 | |||
| 2026 | 2,167,265 | |||
| Thereafter | 6,271,792 | |||
| Total | $ | 16,631,566 |
As services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the agreement. During the three months ended September 30, 2022 and 2021, the Company recognized $748,033 and $1,554,454 of net sponsorship revenue, respectively, and for the nine months ended September 30, 2022 and 2021, $2,020,095 and $4,538,292, respectively.
43
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments
Lessor Commitments
As of September 30, 2022, the Company’s Constellation Center for Excellence and retail facilities were partially leased including leases by the Company’s subsidiaries. The future minimum lease commitments under this lease, excluding leases of the Company’s subsidiaries, are as follows:
Year ending December 31:
| 2022 (three months) | $ | 50,603 | ||
| 2023 | 320,208 | |||
| 2024 | 289,906 | |||
| 2025 | 279,122 | |||
| 2026 | 268,802 | |||
| Thereafter | 1,093,060 | |||
| Total | $ | 2,301,701 |
Employment Agreements
The Company has employment agreements with many of its key executive officers that usually have terms between one and three years.
Management Agreement with Crestline Hotels & Resorts
On October 22, 2019, the Company entered into a management agreement with Crestline Hotels & Resorts (“Crestline”). The Company appointed and engaged Crestline as the Company’s exclusive agent to supervise, direct, and control management and operation of the DoubleTree Canton Downtown Hotel. In consideration of the services performed by Crestline, the Company agreed to the greater of: 2% of gross revenues or $10,000 per month in base management fees and other operating expenses. The agreement will be terminated on the fifth anniversary of the commencement date, or October 22, 2024. For the three months ended September 30, 2022 and 2021, the Company paid and incurred $51,466 and $30,000, respectively in management fees, and for the nine months ended September 30, 2022 and 2021, $114,310 and $90,000, respectively.
44
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Constellation EME Express Equipment Services Program
On February 1, 2021, the Company entered into a contract with Constellation whereby Constellation will sell and/or deliver materials and equipment purchased by the Company. The Company is required to provide $2,000,000 to an escrow account held by Constellation, representing adequate assurance of future performance. Constellation will invoice the Company in 60 monthly installments, which began in April 2021 for $103,095. Additionally, the Company has two notes payable with Constellation. See Note 4 for more information.
Sports Betting Agreements
On July 14, 2022, Newco entered into an Online Market Access Agreement with Instabet, Inc. doing business as betr (“Instabet”), pursuant to which Instabet will serve as a Mobile Management Services Provider (as defined under applicable Ohio gaming law) wherein Instabet will host, operate and support a branded online sports betting service in Ohio, subject to procurement of all necessary licenses. The initial term of the Online Market Access Agreement is ten years. As part of this agreement, Newco will receive a limited equity interest in Instabet and certain revenue sharing, along with the opportunity for sponsorship and cross-marketing.
On July 29, 2022, Newco entered into a Retail Sports Gaming Services Agreement with RSI OH, LLC, (“RSI”), pursuant to which RSI will serve as a land-based Management Services Provider (as defined under applicable Ohio gaming law) wherein RSI will operate a retail sports betting location in the Fan Engagement Zone at the Hall of Fame Village, subject to procurement of all necessary licenses. The initial term of the Retail Sports Gaming Services Agreement is ten years. As part of this agreement, Newco will receive sponsorship fees and certain revenue sharing.
On November 2, 2022, Newco received conditional approval from the Ohio Casino Control Commission for a Type A (mobile) and a Type B (retail) sports gaming proprietor license. See Note 13: Subsequent Events.
Other Liabilities
Other liabilities consisted of the following at September 30, 2022 and December 31, 2021:
| September
30, 2022 | December
31, 2021 | |||||||
| Activation fund reserves | $ | 3,588,974 | $ | 3,537,347 | ||||
| Deferred revenue | 1,549,931 | 203,278 | ||||||
| Deposits and other liabilities | 261,669 | - | ||||||
| Total | $ | 5,400,574 | $ | 3,740,625 | ||||
Other Commitments
The Company has other commitments, as disclosed in Notes 6, 8 and 9 within these condensed consolidated footnotes.
45
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8: Contingencies
During the normal course of its business, the Company is subject to occasional legal proceedings and claims. The Company does not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its results of operations, financial condition, or cash flows.
Note 9: Related-Party Transactions
Due to Affiliates
Due to affiliates consisted of the following at September 30, 2022 and December 31,2021:
| September
30, 2022 | December
31, 2021 | |||||||
| Due to IRG Member | $ | 1,882,136 | $ | 1,041,847 | ||||
| Due to IRG Affiliate | 116,900 | 116,900 | ||||||
| Due to PFHOF | 1,710,737 | 660,208 | ||||||
| Total | $ | 3,709,773 | $ | 1,818,955 | ||||
IRG Canton Village Member, LLC, a member of HOF Village, LLC controlled by our director Stuart Lichter (the “IRG Member”) and an affiliate, provides certain supporting services to the Company. As noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member, IRG Canton Village Manager, LLC, the manager of HOF Village, LLC controlled by our director Stuart Lichter, may earn a master developer fee calculated as 4.0% of development costs incurred for the Hall of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction supervision, and project financing. These development costs incurred are netted against certain costs incurred for general project management.
The due to related party amounts in the table above are non-interest bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions with this affiliate to establish repayment terms of these advances. However, there could be no assurance that the Company and IRG Member will come to terms acceptable to both parties.
On January 13, 2020, the Company secured $9.9 million in financing from Constellation through its Efficiency Made Easy (“EME”) program to implement energy efficient measures and to finance the construction of the Constellation Center for Excellence and other enhancements, as part of Phase II development. The Hanover Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations under the financing, and Stuart Lichter and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance Company for payments made under the guarantee bond.
The amounts above due to PFHOF relate to advances to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales support, shared services, event tickets, and expense reimbursements.
46
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
License Agreement
On March 10, 2016, the Company entered into a license agreement with PFHOF, whereby the Company has the ability to license and use certain intellectual property from PFHOF in exchange for the Company paying a fee based on certain sponsorship revenues and expenses. On December 11, 2018, the license agreement was amended to change the calculation of the fee to be 20% of eligible sponsorship revenue. The license agreement was further amended in a First Amended and Restated License Agreement, dated September 16, 2019. The license agreement expires on December 31, 2033.
Media License Agreement
On November 11, 2019, the Company entered into a Media License Agreement with PFHOF. On July 1, 2020, the Company entered into an Amended and Restated Media License Agreement that terminates on December 31, 2034. In consideration of a license to use certain intellectual property of PFHOF, the Company agreed to pay PFHOF minimum guaranteed license fees of $1,250,000 each year during the term. After the first five years of the agreement, the minimum guarantee shall increase by 3% on a year-over-year basis. The first annual minimum payment was due July 1, 2021, which was not paid by December 31, 2021. On April 12, 2022, the Company and PFHOF terminated the Media License Agreement and entered into a new license agreement.
Purchase of Real Property from PFHOF
On February 3, 2021, the Company purchased certain parcels of real property from PFHOF, located at the site of the Hall of Fame Village powered by Johnson Controls, for $1.75 million. In connection with the purchase, the Company granted certain easements to PFHOF to ensure accessibility to the PFHOF museum.
Shared Services Agreement with PFHOF
On March 9, 2021, the Company entered into an additional Shared Services Agreement with PFHOF, which supplements the existing Shared Services Agreement by, among other things, providing for the sharing of costs for activities relating to shared services.
47
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Global License Agreement
Effective April 8, 2022, Newco and PFHOF, entered into a Global License Agreement (the “Global License Agreement”). The Global License Agreement consolidates and replaces the First Amended and Restated License Agreement, the Amended and Restated Media License Agreement, and the Branding Agreement the parties had previously entered into. The Global License Agreement sets forth the terms under which PFHOF licenses certain marks and works to Newco and its affiliates to exploit existing PFHOF works and to create new works. The Global License Agreement grants Newco and its affiliates an exclusive right and license to use the PFHOF marks in conjunction with theme-based entertainment and attractions within the City of Canton, Ohio; youth sports programs, subject to certain exclusions; e-gaming and video games; and sports betting. The Global License Agreement also grants Newco and its affiliates a non-exclusive license to use the PFHOF marks and works in other areas of use, with a right of first refusal, subject to specified exclusions. The Global License Agreement acknowledges the existence of agreements in effect between PFHOF and certain third parties that provide for certain restrictions on the rights of PFHOF, which affects the rights that can be granted to Newco and its affiliates. These restrictions include, but are not limited to, such third parties having co-exclusive rights to exploit content based on the PFHOF enshrinement ceremonies and other enshrinement events. The Global License Agreement requires Newco to pay PFHOF an annual license fee of $900,000 in the first contract year, inclusive of calendar years 2021 and 2022; an annual license fee of $600,000 in each of contract years two through six; and an annual license fee of $750,000 per year starting in contract year seven through the end of the initial term. The Global License Agreement also provides for an additional license royalty payment by Newco to PFHOF for certain usage above specified financial thresholds, as well as a commitment to support PFHOF museum attendance through Newco’s and its affiliates’ ticket sales for certain concerts and youth sports tournaments. The Global License Agreement has an initial term through December 31, 2036, subject to automatic renewal for successive five-year terms, unless timely notice of non-renewal is provided by either party.
The future minimum payments under this agreement as of September 30, 2022 are as follows:
| For the years ending December 31, | Amount | |||
| 2022 (three months) | $ | 318,750 | ||
| 2023 | 600,000 | |||
| 2024 | 600,000 | |||
| 2025 | 600,000 | |||
| 2026 | 600,000 | |||
| Thereafter | 7,350,000 | |||
| Total Gross Principal Payments | $ | 10,068,750 | ||
During the three months ended September 30, 2022 and 2021, the Company paid $212,500 and $0 of the annual license fee, respectively, and for the nine months ended September 30, 2022 and 2021, $581,250 and $0, respectively.
48
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10: Concentrations
For the three months ended September 30, 2022, two customers represented approximately 40% and 17% of the Company’s sponsorship revenue. For the three months ended September 30, 2021, one customer represented approximately 33% of the Company’s sponsorship revenue. For the nine months ended September 30, 2022, two customers represented approximately 43.4% and 18.5% of the Company’s sponsorship revenue. For the nine months ended September 30, 2021, two customers represented approximately 43% and 11% of the Company’s sponsorship revenue.
As of September 30, 2022, one customer represented approximately 84.4% of the Company’s sponsorship accounts receivable. As of December 31, 2021, one customer represented approximately 88% of the Company’s sponsorship accounts receivable.
At any point in time, the Company can have funds in their operating accounts and restricted cash accounts that are with third-party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors the cash balances in their operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or other adverse conditions in the financial markets occurs.
Note 11: ROU Assets and Lease Liabilities
The Company has entered into operating leases as the lessee primarily for ground leases under its stadium, sports complex, and parking facilities. On January 1, 2022 (“Effective Date”), the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”), which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on January 1, 2022. As a result, the consolidated balance sheet as of December 31, 2021 was not restated and is not comparative.
The adoption of ASC 842 resulted in the recognition of operating ROU assets of $7,741,946 and operating lease liabilities of $3,383,807 on the Company’s condensed consolidated balance sheet as of January 1, 2022. The initial recognition of the ROU asset included the reclassification of $4,358,139 of prepaid rent as of January 1, 2022.
The Company elected the package of practical expedients permitted within the standard, which allow an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting policy under which the Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less and does not include a purchase option that the Company is more than reasonably certain to exercise.
49
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets and Lease Liabilities (continued)
For contracts entered into on or after the Effective Date, at the inception of a contract the Company will assess whether the contract is, or contains, a lease. The Company’s assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. Leases entered into prior to January 1, 2022, which were accounted for under ASC 840, were not reassessed for classification.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently presented at amortized cost using the effective interest method. The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases includes the noncancelable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed periodically for impairment.
Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of the amortization of the asset on a straight-line basis over the shorter of the lease term or its useful life and interest expense determined on an amortized cost basis, with the lease payments allocated between a reduction of the lease liability and interest expense.
The Company’s operating leases are comprised primarily of ground leases and equipment leases. Balance sheet information related to our leases is present below (ASC 842 was adopted on January 1, 2022):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Operating leases: | ||||||||
| Right-of-use assets | $ | 7,607,835 | $ | |||||
| Lease liability | 3,408,892 | – | ||||||
| Finance leases: | ||||||||
| Right-of-use assets | ||||||||
| Lease liability | 14,720,879 | |||||||
Other information related to leases is presented below:
| Nine Months Ended September 30, 2022 | ||||
| Operating lease cost | $ | 386,279 | ||
| Other information: | ||||
| Operating cash flows from operating leases | 238,723 | |||
| Weighted-average remaining lease term – operating leases (in years) | 91.8 | |||
| Weighted-average discount rate – operating leases | 10.0 | % | ||
50
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets and Lease Liabilities (continued)
As of September 30, 2022, the annual minimum lease payments of our operating lease liabilities were as follows:
| For The Years Ending December 31, | ||||
| 2022 (three months) | $ | 79,574 | ||
| 2023 | 333,004 | |||
| 2024 | 311,900 | |||
| 2025 | 311,900 | |||
| 2026 | 311,900 | |||
| Thereafter | 41,436,900 | |||
| Total future minimum lease payments, undiscounted | 42,785,178 | |||
| Less: imputed interest | (39,376,286 | ) | ||
| Present value of future minimum lease payments | $ | 3,408,892 | ||
Note 12: Failed Sale-Leaseback Financing Obligation
On September 27, 2022 the Company sold the land under the Company’s Fan Engagement Zone. Simultaneously, the Company entered into a lease agreement with the buyer of the property (the sale of the property and simultaneous leaseback is referred to as the “Sale-Leaseback”). The Sale-Leaseback is repayable over a 99-year term. Under the terms of the lease agreement, the Company’s initial basic rent is approximately $307,125 per quarter, with annual increases of approximately 2% each year of the term.
The Company accounted for the Sale-Leaseback as a financing transaction with the purchaser of the property in accordance with ASC 842 as the lease agreement was determined to be a finance lease. The Company concluded the lease agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of 10.25% to reflect the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.
The presence of a finance lease indicates that control of the land under the Fan Engagement Zone has not transferred to the buyer/lessor and, as such, the transaction was deemed a failed sale-leaseback and must be accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sales proceeds from the buyer/lessor in the form of a hypothetical loan collateralized by its leased land. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the buyer/lessor. As such, the Company will not derecognize the property from its books for accounting purposes until the lease ends.
As of September 30, 2022, the carrying value of the financing liability was $14,720,879, net of $867,641 in debt issuance costs. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method. No gain or loss was recognized related to the Sale-Leaseback for the three and nine months ended September 30, 2022.
Under the terms of the Ground Lease, TWAIN withheld $2,631,481, representing 24 months’ worth of rent under the ground lease.
Further, the Company has a right to re-purchase the land from TWAIN at any time on or after September 27, 2025 at a fixed price according to the lease.
Remaining future cash payments related to the financing liability, for the fiscal years ending December 31 are as follows:
| 2022 (three months) | $ | |||
| 2023 | ||||
| 2024 | 313,268 | |||
| 2025 | 1,278,131 | |||
| 2026 | 1,303,694 | |||
| Thereafter | 367,649,843 | |||
| Total Minimum Liability Payments | 370,544,936 | |||
| Imputed Interest | (355,824,057 | ) | ||
| Total | $ | 14,720,879 |
51
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events (continued)
Tourism Development District – Ohio Enterprise Bond Fund Transaction
On October 19, 2022, HOF Village Center for Performance, LLC and HOF Village Newco, LLC, subsidiaries of the Company, entered an Ohio Enterprise Bond Fund transaction (“OEBF”) with the State of Ohio and Stark County Port Authority. The OEBF issued $7,500,000 of Series 2022-3 bonds, the proceeds of which were loaned to the Stark County Port Authority and used to purchase Series 2022A bonds. The interest on the bonds will be 5.413% which will produce, net of required reserves and transaction costs, approximately $6,077,738 of bond proceeds. The term is approximately 24.75 years with the first debt service payment due December 1, 2022 and final payment December 1, 2046.
HOF Village Center for Performance, LLC granted a second mortgage on the Center for Performance parcel and improvements with HOF Village Newco, LLC providing a guaranty of completion of the Center for Performance improvements, lien free, and a guarantee of payment of any debt service due to the extent Tourism Development District revenues are not sufficient to make payments. Tourism Development District revenues are the primary source of repayment, pledged by the City of Canton through a Cooperative Agreement and include gross receipts tax, parking, admission tax, and additional hotel tax.
Approval for Sports Betting Licenses
On November 2, 2022, the Company took the next step toward live sports betting by securing conditional approval from the state for mobile and retail sports books.
The Ohio Casino Control Commission provided the required authorization for HOFV to gain licensing for a physical sports operation – called a sportsbook – as well as an online betting platform, under Ohio’s sports betting law HB29. Sports betting will become legal in Ohio on New Year’s Day, 2023, when anyone in the state that is of legal betting age will be able to place wagers.
Waterpark Sale and Leaseback
On November 7, 2022, HOF Village Waterpark, LLC (“HOFV Waterpark”), an indirect subsidiary of the Company, as seller, entered into an Agreement for Purchase and Sale of Real Property (the “Purchase and Sale Agreement”) with HFAKOH001 LLC, an affiliate of Oak Street Real Estate Capital, LLC (“Oak Street”), as buyer, pursuant to which the parties agreed to consummate a sale and leaseback transaction (the “Waterpark Sale and Leaseback Transaction”). Under the terms of the Purchase and Sale Agreement, Oak Street paid the sum of $1,000,000 as the purchase price for HOFV Waterpark’s property located at Hall of Fame Village, Canton, Ohio (the “Waterpark Property”), and paid the sum of $49,000,000 for the Pledged Interests (defined below). The net proceeds to be received by HOFV Waterpark will be reduced by transaction commissions and expenses incurred in connection with the sale.
At the closing of the Purchase and Sale Agreement, HOFV Waterpark leased the Waterpark Property back from Oak Street pursuant to a Ground Lease Agreement, dated November 7, 2022, between HOFV Waterpark, as tenant, and Oak Street, as landlord (the “Ground Lease”), the term of which Ground Lease is for approximately 99 years. In connection with the Ground Lease, HOFV Newco (defined below) is providing a Limited Recourse Carveout Guaranty, dated November 7, 2022 (the “Limited Guaranty”) in favor of Oak Street. HOFV Waterpark will construct and develop structures for use as an indoor waterpark and other uses ancillary thereto on the Waterpark Property (the “Waterpark Project”). Proceeds from the conveyance of the Waterpark Property to Oak Street will provide funding for the Waterpark Project and other costs related to the Purchase and Sale Agreement and the Ground Lease.
HOF Village Stadium, LLC (“HOFV Stadium”), which is owned by HOF Village Newco, LLC, a subsidiary of the Company (“HOFV Newco”), owns leasehold interests (the “Stadium Leasehold Interests”) in certain real property located in the City of Canton, Ohio on which is situated the Tom Benson Hall of Fame Stadium (the “Stadium”). In connection with the Waterpark Sale and Leaseback Transaction and as additional security for HOFV Waterpark’s obligations under the Ground Lease, HOFV Newco pledged one hundred percent of the record and beneficial membership interests in HOFV Stadium (the “Pledged Interests”) to Oak Street pursuant to a pledge and security agreement (the “Pledge Agreement”) dated November 7, 2022.
Pursuant to a Post-Closing Matters Agreement dated November 7, 2022 by and between HOFV Waterpark, HOFV Newco and Oak Street (“Post-Closing Agreement”), Oak Street: (1) retains the right, which much be exercised on or before November 30, 2022, to cause HOFV Waterpark to purchase the Waterpark Property in the event Oak Street determines there is a material deficiency in the status, condition or sufficiency in the collateral for the Pledge Agreement, and (2) retains the right to cause HOFV Stadium to provide a mortgage on the Stadium Leasehold Interests (the “Stadium Leasehold Mortgage”).
On November 7, 2022, Oak Street and HOFV Waterpark also entered into a Purchase Option Agreement (the “Purchase Option Agreement”), pursuant to which HOFV Waterpark is granted an option to purchase the Waterpark Property back from Oak Street that can be exercised during the period beginning on December 1, 2027 and ending on November 30, 2034 (the “Option Period”).
52
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events (continued)
Hotel Construction Loan Commitment Letter
On November 3, 2022, the Company entered into a Commitment Letter (the “Hotel Construction Loan Commitment Letter”), by and among the Company, as guarantor, HOF Village Hotel WP, LLC (“Hotel”), an indirect subsidiary of the Company , as borrower, and Industrial Realty Group, Inc. (“IRGInc”), as lender. Stuart Lichter, a director of the Company, is President and Chairman of the Board of Industrial Realty Group, LLC (“IRGLLC”). Pursuant to the terms of the Hotel Construction Loan Commitment Letter, IRGInc committed to provide, or to arrange for one of IRGInc’s affiliates to provide, a loan of $28,000,000 (the “Hotel Construction Loan”) to finance a portion of Hotel’s costs and expenses in connection with the ground-up development of a 180-room family hotel (the “Hotel Project”) on approximately 1.64 acres of land located in the Hall of Fame Village, Canton, Ohio (the “Hotel Property”), adjacent to the Waterpark Property. The commitment to provide the Hotel Construction Loan is subject to certain conditions, including the execution and delivery of definitive documentation with respect to the Hotel Construction Loan.
The Hotel Construction Loan will have a two-year term with one option to extend for twelve months, subject to standard extension conditions. The collateral for the Hotel Construction Loan will include, without limitation: (a) a first priority perfected mortgage encumbering the Hotel Property; (b) a first priority perfected assignment of leases and rents with respect to the Hotel Property; (c) a first priority perfected assignment of all permits, licenses, entitlements, approvals, and contracts with respect to the Hotel Property; (d) UCC-1 financing statements (all personal property, fixture filing and accounts and reserves); (e) equity pledge; and (f) all other agreements and assurances customary in similar financings by IRGInc. The Hotel Construction Loan will bear interest at a variable rate per annum equal to the one-month Term SOFR plus 6%, subject to a SOFR floor equal to the greater of (i) 4% and (ii) prevailing SOFR at closing of the Hotel Construction Loan. Payments of interest only will be made during the initial two-year term, with a payments of principal and interest based on a 25-year amortization during the extension term, if applicable. Hotel will pay 1% of the Hotel Construction Loan amount as an origination fee, payable in full at closing. The Hotel Construction Loan definitive documentation will have representations, warranties and events of default usual and customary for such type of loan.
IRG Financial Support and Consideration
On November 7, 2022, the Company entered into a letter agreement (the “IRG Letter Agreement”) with IRGLLC, pursuant to which IRGLLC agreed that IRGLLC and IRGLLC’s affiliates and related parties will provide the Company and its subsidiaries with certain financial support described below in exchange for certain consideration described below.
The financial support provided under the IRG Letter Agreement consists of the following (the “IRG Financial Support”):
Waterpark Construction Financing Facilitation. IRGLLC agreed that its affiliate CH Capital Lending, LLC (“CHCL”), would help facilitate the closing of financing with Oak Street with regard to construction of the Waterpark Project, by among other things, releasing CHCL’s first mortgage lien on the Stadium Leasehold Interests and pledge of membership interests in HOFV Stadium. In addition, IRGLLC agreed to provide a completion guaranty to facilitate other needed financing for the Waterpark Project, as required.
