Hall of Fame Resort & Entertainment Co - Quarter Report: 2022 March (Form 10-Q)
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 March 31, 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 May 9, 2022, there were 112,617,250 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 | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | 5,945,746 | $ | 10,282,983 | ||||
| Restricted cash | 6,807,490 | 7,105,057 | ||||||
| Accounts receivable, net | 2,318,443 | 2,367,225 | ||||||
| Prepaid expenses and other assets | 5,256,400 | 8,350,604 | ||||||
| Property and equipment, net | 179,510,752 | 180,460,562 | ||||||
| Right of use asset | 7,696,583 | |||||||
| Project development costs | 145,575,940 | 128,721,480 | ||||||
| Total assets | $ | 353,111,354 | $ | 337,287,911 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Liabilities | ||||||||
| Notes payable, net | $ | 103,734,084 | $ | 101,360,196 | ||||
| Accounts payable and accrued expenses | 14,795,895 | 12,120,891 | ||||||
| Due to affiliate | 2,745,561 | 1,818,955 | ||||||
| Warrant liability | 5,583,000 | 13,669,000 | ||||||
| Lease liability | 3,321,511 | - | ||||||
| Other liabilities | 5,363,825 | 3,740,625 | ||||||
| Total liabilities | 135,543,876 | 132,709,667 | ||||||
| Commitments and contingencies (Note 6, 7, and 8) | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $0.0001 par value; 4,932,200 shares authorized; shares issued or outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| 2 | ||||||||
| Series C convertible preferred stock, $0.0001 par value; 15,000 shares designated; 15,000 and 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively; liquidation preference of $15,370,000 as of March 31, 2022 | 2 | |||||||
| Common stock, $0.0001 par value; 300,000,000 shares authorized; 111,722,856 and 97,563,841 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 11,172 | 9,756 | ||||||
| Additional paid-in capital | 326,294,378 | 305,117,091 | ||||||
| Accumulated deficit | (108,063,936 | ) | (99,951,839 | ) | ||||
| Total equity attributable to HOFRE | 218,241,616 | 205,175,010 | ||||||
| Non-controlling interest | (674,138 | ) | (596,766 | ) | ||||
| Total equity | 217,567,478 | 204,578,244 | ||||||
| Total liabilities and stockholders’ equity | $ | 353,111,354 | $ | 337,287,911 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For
the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 819,290 | $ | 1,475,436 | ||||
| Event, rents and cost recoveries | 337,393 | 43,545 | ||||||
| Hotel revenues | 949,841 | 396,338 | ||||||
| Total revenues | 2,106,524 | 1,915,319 | ||||||
| Operating expenses | ||||||||
| Operating expenses | 7,526,699 | 6,008,999 | ||||||
| Hotel operating expenses | 1,153,112 | 766,165 | ||||||
| Commission expense | 139,910 | 166,667 | ||||||
| Depreciation expense | 3,242,285 | 2,920,937 | ||||||
| Total operating expenses | 12,062,006 | 9,862,768 | ||||||
| Loss from operations | (9,955,482 | ) | (7,947,449 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | (1,213,541 | ) | (955,308 | ) | ||||
| Amortization of discount on note payable | (1,355,974 | ) | (1,234,114 | ) | ||||
| Change in fair value of warrant liability | 4,750,000 | (116,351,000 | ) | |||||
| (Loss) gain on extinguishment of debt | (148,472 | ) | 390,400 | |||||
| Total other expense | 2,032,013 | (118,150,022 | ) | |||||
| Net loss | $ | (7,923,469 | ) | $ | (126,097,471 | ) | ||
| Series B preferred stock dividends | (266,000 | ) | ||||||
| Income (loss) attributable to non-controlling interest | 77,372 | (49,711 | ) | |||||
| Net loss attributable to HOFRE stockholders | $ | (8,112,097 | ) | $ | (126,147,182 | ) | ||
| Net loss per share, basic and diluted | $ | (0.08 | ) | $ | (1.67 | ) | ||
| Weighted average shares outstanding, basic and diluted | 104,309,413 | 75,350,163 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Stockholders | Interest | Equity | ||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||
| Series B preferred stock dividend | - | - | - | (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 | ||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (7,923,469 | ) | $ | (126,097,471 | ) | ||
| Adjustments to reconcile net loss to cash flows used in operating activities | ||||||||
| Depreciation expense | 3,242,285 | 2,920,937 | ||||||
| Amortization of note discounts | 1,355,974 | 1,234,114 | ||||||
| Interest paid in kind | 718,294 | 380,860 | ||||||
| Loss (gain) on extinguishment of debt | 148,472 | (390,400 | ) | |||||
| Change in fair value of warrant liability | (4,750,000 | ) | 116,351,000 | |||||
| Stock-based compensation expense | 1,316,195 | 1,386,543 | ||||||
| Amortization of right of use asset | 128,976 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 48,782 | 588,311 | ||||||
| Prepaid expenses and other assets | 451,139 | (1,503,762 | ) | |||||
| Accounts payable and accrued expenses | 4,588,788 | (2,554,866 | ) | |||||
| Payments on operating leases | (157,549 | ) | - | |||||
| Due to affiliates | 1,776,606 | 199,312 | ||||||
| Other liabilities | 1,623,200 | (375,357 | ) | |||||
| Net cash provided by (used in) operating activities | 2,567,693 | (7,860,779 | ) | |||||
| Cash Flows From Investing Activities | ||||||||
| Additions to project development costs and property and equipment | (19,739,267 | ) | (16,656,538 | ) | ||||
| Net cash used in investing activities | (19,739,267 | ) | (16,656,538 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable | 1,817,603 | 5,100,000 | ||||||
| Repayments of notes payable | (1,508,437 | ) | (2,777,154 | ) | ||||
| Payment of financing costs | (153,901 | ) | (15,000 | ) | ||||
| Proceeds from equity raises | 31,746,996 | |||||||
| Proceeds from exercise of warrants | 18,957,562 | |||||||
| Payment of Series B preferred stock dividends | (150,000 | ) | ||||||
| Proceeds from sale of common stock under ATM | 12,531,505 | |||||||
| Net cash provided by financing activities | 12,536,770 | 53,012,404 | ||||||
| Net (decrease) increase in cash and restricted cash | (4,634,804 | ) | 28,495,087 | |||||
| Cash and restricted cash, beginning of year | 17,388,040 | 40,053,461 | ||||||
| Cash and restricted cash, end of period | $ | 12,753,236 | $ | 68,548,548 | ||||
| Cash | $ | 5,945,746 | $ | 50,320,435 | ||||
| Restricted Cash | 6,807,490 | 18,228,113 | ||||||
| Total cash and restricted cash | $ | 12,753,236 | $ | 68,548,548 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended March 31, |
||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the year for interest | $ | 1,961,644 | $ | 955,308 | ||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Project development cost acquired through accounts payable and accrued expenses, net | $ | 592,232 | $ | 6,595,625 | ||||
| Settlement of warrant liability | $ | $ | 51,165,000 | |||||
| Amendment of Series C warrant liability for equity classification | $ | 3,336,000 | $ | |||||
| Amendment of Series C and D warrants | $ | 400,000 | $ | |||||
| Amounts due from exercise of warrants from transfer agent included in prepaid expenses and other assets | $ | $ | 3,450,015 | |||||
| Initial value of right of use asset upon adoption of ASC 842 | $ | 7,741,955 | $ | |||||
| Accrued Series B preferred stock dividends | $ | 116,000 | $ | |||||
| ATM proceeds receivable | $ | 1,703,427 | $ | |||||
| Shares issued in connection with amendment of notes payable | $ | 803,061 | $ | |||||
| Warrants issued in connection with amendment of notes payable | $ | 1,088,515 | $ | |||||
| Amounts due to affiliate exchanged for notes payable | $ | 850,000 | $ | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(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 (including the fantasy football league in which the Company acquired a majority stake in 2020). 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 7 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. COVID-19 and measures to prevent its spread 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 Sports Complex, which also negatively impacts the Company’s ability to sell sponsorships. Also, the Company opened its newly renovated DoubleTree by Hilton in Canton in November 2020, but the occupancy rate has been negatively impacted by the pandemic. Further, the COVID-19 pandemic has caused a number of supply chain disruptions, which negatively impacts the Company’s ability to obtain the materials needed to complete construction as well as increases in the costs of materials and labor. The impact of these disruptions and the extent of their adverse impact on the Company’s financial and operating results will 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 COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 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 and negative cash flows from operations through March 31, 2022. Since inception, the Company’s operations have been funded principally through the issuance of debt and equity. As of March 31, 2022, the Company had approximately $6 million of unrestricted cash and cash equivalents and $7 million of restricted cash.
