UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______________ to ______________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
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.
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).
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 ☐ |
| Smaller reporting company | |
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
Yes
☐ No
As
of November 9, 2023, there were
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
| September
30, 2023 | December
31, 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Investments held to maturity | ||||||||
| Investments available for sale | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use lease assets | ||||||||
| Project development costs | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Liabilities | ||||||||
| Notes payable, net | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Due to affiliate | ||||||||
| Warrant liability | ||||||||
| Financing liability | ||||||||
| Derivative liability - interest rate swap | ||||||||
| Operating lease liability | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6, 7, and 8) | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ | ||||||||
| Series B convertible preferred stock, $ September 30, 2023 | ||||||||
| Series C convertible preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total equity attributable to HOFRE | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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 September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| Sponsorships, net of activation costs | $ | $ | $ | $ | ||||||||||||
| Event, rents and other revenues | ||||||||||||||||
| Hotel revenues | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Hotel operating expenses | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of discount on note payable | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Change in fair value of warrant liability | ||||||||||||||||
| Change in fair value of interest rate swap | ( | ) | ( | ) | ||||||||||||
| Change in fair value of investments available for sale | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Total other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss attributable to non-controlling interest | ||||||||||||||||
| Net loss attributable to HOFRE stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(unaudited)
| Series
B Convertible Preferred stock |
Series
C Convertible Preferred stock |
Common Stock | Additional Paid-In |
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, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation on RSU, restricted stock awards, and performance share units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of |
- | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Cancellation of fractional shares | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation on RSU, restricted stock awards, and performance share units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of |
- | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards and performance share units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of |
- | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | - | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | - | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation - common stock awards | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with amendment of notes payable | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued in connection with amendment of notes payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Modification of Series C and Series D warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series B preferred stock dividend | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Exchange of Series B preferred stock for Series C preferred stock | ( |
) | ( |
) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with issuance of notes payable | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued in connection with issuance of notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation on RSU and restricted stock awards | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of |
- | - | ||||||||||||||||||||||||||||||||||||||||||
| Sale of shares under ATM | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | - | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||||||
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 Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to cash flows (used in) provided by operating activities | ||||||||
| Depreciation expense | ||||||||
| Amortization of note discounts | ||||||||
| Amortization of financing liability | ||||||||
| Recognition and impairment of film costs | ||||||||
| Interest income on investments held to maturity | ( | ) | ||||||
| Interest paid in kind | ||||||||
| Loss on extinguishment of debt | ||||||||
| Gain on sale of asset | ( | ) | - | |||||
| Change in fair value of interest rate swap | ( | ) | ||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Change in fair value of investments available for sale | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Non-cash operating lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Operating leases | ( | ) | ||||||
| Due to affiliates | ||||||||
| Other liabilities | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash Flows From Investing Activities | ||||||||
| Investments in securities held to maturity | ( | ) | ||||||
| Proceeds from securities held to maturity | ||||||||
| Proceeds from sale of property and equipment | - | |||||||
| Additions to project development costs and property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Payment of financing costs | ( | ) | ( | ) | ||||
| Payment on financing lease | ( | ) | ||||||
| Payment of Series B dividends | ( | ) | ( | ) | ||||
| Payment for repurchase of interest rate swap | ( | ) | ||||||
| Proceeds from failed sale leaseback | ||||||||
| Proceeds from sale of common stock under ATM | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash, beginning of year | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| Cash | $ | $ | ||||||
| Restricted Cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
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 Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the year for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Project development cost acquired through accounts payable and accrued expenses, net | $ | $ | ||||||
| Amendment of Series C warrant liability for equity classification | $ | $ | ||||||
| Amendment of Series C and D warrants | $ | $ | ||||||
| Initial value of right of use asset upon adoption of ASC 842 | $ | $ | ||||||
| Accrued Series B preferred stock dividends | $ | $ | ||||||
| Shares issued in connection with amendment of notes payable | $ | $ | ||||||
| Warrants issued in connection with amendment of notes payable | $ | $ | ||||||
| Amounts due to affiliate exchanged for notes payable | $ | $ | ||||||
| Shares issued in connection with issuance of notes payable | $ | $ | ||||||
| Warrants issued in connection with issuance of notes payable | $ | $ | ||||||
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, Nature of Business, and Liquidity
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 DoubleTree by Hilton located in downtown Canton and the Hall of Fame Village, which is a multi-use sports, entertainment, and media destination centered around the PFHOF’s campus. The Company is pursuing a differentiation strategy across three pillars, including destination-based assets, HOF Village Media Group, LLC (“Hall of Fame Village Media”), and gaming.
The Company has entered into multiple agreements with PFHOF, 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 sits, portions of which are owned by the Company and portions of which are net leased to the Company by government and quasi-governmental entities (see Note 9 for additional information). Under these agreements, the PFHOF and the lessor entities are entitled to use portions of the Hall of Fame Village on a direct-cost basis.
Reverse Stock Split
On December 27, 2022, the Company effectuated a reverse stock split of its shares of common stock at a ratio of 1-for-22. See Note 5, Stockholders’ Equity, for additional information. As a result, the number of shares and income (loss) per share disclosed throughout this Quarterly Report on Form 10-Q have been retrospectively adjusted to reflect the reverse stock split.
6
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization, Nature of Business, and Liquidity (continued)
Liquidity and Going Concern
The
Company has sustained recurring losses through September 30, 2023 and the Company’s accumulated deficit was $
The Company has entered into the following financing transactions. See Note 4 for more information on these transactions.
In
January 2023, the Company sold
On
February 2, 2023, the Company received proceeds from the issuance by Stark County Port Authority of $
On
May 2, 2023, the Company issued
On
September 21, 2023, CH Capital Lending, LLC succeeded to the rights and obligations of The Huntington National Bank (“HNB”)
under the Loan Agreement and the Company borrowed $
The Company expects that it will need to raise additional financing to accomplish its development plan and fund its working capital. 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, or it may not be able to continue to fund its ongoing operations. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about the Company’s ability to continue as a going concern to sustain operations for at least one year from the issuance of these condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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 Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022, filed on March 27, 2023. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2023.
Consolidation
The 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
Reclassification
Certain financial statement line items of the Company’s historical presentation have been reclassified to conform to the corresponding financial statement line items in 2023. These reclassifications have no material impact on the historical operating loss, net loss, total assets, total liabilities, or Stockholders’ equity previously reported.
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, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). It may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company will cease to be an emerging growth company on December 31, 2023.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such an extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions for the Company relate to credit losses, depreciation, costs capitalized to project development costs, useful lives of long-lived assets, potential impairment, accounting for debt modifications and extinguishments, 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.
9
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Warrant Liability
The
Company accounts for warrants for shares of the Company’s common stock, par value $
Cash and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less when purchased, to be cash equivalents. There were no cash equivalents as of September 30, 2023 and December 31, 2022, respectively. The Company maintains its cash and escrow accounts at national financial institutions. The balances, at times, may exceed federally insured limits.
Restricted
cash includes escrow reserve accounts for capital improvements and debt service as required under certain of the Company’s debt
agreements. The balances as of September 30, 2023 and December 31, 2022 were $
Investments
The
Company from time to time invests in debt and equity securities, including companies engaged in complementary businesses. All marketable
equity and debt securities held by the Company are accounted for under ASC Topic 320, “Investments – Debt and Equity Securities.”
As of September 30, 2023 and December 31, 2022, the Company held and $
As
of September 30, 2023 and December 31, 2022, the Company also had $
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 customer has missed a scheduled payment. Interest is not charged on delinquencies.
The
carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that
will not be collected. Management individually reviews all delinquent accounts receivable balances and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of September 30, 2023 and December 31,
2022, the Company has recorded an allowance for credit losses of $
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 sheets.
Upon an extinguishment of debt (or a modification that is treated as an extinguishment), the remaining deferred financing costs are expensed against “Loss on Extinguishment of Debt”.
10
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company follows the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue with Contracts with Customers, to properly recognize revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company generates revenues from various streams such as sponsorship agreements, rents, events, and hotel and restaurant operations. 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 sheets. Refer to Note 6 for more details. Revenue for short-term rentals, and events are recognized at the time the respective event or service has been performed. Rental revenue for long term leases is recorded on a straight-line basis over the term of the lease beginning on the commencement date.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
The Company’s owned hotel revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales, and other ancillary goods and services (e.g., parking) related to owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. Although the transaction prices of hotel room sales, goods, and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling price of each component.
Restaurant revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes.
11
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Income Taxes
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2023 and December 31, 2022, no liability for unrecognized tax benefits was required to be reported.
The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of operating expenses on the Company’s condensed consolidated statements of operations. There were no amounts incurred for penalties and interest for the three and nine months ended September 30, 2023 and 2022. 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 2019 through 2022 remain subject to examination.
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 sheets. The costs for each film or media will be expensed over the expected release
period. During the three months ended September 30, 2023, the Company recorded $
12
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 non-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.
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 carrying amount of the Company’s notes payable is considered to approximate their fair value based on the borrowing rates currently available to the Company for loans with similar terms and maturities.
13
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 Company uses the fair value hierarchy to measure the fair value of its warrant liabilities, investments available for sale and interest rate swap. The Company revalues its financial instruments at every reporting period. The Company recognizes gains or losses on the change in fair value of the warrant liabilities as “change in fair value of warrant liability” in the condensed consolidated statements of operations. The Company recognizes gains or losses on the change in fair value of the investments available for sale as “change in fair value of investments available for sale” in the condensed consolidated statements of operations. The Company recognizes gains or losses on the change in fair value of the interest rate swap as “change in fair value of interest rate swap” in the condensed consolidated statements of operations.
| September 30, | December 31, | |||||||||||
| Level | 2023 | 2022 | ||||||||||
| Warrant liabilities – Public Series A Warrants | 1 | $ | $ | |||||||||
| Warrant liabilities – Private Series A Warrants | 3 | |||||||||||
| Warrant liabilities – Series B Warrants | 3 | |||||||||||
| Fair value of aggregate warrant liabilities | $ | $ | ||||||||||
| Fair value of interest rate swap liability | 2 | $ | $ | |||||||||
| Investments available for sale | 3 | $ | $ | |||||||||
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”) and the Series B Warrants issued in the Company’s November 2020 follow-on public offering, 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
| Public
Series A Warrants | Private
Series A Warrants | Series
B Warrants | Total
Warrant Liability | |||||||||||||
| Fair value as of December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||||||
| Fair value as of September 30, 2023 | $ | $ | $ | $ | ||||||||||||
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)
| September 30, 2023 | December 31, 2022 | |||||||||||||||
| Private
Series A Warrants | Series
B Warrants | Private Series A Warrants | Series
B Warrants | |||||||||||||
| Term (years) | ||||||||||||||||
| Stock price | $ | $ | $ | $ | ||||||||||||
| Exercise price | $ | $ | $ | $ | ||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
| Expected volatility | % | % | % | % | ||||||||||||
| Risk free interest rate | % | % | % | % | ||||||||||||
| Number of shares | ||||||||||||||||
The valuation of the investments available for sale were based on sales of similar equity instruments in the time periods near to the measurement dates.