Extension of CHCL Bridge Loan. IRGLLC agreed that CHCL would extend to March 31, 2024 the maturity of the promissory note dated June 16, 2022, issued by the Company, HOF Village Retail I, LLC and HOF Village Retail II, LLC, as borrowers, to CHCL, as lender (the “Bridge Loan”).
Provide One Year Extension Option for All IRG Affiliate Lender Loans. All loans from affiliates and related parties of IRGLLC (“IRG Affiliate Lenders”) will be amended to provide for an optional one-year extension of their maturity until March 31, 2025 for a one percent extension fee, which is payable if and when an IRG Affiliate Lender loan is extended. The IRG Affiliate Lender loans consist of the following: (i) Bridge Loan, with an existing modified maturity date of March 31, 2024; (ii) the term loan, payable to CHCL, with an existing maturity of March 31, 2024; (iii) the first amended and restated promissory note, dated March 1, 2022, payable to IRG, LLC, with an existing maturity of March 31, 2024; (iv) the first amended and restated promissory note, dated March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; (v) the Secured Cognovit Promissory Note, dated as of June 19, 2020, assigned June 30, 2020 and amended December 1, 2020 and March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; and (vi) the promissory note, dated April 27, 2022, payable to Midwest Lender Fund, LLC (“MLF”), with an existing maturity of April 30, 2023, and with an option to extend the maturity until March 31, 2024.
Tapestry Hotel Construction Financing Commitment Letter. IRGLLC agreed to provide a commitment for financing the Hotel Project, as set forth in the Hotel Construction Loan Commitment Letter.
53
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events (continued)
In consideration of the IRG Financial Support to be received by the Company and its subsidiaries, the Company agreed in the IRG Letter Agreement to provide the following consideration to IRGLLC and the IRG Affiliate Lenders:
The Company agreed to make a payment of $4,500,000 as a fee for providing the completion guaranty and other IRG Financial Support described above, payable to CHCL to be held in trust for the IRG Affiliate Lenders, to be allocated as the IRG Affiliate Lenders shall determine. The Company also agreed to issue 2,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”) to the IRG Affiliate Lenders, to be allocated as the IRG Affiliate Lenders shall determine, in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.
The Company agreed to modify the IRG Affiliate Lender loans as follows: (i) all IRG Affiliate Lender loans will bear interest at 12.5% per annum, compounded monthly, with payment required monthly at 8% per annum, and with the remaining interest accrued and deferred until maturity; (ii) the price at which the principal and accumulated and unpaid interest under the IRG Affiliated Lender loans is convertible into shares of Common Stock will be reset to a price equal to 105% of the average Nasdaq official closing price of the Company’s Common Stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the date of the Oak Street closing, which price is $0.58 per share (“Market Price”); (iii) the Company and its subsidiaries will record a blanket junior mortgage on all real estate owned or leased by the Company and its subsidiaries, whether fee or leasehold estates, other than those parcels for which existing lenders prohibit junior financing; (iv) the Company agreed to acknowledge an existing pledge of the Company’s 100% membership interest in HOFV Newco and reflect that such pledge secures all amounts due under the IRG Affiliate Lender Loans; (v) all IRG Affiliate Lender loans will be cross-collateralized and cross-defaulted; (vi) the Company and its subsidiaries will covenant not to assign, pledge, mortgage, encumber or hypothecate any of the underlying assets, membership interests in affiliated entities or IP rights without IRGLLC’s written consent; (vii) prior development fees owed by the Company to IRGLLC will be accrued and added to the Bridge Loan, and future development fees owed by the Company to IRGLLC will be paid as when due; and (viii) the Company will pay to IRGLLC 25% of all contractual dispute cash settlements collected by the Company with regard to existing contractual disputes in settlement discussions, which shall be applied to outstanding IRG Affiliate Lender loans, first against accrued interest and other charges and then against principal.
The Company agreed to modify the Series C through Series G warrants held by IRG Affiliate Lenders as follows: (i) the exercise price of the Series C through Series G warrants held by IRG Affiliate Lenders will be reset to Market Price; and (ii) the warrant expiration dates of the Series C through Series G warrants held by IRG Affiliate Lenders will be extended by two years from their current expiration dates.
In the IRG Letter Agreement, IRGLLC and the Company agreed to comply with all federal and state securities laws and Nasdaq listing rules and to insert “blocker” provisions for the above-described re-pricing of the warrants and the conversion provisions, such that the total cumulative number of shares of Common Stock that may be issued to IRGLLC and its affiliated and related parties pursuant to the IRG Letter Agreement may not exceed the requirements of Nasdaq Listing Rule 5635(d) (“Nasdaq 19.99% Cap”), except that such limitation will not apply following Approval (defined below). In addition, the provisions of the IRG Letter Agreement are limited by Nasdaq Listing Rule 5635(c). If the number of shares of Common Stock issued to IRGLLC and its affiliated and related parties pursuant to the IRG Letter Agreement and the agreements modified thereunder exceeds the Nasdaq 19.99% Cap, then the Company will use reasonable efforts to obtain stockholder approval of the issuance of shares in excess of the Nasdaq 19.99% Cap, no later than the next stockholder meeting (the “Approval”).
In connection with entering into the Waterpark Sale and Leaseback Transaction, the Hotel Construction Loan Commitment Letter, and the IRG Letter Agreement, the Company paid customary fees and expenses.
54
Item 2. Management’s discussion and analysis of financial condition and results of operations
This Quarterly Report on Form 10–Q contains forward–looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. The statements contained herein that are not purely historical are forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward–looking statements are often identified by the use of words such as, but not limited to, “will,” “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “strategy,” “believe” and similar expressions or variations intended to identify forward–looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Factors that could cause or contribute to our results differing materially from those expressed or implied by forward–looking statements include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Form 10-K for the fiscal year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2022, and in our reports subsequently filed with the SEC. The forward–looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward–looking statements to reflect events or circumstances after the date of such statements.
Unless the context otherwise requires, the “Company”, “we,” “our,” “us” and similar terms refer to Hall of Fame Resort & Entertainment Company, a Delaware corporation.
Business Overview
We are a resort and entertainment company leveraging the power and popularity of professional football and its legendary players in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, we own the Hall of Fame Village powered by Johnson Controls, a multi-use sports and entertainment destination centered around the PFHOF’s campus. We expect to create a diversified set of revenue streams through developing themed attractions, premier entertainment programming and sponsorships. The strategic plan has been developed in three phases of growth: Phase I, Phase II, and Phase III.
Phase I of the Hall of Fame Village powered by Johnson Controls is operational, consisting of the Tom Benson Hall of Fame Stadium, the ForeverLawn Sports Complex, and HOF Village Media Group, LLC (“Hall of Fame Village Media” or the “Media Company”). The Tom Benson Hall of Fame Stadium hosts multiple sports and entertainment events, including the NFL Hall of Fame Game, Enshrinement and Concert for Legends during the annual Pro Football Hall of Fame Enshrinement Week. The ForeverLawn Sports Complex hosts camps and tournaments for football players, as well as athletes from across the country in other sports such as lacrosse, rugby and soccer. Hall of Fame Village Media leverages the sport of professional football to produce exclusive programming by licensing the extensive content controlled by the PFHOF as well as new programming assets developed from live events such as youth tournaments, camps and sporting events held at the ForeverLawn Sports Complex and the Tom Benson Hall of Fame Stadium.
We are developing new hospitality, attraction and corporate assets surrounding the Pro Football Hall of Fame Museum as part of our Phase II development plan. Phase II plans for future components of the Hall of Fame Village powered by Johnson Controls include two hotels (one on campus and one in downtown Canton that opened in November 2020), the Hall of Fame Indoor Waterpark, the Constellation Center for Excellence (an office building including retail and meeting space, that opened in October 2021), the Center for Performance (a convention center/field house), the Play Action Plaza, and the Hall of Fame Retail Promenade. We are pursuing a differentiation strategy across three pillars, including destination-based assets, the Media Company, and gaming. Phase III expansion plans may include a potential mix of residential space, additional attractions, entertainment, dining, merchandise and more.
Key Components of the Company’s Results of Operations
Revenue
We generate revenue from various streams such as sponsorship agreements, rents, cost recoveries, events, hotel operations, Hall of Fantasy League, and through the sale of non-fungible tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time, recognize revenue on a straight-line basis over the time period specified in the contract. Revenue for rents, cost recoveries, and events are recognized at the time the respective event or service has been performed. Rental revenue for long term leases is recorded on a straight-line basis over the term of the lease beginning on the commencement date.
55
Our owned hotel revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales, and other ancillary goods and services (e.g., parking) related to owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided.
Operating Expenses
Our operating expenses include property operating expenses, depreciation expense, and other operating expenses. These expenses have increased in connection with completing Phase I development. We expect these expenses to continue to increase with our growth and completion of Phases II and III.
Our property operating expenses include the costs associated with running operational entertainment and destination assets such as the Tom Benson Hall of Fame Stadium and the ForeverLawn Sports Complex. Factors that will contribute to increased operating expenses include: more of our Phase II assets becoming operational, the addition of events for top performers, and sporting events.
Our depreciation expense includes the related costs of owning and operating significant property and entertainment assets. These expenses have grown as through completion of the Phase I development.
Other operating expenses include items such as management fees, commission expense, and professional fees.
Impact of COVID-19
Since 2020, the world has been impacted by the novel coronavirus (COVID-19) pandemic. The COVID-19 pandemic and measures to prevent its spread have impacted our business in a number of ways, most significantly with regard to a reduction in the number of events and attendance at events at Tom Benson Hall of Fame Stadium and ForeverLawn Sports Complex, which has also negatively impacted our ability to sell sponsorships. Further, the COVID-19 pandemic has caused a number of supply chain disruptions, which negatively impacts our ability to obtain the materials needed to complete construction as well as increases in the costs of materials and labor. The continued impact of these disruptions and the ultimate extent of their adverse impact on our financial and operating results will continue to be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of the COVID-19 pandemic, and among other things, the impact of governmental actions imposed in response to the COVID-19 pandemic and individuals’ and companies’ risk tolerance regarding health matters going forward and developing strain mutations.
Recent Developments
Dispute Regarding Naming Rights Agreement with Johnson Controls
The Naming Rights Agreement is scheduled to expire on December 31, 2034 but provides termination rights both to (a) HOF Village Newco, LLC, a wholly-owned subsidiary of the Company (“Newco”), and PFHOF; and (b) Johnson Controls, which may be exercised in the event the other party, among other things, breaches any of its covenants and agreements under the Naming Rights Agreement beyond certain notice and cure periods. Additionally, Johnson Controls has a right to terminate the Naming Rights Agreement if (i) we do not provide evidence to Johnson Controls by October 31, 2021, that we have secured sufficient debt and equity financing to complete Phase II, subject to day-for-day extensions due to force majeure and notice or cure periods; (ii) Phase II is not open for business by January 2, 2024, subject to day-for-day extensions due to force majeure and notice or cure periods; or (iii) Newco is in default beyond applicable notice and cure periods under certain agreements, such as the Technology as a Service Agreement with Johnson Controls (the “TAAS Agreement”), among others. There can be no assurance that Phase II will be open for business by January 2, 2024. In addition, under the Naming Rights Agreement, Johnson Controls’ obligation to make sponsorship payments to Newco may be suspended if Newco has not provided evidence reasonably satisfactory to Johnson Controls on or before December 31, 2020, that Newco has secured sufficient debt and equity financing to complete Phase II, subject to day-for-day extensions due to force majeure.