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 Industrial Realty Group, LLC, a Nevada limited liability company that is controlled by the Company’s director Stuart Lichter (“IRG”) and its affiliates and JKP Financial LLC (“JKP”), whereby IRG and its 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.
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 twelve months. 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.
7
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 SEC Regulation S-X. 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 months ended March 31, 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 Company acquired 60% of the equity interests in Mountaineer for a purchase price of $100 from one of its related parties. The portion of Mountaineer’s net income (loss) that is not attributable to the Company is included in non-controlling interest.
8
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 of 1933, as amended, (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.
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.
Warrant Liability
The Company accounts for warrants for shares of the Company’s 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.
9
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Property and Equipment and Project Development Costs
Property and equipment are recorded at historical cost and depreciated using the straight-line method over the estimated useful lives of the assets. During the construction period, the Company capitalizes all costs related to the development of the Hall of Fame Village powered by Johnson Controls. Project development costs include predevelopment costs, amortization of finance costs, real estate taxes, insurance, and other project costs incurred during the period of development. The capitalization of costs began during the preconstruction period, which the Company defines as activities that are necessary to the development of the project. The Company ceases cost capitalization when a portion of the project is held available for occupancy and placed into service. This usually occurs upon substantial completion of all costs necessary to bring a portion of the project to the condition needed for its intended use, but no later than one year from the completion of major construction activity. The Company will continue to capitalize only those costs associated with the portion still under construction. Capitalization will also cease if activities necessary for the development of the project have been suspended. As of March 31, 2022, the second two phases of the project remained subject to such capitalization.
The Company reviews its property and equipment and projects under development for impairment whenever events or changes indicate that the carrying value of the long-lived assets may not be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded.
The Company measures and records impairment losses on its long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. Considerable judgment by management is necessary to estimate undiscounted future operating cash flows, and fair values and accordingly, actual results could vary significantly from such estimates.
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 at March 31, 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 at March 31, 2022 and December 31, 2021 were $6,807,490 and $7,105,057, respectively.
10
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
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 March 31, 2022 and December 31, 2021, the Company recorded an allowance for doubtful accounts of $937,500 and $0, respectively.
Deferred Financing Costs
Costs incurred in obtaining financing are capitalized and amortized to additions in project development costs during the construction period over the term of the related loans, without regard for any extension options until the project or portion thereof is considered substantially complete. Upon substantial completion of the project or portion thereof, such costs are amortized as interest expense over the term of the related loan. Any unamortized costs are shown as an offset to “Notes Payable, net” on the accompanying condensed consolidated balance sheet.
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.
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 (continued)
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.
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 March 31, 2022 and December 31, 2021, no liability for unrecognized tax benefits was required to be reported.
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 (continued)
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 accrued for penalties and interest for the three months ended March 31, 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 “property operating expenses” on the Company’s condensed consolidated statements of operations. Total advertising and marketing costs for the three months ended March 31, 2022 and 2021 were $25,090 and $275,858, respectively.
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.
13
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Accounting for Real Estate Investments
Upon the acquisition of real estate properties, a determination is made as to whether the acquisition meets the criteria to be accounted for as an asset or business combination. The determination is primarily based on whether the assets acquired and liabilities assumed meet the definition of a business. The determination of whether the assets acquired and liabilities assumed meet the definition of a business include a single or similar asset threshold. In applying the single or similar asset threshold, if substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired and liabilities assumed are not considered a business. Most of the Company’s acquisitions meet the single or similar asset threshold due to the fact that substantially all the fair value of the gross assets acquired is attributable to the real estate acquired.
Acquired real estate properties accounted for as asset acquisitions are recorded at cost, including acquisition and closing costs. The Company allocates the cost of real estate properties to the tangible and intangible assets and liabilities acquired based on their estimated relative fair values. The Company determines the fair value of tangible assets, such as land, building, furniture, fixtures, and equipment, using a combination of internal valuation techniques that consider comparable market transactions, replacement costs, and other available information and fair value estimates provided by third-party valuation specialists, depending upon the circumstances of the acquisition. The Company determines the fair value of identified intangible assets or liabilities, which typically relate to in-place leases, using a combination of internal valuation techniques that consider the terms of the in-place leases, current market data for comparable leases, and fair value estimates provided by third-party valuation specialists, depending upon the circumstances of the acquisition.
If a transaction is determined to be a business combination, the assets acquired, liabilities assumed, and any identified intangibles are recorded at their estimated fair values on the transaction date, and transaction costs are expensed in the period incurred.
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 March 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Level | March 31, 2022 | December 31, 2021 | ||||||||||
| Warrant liabilities – Public Series A Warrants | 1 | $ | 3,988,000 | $ | 4,617,000 | |||||||
| Warrant liabilities – Private Series A Warrants | 3 | 70,000 | 110,000 | |||||||||
| Warrant liabilities – Series B Warrants | 3 | 1,525,000 | 2,416,000 | |||||||||
| Warrant liabilities – Series C Warrants | 3 | 6,526,000 | ||||||||||
| Fair value of aggregate warrant liabilities | $ | 5,583,000 | $ | 13,669,000 | ||||||||
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, 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, amended warrants | - | (3,190,000 | ) | (3,190,000 | ) | |||||||||||||||
| Change in fair value, outstanding | (629,000 | ) | (40,000 | ) | (891,000 | ) | - | (1,560,000 | ) | |||||||||||
| Fair value as of March 31, 2022 | $ | 3,988,000 | $ | 70,000 | $ | 1,525,000 | $ | - | $ | 5,583,000 | ||||||||||
On March 1, 2022, the Company and CH Capital Lending LLC, which is an affiliate of the Company’s director, Stuart Lichter, 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 March 31, 2022 and 2021 are as follows:
| March 31, 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) | 3.3 | 3.6 | 3.8 | 3.5 | 3.9 | 4.0 | ||||||||||||||||||
| Stock price | $ | 1.11 | $ | 1.11 | $ | 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 | 57.05 | % | 56.1 | % | 54.7 | % | 50.6 | % | 50.6 | % | 50.6 | % | ||||||||||||
| Risk free interest rate | 2.5 | % | 2.5 | % | 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) | $ | 0.03 | $ | 0.41 | $ | 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 Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods.
Diluted net 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.
At March 31, 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 March 31, |
||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase shares of Common Stock | 44,012,349 | 39,298,421 | ||||||
| Unvested restricted stock awards | 238,643 | 477,286 | ||||||
| Unvested restricted stock units to be settled in shares of Common Stock | 2,811,965 | 3,171,454 | ||||||
| Shares of Common Stock issuable upon conversion of convertible notes | 23,707,011 | - | ||||||
| Shares of Common Stock issuable upon conversion of Series B Preferred Stock | 65,359 | |||||||
| Shares of Common Stock issuable upon conversion of Series C Preferred Stock | 10,000,000 | - | ||||||
| Total potentially dilutive securities | 80,835,327 | 42,947,161 | ||||||
18
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 Pronouncements
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. 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.