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.
For the three and nine months ended September 30, 2023 and 2022, the Company was in a loss position and therefore all potentially dilutive securities would be anti-dilutive and the calculations are presented on the accompanying condensed consolidated statements of operations.
| For
the Three and Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Warrants to purchase shares of Common Stock | ||||||||
| Unvested restricted stock units to be settled in shares of Common Stock | ||||||||
| Shares of Common Stock issuable upon conversion of convertible notes | ||||||||
| Shares of Common Stock issuable upon conversion of Series B Preferred Stock | ||||||||
| Shares of Common Stock issuable upon conversion of Series C Preferred Stock | ||||||||
| Total potentially dilutive securities | ||||||||
15
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3: Property and Equipment
| Useful Life | September 30,
2023 |
December
31, 2022 |
||||||||
| Land | $ | $ | ||||||||
| Land improvements | ||||||||||
| Building and improvements | ||||||||||
| Equipment | ||||||||||
| Property and equipment, gross | ||||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||||
| Property and equipment, net | $ | $ | ||||||||
| Project development costs | $ | $ | ||||||||
For
the three months ended September 30, 2023 and 2022, the Company recorded depreciation expense of $
For
the nine months ended September 30, 2023 and 2022, the Company transferred $
Included
in project development costs are film development costs of $
16
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net
| Debt discount
and deferred financing | Interest Rate | Maturity | ||||||||||||||||||||
| Gross | costs | Net | Stated | Effective | Date | |||||||||||||||||
| Preferred equity loan(2) | $ | $ | $ | % | % | |||||||||||||||||
| City of Canton Loan(3) | ( | ) | % | % | ||||||||||||||||||
| New Market/SCF | % | % | ||||||||||||||||||||
| JKP Capital Loan(5)(6) | % | % | ||||||||||||||||||||
| MKG DoubleTree Loan(7) | % | % | ||||||||||||||||||||
| Convertible PIPE Notes | ( | ) | % | % | ||||||||||||||||||
| Canton Cooperative Agreement | ( | ) | % | % | ||||||||||||||||||
| CH Capital Loan(5)(6)(8) | % | % | ||||||||||||||||||||
| Constellation EME #2(4) | % | % | ||||||||||||||||||||
| IRG Split Note(5)(6)(9) | % | % | ||||||||||||||||||||
| JKP Split Note(5)(6)(9) | % | % | ||||||||||||||||||||
| ErieBank Loan | ( | ) | % | % | ||||||||||||||||||
| PACE Equity Loan | ( | ) | % | % | ||||||||||||||||||
| PACE Equity CFP | ( | ) | % | % | ||||||||||||||||||
| CFP Loan(6)(10) | % | % | ||||||||||||||||||||
| Stark County Community Foundation | % | % | ||||||||||||||||||||
| CH Capital Bridge Loan(6) | % | % | ||||||||||||||||||||
| Stadium PACE Loan | ( | ) | % | % | ||||||||||||||||||
| Stark County Infrastructure Loan | % | % | ||||||||||||||||||||
| City of Canton Infrastructure Loan | ( | ) | % | % | ||||||||||||||||||
| TDD Bonds | ( | ) | % | % | ||||||||||||||||||
| TIF | ( | ) | % | % | ||||||||||||||||||
| CH Capital Retail | % | % | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||||||||
17
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
| Gross | Debt
discount and deferred financing costs | Net | ||||||||||
| Preferred Equity Loan(2) | $ | $ | $ | |||||||||
| City of Canton Loan(3) | ( | ) | ||||||||||
| New Market/SCF | ||||||||||||
| JKP Capital loan(5)(6) | ||||||||||||
| MKG DoubleTree Loan(7) | ||||||||||||
| Convertible PIPE Notes | ( | ) | ||||||||||
| Canton Cooperative Agreement | ( | ) | ||||||||||
| CH Capital Loan(5)(6)(8) | ||||||||||||
| Constellation EME #2(4) | ||||||||||||
| IRG Split Note(5)(6)(9) | ||||||||||||
| JKP Split Note (5)(6)(9) | ||||||||||||
| ErieBank Loan | ( | ) | ||||||||||
| PACE Equity Loan | ( | ) | ||||||||||
| PACE Equity CFP | ( | ) | ||||||||||
| CFP Loan(6)(10) | ||||||||||||
| Stark County Community Foundation | ||||||||||||
| CH Capital Bridge Loan(6) | ||||||||||||
| Stadium PACE Loan | ( | ) | ||||||||||
| Stark County Infrastructure Loan | ||||||||||||
| City of Canton Infrastructure Loan | ( | ) | ||||||||||
| TDD Bonds | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
During
the three months ended September 30, 2023 and 2022, the Company recorded amortization of note discounts of $
During
the nine months ended September 30, 2023 and 2022, the Company recorded paid-in-kind interest of $
18
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
See below footnotes for the Company’s notes payable:
| (1) | The Company’s notes payable are subject to certain customary financial and non-financial covenants. As of September 30, 2023 and 2022 the Company was in compliance with or has obtained waivers for all of its notes payable covenants. Many of the Company’s notes payable are secured by the Company’s developed and undeveloped land and other assets. |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| (11) | See “TIF Loan”, below, for a description of the loan. |
19
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
| September
30, 2023 | December
31, 2022 | |||||||
| Preferred Equity Loan | $ | $ | ||||||
| City of Canton Loan | ||||||||
| New Market/SCF | ||||||||
| MKG DoubleTree Loan | ||||||||
| Canton Cooperative Agreement | ||||||||
| CH Capital Loan | ||||||||
| IRG Split Note | ||||||||
| JKP Split Note | ||||||||
| ErieBank Loan | ||||||||
| PACE Equity CFE Loan | ||||||||
| CFP Loan | ||||||||
| Stark County Community Foundation | ||||||||
| CH Capital Bridge Loan | ||||||||
| Stadium PACE Loan | ||||||||
| TDD Bonds | ||||||||
| TIF | ||||||||
| CH Capital Retail | ||||||||
| Total | $ | $ | ||||||
The amounts above were included in “accounts payable and accrued expenses” on the Company’s condensed consolidated balance sheets.
20
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
TIF Loan
On
February 2, 2023, the Company received proceeds from the issuance on such date by Stark County Port Authority (“Port Authority”)
of $
In connection with the issuance of the 2023 Bonds by the Port Authority, the Company transferred ownership of a portion of the roadway and related improvements within Hall of Fame Village grounds to the Port Authority. The Company maintains management rights and maintenance obligations with regard to such roadway pursuant to a Maintenance and Management Agreement among the Port Authority, the Company and the Company’s subsidiary, Newco.
The 2023 Bonds will be repaid by the Port Authority from statutory service payments in lieu of taxes paid by the Company in connection with the Company’s Tom Benson Hall of Fame Stadium, ForeverLawn Sports Complex, Constellation Center for Excellence, Center for Performance, Retail I property, Retail II property, Play Action Plaza and an interior private roadway, net of the portion payable to Canton City School District and Plain Local School District and net of administrative fees of Stark County and the City of Canton, and from minimum service payments levied against those parcels excluding the Stadium and Sports Complex. Net statutory service payments are assigned by the City of Canton to the Port Authority for payment of the 2023 Bonds pursuant to a Cooperative Agreement among the Port Authority, City of Canton, the Company and Newco, and then pledged by the Port Authority to the 2023 Bond Trustee for payment of the 2023 Bonds pursuant to a Trust Indenture between the Port Authority and the 2023 Bond Trustee. Minimum service payments are a lien on the parcels under certain TIF declarations and supplements thereto, and are paid by the Company to the 2023 Bond Trustee.
21
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
TIF Loan (continued)
The Company and Newco are required to make payments (“Developer Shortfall Payments”) to the extent the above described net statutory service payments and minimum service payments actually paid are not sufficient to pay the scheduled debt service on the 2023 Bonds, and entered into a guaranty of payment of minimum service payments under a Minimum Payment Guaranty until certain performance criteria (debt service coverage of 1.05x for the 2023 Bonds for three consecutive years) are met. In addition, a member of the Company’s board of directors, Stuart Lichter, individually and with his trust, guaranteed Developer Shortfall Payments until debt service coverage of 1.0x for the 2023 Bonds for three consecutive years are met.