We are in dispute with Johnson Controls for Johnson Controls’ failure to make certain payments under the Naming Rights Agreement. We are currently in discussions with Johnson Controls to settle this dispute. However, there can be no assurances that the amounts due will be settled in accordance with the original terms of the Naming Rights Agreement. Therefore, during the three and nine months ended September 30, 2022, we suspended our revenue recognition until the dispute is resolved and have recorded an allowance against the amounts due as of September 30, 2022 in the amount of $3,312,500. The balances due under the Naming Rights Agreement as of September 30, 2022 and December 31, 2021 amounted to $5,197,917 and $1,885,417, respectively.
56
We anticipate this dispute will be resolved pursuant to the dispute resolution section of the Naming Rights Agreement, which provides for: (1) thirty (30) days of good faith negotiation to attempt to resolve such dispute, followed by (2) referral of the dispute to an independent facilitator or mediator for non-binding mediation; and (3) if the mediation is unsuccessful within sixty (60) days of the commencement of such non-binding mediation, any party may, by notice to all other parties, then refer the dispute to binding arbitration in the State of Ohio.
In addition to the Naming Rights Agreement, Newco is party to a Technology as a Service Agreement dated October 9, 2020 with Johnson Controls (the “TAAS Agreement”). Pursuant to the TAAS Agreement, Johnson Controls will provide certain services related to the construction and development of the Hall of Fame Village powered by Johnson Controls (the “Project”).
The TAAS Agreement provides that in respect of the Naming Rights Agreement, Johnson Controls and Newco intend, acknowledge and understand that: (i) Newco’s performance under the TAAS Agreement is essential to, and a condition to Johnson Controls’ performance under, the Naming Rights Agreement; and (ii) Johnson Controls’ performance under the Naming Rights Agreement is essential to, and a condition to Newco’s performance under, the TAAS Agreement. In the TAAS Agreement, Johnson Controls and Newco represent, warrant and agree that the transactions agreements and obligations contemplated under the TAAS Agreement and the Naming Rights Agreement are intended to be, and shall be, interrelated, integrated and indivisible, together being essential to consummating a single underlying transaction necessary for the Project. We anticipate that resolution of the dispute regarding the Naming Rights Agreement will include the TAAS Agreement.
On May 10, 2022, we received from Johnson Controls a notice of termination (the “TAAS Notice”) of the TAAS Agreement effective immediately. The TAAS Notice states that termination of the TAAS Agreement by Johnson Controls is due to our alleged breach of its payment obligations. Additionally, Johnson Controls in the TAAS Notice demands the amount which is the sum of: (i) all past due payments and any other amounts owed by us under the TAAS Agreement; (ii) all commercially reasonable and documented subcontractor breakage and demobilization costs; and (iii) all commercially reasonable and documented direct losses incurred by Johnson Controls directly resulting from the alleged default by us and the exercise of Johnson Controls’ rights and remedies in respect thereof, including reasonable attorney fees.
Also on May 10, 2022, we received from Johnson Controls a notice of termination (“Naming Rights Notice”) of the Name Rights Agreement, effective immediately. The Naming Rights Notice states that the termination of the Naming Rights Agreement by Johnson Controls is due to Johnson Controls’ concurrent termination of the TAAS Agreement. The Naming Rights Notice further states that we must pay Johnson Controls, within 30 days following the date of the Naming Rights Notice, $4,750,000. We have not made such payment to date. The Naming Rights Notice states that we are also in breach of its covenants and agreements, which required us to provide evidence reasonably satisfactory to Johnson Controls on or before October 31, 2021, subject to day-for-day extensions due to force majeure, that we have secured sufficient debt and equity financing to complete Phase II.
We dispute that we are in default under either the TAAS Agreement or the Naming Rights Agreement. We believe Johnson Controls is in breach of the Naming Rights Agreement and the TAAS Agreement, and, on May 16, 2022, provided notice to Johnson Controls of these breaches. We are pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against Johnson Controls’ allegations and pursue our own claims. The ultimate outcome of this dispute cannot presently be determined. However, in management’s opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the accompanying condensed consolidated financial statements.
On November 4, 2022, we began the mediation process with Johnson Controls. No agreement has yet been reached.
Stadium PACE Loan
On July 1, 2022, HOF Village Stadium, LLC, entered into an Energy Project Cooperative Agreement with Canton Regional Energy Special Improvement District, Inc., SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC (“SPH”), and City of Canton, Ohio (the “EPC Agreement”).
Under the EPC Agreement, SPH provided $33,387,844 property assessed clean energy financing to finance the costs of the special energy improvement projects at the Stadium described in the Canton Regional Energy Special Improvement District Project Plan that have been completed (as supplemented, the “Plan”). Of the amount received, $29,565,729 was disbursed to us, $3,221,927 was retained by SPH as capitalized interest, and $600,187 was used to pay closing costs. Pursuant to the EPC Agreement, we agreed to make special assessment payments in an aggregate amount that will provide revenues sufficient to repay the amount received plus interest and certain costs. The EPC Agreement bears interest at the annual rate of 6.0% and we will pay a $6,542 semi-annual administrative fee to the ESID over 50 semi-annual payments of $1,314,913 to be collected beginning approximately on January 31, 2024, and continuing through approximately July 31, 2048.
57
In connection with entering into the EPC Agreement, we obtained the consent and agreement of Cuyahoga River Capital LLC, pursuant to an agreement, dated June 27, 2022. CRC holds 100% of the interest in the Development Finance Authority of Summit County Tax-Exempt Development Revenue Bonds, Series 2018 (Hall of Fame Village - Stadium and Youth Fields TIF Project), issued in the original principal amount of $10,030,000 the “Series 2018 Bonds”). Pursuant to the Consent Agreement, upon the closing of the EPC Agreement the Company deposited $9,895,197 into a bank account at The Huntington National Bank subject to a deposit account control agreement executed by Huntington and CRC as secured party. Under the Consent Agreement, in the event the Series 2018 Bonds are outstanding on December 29, 2022, we will repurchase the Series 2018 Bonds. We granted CRC a lien on the Pledged Account to secure our obligation under the Consent Agreement. In the event the Series 2018 Bonds are redeemed and/or defeased prior to December 29, 2022, upon such redemption or defeasance the Consent Agreement shall automatically terminate, and CRC shall instruct Huntington to release the DACA.
Sports Betting Agreements
On July 14, 2022, Newco entered into an Online Market Access Agreement with Instabet, Inc. doing business as betr (“Instabet”), pursuant to which Instabet will serve as a Mobile Management Services Provider (as defined under applicable Ohio gaming law) wherein Instabet will host, operate and support a branded online sports betting service in Ohio, subject to procurement of all necessary licenses. The initial term of the Online Market Access Agreement is ten years. As part of this agreement, Newco will receive a limited equity interest in Instabet and certain revenue sharing, along with the opportunity for sponsorship and cross-marketing.
On July 29, 2022, Newco entered into a Retail Sports Gaming Services Agreement with RSI OH, LLC, (“RSI”), pursuant to which RSI will serve as a land-based Management Services Provider (as defined under applicable Ohio gaming law) wherein RSI will operate a retail sports betting location in the Fan Engagement Zone at the Hall of Fame Village, subject to procurement of all necessary licenses. The initial term of the Retail Sports Gaming Services Agreement is ten years. As part of this agreement, Newco will receive sponsorship fees and certain revenue sharing.
On November 2, 2022, we received conditional approval from the Ohio Casino Control Commission for a Type A (mobile) and a Type B (retail) sports gaming proprietor license.
Stark County Infrastructure Loan
On August 31, 2022, we entered into an unsecured loan agreement with Stark County Port Authority, pursuant to which we borrowed $5,000,000 (“SCPA Loan”). The interest rate applicable to the SCPA Loan is six percent (6.0%) per annum (compounded quarterly). Interest payments under the SCPA Loan are paid quarterly beginning on December 31, 2022. The SCPA Loan matures on August 30, 2029 and we may prepay without penalty.
Events of default under the SCPA Loan include without limitation: (i) a payment default, (ii) our failure to complete the infrastructure development for Phase II on or before December 31, 2024, or (iii) our failure to comply with any non-monetary covenant contained in the loan agreement, subject to a cure period. Upon the occurrence of default beyond any applicable grace or cure period: (a) interest due will increase by 5% per annum; and (b) Stark County Port Authority may, at its option, declare our obligations under the loan agreement to be immediately due and payable.
The SCPA Loan contains customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including furnish Stark County Port Authority with such financial statements and other related information at such frequencies and in such detail as Stark County Port Authority may reasonably request and use all SCPA Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens, mergers and acquisitions, and standard prohibitions on change of control.
City of Canton Infrastructure Loan
On September 15, 2022, we entered into a business loan agreement with City of Canton, pursuant to which we borrowed $5,000,000. The interest rate applicable to the Canton Loan is six percent (6%) per annum (compounded quarterly). Interest payments under the Canton Loan are paid quarterly beginning on December 31. The Canton Loan is unsecured and matures on June 30, 2029. We may prepay the Canton Loan without penalty.
Events of default under the business loan agreement include without limitation: (i) a payment default, (ii) our failure to complete the infrastructure development for Phase II on or before December 31, 2024, and (iii) our failure to comply with any non-monetary covenant contained in the business loan agreement, subject to the applicable cure period. Upon the occurrence of an event of default under the business loan agreement beyond any applicable grace or cure period: (a) interest due will increase by 5% per annum; and (b) City of Canton may, at its option, declare our obligations under the business loan agreement to be immediately due and payable.
The business loan agreement contains customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including furnish City of Canton with such financial statements and other related information at such frequencies and in such detail as City of Canton may reasonably request and use all Canton Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants, including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens, mergers and acquisitions, and standard prohibitions on change of control.
58
Huntington Loan and Twain Sale Leaseback Transaction
On September 27, 2022, HOF Village Retail I, LLC and HOF Village Retail II, LLC, our subsidiaries, as borrowers (the “Subsidiary Borrowers”), entered into a loan agreement with The Huntington National Bank, pursuant to which the lender agreed to loan up to $10,000,000 to the Subsidiary Borrowers, which may be drawn upon the Project achieving certain debt service coverage ratios. Stuart Lichter and Stuart Lichter as trustee of the Stuart Lichter Trust, guaranteed repayment of the loan and completion of the project which reduces upon stabilization. As of September 30, 2022, no amount has been drawn under the loan agreement.
We are in the process of constructing two commercial retail buildings on certain real property located on our campus in Canton, Ohio (the “Land”) (the Land together with the commercial buildings the “Property”) including, but not limited to, tenant improvements to the Property (the “Project”). On September 27, 2022, TWAIN GL XXXVI, LLC (“TWAIN”) purchased the land under the our Fan Engagement Zone for a purchase price equal to $550,000. Simultaneous with the closing of the sale of the land TWAIN entered into a Ground Lease with us (the “Ground Lease”), pursuant to which TWAIN, as ground lessor, has ground leased the land to us. The Ground Lease has a term of ninety-nine years. Under the terms of the Ground Lease, TWAIN contributed a tenant improvement allowance to us in the amount of $18,200,000. Out of this amount, the purchase price for the land of $550,000 was paid, and TWAIN withheld an amount equal to the first 24 months worth of rent due on the Ground Lease. We received a net amount of approximately $14.7 million from this transaction, which was deemed to be a failed sale leaseback transaction and was recorded as a financing liability accordingly.