Subsequent Events
Subsequent events have been evaluated through May 10, 2022, the date the condensed consolidated financial statements were issued. Except for as disclosed in Notes 1, 2, 4, and 12, no other events have been identified requiring disclosure or recording.
19
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3: Property and Equipment
Property and equipment consists of the following:
| Useful Life | March 31, 2022 |
December 31, 2021 |
||||||||
| Land | $ | 4,186,090 | $ | 4,186,090 | ||||||
| Land improvements | 25 years | 31,194,623 | 31,194,623 | |||||||
| Building and improvements | 15 to 39 years | 194,040,818 | 192,384,530 | |||||||
| Equipment | 5 to 10 years | 2,975,081 | 2,338,894 | |||||||
| Property and equipment, gross | 232,396,612 | 230,104,137 | ||||||||
| Less: accumulated depreciation | (52,885,860 | ) | (49,643,575 | ) | ||||||
| Property and equipment, net | $ | 179,510,752 | $ | 180,460,562 | ||||||
| Project development costs | $ | 145,575,940 | $ | 128,721,480 | ||||||
For the three months ended March 31, 2022 and 2021, the Company recorded depreciation expense of $3,242,285 and $2,920,937, respectively. For the three months ended March 31, 2022 and 2021, the Company incurred $16,905,966 and $8,218,308 of capitalized project development costs, respectively.
Included in project development costs are film development costs of $464,000 and $464,000 as of March 31, 2022 and December 31, 2021, respectively.
20
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 March 31, 2022:
| Gross | Discount | Net | Interest Rate | Maturity Date | |||||||||||||||
| TIF loan | $ | 9,451,000 | $ | (1,597,797 | ) | $ | 7,853,203 | 5.20 | % | 7/31/2048 | |||||||||
| Preferred equity loan | 3,600,000 | 3,600,000 | 7.00 | % | Various | ||||||||||||||
| City of Canton Loan | 3,500,000 | (6,218 | ) | 3,493,782 | 5.00 | % | 7/1/2027 | ||||||||||||
| New Market/SCF | 2,999,989 | 2,999,989 | 4.00 | % | 12/30/2024 | ||||||||||||||
| Constellation EME | 3,942,132 | 3,942,132 | 6.05 | % | 12/31/2022 | ||||||||||||||
| JKP Capital loan | 8,478,784 | (685,935 | ) | 7,792,849 | 12.00 | % | 3/31/2024 | ||||||||||||
| MKG DoubleTree Loan | 15,300,000 | (8,522 | ) | 15,291,478 | 5.00 | % | 9/13/2023 | ||||||||||||
| Convertible PIPE Notes | 24,666,269 | (10,432,905 | ) | 14,233,364 | 10.00 | % | 3/31/2025 | ||||||||||||
| Canton Cooperative Agreement | 2,670,000 | (173,220 | ) | 2,496,780 | 3.85 | % | 5/15/2040 | ||||||||||||
| CH Capital Loan | 8,375,665 | (965,082 | ) | 7,410,583 | 12.00 | % | 3/31/2024 | ||||||||||||
| Constellation EME #2 | 4,232,416 | - | 4,232,416 | 5.93 | % | 4/30/2026 | |||||||||||||
| IRG Split Note | 4,273,543 | (381,450 | ) | 3,892,093 | 8.00 | % | 3/31/2024 | ||||||||||||
| JKP Split Note | 4,273,543 | (330,888 | ) | 3,942,655 | 8.00 | % | 3/31/2024 | ||||||||||||
| ErieBank Loan | 15,170,790 | (588,515 | ) | 14,582,275 | 4.50 | % | 6/15/2034 | ||||||||||||
| PACE Equity Loan | 8,250,966 | (280,481 | ) | 7,970,485 | 6.05 | % | 12/31/2046 | ||||||||||||
| Total | $ | 119,185,097 | $ | (15,451,013 | ) | $ | 103,734,084 | ||||||||||||
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 March 31, 2022 and 2021, the Company recorded amortization of note discounts of $1,355,974 and $1,234,114, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded paid-in-kind interest of $718,294 and $380,860, respectively.
21
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 March 31, 2022 and December 31, 2021, accrued interest on notes payable, were as follows:
| March 31, 2022 |
December 31, 2021 |
|||||||
| TIF loan | $ | 150,547 | $ | 22,208 | ||||
| Preferred equity loan | 266,350 | 203,350 | ||||||
| New Market/SCF | 89,682 | |||||||
| Constellation EME | 7,229 | |||||||
| City of Canton Loan | 1,533 | 5,979 | ||||||
| JKP Capital Note | 1,251,395 | |||||||
| Canton Cooperative Agreement | 69,520 | 39,416 | ||||||
| CH Capital Loan | 27,826 | |||||||
| IRG Split Note | 28,490 | |||||||
| JKP Split Note | 28,490 | |||||||
| ErieBank Loan | 31,910 | 26,706 | ||||||
| PACE Equity Loan | 157,533 | 30,824 | ||||||
| Total | $ | 769,428 | $ | 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 10, 2022.
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 is 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. The Second Amendment to JKP Capital Loan 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 Financial, LLC, and (ii) a Series F Warrant to purchase 1,000,000 shares of Common Stock to JKP Financial, LLC.
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 |
22
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, 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, LLC, which is an affiliate of the Company’s director Stuart Lichter (“CH Capital Lending”), purchased and acquired, the Company’s $7.4 million Aquarian Loan, as amended.
23
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 Aquarian 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 the Company’s common stock, par value $0.0001 per share (“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 Aquarian 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 of 1933, as amended (the “Securities Act”): (A) 330,000 shares of Common Stock to CH Capital Lending, and (B) a Series E warrant to purchase 1,000,000 shares of Common Stock to CH Capital Lending, (ii) the Company shall, 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 Aquarian 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 |
IRG Note
On November 23, 2021, the Company, and Industrial Realty Group, LLC (“Industrial Realty Group”) 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 (the “Loan Amount”). 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 Industrial Realty Group 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, Industrial Realty Group assigned (a) a one-half (½) interest in the Original Note to IRG, LLC (the “IRG Split Note”) and (b) a one-half (½) interest in the Original Note to JKP Financial, LLC (the “JKP Split Note”). See “IRG Split Note” and “JKP Split Note”, below.
24
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
IRG Split Note
On March 1, 2022, the Company amended the IRG Note (the “IRG Split Note”). The IRG Split Note extended the maturity to March 31, 2024. Under the 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 IRG Split Note is $4,273,543.
As part of the consideration for the 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, LLC.
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 IRG Split Note.
The Company accounted for this transaction as an extinguishment, given that a substantive conversion feature was added to the 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 Financial, LLC, which amends and restates the JKP Split Note (the “JKP Split Note”). The JKP Split Note extended the maturity to March 31, 2024. Under the 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 JKP Split Note is $4,273,543.
As part of the consideration for the 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 Financial, LLC, and (ii) a Series F Warrant to purchase 500,000 shares of Common Stock to JKP Financial, LLC.
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 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 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 |
25
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Future Minimum Principal Payments
The minimum required principal payments on notes payable outstanding as of March 31, 2022 are as follows:
| For the years ending December 31, | Amount | |||
| 2022 (nine months) | $ | 4,951,811 | ||
| 2023 | 16,889,801 | |||
| 2024 | 30,154,964 | |||
| 2025 | 30,430,010 | |||
| 2026 | 1,397,073 | |||
| Thereafter | 35,361,438 | |||
| Total Gross Principal Payments | $ | 119,185,097 | ||
| Less: Discount | (15,051,013 | ) | ||
| Total Net Principal Payments | $ | 104,134,084 | ||
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 March 31, 2022, the Company was in compliance with all relevant debt covenants.
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.
26
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
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.
7.00% Series B Convertible Preferred Stock
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 March 31, 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”).
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 the 7.00% Series C Convertible Preferred Stock, par value $0.0001 per share (“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.
27
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
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 the Company’s Common Stock, par value $0.0001 per share, 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 March 31, 2022, 2,129,559 shares remained available for issuance under the 2020 Omnibus Incentive Plan.
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 March 31, 2022, approximately 12.6 million shares were sold resulting in net proceeds to the Company totaling approximately $14.2 million. The remaining availability under the Equity Distribution Agreement as of March 31, 2022 was approximately $31.9 million.
Issuance of Restricted Stock Awards
The Company’s activity in restricted Common Stock was as follows for the three months ended March 31, 2022:
| Number
of shares | Weighted average grant date fair value | |||||||
| Non–vested at January 1, 2022 | 238,643 | $ | 9.31 | |||||
| Granted | 152,971 | $ | 1.21 | |||||
| Vested | (152,971 | ) | $ | 1.21 | ||||
| Non–vested at March 31, 2022 | 238,643 | $ | 9.31 | |||||
For the three months ended March 31, 2022 and 2021, stock-based compensation related to restricted stock awards was $732,757 and $554,547, respectively. As of March 31, 2022, unamortized stock-based compensation costs related to restricted share arrangements were $565,486 and will be recognized over a weighted average period of 0.25 years.
28
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
During the three months ended March 31, 2022, the Company granted an aggregate of 1,412,378 Restricted Stock Units (“RSUs”) to its employees and directors, of which 522,541 were granted under the 2020 Omnibus Incentive Plan and 889,837 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 $0.81 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.
The Company’s activity in RSUs was as follows for the three months ended March 31, 2022:
| Number
of shares | Weighted
average grant date fair value | |||||||
| Non–vested at January 1, 2022 | 2,207,337 | $ | 2.34 | |||||
| Granted | 1,412,378 | $ | 1.06 | |||||
| Vested | (539,058 | ) | $ | 2.00 | ||||
| Forfeited | (268,692 | ) | $ | 2.26 | ||||
| Non–vested at March 31, 2022 | 2,811,965 | $ | 1.75 | |||||
For the three months ended March 31, 2022 and 2021, the Company recorded $502,412 and $831,996, respectively, in employee and director stock-based compensation expense, respectively. Employee and director stock-based compensation expense is a component of “Operating expenses” in the condensed consolidated statement of operations. As of March 31, 2022, unamortized stock-based compensation costs related to restricted stock units were $4,194,052 and will be recognized over a weighted average period of 1.3 years.
29
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Warrants
The Company’s warrant activity was as follows for the three months ended March 31, 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 | 3,000,000 | $ | 1.30 | |||||||||||||
| Outstanding – March 31, 2022 | 44,012,349 | $ | 7.38 | 3.61 | $ | 20,000 | ||||||||||
| Exercisable – March 31, 2022 | 42,512,349 | $ | 7.59 | 3.56 | $ | 20,000 | ||||||||||
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.
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 | ||||
30
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 March 31, 2022 and December 31, 2021, approximately $197 million and $199 million, respectively, was remaining under the TAAS Agreement.
As of March 31, 2022, scheduled future cash to be received under the Naming Rights Agreement is as follows:
| Unrestricted | Activation | Total | ||||||||||
| 2022 (nine 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 | |||||||||
| Thereafter | 39,781,251 | 6,750,000 | 46,531,251 | |||||||||
| 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 months ended March 31, 2021, the Company recognized $1,109,062 of net sponsorship revenue related to the Naming Rights Agreement.
The Company is in dispute with JCI for JCI’s failure to make certain payments in accordance with the Naming Rights Agreement. The Company is currently in discussions with JCI 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 months ended March 31, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of March 31, 2022 in the amount of $937,500. The balances due under the Naming Rights Agreement as of March 31, 2022 and December 31, 2021 amounted to $2,822,917 and $1,885,417, respectively.
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Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Fiserv, Inc.
In December 2018, the Company and PFHOF entered into an 8-year licensing agreement with Fiserv, Inc (formerly First Data Merchant Services LLC) and Santander Bank. As of March 31, 2022, scheduled future cash to be received under the agreement is as follows:
Year ending December 31,
| 2022 (nine months) | $ | 150,000 | ||
| 2023 | 150,000 | |||
| 2024 | 150,000 | |||
| 2025 | 150,000 | |||
| 2026 | 150,000 | |||
| Total | $ | 750,000 |
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 March 31, 2022 and 2021, the Company recognized $36,635 and $36,635 of net sponsorship revenue related to this deal, respectively.
The Cleveland Clinic Foundation
On February 9, 2022, the Company entered into a sponsorship services agreement with the Cleveland Clinic Foundation where the Cleveland Clinic Foundation will be the official healthcare provider of the Company’s stadium and sports complex. As of March 31, 2022, scheduled future cash to be received under the agreement is as follows:
Year ending December 31,
| 2022 (nine months) | $ | 250,000 | ||
| 2023 | 250,000 | |||
| 2024 | 250,000 | |||
| 2025 | 250,000 | |||
| 2026 | 250,000 | |||
| Total | $ | 1,250,000 |
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 March 31, 2022 and 2021, the Company recognized $17,457 and $0 of net sponsorship revenue related to this deal, respectively.
32
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Constellation NewEnergy, Inc.
On December 19, 2018, the Company and PFHOF entered into a sponsorship and services agreement with Constellation (the “Constellation Sponsorship Agreement”) whereby Constellation and its affiliates will provide the gas and electric needs in exchange for certain sponsorship rights. The original term of the Company’s Constellation Sponsorship Agreement was through December 31, 2028. However, in June 2020, the Company entered into an amended contract with Constellation which extended the term of the Constellation Sponsorship Agreement through December 31, 2029.
The Constellation Sponsorship Agreement provides certain rights to Constellation and its employees to benefit from the relationship with the Company from discounted pricing, marketing efforts, and other benefits as detailed in the agreement. The Constellation Sponsorship Agreement also requires Constellation to pay sponsorship income and to provide activation fee funds. Activation fee funds are to be used in the year received and do not roll forward for future years as unspent funds. The amounts are due by March 31 of the year to which they apply, which is represented in the chart below.
The Constellation Sponsorship Agreement includes certain contingencies reducing the sponsorship fee amount owed by Constellation if construction is not on pace with the timeframe noted in the Constellation Sponsorship Agreement.
The Company also has a note payable with Constellation. Refer to Note 4 for additional information.
As of March 31, 2022, scheduled future cash to be received and required activation spend under the Constellation Sponsorship Agreement are as follows:
| Unrestricted | Activation | Total | ||||||||||
| 2022 (nine months) | $ | $ | $ | |||||||||
| 2023 | 1,423,220 | 200,000 | 1,623,220 | |||||||||
| 2024 | 1,257,265 | 166,000 | 1,423,265 | |||||||||
| 2025 | 1,257,265 | 166,000 | 1,423,265 | |||||||||
| Thereafter | 5,029,057 | 664,000 | 5,693,057 | |||||||||
| Total | $ | 8,966,807 | $ | 1,196,000 | $ | 10,162,807 | ||||||
As services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the Constellation Sponsorship Agreement. During the three months ended March 31, 2022 and 2021, the Company recognized $289,165 and $289,165, respectively, of net sponsorship revenue related to this deal.
33
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
ForeverLawn, Inc.
On January 1, 2022, the Company entered into a 10-year sponsorship agreement with ForeverLawn, Inc. (“ForeverLawn”) expiring on December 31, 2031. ForeverLawn will be the official synthetic turf partner of Hall of Fame Village as well as the naming rights sponsor of the Company’s sports complex. As of March 31, 2022, scheduled future cash to be received under the agreement is as follows:
Year ending December 31,
| 2022 (nine months) | $ | 320,000 | ||
| 2023 | 500,000 | |||
| 2024 | 500,000 | |||
| 2025 | 500,000 | |||
| 2026 | 500,000 | |||
| Thereafter | 2,500,000 | |||
| Total | $ | 4,820,000 |
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 March 31, 2022 and 2021, the Company recognized $123,220 and $0 of net sponsorship revenue related to this deal, respectively.
Other Sponsorship Agreements
The Company maintains other sponsorship agreements of varying size ranging from one to five years in duration.
34
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments
Canton City School District
The Company has entered into cooperative agreements with certain governmental entities that support the development of the project overall, where the Company is an active participant in the agreement activity, and the Company would benefit from the success of the activity.
The Company had a commitment to the Canton City School District (“CCSD”) to provide a replacement for their Football Operations Center (“FOC”) and to construct a Heritage Project (“Heritage”). The commitment was defined in the Operations and Use Agreement for HOF Village Complex dated February 26, 2016.
Lessor Commitments
As of March 31, 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 (nine months) | $ | 18,083 | ||
| 2023 | 163,666 | |||
| 2024 | 163,666 | |||
| 2025 | 137,833 | |||
| 2026 | 132,666 | |||
| Thereafter | 795,998 | |||
| Total | $ | 1,411,912 |
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 March 31, 2022 and 2021, the Company paid and incurred $30,000 and $30,000 in management fees, respectively.
35
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.
Other Liabilities
Other liabilities consisted of the following at March 31, 2022 and 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Activation fund reserves | $ | 3,648,312 | $ | 3,537,347 | ||||
| Deferred sponsorship revenue | 1,712,930 | 203,278 | ||||||
| Other liabilities | 2,583 | - | ||||||
| Total | $ | 5,363,825 | $ | 3,740,625 | ||||
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.
36
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions
Due to Affiliates
Due to affiliates consisted of the following at March 31, 2022 and December 31,2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Due to IRG Member | $ | 1,768,454 | $ | 1,041,847 | ||||
| Due to IRG Affiliate | 116,900 | 116,900 | ||||||
| Due to PFHOF | 860,207 | 660,208 | ||||||
| Total | $ | 2,745,561 | $ | 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.
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.
37
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
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. See Note 12, Subsequent Events, for more information on this 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.
Note 10: Concentrations
For the three months ended March 31, 2022, two customers represented approximately 35% and 15% of the Company’s sponsorship revenue. For the three months ended March 31, 2021, two customers represented approximately 75% and 20% of the Company’s sponsorship revenue.
As of March 31, 2022, one customer represented approximately 86% 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.
38
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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):
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Operating leases: | ||||||||
| Right-of-use assets | $ | 7,696,583 | $ | |||||
| Lease liability | 3,321,511 | |||||||
| Finance leases: | ||||||||
| Right-of-use assets | ||||||||
| Lease liability | ||||||||
39
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets and Lease Liabilities (continued)
Other information related to leases is presented below:
| Three Months Ended March 31, 2022 | ||||
| Operating lease cost | $ | 128,976 | ||
| Other information: | ||||
| Operating cash flows from operating leases | 157,549 | |||
| Weighted-average remaining lease term – operating leases (in years) | 88.2 | |||
| Weighted-average discount rate – operating leases | 10.0 | % | ||
As of March 31, 2022, the annual minimum lease payments of our operating lease liabilities were as follows:
| For The Years Ending March 31, | ||||
| 2022 (nine months) | $ | 288,336 | ||
| 2023 | 384,448 | |||
| 2024 | 378,050 | |||
| 2025 | 311,900 | |||
| 2026 | 311,900 | |||
| Thereafter | 41,177,012 | |||
| Total future minimum lease payments, undiscounted | 42,851,646 | |||
| Less: imputed interest | (39,530,135 | ) | ||
| Present value of future minimum lease payments | $ | 3,321,511 | ||
Note 12: Subsequent Events
ATM Proceeds
From April 1 through May 10, 2022, the Company sold 850,197 shares of Common Stock under its at-the-market offering vehicle, raising net proceeds of approximately $0.8 million.
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.
40
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12: Subsequent Events (continued)
HOF Village 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, upon approval of stockholders of the Company in accordance with NASDAQ Listing Rule 5635(c), the Company will issue to MLF: (A) 125,000 shares (the “Commitment Fee Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (B) a Series G warrant (the “Series G Warrants”) to purchase 125,000 shares of Common Stock (the “Warrant Shares”). The Company is seeking such stockholder approval in accordance with NASDAQ Listing Rule 5635(c) at its annual stockholder meeting scheduled for June 8, 2022. 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.
PACE Financing
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 move forward with $3.2 million in Property Assessed Clean Energy (“PACE”) financing in conjunction with the implementation of various energy-efficient improvements at the Center for Performance.
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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, “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “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. Such forward–looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward–looking statements. Factors that could cause or contribute to such differences 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, in addition to other public reports we 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 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 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 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 (including the fantasy football league we acquired a majority stake in 2020 and both retail and online sports betting partnerships). Phase III expansion plans may include a potential mix of residential space, additional attractions, entertainment, dining, merchandise and more.
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Key Components of the Company’s Results of Operations
Revenue
We generate revenues 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.
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
The Company’s operating expenses include property operating expenses, depreciation expense and other operating expenses. These expenses have increased in connection with putting the Company’s first phase into operation and the Company expects these expenses to continue to increase with the Company’s growth.
The Company’s property operating expenses include the costs associated with running its operational entertainment and destination assets such as the Tom Benson Hall of Fame Stadium and the Hall of Fame Village Sports Complex. As more of the Company’s Phase II assets become operational and additional events for top performers and sporting events are held, the Company expects these expenses to continue to increase with the Company’s development.
Other operating expenses include items such as management fees, commission expense and professional fees. The Company expects these expenses to continue to increase with the Company’s growth.
The Company’s depreciation expense includes the related costs to owning and operating significant property and entertainment assets. These expenses have grown as the Company completed Phase I development and the assets associated with Phase I became operational. The Company expects these expenses to continue to grow as Phase II and III assets are developed and become operational.
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 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) 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 extension due to force majeure.
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The Company is in dispute with Johnson Controls for Johnson Controls’ failure to make certain payments under the Naming Rights Agreement. The Company is 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 months ended March 31, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of March 31, 2022 in the amount of $937,500. The balances due under the Naming Rights Agreement as of March 31, 2022 and December 31, 2021 amounted to $2,822,917 and $1,885,417, respectively.
The Company anticipates 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. The Company anticipates that resolution of the dispute regarding the Naming Rights Agreement will include the TAAS Agreement.
Global License Agreement with PFHOF
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.
HOF Village CFP Loan
On April 27, 2022, Midwest Lender Fund, LLC, a limited liability company wholly owned by our director Stuart Lichter (“Lender”), loaned $4,000,000 (the “Loan”) to HOF Village Center For Performance, LLC (“HOF Village CFP”), which Loan is evidenced by a promissory note issued by HOF Village CFP to Lender (the “Note”). Interest accrues on the outstanding balance of the Note at 6.5% per annum, compounded monthly. The Note matures on April 30, 2023 or if HOF Village CFP exercises its extension option, April 30, 2024. The Note is secured by a mortgage encumbering the Center For Performance. Lender made the Loan to HOF Village CFP in accordance with a previously disclosed letter agreement, dated March 1, 2022, between Hall of Fame Resort & Entertainment Company (the “Company”) and Stuart Lichter, which was amended April 16, 2022, and amended and assigned by Stuart Lichter to Lender April 26, 2022 (the “Letter Agreement”).
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As part of the consideration for making the Loan, upon approval of stockholders of the Company in accordance with Nasdaq Listing Rule 5635(c), the Company will issue to Lender in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”): (A) 125,000 shares (the “Commitment Fee Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (B) a Series G warrant (the “Series G Warrants”) to purchase 125,000 shares of Common Stock (the “Warrant Shares”). The exercise price of the Series G Warrants will be $1.50 per share. The Company is seeking such stockholder approval in accordance with Nasdaq Listing Rule 5635(c) at its annual stockholder meeting scheduled for June 8, 2022. 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.
Notwithstanding anything to the contrary contained in the Letter Agreement or the other Transaction Documents (as defined in the Note), the total cumulative number of shares of Common Stock that may be issued to Lender and its affiliates under the Letter Agreement and under the other Transaction Documents 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). If the number of shares of Common Stock issued to Lender and its affiliates under the Letter Agreement and the other Transaction Documents reaches the Nasdaq 19.99% Cap, so as not to violate the 20% limit established in Listing Rule 5635(d), the Company, at its election, will use reasonable commercial efforts to obtain stockholder approval of the Letter Agreement and the issuance of additional shares of Common Stock under the Letter Agreement, if necessary, in accordance with the requirements of Nasdaq Listing Rule 5635(d) (the “Approval”). The Company is seeking such stockholder approval in accordance with Nasdaq Listing Rule 5635(d) at its annual stockholder meeting scheduled for June 8, 2022.
PACE Financing
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 move forward with $3.2 million in Property Assessed Clean Energy (“PACE”) financing in conjunction with the implementation of various energy-efficient improvements at the Center for Performance.
Impact of COVID-19
Since 2020, the world has been impacted by the novel coronavirus (“COVID-19”) pandemic. COVID-19 and measures to prevent its spread 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 Hall of Fame Village Sports Complex, which also negatively impacts our ability to sell sponsorships. Also, we opened our newly renovated DoubleTree by Hilton in Canton in November 2020, but the occupancy rate has been negatively impacted by the pandemic. The impact of these disruptions and the extent of their adverse impact on our financial and operating results will 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 COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward and developing strain mutations.
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Results of Operations
The following table sets forth information comparing the components of net loss for the three months ended March 31, 2022 and the comparable period in 2021:
| For
the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 819,290 | $ | 1,475,436 | ||||
| Event, rents and cost recoveries | 337,393 | 43,545 | ||||||
| Hotel revenues | 949,841 | 396,338 | ||||||
| Total revenues | $ | 2,106,524 | $ | 1,915,319 | ||||
| Operating expenses | ||||||||
| Operating expenses | 7,526,699 | 6,008,999 | ||||||
| Hotel operating expenses | 1,153,112 | 766,165 | ||||||
| Commission expense | 139,910 | 166,667 | ||||||
| Depreciation expense | 3,242,285 | 2,920,937 | ||||||
| Total operating expenses | $ | 12,062,006 | $ | 9,862,768 | ||||
| Loss from operations | (9,955,482 | ) | (7,947,449 | ) | ||||
| Other expense | ||||||||
| Interest expense | (1,213,541 | ) | (955,308 | ) | ||||
| Amortization of discount on note payable | (1,355,974 | ) | (1,234,114 | ) | ||||
| Change in fair value of warrant liability | 4,750,000 | (116,351,000 | ) | |||||
| (Loss) gain on extinguishment of debt | (148,472 | ) | 390,400 | |||||
| Total other expense | $ | 2,032,013 | $ | (118,150,022 | ) | |||
| Net loss | $ | (7,923,469 | ) | $ | (126,097,471 | ) | ||
| Series B preferred stock dividends | (266,000 | ) | - | |||||
| Non-controlling interest | 77,372 | (49,711 | ) | |||||
| Net loss attributable to HOFRE stockholders | $ | (8,112,097 | ) | $ | (126,147,182 | ) | ||
| Net loss per share – basic and diluted | $ | (0.08 | ) | $ | (1.67 | ) | ||
| Weighted average shares outstanding, basic and diluted | 104,309,413 | 75,350,163 | ||||||
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Three Months Ended March 31, 2022 as Compared to the Three Months Ended March 31, 2021
Sponsorship Revenues
The Company’s sponsorship revenues totaled $819,290 for the three months ended March 31, 2022 as compared to $1,475,436 for the three months ended March 31, 2021, representing a decrease of $656,146, or 44.5%. This decrease was primarily driven by the Company pausing the recognition of revenue on its 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
The Company’s revenue from event, rents and cost recoveries was $337,393 for the three months ended March 31, 2022 compared to $43,545 for the three months ended March 31, 2021, for an increase of $293,848, or 674.8%. This increase was primarily driven by the resumption of many sports and other tournaments in the Company’s sports complex, as well as the opening of the Company’s Constellation Center for Excellence.
Hotel Revenues
The Company’s hotel revenue was $949,841 for the three months ended March 31, 2022 compared to $396,338 from the three months ended March 31, 2021 for an increase of $553,503, or 139.7%. This was driven by resumption of travel and conferences that had previously been paused due to COVID-19.
Operating Expenses
The Company’s operating expense was $7,526,699 for the three months ended March 31, 2022 as compared to $6,008,999 for the three months ended March 31, 2021, for an increase of $1,517,700, or 25.3%. This increase was driven by an increase in legal and professional fees of approximately $1.2 million, an increase in payroll and related costs of approximately $367,000 due to increased headcount, and an increase in insurance expense of approximately $120.000.
Hotel Operating Expenses
The Company’s hotel operating expense was $1,153,112 for the three months ended March 31, 2022 as compared to $766,165 for the three months ended March 31, 2021 for an increase of $386,947, or 50.5%. This was driven by resumption of travel and conferences that had previously been paused due to COVID-19.
Commission Expense
The Company’s commission expense was $139,910 for the three months ended March 31, 2022, as compared to $166,667 for the three months ended March 31, 2021, for a decrease of $26,757, or 16.1%. The decrease in commission expense is primarily driven by the decrease on commissions related to the Company’s JCI sponsorship agreement.
Depreciation Expense
The Company’s depreciation expense was $3,242,285 for the three months ended March 31, 2022 compared to $2,920,937 for the three months ended March 31, 2021, for an increase of $321,348, or 11.0%. The increase 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.
Interest Expense
The Company’s total interest expense was $1,213,541 for the three months ended March 31, 2022, compared to $955,308 for the three months ended March 31, 2021, for an increase of $258,233, or 27.0%. The increase in total interest expense is primarily due to the increase in the Company’s total debt outstanding, as well as a mix of higher interest rate loans.
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Amortization of Debt Discount
The Company’s total amortization of debt discount was $1,355,974 for the three months ended March 31, 2022, compared to $1,234,114 for the three months ended March 31, 2021, for an increase of $121,860, or 9.9%. The increase in total amortization of debt discount is primarily due to an increase in the Company’s total debt outstanding.
Change in Fair Value of Warrant Liability
The Company’s change in fair value warrant liability represents a gain of $4,750,000 for the three months ended March 31, 2022 compared to a loss of $116,351,000 for the three months ended March 31, 2021 due primarily to a decrease in the Company’s stock price.
(Loss) Gain on Extinguishment of Debt
The Company’s loss on extinguishment of debt was $148,472 for the three months ended March 31, 2022, as compared to a gain of $390,400 for the three months ended March 31, 2021. The loss on extinguishment of debt is due to the forgiveness of the Company’s Paycheck Protection Program Loan during the first quarter of 2021 and the refinancing of many of the Company debt instruments in the first quarter of 2022.
Liquidity and Capital Resources
The Company has sustained recurring losses and negative cash flows from operations through March 31, 2022. Since inception, the Company’s operations have been funded principally through the issuance of debt and equity. As of March 31, 2022, the Company had approximately $6 million of unrestricted cash and $7 million of restricted cash, respectively. A majority of the Company’s restricted cash may be released to the Company upon achieving certain occupancy and other targets sets by certain of its lender.
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, the Company executed a series of transactions with Industrial Realty Group, LLC, a Nevada limited liability company controlled by the Company’s director Stuart Lichter (“IRG”) and its affiliates and JKP Financial LLC (“JKP”), whereby IRG and JKP extended certain of the Company’s debt in aggregate principal amount of $22,853,831 to March 31, 2024.
The Company believes that, as a result the Company’s 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, 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.
Cash Flows
Since inception, the Company has primarily used its available cash to fund its project development expenditures. The following table sets forth a summary of cash flows for the periods presented:
| For
the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating Activities | $ | 2,567,693 | $ | (7,860,779 | ) | |||
| Investing Activities | (19,739,267 | ) | (16,656,538 | ) | ||||
| Financing Activities | 12,536,770 | 53,012,404 | ||||||
| Net (decrease) increase in cash and restricted | $ | (4,634,804 | ) | $ | 28,495,087 | |||
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Cash Flows for the Three Months Ended March 31, 2022 as Compared to the Three Months Ended March 31, 2021
Operating Activities
Net cash provided by operating activities was $2,567,693 during the three months ended March 31, 2022. Net cash provided by operating activities was primarily driven by the Company’s net loss of $7,923,469, offset by non-cash depreciation expense of $3,242,285, amortization of note discounts of $1,355,974, payment-in-kind interest rolled into debt of $718,294, a loss on forgiveness of debt of $148,472, stock-based compensation expense of $1,316,195, and a change in fair value of warrant liability of $4,750,000. The changes in operating assets and liabilities consisted of a decrease in accounts receivable of $48,785, a decrease in prepaid expenses and other assets of $451,139, a decrease in accounts payable and accrued expenses of $4,588,788, an increase in due to affiliates of $1,776,606, and an increase in other liabilities of $1,623,200.
Net cash used in operating activities was $7,860,779 during the three months ended March 31, 2021, which consisted primarily of a net loss of $126,097,471, offset by non-cash depreciation expense of $2,920,937, amortization of note discounts of $1,234,114, payment-in-kind interest rolled into debt of $380,860, a gain on forgiveness of debt of $390,400, stock-based compensation expense of $1,386,543, and a change in fair value of warrant liability of $116,351,000. The changes in operating assets and liabilities consisted of a decrease in accounts receivable of $588,311, an increase in prepaid expenses and other assets of $1,503,762, a decrease in accounts payable and accrued expenses of $2,554,866, an increase in due to affiliates of $199,312, and a decrease in other liabilities of $375,357.
Investing Activities
Net cash used in investing activities was $19,739,267 and $16,656,538 during the three months ended March 31, 2022 and 2021, respectively. This increase consisted solely of cash used for project development costs.
Financing Activities
Net cash provided by financing activities was $12,536,770 during the three months ended March 31, 2022. This consisted primarily of $1,817,603 in proceeds from notes payable and $12,531,505 of proceeds from equity raises under our ATM, offset by $1,508,437 in repayments of notes payable, and $153,901 in payment of financing costs.
Net cash provided by financing activities was $53,012,404 during the three months ended March 31, 2021, which consisted primarily of $5,100,000 in proceeds from notes payable, $31,746,996 in proceeds from equity raises and $18,957,562 in proceeds from warrant exercises, offset by $2,777,154 in repayments of notes payable and $15,000 in payment of financing costs.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of March 31, 2022.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s 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 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 financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For information on the Company’s significant accounting policies please refer to Note 2 to the Company’s Consolidated Financial Statements.
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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 the Company in the reports that it files or submits 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 the Company’s 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 March 31, 2022, the principal executive officer and principal financial officer of the Company have concluded that the Company’s 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 March 31, 2022, the Company hired a new Chief Financial Officer and engaged KPMG as internal auditor to assist management in evaluating its internal control over financial reporting.
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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, 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, 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.
The Company is in dispute with Johnson Controls for Johnson Controls’ failure to make certain payments under the Naming Rights Agreement. The Company is 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 months ended March 31, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of March 31, 2022 in the amount of $937,500. The balances due under the Naming Rights Agreement as of March 31, 2022 and December 31, 2021 amounted to $2,822,917 and $1,885,417, respectively.
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The Company anticipates 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”), 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 March 31, 2022 and December 31, 2021, approximately $197 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.
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 or we may be required to conduct a reverse stock split to maintain our listing on the Nasdaq Capital Market.
Among the conditions required for continued listing on the Nasdaq Capital Market, Nasdaq requires us to maintain at least $35 million market value of listed securities or at least $500,000 in net income over the prior two years or two of the prior three years, and to maintain a stock price over $1.00 per share. We may not maintain a minimum $35 million market value of listed securities, we may not generate over $500,000 of yearly net income moving forward, and we may not be able to maintain a stock price over $1.00 per share. If we fail to timely comply with the applicable requirements, our stock may be delisted. In addition, even if we demonstrate compliance with the requirements above, we will have to continue to meet other objective and subjective listing requirements to continue to be listed on the Nasdaq Capital Market. 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.
A failure to meet the continued listing requirement for minimum bid price (i.e., at least $1 per share) shall be determined to exist only if the deficiency continues for a period of 30 consecutive business days. Upon such failure, the Company shall be notified promptly by Nasdaq and shall have a period of 180 calendar days from such notification to achieve compliance. Compliance can be achieved during a compliance period by meeting the applicable standard for a minimum of 10 consecutive business days during the compliance period. If Nasdaq notifies the company that it is not in compliance with $1 per share minimum bid requirement, Nasdaq will expect the Company to explain how it will regain compliance, such as by conducting a reverse stock split that results in the stock price exceeding the $1 per share minimum bid price. The Company’s Common Stock closing price on Nasdaq has been below $1 per share since April 11, 2022.
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Our Series A Warrants and Series B Warrants are accounted for as liabilities and the changes in value of such warrants could have a material effect on our financial results.
On April 12, 2021, the staff of the Securities and Exchange Commission (the “SEC”) issued a statement (the “SEC Statement”) regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies. Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those governing our Series A Warrants and Series B Warrants. As a result of the SEC Statement, we reevaluated the accounting treatment of such warrants, and determined to classify such warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.
As a result, included on our balance sheets as of March 31, 2022 and 2021 contained elsewhere in this report are derivative liabilities related to embedded features contained within our Series A Warrants and Series B Warrants. ASC Subtopic 815, Derivatives and Hedging, provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our Series A Warrants and Series B Warrants each reporting period and that the amount of such gains or losses could be material.
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.
Item 2. Unregistered sales of equity securities and use of proceeds
On March 1, 2022, the Company executed a series of transactions with Industrial Realty Group, LLC, a Nevada limited liability company that is controlled by the Company’s director Stuart Lichter (“IRG”) and its affiliates, and JKP Financial LLC (“JKP”), whereby IRG and JKP extended certain of the Company’s debt in aggregate principal amount of $22,853,831 to March 31, 2024. In connection with these transactions, the Company issued certain securities as described below.
Amendment Number 6 to Term Loan
On March 1, 2022, CH Capital Lending, LLC, which is an affiliate of our director Stuart Lichter (“CH Capital Lending”), purchased and acquired, as administrative agent and lender, pursuant to an Assignment of Loan and Loan Documents (the “Assignment of Loan and Loan Documents”) with Aquarian Credit Funding LLC (“Aquarian”), as existing administrative agent, and Investors Heritage Life Insurance Company (“IHLIC”), as existing lender, our $7.4 million term loan (the “Term Loan”) and related loan documents under term loan agreement, dated as of December 1, 2020 (as amended, the “Term Loan Agreement”).
On March 1, 2022, immediately after CH Capital Lending became the lender and administrative agent under the Term Loan Agreement, the Company entered into Amendment Number 6 to Term Loan Agreement (“Amendment Number 6”) by and among the Company, Newco, and certain of Newco’s subsidiaries, as borrowers, and CH Capital Lending, as administrative agent and lender. Under Amendment Number 6, the maturity date of the Term Loan was extended to March 31, 2024. Also under Amendment Number 6, the Term Loan was made convertible into shares of the Company’s Common Stock at a conversion price of $1.50, 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 Term Loan. Amendment Number 6 increased the interest rate from 10% to 12%. Of such 12% per annum interest: (i) 8% per annum is payable monthly and (ii) 4% per annum accumulates and is payable on the maturity date.
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As part of the consideration for Amendment Number 6: (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 Series E warrant to purchase 1,000,000 shares of Common Stock to CH Capital Lending (the “Term Loan Warrants”), (ii) the Company shall, 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 7.00% Series B Convertible Preferred Stock, par value $0.0001 per share (“Series B 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 to extend the term to March 1, 2027 and subject the exercise price to a weighted-average antidilution adjustment.
The Term Loan 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 Term Loan Warrants may be exercised from and after March 1, 2023, subject to certain terms and conditions set forth in the Term Loan Warrants. Unexercised Term Loan Warrants will expire on March 1, 2027. The Term Loan 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 Term Loan.
First Amended and Restated Promissory Note with IRG, LLC
On November 23, 2021, the Company issued to Industrial Realty Group, LLC (“Original Lender”) a promissory note in the original principal amount of $8,500,000 (the “Original Note”). Pursuant to an Assignment of Promissory Note, dated March 1, 2022, Original Lender assigned (a) a one-half (½) interest in the Original Note to IRG, LLC (the “IRG Split Note”) and (b) a one-half (½) interest in the Original Note to JKP Financial, LLC (the “JKP Split Note”).
On March 1, 2022, the Company entered into a First Amended and Restated Promissory Note with IRG, LLC, which amends and restates the IRG Split Note (the “Amended Assigned IRG Note”). The Amended Assigned IRG Note extended the maturity to March 31, 2024. Under the Amended Assigned IRG Note, the principal and accrued interest are convertible into shares of Common Stock at a conversion price of $1.50, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment.
As part of the consideration for the Amended Assigned IRG 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, LLC (the “IRG Split Note Warrants”).
The IRG Split Note 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 IRG Split Note Warrants may be exercised from and after March 1, 2023, subject to certain terms and conditions set forth in the IRG Split Note Warrants. Unexercised IRG Split Note Warrants will expire on March 1, 2027. The IRG Split Note 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 Assigned IRG Note.
First Amended and Restated Promissory Note with JKP Financial, LLC
On March 1, 2022, the Company entered into a First Amended and Restated Promissory Note with JKP Financial, LLC, which amends and restates the JKP Split Note (the “Amended Assigned JKP Note”). The Amended Assigned JKP Note extended the maturity to March 31, 2024. Under the Amended Assigned JKP Note, the principal and accrued interest are convertible into shares of Common Stock at a conversion price of $1.09, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment.
As part of the consideration for the Amended Assigned JKP 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 Financial, LLC, and (ii) a Series F Warrant to purchase 500,000 shares of Common Stock to JKP Financial, LLC (the “JKP Split Note Warrants”).
The JKP Split Note 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 JKP Split Note Warrants may be exercised from and after March 1, 2022, subject to certain terms and conditions set forth in the JKP Split Note Warrants. Unexercised JKP Split Note Warrants will expire on March 1, 2027.
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Second Amendment to JKP Promissory Note
On March 1, 2022, the Company entered into the Joinder and Second Amendment to Secured Cognovit Promissory Note (the “Second Amendment to JKP Promissory Note”), by and among (a) Newco, and HOF Village Hotel II, LLC (“Hotel II”), the makers (b) the Company; and (c) JKP Financial, LLC, which amends the Secured Cognovit Promissory Note, dated as of June 19, 2020, originally executed by Hotel II and by HOF Village, in favor of JKP Financial, LLC, as assigned by HOF Village to Newco pursuant to that certain Contribution Agreement dated as of June 30, 2020, by and between HOF Village and Newco, and as amended by that certain First Amendment to Secured Promissory Note, dated as of December 1, 2020 (as so assigned and amended, the “JKP Promissory Note”).
The Second Amendment to JKP Promissory Note (i) revises the outstanding principal balance (the “JKP Promissory Loan”) of the JKP Promissory Note to include interest thereunder that has accrued and has not been paid as of March 1, 2022, and (ii) extends the maturity of the JKP Promissory Note to March 31, 2024. The Second Amendment to JKP Promissory Note amends the JKP Promissory Note to be convertible into shares of Common Stock at a conversion price of $1.09, 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 Promissory Note, 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 Financial, LLC, and (ii) a Series F Warrant to purchase 1,000,000 shares of Common Stock to JKP Financial, LLC (the “JKP Promissory Note Warrants”).
JKP Promissory Note Warrants
The JKP Promissory Note 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 JKP Promissory Note Warrants may be exercised from and after March 1, 2022, subject to certain terms and conditions set forth in the JKP Promissory Note Warrants. Unexercised JKP Promissory Note Warrants will expire on March 1, 2027.
Letter Agreement
On March 1, 2022, the Company entered into a letter agreement with Stuart Lichter, which was amended April 14, 2022 and amended and assigned by Stuart Lichter to Midwest Lender Fund, LLC (“Midwest Lender”) on April 27, 2022 (the “Letter Agreement”). Under the Letter Agreement, when Midwest Lender loans the Company $4 million (the “Loan”), upon approval of stockholders of the Company in accordance with Nasdaq Listing Rule 5635(c), the Company will issue to Midwest Lender in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”): (A) 125,000 shares (the “Commitment Fee Shares”) of Common Stock, and (B) a Series G warrant (the “Series G Warrants”) to purchase 125,000 shares of Common Stock (the “Warrant Shares”). 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 Loan closed on April 27, 2022.
Registration Rights Agreement
On March 1, 2022, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with CH Capital Lending, IRG, LLC, JKP Financial, LLC and Stuart Lichter (the “Investors”), pursuant to which, the Company agreed to provide to the Investors certain customary resale registration rights with respect to (i) Commitment Fee Shares, (ii) the shares of Common Stock issuable upon exercise of the Term Loan Warrants, the IRG Split Note Warrants, the JKP Split Note Warrants, the JKP Promissory Note Warrants, and the Letter Agreement Warrants, (iii) the shares of Common Stock issuable upon conversion of the principal and accumulated but unpaid interest under the Term Loan Agreement, the Amended Assigned IRG Note, the Amended Assigned JKP Note, and the JKP Promissory Note, and (iv) the shares of Common Stock issuable upon conversion of the Series C Preferred Stock.
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Nasdaq 19.99% Cap
Notwithstanding anything to the contrary contained in the March 1, 2022 transaction documents described above (the “Transaction Documents”), as set forth in the Transaction Documents, the total cumulative number of shares of Common Stock that may be issued to CH Capital Lending, LLC, IRG, LLC, JKP Financial, LLC and Stuart Lichter under the other Transaction Documents 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). If the number of shares of Common Stock issued to CH Capital Lending, LLC, IRG, LLC, JKP Financial, LLC and Stuart Lichter under the Transaction Documents reaches the Nasdaq 19.99% Cap, so as not to violate the 20% limit established in Listing Rule 5635(d), the Company, at its election, will use reasonable commercial efforts to obtain stockholder approval of the Transaction Documents and the shares of Common Stock to be issued thereunder, if necessary, in accordance with the requirements of Nasdaq Listing Rule 5635(d) (the “Approval”). The Company is seeking such stockholder approval in accordance with Nasdaq Listing Rule 5635(d) at its annual stockholder meeting scheduled for June 8, 2022.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
Not applicable.
Item 5. Other information
None.
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Item 6. Exhibits
| * | Filed herewith |
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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: May 10, 2022 | By: | /s/ Michael Crawford |
| Michael Crawford | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
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