To
the extent statutory service payments and minimum service payments exceed the amounts required for debt service on the 2023 Bonds, the
excess paid will first increase and/or restore the 2023 Bonds fund reserve to a maximum of
November 7, 2022 Refinancing Transactions
On November 7, 2022, the Company and IRG entered into a letter agreement (the “IRG Letter Agreement”) whereby IRG agreed that IRG’s affiliates and related parties (“IRG Affiliate Lenders”) will provide the Company and its subsidiaries with certain financial support described below in exchange for certain consideration described below. The financial support provided under the IRG Letter Agreement consists of the following (“IRG Financial Support”):
| (a) | Extend the CH Capital Bridge Loan maturity to |
| (b) | Release the first position mortgage lien on the Tom Benson Hall of Fame Stadium |
| (c) | Provide a financing commitment for the Company’s Hilton Tapestry Hotel |
| (d) | Provide a completion guarantee for the Company’s waterpark |
| (e) | Amend IRG loans to provide an optional one-year extension of maturity option to |
In exchange, the Company agreed in the IRG Letter Agreement to:
| (a) | Issue |
| (b) | Increase interest rate on all IRG loans to |
| (c) | Make all IRG loans convertible at $ |
| (d) | Modify the Series C through Series G Warrants to be exercisable at $ |
22
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
November 7, 2022 Refinancing Transactions, continued
CFP Loan
On
April 27, 2022, Midwest Lender Fund, LLC, a limited liability company wholly owned by our director Stuart Lichter (“MLF”),
loaned $
As
part of the consideration for making the Loan, on June 8, 2022 following stockholder approval, the Company issued to MLF: (A)
On
November 7, 2022, the Company further amended the CFP Loan in order to add an extension option that the Company may exercise at any time
in order to extend the CFP Loan to March 31, 2025. In exchange for the amendment, the interest rate of the CFP Loan was increased to
23
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Huntington Loan – CH Capital Retail
On
September 27, 2022, HOF Village Retail I, LLC and HOF Village Retail II, LLC, subsidiaries of the Company, as borrowers (the “Subsidiary
Borrowers”), entered into a loan agreement with The Huntington National Bank (“HNB”), pursuant to which the lender
agreed to loan up to $
The Loan matures on September 27, 2024 (the “Initial Maturity Date”). However, Subsidiary Borrowers have the option (the “Extension Option”) to extend the Initial Maturity Date for an additional thirty six (36) months.
Additionally,
in connection with the Huntington Loan, on September 27, 2022, the Company entered into an interest rate swap agreement with a notional
amount of $
On
September 21, 2023, CH Capital Lending, LLC (“Lender”), an affiliate of our director Stuart Lichter, succeeded to the rights
and obligations of HNB under the Loan Agreement pursuant to the Assignment of Note, Security Instrument and Other Loan Documents. Also,
on September 21, 2023, the Company, Retail and Lender entered into the Joinder and First Amendment to Loan Agreement (“First Joinder
and Amendment”), pursuant to which (i) the Company becomes a borrower under the Loan Agreement (the Company together with Retail,
“Borrower”); (ii) the Loan Agreement is amended to provide that Borrower will have the right to use up to Two Million Dollars
($
Future Minimum Principal Payments
| For the years ending December 31, | Amount | |||
| 2023 (three months)(a) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter(a) | ||||
| Total Gross Principal Payments | $ | |||
| Less: Debt discount and deferred financing costs | ( | ) | ||
| $ | ||||
| (a) |
24
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity
Reverse Stock Split
On
September 29, 2022, our stockholders approved amendments to our Amended and Restated Certificate of Incorporation to effect a reverse
stock split of our shares of common stock, and our Board approved a final reverse stock split ratio of 1-for-22. The reverse stock split
became effective on December 27, 2022. On the effective date, every 22 shares of issued and outstanding common stock were combined and
converted into one issued and outstanding share of common stock. Fractional shares were cancelled, and stockholders received cash in
lieu thereof in the aggregate amount of $
The number of authorized shares of common stock and the par value per share of common stock remains unchanged. A proportionate adjustment was also made to the maximum number of shares of common stock issuable under the Hall of Fame Resort & Entertainment Company Amended 2020 Omnibus Incentive Plan (the “Plan”).
As a result, the number of shares and income (loss) per share disclosed throughout this Report on Form 10-Q have been retrospectively adjusted to reflect the reverse stock split.
Where applicable, the disclosures below have been adjusted to reflect the 1-for-22 reverse stock split effective December 27, 2022.
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
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
25
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, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective immediately.
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
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 $
Issuance of Restricted Stock Awards
| Number
of shares | Weighted average grant date fair value | |||||||
| Non–vested at January 1, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Non–vested at September 30, 2023 | $ | |||||||
For
the three months ended September 30, 2023 and 2022, stock-based compensation related to restricted stock awards was $
26
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 nine months ended September 30, 2023, the Company granted an aggregate of
| Number
of shares | Weighted
average grant date fair value | |||||||
| Non–vested at January 1, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Non–vested at September 30, 2023 | $ | |||||||
For
the three months ended September 30, 2023 and 2022, the Company recorded $
27
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Issuance of Performance Stock Units
During
the nine months ended September 30, 2023, the Company granted an aggregate of
The Company’s activity in PSUs was as follows for the nine months ended September 30, 2023:
| Number
of shares | Weighted
average grant date fair value | |||||||
| Non–vested at January 1, 2023 | ||||||||
| Granted | $ | |||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Non–vested at September 30, 2023 | $ | |||||||
For
the three months ended September 30, 2023 and 2022, the Company recorded $
Warrants
| Number
of Shares | Weighted Average Exercise Price (USD) | Weighted Average Contractual Life (years) | Intrinsic Value (USD) | |||||||||||||
| Outstanding – January 1, 2023 | $ | $ | ||||||||||||||
| Outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable – September 30, 2023 | $ | $ | ||||||||||||||
28
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Amended and Restated Series C Warrants
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 $
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.
On
November 7, 2022, the Company further amended the Series C Warrants to reduce the exercise price to $
| Original
Series C Warrants | March
1, 2022 Modification | November
7, 2022 Modification | ||||||||||
| Term (years) | ||||||||||||
| Stock price | $ | $ | $ | |||||||||
| Exercise price | $ | $ | $ | |||||||||
| Dividend yield | % | % | % | |||||||||
| Expected volatility | % | % | % | |||||||||
| Risk free interest rate | % | % | % | |||||||||
| Number of shares | ||||||||||||
| Aggregate fair value | $ | $ | $ | |||||||||
29
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
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 $
On
November 7, 2022, the Company further amended the Series C Warrants to reduce the exercise price to $
| Original
Series D Warrants | March
1, 2022 Modification | November
7, 2022 Modification | ||||||||||
| Term (years) | ||||||||||||
| Stock price | $ | $ | $ | |||||||||
| Exercise price | $ | $ | $ | |||||||||
| Dividend yield | % | % | % | |||||||||
| Expected volatility | % | % | % | |||||||||
| Risk free interest rate | % | % | % | |||||||||
| Number of shares | ||||||||||||
| Aggregate fair value | $ | $ | $ | |||||||||
On
January 12, 2023, the Company issued to ADC LCR Hall of Fame Manager II, LLC (the “Series A Preferred Investor”)
Compliance with Nasdaq Minimum Bid Requirement
As
previously reported, on May 24, 2022, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”)
of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days the bid price
for the Company’s common stock, par value $
On January 11, 2023, the Company received written notice from the Staff of Nasdaq informing the Company that it has regained compliance with the Minimum Bid Requirement because Nasdaq has determined that for 10 consecutive business days, the closing bid price of the Company’s Common Stock was at or above the Minimum Bid Requirement. Accordingly, Nasdaq has advised that the matter is now closed.
Hall of Fame Resort & Entertainment Company 2023 Inducement Plan
On
January 24, 2023, the Company’s board of directors adopted the Hall of Fame Resort & Entertainment Company 2023 Inducement
Plan (the “Inducement Plan”). The Inducement Plan is not subject to stockholder approval. The aggregate number
of shares of Common Stock that may be issued or transferred pursuant to awards covered by the Plan (including existing inducement awards
amended to be subject to the Inducement Plan) is
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” or “Johnson Controls”), 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 $
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 (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 $
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.
31
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Johnson Controls, Inc. (continued)
On May 10, 2022, the Company received from JCI a notice of termination (the “TAAS Notice”) of the TAAS Agreement effective immediately. The TAAS Notice states that termination of the TAAS Agreement by JCI is due to Newco’s alleged breach of its payment obligations. Additionally, JCI in the TAAS Notice demands the amount which is the sum of: (i) all past due payments and any other amounts owed by Newco under the TAAS Agreement; (ii) all commercially reasonable and documented subcontractor breakage and demobilization costs; and (iii) all commercially reasonable and documented direct losses incurred by JCI directly resulting from the alleged default by the Company and the exercise of JCI’s rights and remedies in respect thereof, including reasonable attorney fees.
Also
on May 10, 2022, the Company received from JCI a notice of termination (“Naming Rights Notice”) of the Name Rights Agreement,
effective immediately. The Naming Rights Notice states that the termination of the Naming Rights Agreement by JCI is due to JCI’s
concurrent termination of the TAAS Agreement. The Naming Rights Notice further states that the Company must pay JCI, within 30 days following
the date of the Naming Rights Notice, $
The Company disputes that it is in default under either the TAAS Agreement or the Naming Rights Agreement. The Company believes JCI is in breach of the Naming Rights Agreement and the TAAS Agreement due to their failure to make certain payments in accordance with the Naming Rights Agreement, and, on May 16, 2022, provided notice to JCI of these breaches.
The
Company is pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against JCI’s
allegations and pursue its own claims. The Company anticipates that resolution of the dispute regarding the Naming Rights Agreement will
include the TAAS Agreement. The parties participated in mediation in November 2022, but were unable to reach a resolution. On January
24, 2023, Newco filed a demand for arbitration, asserting claims against JCI for breach of contract, breach of the implied duty of good
faith and fair dealing, and unjust enrichment. On February 16, 2023, JCI filed its response, generally denying Newco’s allegations
and asserting counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.
On March 9, 2023, Newco filed its response to JCI’s counterclaims, generally denying JCI’s allegations. A panel of three
arbitrators has been constituted to hear and determine the dispute. On October 4, 2023, the Company and JCI commenced an arbitration
hearing in Ohio to determine the outcome of the dispute. The ultimate outcome of this dispute cannot presently be determined. However,
in management’s opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result
from the resolution of this matter have not been reflected in the accompanying condensed consolidated financial statements.
During the year ended December 31, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded
an allowance against the amounts due as of September 30, 2023 and December 31, 2022 in the amount of $
32
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Other Sponsorship Revenue
The Company has additional revenue primarily from sponsorship programs that provide its sponsors with strategic opportunities to reach customers through our venue including advertising on our website. Sponsorship agreements may contain multiple elements, which provide several distinct benefits to the sponsor over the term of the agreement and can be for a single or multi-year term. These agreements provide sponsors various rights such as venue naming rights, signage within our venues, the ability to be the exclusive provider of a certain category of product, and advertising on our website and other benefits as detailed in the agreements.