Stockholders Approve Reverse Stock Split at Discretion of Board
On September 29, 2022, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation to effect, at the discretion of our Board of Directors on or prior to May 5, 2023, a reverse stock split of all of the outstanding shares of our common stock, par value $0.0001 per share (“Common Stock”), at a ratio in the range of 1-for-10 to 1-for-25 (the “Reverse Stock Split”), such ratio to be determined by our Board of Directors in its discretion and publicly disclosed prior to the effectiveness of the Reverse Stock Split, whereby each outstanding 10 to 25 shares would be combined, converted and changed into 1 share of our Common Stock. Currently, there has been no decision on if or when this would be effected.
The Company submitted a request to Nasdaq for a second 180 day compliance period to meet the Minimum Bid Requirement.
On May 24, 2022, as previously disclosed we received a notification letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that we were not in compliance with the $1.00 minimum bid price required to maintain continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). We were initially given a compliance period of 180 days from the notification, or until November 21, 2022, to regain compliance, by having the closing bid price of our common stock exceed $1.00 for a minimum of ten consecutive trading days during the 180 day compliance period.
As previously disclosed, if we do not regain compliance with the Minimum Bid Requirement during the initial 180 calendar day period, we may be eligible for an additional 180 calendar day compliance period. On September 19, 2022, we submitted our request to Nasdaq for a second 180 day compliance period to meet the Minimum Bid Requirement, including an intent to implement a reverse stock split in sufficient time during the 180 days to evidence a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days prior to the expiration of the second 180 day compliance period. We do not expect to receive a response from Nasdaq to its request for a second 180 day compliance period until the first 180 day compliance period ends on November 21, 2022. There is no assurance, however, that we will regain compliance during a second 180 day compliance period.
$7,500,000 Tourism Development District (“TDD”) Bond Proceeds; Payment Guaranty; Loan Agreement; Mortgage; Intercreditor Agreement
On October 19, 2022, HOF Village Center for Performance, LLC (“HOFV CFP”), our wholly-owned subsidiary, received proceeds from the sale by Stark County Port Authority (the “Port Authority”), of $7,500,000 principal amount of tourism development district special obligation bonds (the “TDD Bonds”) issued October 19, 2022, to Director of Development of the State of Ohio, acting on behalf of the State of Ohio. HOFV CFP must use the funds to pay, or for reimbursement of payment of, project costs associated with the Center for Performance being constructed by HOFV CFP (the “Center for Performance”).
The Center for Performance is part of the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination centered around the Pro Football Hall of Fame’s campus (“Hall of Fame Village”). The facilities and other improvements being constructed, and contemplated to be constructed, as part of Hall of Fame Village, are located and to be located within a tourism development district (a “Tourism Development District”) established by the City of Canton (the “HOFV TDD”). The HOFV TDD district was created with the intent of levying certain taxes and charges within its boundaries, the proceeds of which would be used to foster and develop tourism within the HOFV TDD (“TDD Revenues”).
In connection with the issuance of TDD Bonds by the Port Authority, the Treasurer of the State of Ohio issued $7,500,000 principal amount economic development revenue bonds of the State of Ohio (Ohio Enterprise Bond Fund) (“OEBF Bonds”), the proceeds of which were used to purchase the TDD Bonds in accordance with a loan (the “Loan”) to the Port Authority under the terms of a Loan Agreement, dated October 1, 2022 (the “Loan Agreement”) by and among the Director of Development of the State of Ohio, acting on behalf of the State of Ohio, as lender, the Port Authority, as borrower, and HOFV CFP, as beneficiary. The Loan Agreement provides for the execution and delivery of certain other documents (the “Loan Documents”). Pursuant to the Loan Agreement, the Director loaned the proceeds from the sale of the OEBF Bonds (the “Loan”), to the Port Authority, and the TDD Bonds Beneficiary agreed to construct, own, and operate the Project, as described in the Loan Agreement.
59
On October 19, 2022, as a condition precedent to disbursement of the Loan proceeds, HOF Village Newco, LLC (“Newco”), our wholly-owned subsidiary, entered into a Payment Guaranty (the “Payment Guaranty”) to and for the benefit of the Director, and The Huntington National Bank, as trustee (the “Trustee”) under the trust agreement for the OEBF Bonds. Under the Payment Guaranty, Newco guarantees the payment of any “Shortfall”, defined as the difference between TDD Revenues available for payment of, and the amounts required to be paid for, debt service and obligations owed by the Port Authority and the TDD Bonds Beneficiary under the Loan Agreement.
As security for the prompt and complete payment and performance when due of all of the obligations of the Port Authority, as borrower, under the Loan Agreement, HOFV CFP has entered into the Mortgage, dated and recorded in the Stark County, Ohio Recorder’s Office (the “Recording Office”) on October 19, 2022 (the “Mortgage”), under which HOFV CFP has granted a security interest in the Center for Performance, including buildings, fixtures and equipment, all revenues derived from leases or subleases of the Center for Performance, proceeds from any insurance claims, and other interests (the “HOFV Collateral”). HOFV CFP also entered into an intercreditor and subordination agreement (the “Intercreditor Agreement”) by and among the Director of Development of the State of Ohio, as junior lender, acting on behalf of the State of Ohio (the “State”); Midwest Lender Fund, LLC, as senior lender, and HOFV CFP, as borrower and recorded in Recording Office on October 19, 2022.
Waterpark Sale and Leaseback
On November 7, 2022, HOF Village Waterpark, LLC (“HOFV Waterpark”), an indirect subsidiary of the Company, as seller, entered into an Agreement for Purchase and Sale of Real Property (the “Purchase and Sale Agreement”) with HFAKOH001 LLC, an affiliate of Oak Street Real Estate Capital, LLC (“Oak Street”), as buyer, pursuant to which the parties agreed to consummate a sale and leaseback transaction (the “Waterpark Sale and Leaseback Transaction”). Under the terms of the Purchase and Sale Agreement, Oak Street paid the sum of $1,000,000 as the purchase price for HOFV Waterpark’s property located at Hall of Fame Village, Canton, Ohio (the “Waterpark Property”), and paid the sum of $49,000,000 for the Pledged Interests (defined below). The net proceeds to be received by HOFV Waterpark will be reduced by transaction commissions and expenses incurred in connection with the sale.
At the closing of the Purchase and Sale Agreement, HOFV Waterpark leased the Waterpark Property back from Oak Street pursuant to a Ground Lease Agreement, dated November 7, 2022, between HOFV Waterpark, as tenant, and Oak Street, as landlord (the “Ground Lease”), the term of which Ground Lease is for approximately 99 years. In connection with the Ground Lease, HOFV Newco (defined below) is providing a Limited Recourse Carveout Guaranty, dated November 7, 2022 (the “Limited Guaranty”) in favor of Oak Street. HOFV Waterpark will construct and develop structures for use as an indoor waterpark and other uses ancillary thereto on the Waterpark Property (the “Waterpark Project”). Proceeds from the conveyance of the Waterpark Property to Oak Street will provide funding for the Waterpark Project and other costs related to the Purchase and Sale Agreement and the Ground Lease.
HOF Village Stadium, LLC (“HOFV Stadium”), which is owned by HOF Village Newco, LLC, a subsidiary of the Company (“HOFV Newco”), owns leasehold interests (the “Stadium Leasehold Interests”) in certain real property located in the City of Canton, Ohio on which is situated the Tom Benson Hall of Fame Stadium (the “Stadium”). In connection with the Waterpark Sale and Leaseback Transaction and as additional security for HOFV Waterpark’s obligations under the Ground Lease, HOFV Newco pledged one hundred percent of the record and beneficial membership interests in HOFV Stadium (the “Pledged Interests”) to Oak Street pursuant to a pledge and security agreement (the “Pledge Agreement”) dated November 7, 2022.
Pursuant to a Post-Closing Matters Agreement dated November 7, 2022 by and between HOFV Waterpark, HOFV Newco and Oak Street (“Post-Closing Agreement”), Oak Street: (1) retains the right, which much be exercised on or before November 30, 2022, to cause HOFV Waterpark to purchase the Waterpark Property in the event Oak Street determines there is a material deficiency in the status, condition or sufficiency in the collateral for the Pledge Agreement, and (2) retains the right to cause HOFV Stadium to provide a mortgage on the Stadium Leasehold Interests (the “Stadium Leasehold Mortgage”).
On November 7, 2022, Oak Street and HOFV Waterpark also entered into a Purchase Option Agreement (the “Purchase Option Agreement”), pursuant to which HOFV Waterpark is granted an option to purchase the Waterpark Property back from Oak Street that can be exercised during the period beginning on December 1, 2027 and ending on November 30, 2034 (the “Option Period”).
Hotel Construction Loan Commitment Letter
On November 3, 2022, we entered into a Commitment Letter (the “Hotel Construction Loan Commitment Letter”), by and among the Company, as guarantor, HOF Village Hotel WP, LLC (“Hotel”), an indirect subsidiary of the Company , as borrower, and Industrial Realty Group, Inc. (“IRGInc”), as lender. Stuart Lichter, a director of the Company, is President and Chairman of the Board of Industrial Realty Group, LLC (“IRGLLC”). Pursuant to the terms of the Hotel Construction Loan Commitment Letter, IRGInc committed to provide, or to arrange for one of IRGInc’s affiliates to provide, a loan of $28,000,000 (the “Hotel Construction Loan”) to finance a portion of Hotel’s costs and expenses in connection with the ground-up development of a 180-room family hotel (the “Hotel Project”) on approximately 1.64 acres of land located in the Hall of Fame Village, Canton, Ohio (the “Hotel Property”), adjacent to the Waterpark Property. The commitment to provide the Hotel Construction Loan is subject to certain conditions, including the execution and delivery of definitive documentation with respect to the Hotel Construction Loan.
The Hotel Construction Loan will have a two-year term with one option to extend for twelve months, subject to standard extension conditions. The collateral for the Hotel Construction Loan will include, without limitation: (a) a first priority perfected mortgage encumbering the Hotel Property; (b) a first priority perfected assignment of leases and rents with respect to the Hotel Property; (c) a first priority perfected assignment of all permits, licenses, entitlements, approvals, and contracts with respect to the Hotel Property; (d) UCC-1 financing statements (all personal property, fixture filing and accounts and reserves); (e) equity pledge; and (f) all other agreements and assurances customary in similar financings by IRGInc. The Hotel Construction Loan will bear interest at a variable rate per annum equal to the one-month Term SOFR plus 6%, subject to a SOFR floor equal to the greater of (i) 4% and (ii) prevailing SOFR at closing of the Hotel Construction Loan. Payments of interest only will be made during the initial two-year term, with a payments of principal and interest based on a 25-year amortization during the extension term, if applicable. Hotel will pay 1% of the Hotel Construction Loan amount as an origination fee, payable in full at closing. The Hotel Construction Loan definitive documentation will have representations, warranties and events of default usual and customary for such type of loan.
60
IRG Financial Support and Consideration
On November 7, 2022, we entered into a letter agreement (the “IRG Letter Agreement”) with IRGLLC, pursuant to which IRGLLC agreed that IRGLLC and IRGLLC’s affiliates and related parties will provide us with certain financial support described below in exchange for certain consideration described below.
The financial support provided under the IRG Letter Agreement consists of the following (the “IRG Financial Support”):
Waterpark Construction Financing Facilitation. IRGLLC agreed that its affiliate CH Capital Lending, LLC (“CHCL”), would help facilitate the closing of financing with Oak Street with regard to construction of the Waterpark Project, by among other things, releasing CHCL’s first mortgage lien on the Stadium Leasehold Interests and pledge of membership interests in HOFV Stadium. In addition, IRGLLC agreed to provide a completion guaranty to facilitate other needed financing for the Waterpark Project, as required.
Extension of CHCL Bridge Loan. IRGLLC agreed that CHCL would extend to March 31, 2024 the maturity of the promissory note dated June 16, 2022, issued by the Company, HOF Village Retail I, LLC and HOF Village Retail II, LLC, as borrowers, to CHCL, as lender (the “Bridge Loan”).
Provide One Year Extension Option for All IRG Affiliate Lender Loans. All loans from affiliates and related parties of IRGLLC (“IRG Affiliate Lenders”) will be amended to provide for an optional one-year extension of their maturity until March 31, 2025 for a one percent extension fee, which is payable if and when an IRG Affiliate Lender loan is extended. The IRG Affiliate Lender loans consist of the following: (i) Bridge Loan, with an existing modified maturity date of March 31, 2024; (ii) the term loan, payable to CHCL, with an existing maturity of March 31, 2024; (iii) the first amended and restated promissory note, dated March 1, 2022, payable to IRG, LLC, with an existing maturity of March 31, 2024; (iv) the first amended and restated promissory note, dated March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; (v) the Secured Cognovit Promissory Note, dated as of June 19, 2020, assigned June 30, 2020 and amended December 1, 2020 and March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; and (vi) the promissory note, dated April 27, 2022, payable to Midwest Lender Fund, LLC (“MLF”), with an existing maturity of April 30, 2023, and with an option to extend the maturity until March 31, 2024.
Tapestry Hotel Construction Financing Commitment Letter. IRGLLC agreed to provide a commitment for financing the Hotel Project, as set forth in the Hotel Construction Loan Commitment Letter.
In consideration of the IRG Financial Support to be received by the Company and its subsidiaries, we agreed in the IRG Letter Agreement to provide the following consideration to IRGLLC and the IRG Affiliate Lenders:
We agreed to make a payment of $4,500,000 as a fee for providing the completion guaranty and other IRG Financial Support described above, payable to CHCL to be held in trust for the IRG Affiliate Lenders, to be allocated as the IRG Affiliate Lenders shall determine. We also agreed to issue 2,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”) to the IRG Affiliate Lenders, to be allocated as the IRG Affiliate Lenders shall determine, in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.
We agreed to modify the IRG Affiliate Lender loans as follows: (i) all IRG Affiliate Lender loans will bear interest at 12.5% per annum, compounded monthly, with payment required monthly at 8% per annum, and with the remaining interest accrued and deferred until maturity; (ii) the price at which the principal and accumulated and unpaid interest under the IRG Affiliated Lender loans is convertible into shares of Common Stock will be reset to a price equal to 105% of the average Nasdaq official closing price of the Company’s Common Stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the date of the Oak Street closing, which price is $0.58 per share (“Market Price”); (iii) the Company and its subsidiaries will record a blanket junior mortgage on all real estate owned or leased by the Company and its subsidiaries, whether fee or leasehold estates, other than those parcels for which existing lenders prohibit junior financing; (iv) the Company agreed to acknowledge an existing pledge of the Company’s 100% membership interest in HOFV Newco and reflect that such pledge secures all amounts due under the IRG Affiliate Lender Loans; (v) all IRG Affiliate Lender loans will be cross-collateralized and cross-defaulted; (vi) the Company and its subsidiaries will covenant not to assign, pledge, mortgage, encumber or hypothecate any of the underlying assets, membership interests in affiliated entities or IP rights without IRGLLC’s written consent; (vii) prior development fees owed by the Company to IRGLLC will be accrued and added to the Bridge Loan, and future development fees owed by the Company to IRGLLC will be paid as when due; and (viii) the Company will pay to IRGLLC 25% of all contractual dispute cash settlements collected by the Company with regard to existing contractual disputes in settlement discussions, which shall be applied to outstanding IRG Affiliate Lender loans, first against accrued interest and other charges and then against principal.
We agreed to modify the Series C through Series G warrants held by IRG Affiliate Lenders as follows: (i) the exercise price of the Series C through Series G warrants held by IRG Affiliate Lenders will be reset to Market Price; and (ii) the warrant expiration dates of the Series C through Series G warrants held by IRG Affiliate Lenders will be extended by two years from their current expiration dates.
61
In the IRG Letter Agreement, IRGLLC and the Company agreed to comply with all federal and state securities laws and Nasdaq listing rules and to insert “blocker” provisions for the above-described re-pricing of the warrants and the conversion provisions, such that the total cumulative number of shares of Common Stock that may be issued to IRGLLC and its affiliated and related parties pursuant to the IRG Letter Agreement may not exceed the requirements of Nasdaq Listing Rule 5635(d) (“Nasdaq 19.99% Cap”), except that such limitation will not apply following Approval (defined below). In addition, the provisions of the IRG Letter Agreement are limited by Nasdaq Listing Rule 5635(c). If the number of shares of Common Stock issued to IRGLLC and its affiliated and related parties pursuant to the IRG Letter Agreement and the agreements modified thereunder exceeds the Nasdaq 19.99% Cap, then the Company will use reasonable efforts to obtain stockholder approval of the issuance of shares in excess of the Nasdaq 19.99% Cap, no later than the next stockholder meeting (the “Approval”).
In connection with entering into the Waterpark Sale and Leaseback Transaction, the Hotel Construction Loan Commitment Letter, and the IRG Letter Agreement, the Company paid customary fees and expenses.
Results of Operations
The following table sets forth information comparing the components of net loss for the three months ended September 30, 2022 and the comparable period in 2021:
| For
the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 748,033 | $ | 1,554,454 | ||||
| Event, rents and cost recoveries | 5,857,467 | 503,789 | ||||||
| Hotel revenues | 2,058,687 | 1,423,713 | ||||||
| Total revenues | 8,664,187 | 3,481,956 | ||||||
| Operating expenses | ||||||||
| Operating expenses | 13,844,467 | 8,933,714 | ||||||
| Hotel operating expenses | 1,809,635 | 1,524,774 | ||||||
| Commission expense | 226,031 | 224,293 | ||||||
| Impairment expense | - | 1,748,448 | ||||||
| Depreciation expense | 2,650,719 | 2,993,583 | ||||||
| Total operating expenses | 18,530,852 | 15,424,812 | ||||||
| Loss from operations | (9,866,665 | ) | (11,942,856 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | (1,670,377 | ) | (981,945 | ) | ||||
| Amortization of discount on note payable | (1,132,440 | ) | (1,326,620 | ) | ||||
| Change in fair value of interest rate swap | (128,000 | ) | - | |||||
| Change in fair value of warrant liability | 1,838,000 | 22,469,170 | ||||||
| Total other (expense) income | (1,092,817 | ) | 20,160,605 | |||||
| Net (loss) income | $ | (10,959,482 | ) | $ | 8,217,749 | |||
| Series B preferred stock dividends | (266,000 | ) | (212,844 | ) | ||||
| Non-controlling interest | 101,202 | 141,011 | ||||||
| Net (loss) income attributable to HOFRE stockholders | $ | (11,124,280 | ) | $ | 8,145,916 | |||
| Net (loss) income per share – basic | $ | (0.09 | ) | $ | 0.09 | |||
| Weighted average shares outstanding, basic | 118,437,440 | 95,044,250 | ||||||
| Net (loss) income per share – diluted | $ | (0.09 | ) | $ | (0.08 | ) | ||
| Weighted average shares outstanding, diluted | 118,437,440 | 102,540,809 | ||||||
62
Three Months Ended September 30, 2022 as Compared to the Three Months Ended September 30, 2021
Sponsorship Revenues
Sponsorship revenues totaled $748,033 for the three months ended September 30, 2022 as compared to $1,554,454 for the three months ended September 30, 2021, representing a decrease of $806,421, or 51.9%. This decrease was primarily driven by our pausing the recognition of revenue on the JCI sponsorship agreement while a dispute with Johnson Controls is resolved. For additional information, see “Dispute Regarding Naming Rights Agreement with Johnson Controls” above.
Event, rents and cost recoveries
Revenue from event, rents and cost recoveries was $5,857,467 for the three months ended September 30, 2022 compared to $503,789 for the three months ended September 30, 2021, for an increase of $5,353,678, or 1062.7%. This increase was primarily driven by the resumption of many sports and other tournaments in our ForeverLawn Sports Complex, Enshrinement activities and concerts, our hosting of the USFL finals and other tournaments in our Tom Benson Hall of Fame Stadium, as well as the opening of the Constellation Center for Excellence.
Hotel Revenues
Hotel revenue was $2,058,687 for the three months ended September 30, 2022 compared to $1,423,713 from the three months ended September 30, 2021 for an increase of $634,974, or 44.6%. This was driven by resumption of travel and conferences that had previously been paused due to the COVID-19 pandemic.
Operating Expenses
Operating expense was $13,844,467 for the three months ended September 30, 2022 compared to $8,933,714 for the three months ended September 30, 2021, for an increase of $4,910,753, or 55.0%. This increase was driven by an increase in payroll and related costs due to increased headcount, an increase in event expenses, and an increase in insurance expense, partially offset by a decrease in stock-based compensation expense.
Hotel Operating Expenses
Hotel operating expense was $1,809,635 for the three months ended September 30, 2022 compared to $1,524,774 for the three months ended September 30, 2021 for an increase of $284,861, or 18.7%. This was driven primarily by an increase in hotel occupancy.
Commission Expense
Commission expense was $226,031 for the three months ended September 30, 2022 compared to $224,293 for the three months ended September 30, 2021, for an increase of $1,738, or 0.8%. The increase in commission expense was primarily driven by payments incurred for commissions on our Constellation New Energy sponsorship agreement.
Depreciation Expense
Depreciation expense was $2,650,719 for the three months ended September 30, 2022 compared to $2,993,583 for the three months ended September 30, 2021, for an decrease of $342,364, or 11.5%. The decrease in depreciation expense is primarily the result of a number of large assets becoming fully depreciated during the second quarter of 2022. This was offset by additional depreciation expense incurred due to the opening of the Constellation Center for Excellence in the fourth quarter of 2021, the opening of the Center for Performance in the second quarter of 2022 and Play Action Plaza and the Fan Engagement Zone in the third quarter of 2022.
Interest Expense
Total interest expense was $1,670,377 for the three months ended September 30, 2022 compared to $981,945 for the three months ended September 30, 2021, for a increase of $688,432, or 70.1%. The increase in total interest expense was primarily due to a decrease in the proportion of debt that is capitalized for ongoing construction projects.
63
Amortization of Debt Discount
Total amortization of debt discount was $1,132,440 for the three months ended September 30, 2022, compared to $1,326,620 for the three months ended September 30, 2021, for a decrease of $194,180, or 14.6%.
Change in Fair Value of Warrant Liability
The change in fair value warrant liability represents a gain of $1,838,000 for the three months ended September 30, 2022 compared to $22,469,170 for the three months ended September 30, 2021, for a decrease of $20,631,170 or 91.8%. The decrease in change in fair value of warrant liability was due primarily to a decrease in our stock price.
Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 2,020,095 | $ | 4,538,292 | ||||
| Event, rents and cost recoveries | 6,863,723 | 607,469 | ||||||
| Hotel revenues | 4,572,428 | 2,615,273 | ||||||
| Total revenues | 13,456,246 | 7,761,034 | ||||||
| Operating expenses | ||||||||
| Operating expenses | 28,170,446 | 21,162,494 | ||||||
| Hotel operating expenses | 4,278,897 | 3,887,928 | ||||||
| Commission expense | 882,774 | 651,543 | ||||||
| Impairment expense | - | 1,748,448 | ||||||
| Depreciation expense | 9,420,585 | 8,886,650 | ||||||
| Total operating expenses | 42,752,702 | 36,337,063 | ||||||
| Loss from operations | (29,296,456 | ) | (28,576,029 | ) | ||||
| Other expense | ||||||||
| Interest expense, net | (3,805,310 | ) | (2,941,672 | ) | ||||
| Amortization of discount on note payable | (3,610,738 | ) | (3,725,347 | ) | ||||
| Change in fair value of interest rate swap | (128,000 | ) | - | |||||
| Change in fair value of warrant liability | 9,011,000 | (67,565,942 | ) | |||||
| (Loss) gain on extinguishment of debt | (148,472 | ) | 390,400 | |||||
| Total other income (expense) | 1,318,480 | (73,842,561 | ) | |||||
| Net loss | $ | (27,977,976 | ) | $ | (102,418,590 | ) | ||
| Series B preferred stock dividends | (798,000 | ) | (342,844 | ) | ||||
| Non-controlling interest | 337,166 | 301,221 | ||||||
| Net loss attributable to HOFRE stockholders | $ | (28,438,810 | ) | $ | (102,460,213 | ) | ||
| Net loss per share – basic and diluted | $ | (0.25 | ) | $ | (1.16 | ) | ||
| Weighted average shares outstanding, basic and diluted | 112,327,645 | 88,382,322 | ||||||
64
Sponsorship Revenues
Sponsorship revenues totaled $2,020,095 for the nine months ended September 30, 2022 as compared to $4,538,292 for the nine months ended September 30, 2021, for a decrease of $2,518,197, or 55.5%. This decrease was primarily driven by our pausing the recognition of revenue on the JCI sponsorship agreement while a dispute with Johnson Controls is resolved. For additional information, see “Dispute Regarding Naming Rights Agreement with Johnson Controls” above.
Event, rents and cost recoveries
Revenue from event, rents and cost recoveries was $6,863,723 for the nine months ended September 30, 2022 compared to $607,469 for the nine months ended September 30, 2021, for an increase of $6,256,254, or 1029.9%. This increase was primarily driven by the resumption of many sports and other tournaments in our ForeverLawn Sports Complex, Enshrinement activities and concerts, our hosting of the USFL finals and other tournaments in our Tom Benson Hall of Fame Stadium, as well as the opening of the Constellation Center for Excellence.
Hotel Revenues
Hotel revenue was $4,572,428 for the nine months ended September 30, 2022 compared to $2,615,273 from the nine months ended September 30, 2021 for an increase of $1,957,155, or 74.8%. This increase was driven by resumption of travel and conferences that had previously been paused due to the COVID-19 pandemic.
Operating Expenses
Operating expense was $28,170,446 for the nine months ended September 30, 2022 compared to $21,162,494 for the nine months ended September 30, 2021, for an increase of $7,007,952, or 33.1%. This increase was driven by an increase in legal and professional fees, an increase in payroll and related costs due to increased headcount, an increase in event expenses and an increase in insurance expense, partially offset by a decrease in stock-based compensation.
Hotel Operating Expenses
Hotel operating expense was $4,278,897 for the nine months ended September 30, 2022 compared to $3,887,928 for the nine months ended September 30, 2021 for an increase of $390,969, or 10.1%. This increase was driven by resumption of travel and conferences that had previously been paused due to COVID-19.
Commission Expense
Commission expense was $882,774 for the nine months ended September 30, 2022 compared to $651,543 for the nine months ended September 30, 2021, for an increase of $231,231, or 35.5%. The increase in commission expense was primarily driven by payments incurred for commissions on our Constellation New Energy sponsorship agreement.
Depreciation Expense
Depreciation expense was $9,420,585 for the nine months ended September 30, 2022 compared to $8,886,650 for the nine months ended September 30, 2021, for an increase of $533,935, or 6.0%. The increase in depreciation expense is primarily the result of additional depreciation expense incurred due to the opening of the Constellation Center for Excellence in the fourth quarter of 2021, the opening of the Center for Performance in the second quarter of 2022 and Play Action Plaza and the Fan Engagement Zone in the third quarter of 2022.
Interest Expense
Total interest expense was $3,805,310 for the nine months ended September 30, 2022 compared to $2,941,672 for the nine months ended September 30, 2021, for an increase of $863,638, or 29.4%. The increase in total interest expense is primarily due to the increase in our total debt outstanding, as well as a mix of higher interest rate loans.
65
Amortization of Debt Discount
Total amortization of debt discount was $3,610,738 for the nine months ended September 30, 2022 compared to $3,725,347 for the nine months ended September 30, 2021, for an decrease of $114,609, or 3.1%.
Change in Fair Value of Warrant Liability
The change in fair value warrant liability represents a gain of $9,011,000 for the nine months ended September 30, 2022 compared to a loss of $67,565,942 for the nine months ended September 30, 2021, for a change of $76,576,942 or 113.3%. The change in fair value of warrant liability was primarily due to a decrease in our stock price.
(Loss) Gain on Extinguishment of Debt
Loss on extinguishment of debt was $148,472 for the nine months ended September 30, 2022, as compared to a gain of $390,400 for the nine months ended September 30, 2021. The loss on extinguishment of debt is due to the forgiveness of our Paycheck Protection Program Loan during the first quarter of 2021 and the refinancing of many of our debt instruments in the first quarter of 2022.
Liquidity and Capital Resources
We have sustained recurring losses through September 30, 2022. Since inception, our operations have been funded principally through the issuance of debt and equity. As of September 30, 2022, we had approximately $16 million of unrestricted cash and $17 million of restricted cash, respectively. A majority of our restricted cash may be released to us upon achieving certain occupancy and other targets sets by certain of our lenders. We have approximately $18.7 million of debt coming due through December 31, 2023.
On March 1, 2022, the Company and ErieBank agreed to extend the MKG DoubleTree Loan in principal amount of $15,300,000 to September 13, 2023.
On March 1, 2022, we executed a series of transactions with Industrial Realty Group, LLC, a Nevada limited liability company controlled by our director Stuart Lichter (“IRG”) and its affiliates and JKP Financial LLC (“JKP”), whereby IRG and JKP extended certain of our debt in aggregate principal amount of $22,853,831 to March 31, 2024.
On June 16, 2022, we entered into a loan agreement with CH Capital Lending LLC, which is an affiliate of the Company’s director Stuart Lichter (“CH Capital Lending”), whereby CH Capital Lending agreed to lend us $10,500,000.
On June 16, 2022, we entered into a loan agreement with Stark Community Foundation, whereby Stark Community Foundation agreed to lend to us $5,000,000, of which we’ve drawn $5,000,000.
On July 1, 2022, we entered into an Energy Project Cooperative Agreement (the “EPC Agreement”) with Canton Regional Energy Special Improvement District, Inc., SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC and City of Canton, Ohio. Under the EPC Agreement, we were provided $33,387,844 in Property Assessed Clean Energy (“PACE”) financing.
On August 31, 2022, we entered into a Business Loan Agreement with Stark County Port Authority, pursuant to which we borrowed $5,000,000.
On September 15, 2022, we entered into a Business Loan Agreement with the City of Canton, Ohio, pursuant to which we borrowed $5,000,000.
On September 27, 2022, we received approximately $14.7 million in proceeds from a failed sale-leaseback, net of financing costs and amounts held by the Landlord for future debt service.
On September 27, 2022, we entered into a loan agreement with The Huntington National Bank, pursuant to which the lender agreed to loan up to $10,000,000 to us, which may be drawn upon achieving certain debt service coverage ratios. To date we have not received any funding from this loan agreement.
On October 19, 2022, we received proceeds from the sale by Stark County Port Authority (the “Port Authority”), of $7,500,000 principal amount of tourism development district special obligation bonds (the “TDD Bonds”) issued October 19, 2022, to Director of Development of the State of Ohio, acting on behalf of the State of Ohio. HOFV CFP must use the funds to pay, or for reimbursement of payment of, project costs associated with the Center for Performance being constructed by HOFV CFP (the “Center for Performance”).
On November 7, 2022, we received approximately $49 million in net proceeds from a failed sale-leaseback, net of financing costs.
66
We believe that, as a result our demonstrated historical ability to finance and refinance debt, the transactions described above and current ongoing negotiations, it currently has sufficient cash and future financing to meet its funding requirements over the next year. Notwithstanding, we expect that it will need to raise additional financing to accomplish its development plan over the next several years. We are seeking to obtain additional funding through debt, construction lending, and equity financing. There are no assurances that we will be able to raise capital on terms that are acceptable or at all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If we are unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm its financial condition and operating results.
Cash Flows
Since inception, we have primarily used our available cash to fund its project development expenditures. The following table sets forth a summary of cash flows for the periods presented:
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating Activities | $ | 2,413,959 | $ | (20,245,591 | ) | |||
| Investing Activities | (77,862,339 | ) | (42,328,949 | ) | ||||
| Financing Activities | 90,663,480 | 51,011,265 | ||||||
| Net increase (decrease) in cash and restricted | $ | 15,215,100 | $ | (11,563,275 | ) | |||
Cash Flows for the Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021
Operating Activities
Net cash provided by operating activities was $2,413,959 during the nine months ended September 30, 2022, which consisted primarily of our net loss of $27,977,976, offset by non-cash depreciation expense of $9,420,585, amortization of note discounts of $3,610,738, payment-in-kind interest rolled into debt of $2,659,044, a loss on forgiveness of debt of $148,472, and stock-based compensation expense of $3,277,879. The changes in operating assets and liabilities consisted of an increase in accounts receivable of $1,201,990, a decrease in prepaid expenses and other assets of $719,172, an increase in accounts payable and accrued expenses of $16,092,721, an increase in due to affiliates of $2,740,818, and an increase in other liabilities of $1,659,949.
Net cash used in operating activities was $20,245,591 during the nine months ended September 30, 2021, which consisted primarily of our net loss of $102,418,590, offset by non-cash depreciation expense of $8,886,648, amortization of note discounts of $3,725,349, stock-based compensation expense of $4,573,524, non-cash impairment expense of $1,748,448, and a change in fair value of warrant liability of $67,565,942. The changes in operating assets and liabilities consisted primarily of an increase in accounts receivable of $125,208, an increase in prepaid expenses and other assets of $1,648,247, and a decrease in accounts payable and accrued expenses of $2,537,410.
Investing Activities
Net cash used in investing activities was $77,862,339 and $42,328,949 during the nine months ended September 30, 2022 and 2021, respectively, which consisted primarily of our project development costs.
Financing Activities
Net cash provided by financing activities was $90,663,480 during the nine months ended September 30, 2022. This consisted primarily of $68,807,100 in proceeds from notes payable, $15,588,519 in proceeds from our sale leaseback, and $20,403,517 of proceeds from equity raises under our ATM, offset by $8,238,479 in repayments of notes payable, and $5,447,177 in payment of financing costs.
Net cash provided by financing activities was $51,011,265 during the nine months ended September 30, 2021, which consisted primarily of $6,900,000 in proceeds from notes payable, $15,200,000 in proceeds from the sale of Series B preferred stock, $31,746,996 of proceeds from equity raises, and $23,485,200 of proceeds from the exercise of warrants, offset by $25,762,598 in repayments of notes payable, and $515,000 in payment of financing costs.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
67
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us 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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For information on our significant accounting policies please refer to Note 2 to our Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and qualitative disclosures about market risk
Not applicable.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation as of September 30, 2022, the principal executive officer and principal financial officer of the Company have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2022, the Company implemented a new accounting and financial reporting system, which included additional IT and financial controls.
68
PART II. OTHER INFORMATION
Item 1. Legal proceedings
During the normal course of its business, the Company is subject to occasional legal proceedings and claims.
Item 1A. Risk factors
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as updated by those described in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2021, as updated by our Form 10-Q for the quarter ended June 30, 2022, except as follows:
We rely on sponsorship contracts to generate revenues.
We will receive a portion of our annual revenues from sponsorship agreements for various content, media and live events produced at Hall of Fame Village powered by Johnson Controls such as title, official product and promotional partner sponsorships, billboards, signs and other media. We are continuously in negotiations with existing sponsors and actively seeking new sponsors as there is significant competition for sponsorships. Some of our live events may not secure a title sponsor, may not secure a sufficient number of sponsorships on favorable terms, or may not secure sponsorships sufficiently enough in advance of an event, which may lead to event cancellations or otherwise adversely affect the revenue generated from such events.