Year ending December 31,
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ |
As
services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the agreement. During the
three months ended September 30, 2023 and 2022, the Company recognized $
Note 7: Other Commitments
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:
33
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Management Agreement with Shula’s Steak Houses, LLLP
On
October 7, 2020, the Company entered into a management agreement with Shula’s Steak Houses, LLLP (“Shula’s”).
The Company appointed and engaged Shula’s to develop, operate and manage the Don Shula’s American Kitchen restaurant. In
consideration of the services performed by Shula’s, the Company agreed to a monthly license/management fee in an amount equal to
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 maintain 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 $
Sports Betting Agreements
On July 14, 2022, Newco entered into an Online Market Access Agreement with Instabet, Inc. doing business as betr (“BETR”), pursuant to which BETR will serve as a Mobile Management Services Provider (as defined under applicable Ohio gaming law) wherein BETR will host, operate and support a branded online sports betting service in Ohio, subject to procurement of all necessary licenses. The initial term of the Online Market Access Agreement is ten years.
As
part of this agreement, Newco will receive a limited equity interest in BETR and certain revenue sharing, along with the opportunity
for sponsorship and cross-marketing. The limited equity interest was in the form of penny warrants initially valued at $
On November 2, 2022, the Company secured conditional approval from the state for mobile and retail sports betting. The Ohio Casino Control Commission provided the required authorization for HOFV to gain licensing for a physical sports betting operation – called a sportsbook – as well as an online sports betting platform, under Ohio’s sports betting law H.B.29. As of January 1, 2023, sports betting is legal in Ohio for anyone in the state that is of legal betting age. The conditional approval requires that the Company accept bets under both the mobile and retail sports books prior to December 31, 2023. The Company satisfied that condition for the mobile sports book. However, the Company does not currently have a sports betting partner for its retail sports book. If the Company does not take an in-person sports bet through an approved retail partner at its designated facility by December 31, 2023, or otherwise obtain a waiver to this requirement, then the Ohio Casino Control Commission may take administrative actions to revoke the Company’s retail license. The Company is in communication with the Ohio Casino Control Commission regarding a potential waiver that would extend this deadline.
34
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Other Liabilities
| September 30, 2023 | December 31, 2022 | |||||||
| Activation fund reserves | $ | $ | ||||||
| Deferred revenue | ||||||||
| Deposits and other liabilities | ||||||||
| Total | $ | $ | ||||||
Other Commitments
The Company has other commitments, as disclosed in Notes 6, 8 and 9 within these condensed consolidated footnotes.
Note 8: Contingencies
During the normal course of its business, the Company is subject to occasional legal proceedings and claims. The Company does not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its results of operations, financial condition, or cash flows.
Note 9: Related-Party Transactions
Due to Affiliates
| September 30, 2023 | December 31, 2022 | |||||||
| Due to IRG Member | $ | $ | ||||||
| Due to PFHOF | ||||||||
| Total | $ | $ | ||||||
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
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 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.
35
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Global License Agreement
Effective
April 8, 2022, Newco and PFHOF, entered into a Global License Agreement (the “Global License Agreement”). The Global License
Agreement consolidates and replaces the First Amended and Restated License Agreement, the Amended and Restated Media License Agreement,
and the Branding Agreement the parties had previously entered into. The Global License Agreement sets forth the terms under which PFHOF
licenses certain marks and works to Newco and its affiliates to exploit existing PFHOF works and to create new works. The Global License
Agreement grants Newco and its affiliates an exclusive right and license to use the PFHOF marks in conjunction with theme-based entertainment
and attractions within the City of Canton, Ohio; youth sports programs, subject to certain exclusions; e-gaming and video games; and
sports betting. The Global License Agreement also grants Newco and its affiliates a non-exclusive license to use the PFHOF marks and
works in other areas of use, with a right of first refusal, subject to specified exclusions. The Global License Agreement acknowledges
the existence of agreements in effect between PFHOF and certain third parties that provide for certain restrictions on the rights of
PFHOF, which affects the rights that can be granted to Newco and its affiliates. These restrictions include, but are not limited to,
such third parties having co-exclusive rights to exploit content based on the PFHOF enshrinement ceremonies and other enshrinement events.
The Global License Agreement requires Newco to pay PFHOF an annual license fee of $
| For the years ending December 31, | Amount | |||
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total Gross Principal Payments | $ | |||
During
the three months ended September 30, 2023 and 2022, the Company paid $
36
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Hotel Construction Loan Commitment Letter
On
November 3, 2022, the Company entered into a Commitment Letter (the “Hotel Construction Loan Commitment Letter”), by and
among the Company, as guarantor, HOF Village Hotel WP, LLC (“Hotel”), an indirect wholly owned subsidiary of the Company,
as borrower, and Industrial Realty Group, Inc. (“IRGInc”), as lender. Stuart Lichter, a director of the Company, is President
and Chairman of the Board of Industrial Realty Group, LLC (“IRGLLC”). Pursuant to the terms of the Hotel Construction Loan
Commitment Letter, IRGInc committed to provide, or to arrange for one of IRGInc’s affiliates to provide, a loan of $
The
Hotel Construction Loan will have a two-year term with one option to extend for twelve months, subject to standard extension conditions.
The collateral for the Hotel Construction Loan will include, without limitation:
IRG Financial Support and Consideration
On November 7, 2022, the Company entered into a letter agreement (the “IRG Letter Agreement”) with IRGLLC, pursuant to which IRGLLC agreed that IRGLLC and IRGLLC’s affiliates and related parties will provide the Company and its subsidiaries with certain financial support described below in exchange for certain consideration described below.
The financial support provided under the IRG Letter Agreement consists of the following (the “IRG Financial Support”):
Waterpark Construction Financing Facilitation. IRGLLC agreed that its affiliate CH Capital Lending, LLC (“CHCL”), would help facilitate the closing of financing with Oak Street with regard to construction of the Waterpark Project, by among other things, releasing CHCL’s first mortgage lien on the Stadium Leasehold Interests and pledge of membership interests in HOFV Stadium. In addition, IRGLLC agreed to provide a completion guaranty to facilitate other needed financing for the Waterpark Project, as required.
Extension of CHCL Bridge Loan. IRGLLC agreed that CHCL would extend to March 31, 2024 the maturity of the promissory note dated June 16, 2022, issued by the Company, HOF Village Retail I, LLC and HOF Village Retail II, LLC, as borrowers, to CHCL, as lender (the “Bridge Loan”).
Provide One Year Extension Option for All IRG Affiliate Lender Loans. All loans from affiliates and related parties of IRGLLC (“IRG Affiliate Lenders”) will be amended to provide for an optional one-year extension of their maturity until March 31, 2025 for a one percent extension fee, which is payable if and when an IRG Affiliate Lender loan is extended. The IRG Affiliate Lender loans consist of the following: (i) Bridge Loan, with an existing modified maturity date of March 31, 2024; (ii) the term loan, payable to CHCL, with an existing maturity of March 31, 2024; (iii) the first amended and restated promissory note, dated March 1, 2022, payable to IRG, LLC, with an existing maturity of March 31, 2024; (iv) the first amended and restated promissory note, dated March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; (v) the Secured Cognovit Promissory Note, dated as of June 19, 2020, assigned June 30, 2020 and amended December 1, 2020 and March 1, 2022, payable to JKP Financial, LLC, with an existing maturity of March 31, 2024; and (vi) the promissory note, dated April 27, 2022, payable to Midwest Lender Fund, LLC (“MLF”), with an existing maturity of April 30, 2023, and with an option to extend the maturity until March 31, 2024. See Note 13, Modification Agreements for an update regarding the extension option.
Tapestry Hotel Construction Financing Commitment Letter. IRGLLC agreed to provide a commitment for financing the Hotel Project, as set forth in the Hotel Construction Loan Commitment Letter.
37
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
IRG Financial Support and Consideration (continued)
In consideration of the IRG Financial Support to be received by the Company and its subsidiaries, the Company agreed in the IRG Letter Agreement to provide the following consideration to IRGLLC and the IRG Affiliate Lenders:
The
Company agreed to make a payment of $
The
Company agreed to modify the IRG Affiliate Lender loans as follows: (i) all IRG Affiliate Lender loans will bear interest at
The Company agreed to modify the Series C through Series G warrants held by IRG Affiliate Lenders as follows: (i) the exercise price of the Series C through Series G warrants held by IRG Affiliate Lenders will be reset to Market Price; and (ii) the warrant expiration dates of the Series C through Series G warrants held by IRG Affiliate Lenders will be extended by two years from their current expiration dates.
38
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
IRG Financial Support and Consideration (continued)
In
the IRG Letter Agreement,
Pro Football Hall of Fame Purchase Agreement
On
August 1, 2023, the Company and PFHOF entered into a real estate purchase agreement, where by the Company sold to PFHOF certain real
estate in exchange for $
Note 10: Concentrations
For
the three months ended September 30, 2023, two customers represented approximately
For
the nine months ended September 30, 2023, two customers represented approximately
As
of September 30, 2023, one customer represented approximately
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.
39
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: Leases
The Company has entered into operating leases as the lessee primarily for ground leases under its stadium, sports complex, and parking facilities.
At the inception of a contract the Company assesses 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.
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating leases: | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liability | ||||||||
| Nine
Months Ended September 30, 2023 | Nine
Months Ended September 30, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Other information: | ||||||||
| Operating cash flows from operating leases | ||||||||
| Weighted-average remaining lease term – operating leases (in years) | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
40
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: Leases (continued)
| For The Years Ending December 31, | ||||
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total future minimum lease payments, undiscounted | ||||
| Less: imputed interest | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
Lessor Commitments
As of September 30, 2023, the Company’s Constellation Center for Excellence and retail facilities were partially leased including leases by the Company’s subsidiaries.
| September 30,
2023 | December
31, 2022 | |||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Building and improvements | ||||||||
| Equipment | ||||||||
| Property and equipment, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Lease
revenue is included in “Event, rents and other revenues” in the condensed consolidated statements of operations. During the
three months ended September 30, 2023 and 2022, the Company recorded $
| Year ending December 31: | ||||
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ |
41
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12: Financing Liability
On
September 27, 2022 the Company sold the land under the Company’s Fan Engagement Zone to Twain GL XXXVI, LLC (“Twain”).
Simultaneously, the Company entered into a lease agreement with Twain (the sale of the property and simultaneous leaseback is referred
to as the “Sale-Leaseback”). The Sale-Leaseback is repayable over a
On
November 7, 2022, HOF Village Waterpark, LLC (“HOFV Waterpark”), sold the land under the Company’s future waterpark
to Oak Street Real Estate Capital, LLC (“Oak Street”). Simultaneously, the Company entered into a lease agreement with Oak
Street. The Sale-Leaseback for the waterpark is repayable over a 99-year term. Under the terms of the leaseback agreement, the Company’s
initial base rent is $
The
Company accounted for the Sale-Leaseback transactions with Twain and Oak Street as financing transactions with the purchaser of the property.
The Company concluded the lease agreements both met the qualifications to be classified as finance leases due to the significance of
the present value of the lease payments, using a discount rate of
The presence of a finance-type lease in the sale-leaseback transactions indicates that control of the land under the Fan Engagement Zone and HOFV Waterpark has not transferred to the buyer/lessor and, as such, the transactions were both deemed a failed sale-leaseback and must be accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sales proceeds from the buyer/lessor in the form of a hypothetical loan collateralized by its leased land. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the buyer/lessor. As such, the Company will not derecognize the property from its books for accounting purposes until the lease ends.
As
of September 30, 2023, the carrying value of the financing liability was $
As
of December 31, 2022, the carrying value of the financing liability was $
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total Minimum Liability Payments | ||||
| Imputed Interest | ( | ) | ||
| Total | $ |
42
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events
Subsequent events have been evaluated through the date the condensed consolidated financial statements were issued. Except as disclosed below, no events have been identified requiring disclosure or recording.
Amendments
to $
On
October 6, 2023, the Company, HOF Village Retail I, LLC and HOF Village Retail II, LLC (collectively, “Retail”) and CH Capital
Lending, LLC (“Lender”), an affiliate of our director Stuart Lichter, entered into the Second Amendment to Loan Agreement
(“Second Amendment”), pursuant to which (i) no interest or principal shall be due and payable from the effective date through
the initial maturity date and all interest that accrues during the deferral period shall accrue at the non-default rate and be added
to the outstanding principal balance of the loan; (ii) the Loan Agreement was amended to provide that the Company together with Retail
(“Borrower”) will have the right to use up to $
On
October 16, 2023, the Company, Retail and Lender, an affiliate of our director Stuart Lichter, entered into the Third Amendment to Loan
Agreement (“Third Amendment”), pursuant to which the Loan Agreement, which provides for the Company to borrow up to $
Modification Agreements
On October 6, 2023, the Company and certain of its subsidiaries entered into a Modification Agreement with CH Capital Lending, LLC, IRG, LLC and Midwest Lender Fund, LLC (“IRG Investors”) that deferred interest payments from July 1, 2023 until March 31, 2024 (“Deferral Period”) owed under its loan arrangements with such IRG Investors. Simultaneously, the Company and certain of its subsidiaries entered into a similar Modification Agreement with JKP Financial LLC (“JKP”) that deferred interest payments during the Deferral Period owed under its loan arrangements with JKP.
43
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events (continued)
Limited Waiver of Anti-Dilution Adjustment Rights
On
October 6, 2023, the Company and certain of its subsidiaries entered into a Limited Waiver Agreement (the “IRG Affiliates Limited
Waiver”) with CH Capital Lending, LLC (“CHCL”), IRG, LLC (“IRG”) and Midwest Lender Fund, LLC (“MLF”
and together with CHCL and IRG, the “IRG Investors”), which are affiliates of our director Stuart Lichter, pursuant to which
the IRG Investors waived any anti-dilution adjustment right with respect to
DoubleTree Finance Transactions
On
October 10, 2023, HOF Village Hotel II, LLC (“Hotel II”), a subsidiary of the Company, as borrower, and ErieBank, a division
of CNB Bank, a wholly owned subsidiary of CNB Financial Corporation, as lender (“ErieBank”) entered into a Third Amendment
to Loan Documents (“Third Amendment to Loan”) and Second Amendment to Promissory Note (“Second Amendment to Note”),
with consent from subordinate lienholders Newmarket Project Inc. (“Newmarket”) and the City of Canton, Ohio (“City”),
which extended the maturity date of an existing loan with ErieBank from October 13, 2023 to September 13, 2028, reflected a reduction
in the outstanding principal balance of the Note from $
On
October 10, 2023, Hotel II closed on a transaction that included entering into an Energy Project Cooperative Agreement (the “PACE
Cooperative Agreement”) among the City of Canton, Ohio (the “City”), the Canton Regional Energy Special Improvement
District, Inc., Hotel II, the Development Finance Authority of Summit County (“DFA”), and U.S. Bank Trust Company, National
Association (“US Bank”), as trustee. Pursuant to the PACE Cooperative Agreement and a Resolution of the City Council of the
City approving the Petition for Special Assessments for Special Energy Improvement Projects (the “Petition”) submitted by
Hotel II, the City approved refinance of certain special energy improvements related to the hotel located in downtown Canton. DFA agreed
to issue Jobs & Improvement Fund Program Taxable Revenue Bonds, Series 2023B (the “PACE Bonds”) in the original principal
amount of $
On
October 10, 2023, Hotel II closed on a transaction that included entering into a Tourism Development District Cooperative Agreement (the
“TDD Cooperative Agreement”) among the City of Canton, Ohio (the “City”), Hotel II, Cleveland-Cuyahoga County
Port Authority (“CCCPA”), and Huntington National Bank, as trustee. Pursuant to the TDD Cooperative Agreement, the CCCPA
agreed to issue its Port of Cleveland Bond Fund Taxable Development Revenue Bonds, Series 2023B (“TDD Bonds”) in the original
principal amount of $
44
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Subsequent Events (continued)
Equity Distribution Agreement Amendment
On
October 6, 2023, prior to the Company’s entry into the Underwriting Agreement, the Company and Maxim and Wedbush Securities, Inc.
(“Wedbush”) entered into an Amendment No. 1 to the Equity Distribution Agreement, dated as of September 30, 2021, among the
Company and Maxim and Wedbush (the “Equity Distribution Agreement Amendment”) pursuant to which the Company may offer and
sell shares of Common Stock from time to time through Maxim and Wedbush in an “at the market offering” (the “ATM Facility”).
The Equity Distribution Agreement Amendment was effective immediately and reduced the maximum aggregate offering price of the Common
Stock that the Company may sell under the ATM Facility from $
Suspension of Sales Under At The Market Program
On
October 10, 2023, the Company reduced the amount of shares of its Common Stock that could be issued and sold pursuant to its “at-the-market”
program (“ATM”) with Wedbush Securities Inc. and Maxim Group LLC, as agents (the “Agents”), to an amount equal
to $
The Underwriting Agreement (defined below) requires that we not issue any shares of our Common Stock for 90 days after October 11, 2023, subject to certain exceptions, and as a result, we have suspended sales pursuant to our ATM under our Equity Distribution Agreement during such period.
Underwriting Agreement; Public Offering
On
October 11, 2023, the Company entered into a underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim”
or the “Underwriter”), relating to a firm commitment public offering of (a)
Warrant Agency Agreement
On October 13, 2023, prior to the closing of the offering, the Company entered into a warrant agency agreement (the “Warrant Agency Agreement”) with Continental Stock Transfer & Trust Company (“Continental”), to serve as the Company’s warrant agent for the Warrants. Upon the closing of the offering, Continental will issue the Warrants. The Warrants are exercisable upon issuance and expire five years from the date they first became exercisable.
45
Item 2. Management’s discussion and analysis of financial condition and results of operations
This Quarterly Report on Form 10–Q contains forward–looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. The statements contained herein that are not purely historical are forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward–looking statements are often identified by the use of words such as, but not limited to, “will,” “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “strategy,” “believe” and similar expressions or variations intended to identify forward–looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Factors that could cause or contribute to our results differing materially from those expressed or implied by forward–looking statements include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission (“SEC”) on March 27, 2023, and in our reports subsequently filed with the SEC. The forward–looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward–looking statements to reflect events or circumstances after the date of such statements.
Unless the context otherwise requires, the “Company”, “we,” “our,” “us” and similar terms refer to Hall of Fame Resort & Entertainment Company, a Delaware corporation.
The following discussion should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2022, filed with the SEC and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.
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 DoubleTree by Hilton located in downtown Canton and the Hall of Fame Village, which is a multi-use sports and entertainment destination centered around the PFHOF’s campus. We are creating a diversified set of revenue streams through developing themed attractions, premier entertainment programming and sponsorships. We are pursuing a diversified strategy across three pillars, including destination-based assets, the Media Company, and gaming.
The strategic plan has been developed into three phases: Phase I, Phase II, and Phase III. Phase I of the Hall of Fame Village is operational, consisting of the Tom Benson Hall of Fame Stadium, the ForeverLawn Sports Complex, and HOF Village Media Group, LLC (“Hall of Fame Village Media” or the “Media Company”) and gaming. The Tom Benson Hall of Fame Stadium hosts multiple sports and entertainment events, including the NFL Hall of Fame Game, Enshrinement and Concert for Legends during the annual Pro Football Hall of Fame Enshrinement Week. The ForeverLawn Sports Complex hosts camps and tournaments for football players, as well as athletes from across the country in other sports such as lacrosse, rugby and soccer. Hall of Fame Village Media leverages the sport of professional football to produce exclusive programming. For example, licensing the extensive content controlled by the PFHOF.
We have developed new hospitality, attraction and corporate assets as part of our Phase II development plan. Phase II components of the Hall of Fame Village include the Constellation Center for Excellence (an office building including retail and meeting space, that opened in November 2021), the Center for Performance (a convention center/field house, that opened in August of 2022), the Play Action Plaza (completed in August of 2022), and the Fan Engagement Zone (Retail Promenade), core and shell for Retail I was completed in August of 2022 and the core and shell of Retail II was completed in November of 2022, two hotels (one on campus and one in downtown Canton that opened in November 2020), and the Hall of Fame Indoor Waterpark. Phase III expansion plans may include a potential mix of residential space, additional attractions, entertainment, dining, merchandise and more.
46
Key Components of the Company’s Results of Operations
Revenue
We generate revenue from various streams such as sponsorship agreements, rents, events, and hotel and restaurant operations. The sponsorship arrangements, in which the customer sponsors an asset 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.
Restaurant revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes.
Operating Expenses
Our operating expenses include operating expenses, hotel operating expenses, and depreciation expense. These expenses have increased with completion of Phase II assets and would expect to continue to increase with completion of the on-campus hotel, waterpark, and Phase III development.
Our operating expenses include the costs associated with running and maintaining operational entertainment and destination assets such as the Tom Benson Hall of Fame Stadium and the ForeverLawn Sports Complex along with management and professional fees. Factors that will contribute to increased operating expenses include: more of our Phase II assets becoming operational, the addition of events for top performers, and sporting events.
Our depreciation expense includes the related costs of owning and operating significant property and entertainment assets. These expenses have grown as through completion of the Phase I and Phase II development.
Recent Developments
Dispute Regarding Naming Rights Agreement with Johnson Controls
The Company is in a dispute with JCI regarding the Naming Rights Agreement. The Company is pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against JCI’s allegations and pursue its own claims. The parties participated in mediation in November 2022, but were unable to reach a resolution. On January 24, 2023, Newco filed a demand for arbitration, asserting claims against JCI for breach of contract, breach of the implied duty of good faith and fair dealing, and unjust enrichment. On February 16, 2023, JCI filed its response, generally denying Newco’s allegations and asserting counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. On March 9, 2023, Newco filed its response to JCI’s counterclaims, generally denying JCI’s allegations. A panel of three arbitrators has been constituted to hear and determine the dispute. On October 4, 2023, the Company and JCI commenced an arbitration hearing in Ohio to determine the outcome of the dispute. The ultimate outcome of this dispute cannot presently be determined. However, in management’s opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the accompanying condensed consolidated financial statements. During the year ended December 31, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against the amounts due as of September 30, 2023 and December 31, 2022 in the amount of $8,375,000 and $4,812,500, respectively. The balances due under the Naming Rights Agreement as of September 30, 2023 and December 31, 2022 amounted to $10,260,417 and $6,635,417, respectively.
See Note 6: Sponsorship Revenue and Associated Commitments – Johnson Controls, Inc., for additional information relating to this dispute.
47
Second Amendment to $10,000,000 Loan Agreement
On October 6, 2023, the Company, HOF Village Retail I, LLC and HOF Village Retail II, LLC ( collectively, “Retail”) and CH Capital Lending, LLC (“Lender”), an affiliate of our director Stuart Lichter, entered into the Second Amendment to Loan Agreement (“Second Amendment”), pursuant to which (i) no interest or principal shall be due and payable from the effective date through the initial maturity date and all interest that accrues during the deferral period shall accrue at the non-default rate and be added to the outstanding principal balance of the loan; (ii) the Loan Agreement was amended to provide that the Company together with Retail (“Borrower”) will have the right to use up to Four Million Dollars ($4,000,000) of the loan proceeds for the purpose of paying the costs of construction of the Hall of Fame Village Waterpark which will be owned by the Company or its affiliates or subsidiaries (the “Permitted Purpose”) provided, that in the event Borrower desires to use more than Four Million Dollars ($4,000,000) for the Permitted Purpose, Borrower must obtain the written consent of Lender; and (iii) the Loan Agreement was amended to provide that so long as loan proceeds are used solely for the Permitted Purpose, Lender waives conditions to loan funding up to the amount of $4,000,000, with any future waiver of conditions to additional loan funding subject to the written consent of Lender.
Third Amendment to $10,000,000 Loan Agreement
On October 16, 2023, the Company, Retail and CH Capital Lending, LLC (“Lender”), an affiliate of our director Stuart Lichter, entered into the Third Amendment to Loan Agreement (“Third Amendment”), pursuant to which the Loan Agreement, which provides for the Company to borrow up to Ten Million Dollars ($10,000,000), was amended to provide that the Company together with Retail (“Borrower”) will (i) have the right to use up to Six Million Dollars ($6,000,000) of the loan proceeds for the purpose of paying the costs of construction of the Hall of Fame Village Waterpark which will be owned by the Company or its affiliates or subsidiaries (the “Permitted Purpose”); provided, that in the event Borrower desires to use more than $6,000,000 for the Permitted Purpose, Borrower must obtain the written consent of Lender; and (ii) the Loan Agreement was amended to provide that so long as loan proceeds are used solely for the Permitted Purpose, Lender waives conditions to loan funding up to the amount of $6,000,000, with any future waiver of conditions to additional loan funding subject to the written consent of Lender. The effect of the Third Amendment was to permit the Company to draw an additional $2,000,000 under the $10,000,000 Loan Agreement for the Permitted Purpose.
Limited Waiver of Anti-Dilution Adjustment Rights
On October 6, 2023, the Company and certain of its subsidiaries entered into a Limited Waiver Agreement with CH Capital Lending, LLC (“CHCL”), IRG, LLC (“IRG”) and Midwest Lender Fund, LLC (“MLF” and together with CHCL and IRG, the “IRG Investors”), which are affiliates of our director Stuart Lichter, pursuant to which the IRG Investors waived any anti-dilution adjustment right with respect to (i) the exercise price of our Series C Warrants, Series D Warrants, Series E Warrants and Series G Warrants, (ii) the conversion price of Series C Preferred Stock held by CHCL, and (iii) the conversion price of approximately $28. 7 million in our indebtedness held by the IRG Investors, in each case solely with respect to offerings under a September 2023 engagement letter with Maxim Group LLC. Simultaneously, the Company entered into a similar Limited Waiver Agreement with JKP Financial, LLC (“JKP”), pursuant to which JKP waived any anti-dilution adjustment right with respect to (i) the exercise price of our Series F Warrants and (ii) the conversion price of approximately $13.9 million in our indebtedness held by JKP, in each case solely with respect to offerings under the Engagement Agreement.
Modification Agreements
On October 6, 2023, the Company and certain of its subsidiaries entered into a modification agreement with the IRG Investors (the “IRG Investors Modification Agreement”) that defers interest payments from July 1, 2023 until March 31, 2024 (“Deferral Period”) owed under approximately $30.7 million in loan arrangements with such IRG Investors. Also on October 6, 2023, the Company and certain of its subsidiaries entered into a modification agreement with JKP Financial (the “JKP Modification Agreement”) that defers interest payments during the Deferral Period owed under approximately $13.9 million in loan arrangements with JKP.
48
DoubleTree Finance Transactions
On October 10, 2023, HOF Village Hotel II, LLC (“Hotel II”), a subsidiary of the Company, as borrower, and ErieBank, a division of CNB Bank, a wholly owned subsidiary of CNB Financial Corporation, as lender (“ErieBank”) entered into a Third Amendment to Loan Documents (“Third Amendment to Loan”) and Second Amendment to Promissory Note (“Second Amendment to Note”), with consent from subordinate lienholders Newmarket Project Inc. (“Newmarket”) and the City of Canton, Ohio (“City”), which extended the maturity date of an existing loan with ErieBank from October 13, 2023 to September 13, 2028, reflected a reduction in the outstanding principal balance of the Note from $15,300,000 to $11,000,000 using proceeds from the PACE Bonds and TDD Bonds discussed below, and adjusted the interest rate to 3.5% plus the five year Federal Home Loan Bank Rate of Pittsburgh, with a floor of7.5% per annum. In connection with entering into the Third Amendment to Loan and the Second Amendment to Note, Hotel II paid customary fees and expenses.
On October 10, 2023, Hotel II closed on a transaction that included entering into an Energy Project Cooperative Agreement (the “PACE Cooperative Agreement”) among the City of Canton, Ohio (the “City”), the Canton Regional Energy Special Improvement District, Inc., Hotel II, the Development Finance Authority of Summit County (“DFA”), and U.S. Bank Trust Company, National Association (“US Bank”), as trustee. Pursuant to the PACE Cooperative Agreement and a Resolution of the City Council of the City approving the Petition for Special Assessments for Special Energy Improvement Projects (the “Petition”) submitted by Hotel II, the City approved refinance of certain special energy improvements related to the hotel located in downtown Canton. DFA agreed to issue Jobs & Improvement Fund Program Taxable Revenue Bonds, Series 2023B (the “PACE Bonds”) in the original principal amount of $2,760,000. Hotel II agreed to pay special assessments levied on the property and to make certain minimum service payments with respect to the property equal to such special assessments, which payments are in the amount of all debt service and related charges in connection with the PACE Bonds. The PACE Bonds have a maturity date of May 15, 2040 and shall bear interest at the rate of 6.625% calculated on the basis of a 360-day year consisting of 12 months of 30 days each on May 15 and November 15 of each year commencing on November 15, 2023.
On October 10, 2023, Hotel II closed on a transaction that included entering into a Tourism Development District Cooperative Agreement (the “TDD Cooperative Agreement”) among the City of Canton, Ohio (the “City”), Hotel II, Cleveland-Cuyahoga County Port Authority (“CCCPA”), and Huntington National Bank, as trustee. Pursuant to the TDD Cooperative Agreement, the CCCPA agreed to issue its Port of Cleveland Bond Fund Taxable Development Revenue Bonds, Series 2023B (“TDD Bonds”) in the original principal amount of $3,445,000. The TDD Bonds are primarily payable from tourism development district revenues (“TDD Revenues”) derived from gross receipts and hotel tax. Hotel II also agreed to make minimum service payments to HNB, as trustee, with respect to improvements on the property in accordance with the terms of the TDD Declaration in the event of a shortfall in TDD Revenues. CCCPA has agreed to pledge the TDD revenue and any minimum service payments to HNB to secure debt service charges on the bonds. The Series TDD Bonds shall mature on May 15, 2044 and shall bear interest payable on each May 15 and November 15, commencing May 15, 2024 at the interest rate equal to 6.875% per annum. The Bond Reserve Deposit of 10% of the proceeds from the TDD Bonds was paid from the proceeds of the TDD Bonds.
Suspension of Sales Under At The Market Program
On October 10, 2023, the Company reduced the amount of shares of its Common Stock that could be issued and sold pursuant to its “at-the-market” program (“ATM”) with Wedbush Securities Inc. and Maxim Group LLC, as agents (the “Agents”), to an amount equal to $39,016,766. The reduction in the amount of shares that can be issued and sold under the ATM was effected pursuant to the Amendment No. 1 to Equity Distribution Agreement, which amended the Company’s Equity Distribution Agreement with the Agents, dated September 30, 2021 (the “Equity Distribution Agreement”), to reduce the aggregate offering price under the Equity Distribution Agreement from $50.0 million to $39,016,766.
The Underwriting Agreement (defined below) requires that we not issue any shares of our Common Stock for 90 days after October 11, 2023, subject to certain exceptions, and as a result, we have suspended sales pursuant to our ATM under our Equity Distribution Agreement during such period.
Underwriting Agreement; Public Offering
On October 11, 2023, the Company entered into a underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim” or the “Underwriter”), relating to a firm commitment public offering of (a) 750,000 shares of our common stock (the “Common Stock”), $0.0001 par value per share (the “Common Stock”) and (b) warrants to purchase up to 750,000 shares of Common Stock, at an exercise price of $3.75 per share (the “Warrants”), at an aggregate price of $3.75 per share and accompanying Warrant. Following closing, the Warrant is exercisable at $3.75 per share for a five-year period. Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option an option to purchase up to an additional 112,500 shares of Common Stock and Warrants from us. The closing of the offering occurred on October 13, 2023. The gross proceeds to us from the sale of the shares of Common Stock and Warrants before deducting underwriting discounts and commissions and estimated offering expenses payable by us, was approximately $2.8 million. The Underwriting Agreement includes customary representations, warranties and covenants, and customary conditions to closing, expense and reimbursement obligations and termination provisions. Additionally, under the terms of the Underwriting Agreement, we have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make with respect to these liabilities.
49
Results of Operations
The following table sets forth information comparing the components of net loss for the three months ended September 30, 2023 and the comparable period in 2022:
| For
the Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 689,753 | $ | 748,033 | ||||
| Event, rents and other revenue | 5,763,583 | 5,320,309 | ||||||
| Hotel revenues | 2,291,493 | 2,058,687 | ||||||
| Total revenues | 8,744,829 | 8,127,029 | ||||||
| Operating expenses | ||||||||
| Operating expenses | 12,409,390 | 14,070,498 | ||||||
| Hotel operating expenses | 1,814,053 | 1,809,635 | ||||||
| Depreciation expense | 4,559,899 | 2,650,719 | ||||||
| Total operating expenses | 18,783,342 | 18,530,852 | ||||||
| Loss from operations | (10,038,513 | ) | (10,403,823 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | (6,026,801 | ) | (1,670,377 | ) | ||||
| Amortization of discount on note payable | (1,419,684 | ) | (1,132,440 | ) | ||||
| Other income | 148,796 | 537,158 | ||||||
| Change in fair value of warrant liability | 968,000 | 1,838,000 | ||||||
| Change in fair value of interest rate swap | 203,850 | (128,000 | ) | |||||
| Total other expense | (6,125,839 | ) | (555,659 | ) | ||||
| Net loss | $ | (16,164,352 | ) | $ | (10,959,482 | ) | ||
| Preferred stock dividends | (266,000 | ) | (266,000 | ) | ||||
| Loss attributable to non-controlling interest | 11,277 | 101,202 | ||||||
| Net loss attributable to HOFRE stockholders | $ | (16,419,075 | ) | $ | (11,124,280 | ) | ||
| Net loss per share, basic and diluted | $ | (2.89 | ) | $ | (2.07 | ) | ||
| Weighted average shares outstanding, basic and diluted | 5,672,602 | 5,383,462 | ||||||
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Three Months Ended September 30, 2023 as Compared to the Three Months Ended September 30, 2022
Sponsorship Revenues
Sponsorship revenues totaled $689,753 for the three months ended September 30, 2023, as compared to $748,033 for the three months ended September 30, 2022, representing a decrease of $58,280, or 7.8%. This decrease was primarily driven by a change in the mix of the Company’s sponsorships.
Event, rents and other revenues
Revenue from event, rents and other revenues was $5,763,583 for the three months ended September 30, 2023, compared to $5,320,309 for the three months ended September 30, 2022, for an increase of $443,274, or 8.3%. The increase was primarily due to an increase in revenue from food & beverage sales, short- and long-term rentals, and parking, offset by a decrease in ticketing revenue due to the timing of events in 2023 as opposed to 2022.
Hotel Revenues
Hotel revenue was $2,291,493 for the three months ended September 30, 2023, compared to $2,058,687 from the three months ended September 30, 2022 for an increase of $232,806, or 11.3%. This increase was driven by an increase in hotel occupancy and conferences at the hotel and an increase in the average daily rate.
Operating Expenses
Operating expense was $12,409,390 for the three months ended September 30, 2023, compared to $14,070,498 for the three months ended September 30, 2022, for a decrease of $1,661,108, or 11.8%. This decrease was primarily driven by a decrease in production fees for our events and media productions offset by an increase in personnel and related benefits costs.
Hotel Operating Expenses
Hotel operating expense was $1,814,053 for the three months ended September 30, 2023, compared to $1,809,635 for the three months ended September 30, 2022, for an increase of $4,418, or 0.2%. This increase was primarily driven by an increase in hotel occupancy and higher associated operating costs.
Depreciation Expense
Depreciation expense was $4,559,899 for the three months ended September 30, 2023, compared to $2,650,719 for the three months ended September 30, 2022, for an increase of $1,909,180, or 72.0%. The increase in depreciation expense is primarily the result of the completion of additional major assets being put into service.
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Interest Expense
Total interest expense was $6,026,801 for the three months ended September 30, 2023, compared to $1,670,377 for the three months ended September 30, 2022, for an increase of $4,356,424, or 260.8%. The increase in total interest expense was primarily due to an increase in the amount of total debt outstanding, a decrease in the proportion of debt that is capitalized for ongoing construction projects, and an increase in average interest rates.
Amortization of Debt Discount
Total amortization of debt discount was $1,419,684 for the three months ended September 30, 2023, compared to $1,132,440 for the three months ended September 30, 2022, for an increase of $287,244, or 25.4%. The increase is primarily due to the removal of discounts from IRG-related debt upon the modification of the debt in November 2022.
Other Income
Other income was $148,796 for the three months ended September 30, 2023, compared to $537,158 for the three months ended September 30, 2022, for a decrease of $388,362, or 72.3%. Other income during 2023 represented gain on the sale of property, while other income during 2022 represented the sale of construction materials.
Change in Fair Value of Warrant Liability
The change in fair value warrant liability was $968,000 for the three months ended September 30, 2023, compared to $1,838,000 for the three months ended September 30, 2022, for a decrease of $870,000 or 47.3%. The decrease in change in fair value of warrant liability was due primarily to a change in our stock price.
Change in Fair Value of Interest Rate Swap
The change in fair value of interest rate swap was $203,850 and $(128,000) for the three months ended September 30, 2023 and 2022, respectively. This was due to the change in fair value of the interest rate swap entered into in connection with an agreement with Huntington Bank.
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Nine Months Ended September 30, 2023 as Compared to the Nine Months Ended September 30, 2022
| For
the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Sponsorships, net of activation costs | $ | 2,054,464 | $ | 2,020,095 | ||||
| Event, rents and other revenues | 10,081,905 | 6,326,565 | ||||||
| Hotel revenues | 5,856,170 | 4,572,428 | ||||||
| Total revenues | 17,992,539 | 12,919,088 | ||||||
| Operating expenses | ||||||||
| Operating expenses | 36,776,959 | 29,053,220 | ||||||
| Hotel operating expenses | 4,860,876 | 4,278,897 | ||||||
| Depreciation expense | 10,486,335 | 9,420,585 | ||||||
| Total operating expenses | 52,124,170 | 42,752,702 | ||||||
| Loss from operations | (34,131,631 | ) | (29,833,614 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | (14,063,584 | ) | (3,805,310 | ) | ||||
| Amortization of discount on note payable | (3,157,815 | ) | (3,610,738 | ) | ||||
| Other income | 148,796 | 537,158 | ||||||
| Change in fair value of warrant liability | 507,000 | 9,011,000 | ||||||
| Change in fair value of interest rate swap | 163,850 | (128,000 | ) | |||||
| Change in fair value of investments available for sale | 1,683,246 | - | ||||||
| Loss on extinguishment of debt | - | (148,472 | ) | |||||
| Total other (expense) income | (14,718,507 | ) | 1,855,638 | |||||
| Net loss | $ | (48,850,138 | ) | $ | (27,977,976 | ) | ||
| Preferred stock dividends | (798,000 | ) | (798,000 | ) | ||||
| Loss attributable to non-controlling interest | 65,649 | 337,166 | ||||||
| Net loss attributable to HOFRE stockholders | $ | (49,582,489 | ) | $ | (28,438,810 | ) | ||
| Net loss per share, basic and diluted | $ | (8.77 | ) | $ | (5.57 | ) | ||
| Weighted average shares outstanding, basic and diluted | 5,654,184 | 5,105,744 | ||||||
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Sponsorship Revenues
Sponsorship revenues totaled $2,054,464 for the nine months ended September 30, 2023, as compared to $2,020,095 for the nine months ended September 30, 2022, for an increase of $34,369, or 1.7%. This increase was primarily driven by the Company gaining new sponsorships.
Event, rents and other revenues
Revenue from event, rents and other revenues was $10,081,905 for the nine months ended September 30, 2023, compared to $6,326,565 for the nine months ended September 30, 2022, for an increase of $3,755,340, or 59.4%. This increase was primarily driven by an increase in events revenue, an increase in food and beverage sales, and higher revenue received from short term rentals. These increases were the result of the hosting of the USFL, concerts, and other events in our Tom Benson Hall of Fame Stadium, the resumption of many sports and other tournaments in our ForeverLawn Sports Complex, as well as revenue associated with the opening of our Don Shula’s American Kitchen restaurant.
Hotel Revenues
Hotel revenue was $5,856,170 for the nine months ended September 30, 2023, compared to $4,572,428 from the nine months ended September 30, 2022, for an increase of $1,283,742, or 28.1%. This increase was driven by increased occupancy and average daily rates.
Operating Expenses
Operating expense was $36,776,959 for the nine months ended September 30, 2023, compared to $29,053,220 for the nine months ended September 30, 2022, for an increase of $7,723,739, or 26.6%. This increase was driven by higher personnel and related benefits costs, the timing of recognition of certain compensation-related expenses, an increase in production and related costs for our events and media productions, and an increase in accounting, auditing and professional fees.
Hotel Operating Expenses
Hotel operating expense was $4,860,876 for the nine months ended September 30, 2023, compared to $4,278,897 for the nine months ended September 30, 2022, for an increase of $581,979, or 13.6%. This increase was driven by increased occupancy and higher related operating expenses.
Depreciation Expense
Depreciation expense was $10,486,335 for the nine months ended September 30, 2023, compared to $9,420,585 for the nine months ended September 30, 2022, for an increase of $1,065,750, or 11.3%. The increase was primarily the result of the completion of large assets which were put into service.
Interest Expense
Total interest expense was $14,063,584 for the nine months ended September 30, 2023, compared to $3,805,310 for the nine months ended September 30, 2022, for an increase of $10,258,274, or 270%. The increase in total interest expense was primarily due to an increase in the amount of total debt outstanding, a decrease in the proportion of debt that is capitalized for ongoing construction projects, and an increase in average interest rates.
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Amortization of Debt Discount
Total amortization of debt discount was $3,157,815 for the nine months ended September 30, 2023, compared to $3,610,738 for the nine months ended September 30, 2022, for a decrease of $452,923, or 12.5%. The decrease is primarily due to the removal of discounts from IRG-related debt upon the modification of the debt in November 2022.
Other Income
Other income was $148,796 for the nine months ended September 30, 2023, compared to $537,158 for the nine months ended September 30, 2022, for a decrease of $388,362, or 72.3%. Other income during 2023 represented gain on the sale of property, while other income during 2022 represented the sale of construction materials.
Change in Fair Value of Warrant Liability
The change in fair value warrant liability was $507,000 for the nine months ended September 30, 2023, compared to $9,011,000 for the nine months ended September 30, 2022, for a change of $8,504,000 or 94.4%. The change in fair value of warrant liability was primarily due to a change in our stock price.
Change in Fair Value of Interest Rate Swap
The change in fair value of interest rate swap was $163,850 and $(128,000) for the nine months ended September 30, 2023 and 2022, respectively. This was due to the change in fair value of the interest rate swap entered into in connection with an agreement with Huntington Bank.
Change in Fair Value of Investments Available for Sale
The change in fair value of investments available for sale of $1,683,246 during the nine months ended September 30, 2023 was related to the interest earned on our US Treasury Securities held during the period.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $0 for the nine months ended September 30, 2023, as compared to a loss of $148,472 for the nine months ended September 30, 2022. The loss on extinguishment of debt is due to the refinancing of many of our debt instruments in March 2022.
Liquidity and Capital Resources
We have sustained recurring losses through September 30, 2023, and our accumulated deficit was $196,480,832 as of such date. Since inception, our operations have been funded principally through the issuance of debt and equity. As of September 30, 2023, we had approximately $4.3 million of unrestricted cash and $7.5 million of restricted cash. Through November 10, 2024, we have $51.2 million in debt principal payments coming due.
We expect that we will need to raise additional financing to accomplish our development plan and fund our working capital. We are seeking to obtain additional funding through debt, construction lending, and equity financing. There are no assurances that we will be able to raise capital on terms 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 we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm its financial condition and operating results, or we may not be able to continue to fund our ongoing operations. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about our ability to continue as a going concern to sustain operations for at least one year from the issuance of these condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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Cash Flows
Since inception, we have primarily used our available cash to fund its project development expenditures. The following table sets forth a summary of cash flows for the periods presented:
| For
the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating Activities | $ | (19,606,299 | ) | $ | 2,413,959 | |||
| Investing Activities | (20,069,154 | ) | (77,862,339 | ) | ||||
| Financing Activities | 17,918,352 | 90,663,480 | ||||||
| Net (decrease) increase in cash and restricted cash | $ | (21,757,101 | ) | $ | 15,215,100 | |||
Cash Flows for the Nine Months Ended September 30, 2023 as Compared to the Nine Months Ended September 30, 2022
Operating Activities
Net cash used in operating activities was $19,606,299 during the nine months ended September 30, 2023, which consisted primarily of our net loss of $48,850,138, offset by non-cash depreciation expense of $10,486,335, amortization of note discounts of $3,157,815, accretion of financing liability of $5,146,586, impairment and recognition of film costs of $1,305,000, interest income on investments held to maturity of $563,652, payment-in-kind interest rolled into debt of $4,334,790, a change in fair value of interest rate swap of $163,850, a change in fair value of warrant liability of $507,000 and increase in a change of fair value of securities available for sales of $1,683,246, stock-based compensation expense of $2,520,210 and a non-cash operating lease expense of $390,502. The changes in operating assets and liabilities consisted of an increase in accounts receivable of $1,935,867, an increase in prepaid expenses and other assets of $124,927, an increase in accounts payable and accrued expenses of $5,838,427, an increase in due to affiliates of $396,876, and an increase in other liabilities of $1,034,870.
Net cash provided by operating activities was $2,413,959 during the nine months ended September 30, 2022, which consisted primarily of our net loss of $27,977,976, offset by non-cash depreciation expense of $9,420,585, amortization of note discounts of $3,610,738, payment-in-kind interest rolled into debt of $2,659,044, a loss on forgiveness of debt of $148,472, and stock-based compensation expense of $3,277,879. The changes in operating assets and liabilities consisted of an increase in accounts receivable of $1,201,990, a decrease in prepaid expenses and other assets of $719,172, an increase in accounts payable and accrued expenses of $16,092,721, an increase in due to affiliates of $2,740,818, and an increase in other liabilities of $1,659,949.
Investing Activities
Net cash used in investing activities was $20,069,154 during the nine months ended September 30, 2023, which consisted of investments in treasury securities of $71,947,597, proceeds from the sale of treasury securities of $89,470,392, proceeds from sale of property and equipment of $241,691, and investments in project development costs and property and equipment of $37,833,640.
Net cash used in investing activities was $77,862,339 during the nine months ended September 30, 2022, which consisted primarily of our project development costs and purchases of property and equipment.
Financing Activities
Net cash provided by financing activities was $17,918,352 during the nine months ended September 30, 2023. This consisted primarily of $24,270,339 in proceeds from notes payable, offset by $1,069,800 in repayments of notes payable, $3,281,250 in payments of our financing arrangements and $1,554,048 in payment of financing costs.
Net cash provided by financing activities was $90,663,480 during the nine months ended September 30, 2022. This consisted primarily of $68,807,100 in proceeds from notes payable, $15,588,519 in proceeds from our sale leaseback, and $20,403,517 of proceeds from equity raises under our ATM, offset by $8,238,479 in repayments of notes payable, and $5,447,177 in payment of financing costs.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For information on our significant accounting policies please refer to Note 2 to our Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and qualitative disclosures about market risk
Not applicable.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of our disclosure controls and procedures.
Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures. Based on their evaluation as of September 30, 2023, the principal executive officer and principal financial officer of the Company have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are not effective, due to a material weakness in internal control over financial reporting noted in the paragraph below.
Material Weakness in Internal Control over Financial Reporting
In connection with the review of the Company’s condensed consolidated financial statements for the quarter ended September 30, 2023, a material weakness in internal control over financial reporting was identified related to the precise and timely review and analysis of information used to prepare our financial statements and disclosures in accordance with U.S. GAAP.
Management is evaluating this material weakness to develop a plan for remediation.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2023, except for the material weakness noted above, no changes to the Company’s internal control over financial reporting occurred that materially affected, or are reasonably likely to materially affect, the Company’s 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. 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.
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, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2022 except as follows:
Our business plan requires additional liquidity and capital resources that might not be available on terms that are favorable to us, or at all. If we cannot obtain additional liquidity and capital resources, we may be unable to continue as a going concern.
We have sustained recurring losses through September 30, 2023 and our accumulated deficit was $196,480,832 as of such date. Since inception, our operations have been funded principally through the issuance of debt and equity. As of September 30, 2023, we had approximately $4.3 million of unrestricted cash and $7.5 million of restricted cash. Through November 10, 2024, we have $51.2 million in debt principal payments coming due.
While our strategy assumes that we will receive sufficient capital to have sufficient working capital, we currently do not have available cash and cash flows from operations to provide us with adequate liquidity for the near-term or foreseeable future. Our current projected liabilities exceed our current cash projections and we have very limited cash flow from current operations. We therefore will require additional capital and/or cash flow from future operations to fund the Company, our debt service obligations and our ongoing business. There is no assurance that we will be able to raise sufficient additional capital or generate sufficient future cash flow from our future operations to fund the Hall of Fame Village, our debt service obligations or our ongoing business. If the amount of capital we are able to raise, together with any income from future operations, is not sufficient to satisfy our liquidity and capital needs, including funding our current debt obligations, we may be required to abandon or alter our plans for the Company. The Company may have to raise additional capital through the equity market, which could result in substantial dilution to existing stockholders. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about our ability to continue to sustain operations as a going concern for at least one year from the issuance of our condensed consolidated financial statements for the quarter ended September 30, 2023 included in this quarterly report on Form 10-Q. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Our ability to obtain necessary financing may be impaired by factors such as the health of and access to capital markets, our limited track record and the limited historical financial information available, or the substantial doubt about our ability to continue as a going concern. Any additional capital raised through the sale of additional shares of our capital stock, convertible debt or other equity may dilute the ownership percentage of our stockholders.
Item 2. Unregistered sales of equity securities and use of proceeds
None.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
Not applicable.
Item 5. Other information
None.
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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: November 14, 2023 | By: | /s/ Michael Crawford |
| Michael Crawford | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Benjamin Lee |
| Benjamin Lee | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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