The certain amended and restated sponsorship and naming rights agreement, dated as of July 2, 2020 (the “Naming Rights Agreement”), by and among HOF Village, PFHOF and Johnson Controls is scheduled to expire on December 31, 2034, but provides termination rights both to (a) HOF Village and PFHOF and (b) Johnson Controls, which may be exercised in the event the other party, among other things, breaches any of its covenants and agreements under the Naming Rights Agreement beyond certain notice and cure periods. Additionally, Johnson Controls has a right to terminate the Naming Rights Agreement if (i) we do not provide evidence to Johnson Controls by October 31, 2021, that we have secured sufficient debt and equity financing to complete Phase II, subject to day-for-day extension due to force majeure and a notice and cure period, (ii) Phase II is not open for business by January 2, 2024 subject to day-for-day extension due to force majeure and a notice and cure period, or (iii) HOF Village is in default beyond applicable notice and cure periods under certain agreements, such as the Technology as a Service Agreement with Johnson Controls (the “TAAS Agreement”), among others. There can be no assurance that Phase II will be open for business by January 2, 2024. In addition, under the Naming Rights Agreement Johnson Controls’ obligation to make sponsorship payments to Newco may be suspended if Newco has not provided evidence reasonably satisfactory to Johnson Controls on or before December 31, 2020, subject to day-for-day extension due to Force Majeure, that Newco has secured sufficient debt and equity financing to complete Phase II.
In addition to the Naming Rights Agreement, Newco is party to a Technology as a Service Agreement dated October 9, 2020 with Johnson Controls (the “TAAS Agreement”). Pursuant to the TAAS Agreement, Johnson Controls will provide certain services related to the construction and development of the Hall of Fame Village powered by Johnson Controls (the “Project”), including, but not limited to, (i) design assist consulting, equipment sales and turn-key installation services in respect of specified systems to be constructed as part of Phase 2 and Phase 3 of the Project and (ii) maintenance and lifecycle services in respect of certain systems constructed as part of Phase 1, and to be constructed as part of Phase 2 and Phase 3, of the Project. Under the terms of the TAAS Agreement, Newco has agreed to pay Johnson Controls up to an aggregate of approximately $217 million for services rendered by Johnson Controls over the term of the TAAS Agreement. As of September 30, 2022 and December 31, 2021, approximately $195 million and $199 million, respectively, was remaining under the TAAS Agreement.
The TAAS Agreement provides that in respect of the Naming Rights Agreement, Johnson Controls and Newco intend, acknowledge and understand that: (i) Newco’s performance under the TAAS Agreement is essential to, and a condition to Johnson Controls’ performance under, the Naming Rights Agreement and (ii) Johnson Controls’ performance under the Naming Rights Agreement is essential to, and a condition to Newco’s performance under, the TAAS Agreement. In the TAAS Agreement, Johnson Controls and Newco represent, warrant and agree that the transactions agreements and obligations contemplated under the TAAS Agreement and the Naming Rights Agreement are intended to be, and shall be, interrelated, integrated and indivisible, together being essential to consummating a single underlying transaction necessary for the Project. The Company anticipates that resolution of the dispute regarding the Naming Right Agreement will include the TAAS Agreement.
69
On May 10, 2022, the Company received from JCI a notice of termination (the “TAAS Notice”) of the TAAS Agreement effective immediately. The TAAS Notice states that termination of the TAAS Agreement by JCI is due to Newco’s alleged breach of its payment obligations. Additionally, JCI in the TAAS Notice demands the amount which is the sum of: (i) all past due payments and any other amounts owed by Newco under the TAAS Agreement; (ii) all commercially reasonable and documented subcontractor breakage and demobilization costs; and (iii) all commercially reasonable and documented direct losses incurred by JCI directly resulting from the alleged default by the Company and the exercise of JCI’s rights and remedies in respect thereof, including reasonable attorney fees.
Also on May 10, 2022, the Company received from JCI a notice of termination (“Naming Rights Notice”) of the Name Rights Agreement, effective immediately. The Naming Rights Notice states that the termination of the Naming Rights Agreement by JCI is due to JCI’s concurrent termination of the TAAS Agreement. The Naming Rights Notice further states that the Company must pay JCI, within 30 days following the date of the Naming Rights Notice, $4,750,000. The Company has not made such payment to date. The Naming Rights Notice states that Newco is also in breach of its covenants and agreements, which require Newco to provide evidence reasonably satisfactory to JCI on or before October 31, 2021, subject to day-for-day extension due to force majeure, that Newco has secured sufficient debt and equity financing to complete Phase II.
The Company disputes that it is in default under either the TAAS Agreement or the Naming Rights Agreement. The Company believes JCI is in breach of the Naming Rights Agreement and the TAAS Agreement due to their failure to make certain payments in accordance with the Naming Rights Agreement, and, on May 16, 2022, provided notice to JCI of these breaches. The Company is pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against JCI’s allegations and pursue its own claims. The ultimate outcome of this dispute cannot presently be determined. However, in management’s opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the accompanying condensed consolidated financial statements. During the three and nine months ended September 30, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of September 30, 2022 in the amount of $3,312,500. The balances due under the Naming Rights Agreement as of September 30, 2022 and December 31, 2021 amounted to $5,197,917 and $1,885,417, respectively.
The sponsorship and services agreement, dated as of December 19, 2018, as amended (the “Constellation Sponsorship Agreement”), by and among HOF Village, PFHOF and Constellation NewEnergy, Inc., is scheduled to expire on December 31, 2029 but provides termination rights both to (a) HOF Village and PFHOF and (b) Constellation, which may be exercised if a party would suffer material damage to its reputation by association with the other party or if there is an event of default. An event of default under the Constellation Sponsorship Agreement includes a party’s failure to perform its material obligations for 60 days after receiving written notice from the other party and failure to cure such default; a party’s becoming insolvent or filing a voluntary petition in bankruptcy; a party’s being adjudged bankrupt; an involuntary petition under any bankruptcy or insolvency law being filed against a party; a party’s sale, assignment or transfer of all or substantially all of its assets (other than to an affiliate in the case of HOF Village or PFHOF). Additionally, Constellation has a right to terminate the Constellation Sponsorship Agreement effective as of December 31, 2023 for failure to recover its investment in the form of new business, if it provides written notice on or prior to December 1, 2022.
Loss of our existing title sponsors or other major sponsorship agreements, including the Naming Rights Agreement and Constellation Sponsorship Agreement, or failure to secure sponsorship agreements in the future on favorable terms, could have a material adverse effect on our business, financial condition and results of operations.
Our Common Stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements, which could adversely impact the price and liquidity of our Common Stock.
On May 24, 2022, the Company received a deficiency letter (the “Notice”) from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the bid price for the Common Stock had closed below $1.00 per share, which is the minimum bid price required to maintain continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).
The Notice has no immediate effect on the listing of the Common Stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance, the closing bid price of the Common Stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period, at which time the Staff will provide written notification to the Company that it complies with the Minimum Bid Requirement, unless the Staff exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). The compliance period for the Company will expire on November 21, 2022.
70
If the Company does not regain compliance with the Minimum Bid Requirement during the initial 180 calendar day period, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. On September 19, 2022, the Company submitted its request to Nasdaq for a second 180 day compliance period to meet the Minimum Bid Requirement, including an intent to implement a reverse stock split in sufficient time during the 180 days to evidence a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days prior to the expiration of the second 180 day compliance period. The Company does not expect to receive a response from Nasdaq to its request for a second 180 day compliance period until the first 180 day compliance period ends on November 21, 2022. There is no assurance, however, that the Company will regain compliance during a second 180 day compliance period.
If it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company does not meet the other listing standards, the Staff could provide notice that the Common Stock will become subject to delisting. In the event the Company receives notice that its Common Stock is being delisted, Nasdaq rules permit the Company to appeal any delisting determination by the Staff to a Hearings Panel (the “Panel”). The Company expects that its Common Stock would remain listed pending the Panel’s decision. However, there can be no assurance that, if the Company does appeal the delisting determination by the Staff to the Panel, that such appeal would be successful, or that the Company will be able to regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements.
Delisting from the Nasdaq Capital Market could make trading our Common Stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult, and the trading volume and liquidity of our stock could decline. Delisting from the Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our Common Stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our Common Stock and the ability of our stockholders to sell our Common Stock in the secondary market. If our Common Stock is delisted by Nasdaq, our Common Stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB market, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our Common Stock. In the event our Common Stock is delisted from the Nasdaq Capital Market, we may not be able to list our Common Stock on another national securities exchange or obtain quotation on an over-the counter quotation system.
If the Company completes a reverse stock split, the trading price of our Common Stock may not increase to a level we may have expected following the reverse stock split or, if it does, the trading price of our Common Stock may decrease in the future.
On September 29, 2022, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation to effect, at the discretion of our Board of Directors on or prior to May 5, 2023, a reverse stock split of all of the outstanding shares of our common stock, par value $0.0001 per share (“Common Stock”), at a ratio in the range of 1-for-10 to 1-for-25 (the “Reverse Stock Split”), such ratio to be determined by our Board of Directors in its discretion and publicly disclosed prior to the effectiveness of the Reverse Stock Split, whereby each outstanding 10 to 25 shares would be combined, converted and changed into 1 share of our Common Stock.
71
Reducing the number of outstanding shares of our Common Stock through the Reverse Stock Split is intended, absent other factors, to increase the per share trading price of our Common Stock. However, other factors, such as our financial results and financial outlook and investor perception of our future prospects, as well as general market and economic conditions, among many factors, may positively or negatively affect the trading price of our Common Stock. Therefore, even if the Reverse Stock Split is effected, the trading price of our Common Stock may not increase to a level we may have expected following the Reverse Stock Split or, if it does, the trading price of our Common Stock may decrease in the future. Additionally, the trading price per share of our Common Stock after the Reverse Stock Split may not increase in proportion to the reduction in the number of shares of our Common Stock outstanding before the Reverse Stock Split. Accordingly, the total market capitalization of our Common Stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split. The trading price of our Common Stock also may change due to a variety of other factors, some of which are beyond our control, including but not limited to our general business condition, the release of our financial reports, general economic conditions and forecasts, market conditions and the market perception of our business. Because the number of authorized shares of our Common Stock will not be reduced proportionately, the Reverse Stock Split will increase the Board’s ability to issue authorized and unissued shares without further stockholder action.
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.
72
Item 6. Exhibits
| * | Filed herewith |
73
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HALL OF FAME RESORT & ENTERTAINMENT COMPANY | ||
| Date: November 14, 2022 | By: | /s/ Michael Crawford |
| Michael Crawford | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
74
Exhibit 31.1
CERTIFICATION PURSUANT TO SARBANES–OXLEY ACT OF 2002
I, Michael Crawford, certify that:
1. I have reviewed this quarterly report on Form 10–Q of Hall of Fame Resort & Entertainment Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 14, 2022 | By: | /s/ Michael Crawford |
| Michael Crawford | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SARBANES–OXLEY ACT OF 2002
I, Benjamin Lee, certify that:
1. I have reviewed this quarterly report on Form 10–Q of Hall of Fame Resort & Entertainment Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 14, 2022 | By: | /s/ Benjamin Lee |
| Benjamin Lee | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES–OXLEY ACT OF 2002
In connection with the Quarterly Report of Hall of Fame Resort & Entertainment Company (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2022 | By: | /s/ Michael Crawford |
| Michael Crawford | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
| Date: November 14, 2022 | By: | /s/ Benjamin Lee |
| Benjamin Lee | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |