Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1: Organization and Nature of Business
Organization
and Nature of Business
Hall
of Fame Resort & Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise,
the “Company” or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned subsidiary
of our legal predecessor, Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On
July 1, 2020, the Company consummated a business combination with HOF Village, LLC, a Delaware limited liability company (“HOF
Village”), pursuant to an Agreement and Plan of Merger dated September 16, 2019 (as amended on November 6, 2019, March 10, 2020
and May 22, 2020, the “Merger Agreement”), by and among the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation
(“Acquiror Merger Sub”), GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”),
HOF Village and HOF Village Newco, LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by
the Merger Agreement are referred to in the Company’s Form 10-K/A as the “Business Combination” filed on May 12, 2021.
The
Company is a resort and entertainment company leveraging the power and popularity of professional football and its legendary players
in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered
in Canton, Ohio, the Company owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination
centered around the PFHOF’s campus. The Company is creating a diversified set of revenue streams through developing themed attractions,
premier entertainment programming, sponsorships and media.
The
Company has entered into several agreements with PFHOF, an affiliate of HOFRE, and certain government entities, which outline the rights
and obligations of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits,
portions of which are owned by the Company and portions of which are net leased to the Company by the government entities (see Note 7
for additional information). Under these agreements, the PFHOF and the government entities are entitled to use portions of the Hall of
Fame Village powered by Johnson Controls on a direct-cost basis.
COVID-19
During
2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19
and measures to prevent its spread impacted the Company’s business in a number of ways, most significantly with regard to a reduction
in the number of events and attendance at events at Tom Benson Hall of Fame Stadium and National Youth Football and Sports Complex, which
negatively impacts the Company’s ability to sell sponsorships. Also, the Company opened its newly renovated DoubleTree by Hilton
in Canton in November 2020, but the occupancy rate has been negatively impacted by the pandemic. The impact of these disruptions and
the extent of their adverse impact on its financial and operating results will be dictated by the length of time that such disruptions
continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things,
the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding
health matters going forward and developing strain mutations.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1: Organization and Nature of Business (continued)
Liquidity
The
Company has sustained recurring losses and negative cash flows from operations through March 31, 2021. In addition, the Company has significant
debt obligations maturing in the 12 month period subsequent to the date these consolidated financial statements are issued. Since inception,
the Company’s operations have been funded principally through the issuance of debt and equity. As of March 31, 2021, the Company
had approximately $50 million of cash and cash equivalents and $18 million of restricted cash, respectively.
On
January 28, 2021, the Company executed a binding term sheet with IRG, LLC pursuant to which the Company agreed to issue and sell to IRG,
LLC in a private placement of preferred stock and warrants to purchase shares of the Company’s common stock, par value $0.0001
per share (“Common Stock”), for a purchase price of $15 million. The private placement is expected to close in the second
quarter of 2021. In addition, during February 2021, the Company received approximately $34.5 million from the issuance of shares of its
Common Stock, net of offering costs. The Company will deposit up to $25 million of the net proceeds from the private placement and the
underwritten public offering in the account (the “Proceeds Account”) controlled by Aquarian (defined below) required under
our term loan agreement among the Company, Newco, and certain of Newco’s subsidiaries, as borrowers, and Aquarian Credit Funding
LLC (“Aquarian”), as lead arranger, administrative agent, collateral agent and representative of the lenders party thereto.
The Company must have the lender’s prior written approval to withdraw any amounts from the Proceeds Account, pursuant to a budget
and schedule agreed upon by the parties.
The
Company believes that, as a result of these transactions, it currently has sufficient cash and financing commitments to meet its funding
requirements over the next year. Notwithstanding, the Company expects that it will need to raise additional financing to accomplish its
development plan over the next several years. The Company is seeking to obtain additional funding through debt, construction lending,
and equity financing. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at
all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company is unable
to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm
its financial condition and operating results.
Note
2: Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial information and Rule 10 of SEC Regulation S–X.
Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of
the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in
these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2020, filed on May 12,
2021. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected
for any subsequent quarters or for the year ending December 31, 2021.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2: Summary of Significant Accounting Policies (continued)
Consolidation
The
unaudited condensed consolidated financial statements include the accounts and activity of the Company, and its wholly owned subsidiaries.
Investments in a variable interest entity in which the Company is not the primary beneficiary, or where the Company does not own a majority
interest but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity
method. All intercompany profits, transactions and balances have been eliminated in consolidation.
The
Company owns a 60% interest in Mountaineer GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s
results of operations. The Company acquired 60% of the equity interests in Mountaineer for a purchase price of $100 from one of its related
parties. See Note 9 for additional information on the terms of the agreement. The portion of Mountaineer’s net (loss)/income that
is not attributable to the Company is included in non-controlling interest.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments
not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the 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 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.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
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 consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions for the Company
relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, fair value of financial instruments,
and estimates and assumptions used to measure impairment. Management adjusts such estimates when facts and circumstances dictate. Actual
results could differ from those estimates.
Warrant Liability
The Company accounts for warrants for shares of the
Company’s Common Stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. Such warrants are
subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other expense on the
statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise
or expiration of such Common Stock warrants. At that time, the portion of the warrant liability related to such Common Stock warrants
will be reclassified to additional paid-in capital.
Property and Equipment and Project Development Costs
Property and equipment are recorded at historical
cost and are depreciated using the straight-line method over the estimated useful lives of the assets. During the construction period,
the Company capitalizes all costs related to the development of the Hall of Fame Village powered by Johnson Controls. Project development
costs include predevelopment costs, amortization of finance costs, real estate taxes, insurance, and other project costs incurred during
the period of development. The capitalization of costs began during the preconstruction period, which the Company defines as activities
that are necessary to the development of the project. The Company ceases cost capitalization when a portion of the project is held available
for occupancy and placed into service. This usually occurs upon substantial completion of all costs necessary to bring a portion of the
project to the condition needed for its intended use, but no later than one year from the completion of major construction activity. The
Company will continue to capitalize only those costs associated with the portion still under construction. Capitalization will also cease
if activities necessary for the development of the project have been suspended. As of March 31, 2021, the second two phases of the project
remained subject to such capitalization.
The Company reviews its property and equipment and
projects under development for impairment whenever events or changes indicate that the carrying value of the long-lived assets may not
be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded.
The Company measures and records impairment losses
on its long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amount. Considerable judgment by management is necessary to estimate undiscounted future operating
cash flows and fair values and, accordingly, actual results could vary significantly from such estimates.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Net Loss Per Common Share
Basic net loss per common share is computed by dividing
net loss by the weighted average number of common shares outstanding during the periods.
Diluted net loss per share is computed by dividing
the net loss by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive Common
Stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants,
(ii) vesting of restricted stock units and restricted stock awards, and (iii) conversion of preferred stock, are only included in the
calculation of diluted net loss per share when their effect is dilutive.
At March 31, 2021 and March 31, 2020, the following
outstanding Common Stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.
The Company was not a public entity as of March 31, 2020; therefore, no warrants, restricted stock awards, or restricted stock units were
potentially dilutive securities.
|
|
For the Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants to purchase shares of Common Stock
|
|
|
39,298,421
|
|
|
|
-
|
|
Restricted stock awards to purchase shares of Common Stock
|
|
|
477,286
|
|
|
|
-
|
|
Restricted stock units to purchase shares of Common Stock
|
|
|
3,171,454
|
|
|
|
-
|
|
Total potentially dilutive securities
|
|
|
42,947,161
|
|
|
|
-
|
|
Revenue Recognition
The Company follows ASC 606, Revenue with
Contracts with Customers, under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an
amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:
(i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation.
The Company generates revenues from various streams
such as sponsorship agreements, rents, cost recoveries, events, hotel operation, Hall of Fantasy League, and through the sale of non-fungible
tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and
other benefits over a set period of time, recognized revenue on a straight-line basis over the time period specified in the contract.
Refer to Note 6 for more details. Revenue for rents, cost recoveries and events are recognized at the time the respective event or service
has been performed.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
A performance obligation is a promise in a contract
to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company
allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally
determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s
performance obligations are satisfied. If consideration is received in advance of the Company’s performance, including amounts which
are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
The Company’s owned hotel revenues primarily
consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g. packages 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 prices of each component.
Advertising
The Company expenses all advertising and marketing
costs as they are incurred. Total advertising and marketing costs for the three months ended March 31, 2021 and 2020 were $275,858 and
$217,687, respectively, which are recorded as property operating expenses on the Company’s consolidated statements of operations.
Software Development Costs
The Company recognizes all costs incurred to establish
technological feasibility of a computer software product to be sold, leased, or otherwise marketed as research and development costs.
Prior to the point of reaching technological feasibility, all costs shall be charged to expense when incurred. Once the development of
the product establishes technological feasibility, the Company will begin capitalizing these costs. Technological feasibility is established
when a product design and working model have been completed and the completeness of the working model and its consistency with the product
design have been confirmed through testing.
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 Accounting Standards Codification
(“ASC”) 820–10 “Fair Value Measurement” of the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification to measure the fair value of its financial instruments and 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 (3) broad levels.
The three (3) levels of fair value hierarchy defined
by ASC 820–10 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.
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 Levels 1 and 3 of the fair value
hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period and recognizes
gains or losses as change in fair value of warrant liabilities in the consolidated statements of operations that are attributable to the
change in the fair value of the warrant liabilities.
The following table provides the financial liabilities
measured on a recurring basis and reported at fair value on the balance sheet as of March 31, 2021 and indicates the fair value hierarchy
of the valuation inputs the Company utilized to determine such fair value:
|
|
Level
|
|
March 31,
2021
|
|
Warrant liabilities – Public Warrants
|
|
1
|
|
$
|
26,260,000
|
|
Warrant liabilities – Private Warrants
|
|
3
|
|
|
2,500,000
|
|
Warrant liabilities – November Warrants
|
|
3
|
|
|
17,252,000
|
|
Warrant liabilities – December Warrants
|
|
3
|
|
|
38,286,000
|
|
Fair value of aggregate warrant liabilities as of March 31, 2021
|
|
|
|
$
|
84,298,000
|
|
The Public 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 Private Warrants, November
Warrants, and December Warrants, for which there is no current market for these securities such as 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 as appropriate.
Subsequent measurement
The following table presents the changes in fair value
of the warrant liabilities:
|
|
Public Warrants
|
|
|
Private Warrants
|
|
|
November Warrants
|
|
|
December Warrants
|
|
|
Total Warrant Liability
|
|
Fair value as of December 31, 2020
|
|
$
|
4,130,000
|
|
|
$
|
420,000
|
|
|
$
|
9,781,000
|
|
|
$
|
4,781,000
|
|
|
$
|
19,112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,165,000
|
)
|
|
|
-
|
|
|
|
(51,165,000
|
)
|
Change in fair value, exercised
|
|
|
|
|
|
|
|
|
|
|
43,542,000
|
|
|
|
|
|
|
|
43,542,000
|
|
Change in fair value, outstanding
|
|
|
22,130,000
|
|
|
|
2,080,000
|
|
|
|
15,094,000
|
|
|
|
33,505,000
|
|
|
|
72,809,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2021
|
|
$
|
26,260,000
|
|
|
$
|
2,500,000
|
|
|
$
|
17,252,000
|
|
|
$
|
38,286,000
|
|
|
$
|
84,298,000
|
|
The key inputs into the Black Scholes valuation model for the Level 3 valuations
as of March 31, 2021 are below:
|
|
Private Warrants
|
|
|
November Warrants
|
|
|
December Warrants
|
|
Term (years)
|
|
|
4.2
|
|
|
|
4.6
|
|
|
|
4.7
|
|
Stock price
|
|
$
|
5.02
|
|
|
$
|
5.02
|
|
|
$
|
5.02
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
46.6
|
%
|
|
|
49.5
|
%
|
|
|
49.5
|
%
|
Risk free interest rate
|
|
|
0.7
|
%
|
|
|
0.9
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,480,000
|
|
|
|
4,530,302
|
|
|
|
10,036,925
|
|
Value (per share)
|
|
$
|
0.28
|
|
|
$
|
3.81
|
|
|
$
|
3.81
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies
(continued)
Recent Accounting Pronouncements
In February 2016, FASB issued Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11,
2018-20 and 2019-01 (collectively “ASU 2016-02”). This ASU is effective for private companies beginning after December 15,
2021. ASU 2016-02 requires recognition of right-of-use assets and lease liabilities on the balance sheet. In June 2020, FASB issued ASU
2020-05, further extending the effective date by one year making it effective for the Company for annual periods beginning after December
15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. Most prominent among
the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use asset and a lease liability for operating leases. The right-of-use
asset and lease liability are initially measured based on the present value of committed lease payments. Leases are classified as either
finance or operating, with classification affecting the pattern of expense recognition. Expenses related to operating leases are recognized
on a straight-line basis, while those related to financing leases are recognized under a front-loaded approach in which interest expense
and amortization of the right-of-use asset are presented separately in the statement of operations. As the Company is an emerging growth
company and following private company deadlines, the Company has an additional deferral under this ASU to adopt beginning after December
15, 2021. Similarly, lessors are required to classify leases as sales-type, finance or operating with classification affecting the pattern
of income recognition.
Classification for both lessees and lessors is based
on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. ASU 2016-02
also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases.
The Company is currently evaluating the impact of the pending adoption of this new standard on its condensed consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01, “Leases
(Topic 842): Codification Improvements,” which requires an entity (a lessee or lessor) to provide transition disclosures under
Topic 250 upon adoption of Topic 842. In February 2020, the FASB issued ASU 2020-02, “Financial Instruments – Credit Losses
(Topic 326): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date
Related to Accounting Standards Update No. 2016-02, Leases.” The ASU adds and amends SEC paragraphs in the ASC to reflect the
issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the
revised effective date of the new leases standard. This new standard is effective for fiscal years beginning after December 15, 2021,
including interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently
evaluating the impact of the pending adoption of this new standard on its condensed consolidated financial statements.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies
(continued)
Recent Accounting Pronouncements (continued)
In August 2018, FASB issued ASU 2018-15, “Intangibles
– Goodwill and Other – Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That Is a Service Contract.” This update clarifies the accounting treatment for fees paid
by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license.
This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December
15, 2019, with early adoption permitted. The amendments must be applied either retrospectively or prospectively to all implementation
costs incurred after the date of adoption. The Company adopted this guidance on a prospective basis in the first quarter of 2020. The
adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
Subsequent Events
Subsequent events have been evaluated through
June 21, 2021, the date the condensed consolidated financial statements were issued. Other than what has been disclosed in the condensed
consolidated financial statements in Note 12, no other events have been identified requiring disclosure or recording.
Note 3: Property and Equipment
Property and equipment consists of the following:
|
|
Useful Life
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Land
|
|
|
|
$
|
2,300,564
|
|
|
$
|
535,954
|
|
Land improvements
|
|
25 years
|
|
|
31,078,211
|
|
|
|
31,078,211
|
|
Building and improvements
|
|
15 to 39 years
|
|
|
157,913,580
|
|
|
|
158,020,145
|
|
Equipment
|
|
5 to 10 years
|
|
|
2,520,532
|
|
|
|
2,165,882
|
|
Property and equipment, gross
|
|
|
|
|
193,812,887
|
|
|
|
191,800,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(40,365,366
|
)
|
|
|
(37,444,429
|
)
|
Property and equipment, net
|
|
|
|
$
|
153,447,521
|
|
|
$
|
154,355,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Project development costs
|
|
|
|
$
|
116,017,357
|
|
|
$
|
107,969,139
|
|
For the three months ended March 31, 2021 and 2020,
the Company recorded depreciation expense of $2,920,937 and $2,722,120, respectively. For the three months ended March 31, 2021 and 2020,
the Company incurred $8,218,308 and $7,360,832 of capitalized project development costs, respectively.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net
Notes payable, net consisted of the following at March
31, 2021:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
|
Interest Rate
|
|
|
Maturity Date
|
TIF loan
|
|
$
|
9,654,000
|
|
|
$
|
(1,653,137
|
)
|
|
$
|
8,000,863
|
|
|
|
5.20
|
%
|
|
7/31/2048
|
7% Series A Cumulative Redeemable Preferred Stock
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
1,800,000
|
|
|
|
7.00
|
%
|
|
2/26/2023
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(7,392
|
)
|
|
|
3,492,608
|
|
|
|
5.00
|
%
|
|
7/1/2027
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
|
|
4.00
|
%
|
|
12/30/2024
|
Constellation EME
|
|
|
8,944,408
|
|
|
|
-
|
|
|
|
8,944,408
|
|
|
|
6.05
|
%
|
|
12/31/2022
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(13,547
|
)
|
|
|
6,940,284
|
|
|
|
12.00
|
%
|
|
12/2/2021
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(354,204
|
)
|
|
|
14,945,796
|
|
|
|
5.00
|
%
|
|
3/31/2022
|
Convertible PIPE Notes, plus PIK accrual
|
|
|
22,348,617
|
|
|
|
(13,028,557
|
)
|
|
|
9,320,060
|
|
|
|
10.00
|
%
|
|
3/31/2025
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(179,617
|
)
|
|
|
2,490,383
|
|
|
|
3.85
|
%
|
|
5/15/2040
|
Aquarian Mortgage Loan
|
|
|
40,000,000
|
|
|
|
(1,602,604
|
)
|
|
|
38,397,396
|
|
|
|
10.00
|
%
|
|
11/30/2021
|
Constellation EME #2
|
|
|
5,100,000
|
|
|
|
-
|
|
|
|
5,100,000
|
|
|
|
5.93
|
%
|
|
4/30/2026
|
Total
|
|
$
|
119,270,845
|
|
|
$
|
(16,839,058
|
)
|
|
$
|
102,431,787
|
|
|
|
|
|
|
|
Notes payable, net consisted of the following at December
31, 2020:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
TIF loan
|
|
$
|
9,654,000
|
|
|
$
|
(1,666,725
|
)
|
|
$
|
7,987,275
|
|
Syndicated unsecured term loan
|
|
|
170,090
|
|
|
|
-
|
|
|
|
170,090
|
|
7% Series A Cumulative Redeemable Preferred Stock
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
1,800,000
|
|
Naming rights securitization loan
|
|
|
1,821,559
|
|
|
|
(113,762
|
)
|
|
|
1,707,797
|
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(7,681
|
)
|
|
|
3,492,319
|
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
Constellation EME
|
|
|
9,900,000
|
|
|
|
-
|
|
|
|
9,900,000
|
|
Paycheck protection plan loan
|
|
|
390,400
|
|
|
|
-
|
|
|
|
390,400
|
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(13,887
|
)
|
|
|
6,939,944
|
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(443,435
|
)
|
|
|
14,856,565
|
|
Convertible PIPE Notes, plus PIK accrual
|
|
|
21,797,670
|
|
|
|
(13,475,202
|
)
|
|
|
8,322,468
|
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(181,177
|
)
|
|
|
2,488,823
|
|
Aquarian Mortgage Loan
|
|
|
40,000,000
|
|
|
|
(2,156,303
|
)
|
|
|
37,843,697
|
|
Total
|
|
$
|
116,957,539
|
|
|
$
|
(18,058,172
|
)
|
|
$
|
98,899,367
|
|
During the three months ended March 31, 2021 and 2020,
the Company recorded amortization of note discounts of $1,234,114 and $3,234,413, respectively. During the three months ended March 31,
2021 and 2020, the Company recorded paid-in-kind interest of $380,860 and $552,903, respectively.
For more information on the notes payable above, please
see Note 4 of the Company’s Annual Report on Form 10-K/A, as filed on May 12, 2021.
7% Series A Cumulative Redeemable Preferred Stock
The Company had 1,800 shares of 7% Series A Cumulative
Redeemable Preferred Stock outstanding and 52,800 authorized as of March 31, 2021 and December 31, 2020. This preferred stock is required
to be redeemed in cash after five years from the date of issuance and is recorded in notes payable, net on the Company’s consolidated
balance sheet.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Accrued Interest on Notes Payable
As of March 31, 2021 and December 31, 2020, accrued
interest on notes payable, were as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
TIF loan
|
|
$
|
131,079
|
|
|
$
|
-
|
|
Preferred equity loan
|
|
|
27,125
|
|
|
|
27,125
|
|
New Market/SCF
|
|
|
22,112
|
|
|
|
-
|
|
Constellation EME
|
|
|
-
|
|
|
|
248,832
|
|
Paycheck protection plan loan
|
|
|
-
|
|
|
|
2,706
|
|
City of Canton Loan
|
|
|
8,847
|
|
|
|
4,472
|
|
JKP Capital Note
|
|
|
625,451
|
|
|
|
416,836
|
|
MKG Doubletree loan
|
|
|
-
|
|
|
|
67,716
|
|
Canton Cooperative Agreement
|
|
|
54,035
|
|
|
|
20,593
|
|
Aquarian Mortgage Loan
|
|
|
-
|
|
|
|
333,333
|
|
Total
|
|
$
|
868,649
|
|
|
$
|
1,121,613
|
|
The amounts above were included in accounts payable
and accrued expenses and other liabilities on the Company’s consolidated balance sheet, as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accounts payable and accrued expenses
|
|
$
|
841,524
|
|
|
$
|
1,094,488
|
|
Other liabilities
|
|
|
27,125
|
|
|
|
27,125
|
|
|
|
$
|
868,649
|
|
|
$
|
1,121,613
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Paycheck Protection Program Loan
On April 22, 2020, the Company obtained a Paycheck
Protection Program Loan (“PPP Loan”) for $390,400. The PPP Loan had a fixed interest rate of 1%, required the Company to make
18 monthly payments beginning on November 22, 2020, with a maturity date of April 22, 2022, subject to debt forgiveness provisions from
the Small Business Association. On February 1, 2021, the Company obtained notice from the Small Business Association that the full outstanding
amount of the PPP Loan was forgiven. The Company recognized the forgiveness of the PPP Loan as “Gain on Forgiveness of Debt”
in the Company’s unaudited condensed consolidated statement of operations.
Convertible PIPE Notes
On July 1, 2020, concurrently with the closing of
the Business Combination, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with certain
funds managed by Magnetar Financial, LLC and other purchasers (together, the “Purchasers”), pursuant to which the Company
agreed to issue and sell to the Purchasers in a private placement (the “Private Placement”) $20,721,293 in aggregate principal
amount of the Company’s 8.00% Convertible Notes due 2025 (the “PIPE Notes”). Pursuant to the terms of the Note Purchase
Agreement, the PIPE Notes may be converted into shares of Common Stock at a conversion price initially equal to $11.50 per share, subject
to customary adjustment. Accordingly, the aggregate amount of PIPE Notes issued and sold in the Private Placement is convertible into
1,801,851 shares of Common Stock based on the conversion rate applicable on July 1, 2020. The conversion rate will convert at a conversion
price of $11.50 per share based upon the conversion rate applicable on July 1, 2020. There are also Note Redemption Warrants that may
be issued pursuant to the Note Purchase Agreement upon redemption of the PIPE Notes that will be exercisable for a number of shares of
Common Stock to be determined at the time any such warrant is issued. The exercise price per share of Common Stock of any warrant will
be set at the time such warrant is issued pursuant to the Note Purchase Agreement.
The PIPE Notes provide for a conversion price reset
such that, if the last reported sale price of the Common Stock is less than or equal to $6.00 for any ten trading days within any 30 trading
day period preceding the maturity date, then the conversion price is adjusted down $6.90 per share. On July 28, 2020, the conversion price
reset was triggered. On this date, the Company recorded a beneficial conversion feature of $14,166,339, which will be amortized over the
remaining term of the PIPE Notes using the effective interest method. The Company recorded $446,644 on amortization of debt discount related
to the contingent beneficial conversion feature for the three months ended March 31, 2021 in the Company’s consolidated statements
of operations.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Constellation EME #2
On February 1, 2021, the Company entered into a loan
facility with Constellation whereby it may borrow up to $5,100,000 (the “Constellation EME #2”). The proceeds of the Constellation
EME #2 are to be held in escrow by a custodian to fund future development costs. The proceeds will be released from escrow as development
costs are incurred. The maturity date is April 30, 2026 and payments are due in 60 monthly installments totaling $6,185,716, with an effective
interest rate of 8.7%.
The Company also has a sponsorship agreement with
Constellation. Refer to Note 6 for additional information.
Future Minimum Principal Payments
The minimum required principal payments on notes payable
outstanding as of March 31, 2021 are as follows:
For the years ended December 31,
|
|
Amount
|
|
2021 (nine months)
|
|
$
|
51,583,589
|
|
2022
|
|
|
21,891,174
|
|
2023
|
|
|
1,516,602
|
|
2024
|
|
|
4,649,120
|
|
2025
|
|
|
25,820,130
|
|
Thereafter
|
|
|
13,810,230
|
|
Total Gross Principal Payments
|
|
$
|
119,270,845
|
|
|
|
|
|
|
Less: Discount
|
|
|
(16,839,058
|
)
|
|
|
|
|
|
Total Net Principal Payments
|
|
$
|
102,431,787
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020, the Company’s stockholders
approved an amendment to the Company’s charter to increase the authorized shares of Common Stock from 100,000,000 to 300,000,000.
Consequently, the Company’s charter allows the Company to issue up to 300,000,000 shares of Common Stock and to issue and designate
its rights of, without stockholder approval, up to 5,000,000 shares of preferred stock, par value $0.0001. On October 8, 2020, the Company
filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware
to establish preferences, limitations and relative rights of the 7.00% Series A Cumulative Redeemable Preferred Stock (“Series A
Preferred Stock”). The number of authorized shares of Series A Preferred Stock is 52,800.
2020 Omnibus Incentive Plan
On July 1, 2020, in connection with the closing of
the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective
immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved by the Company’s
stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of Common Stock authorized for issuance under
the 2020 Omnibus Incentive Plan is 1,812,728 shares. As of March 31, 2021, 516,289 shares remained available for issuance under the 2020
Omnibus Incentive Plan.
Issuance of Restricted Stock Awards
The Company’s activity in restricted Common
Stock was as follows for the three months ended March 31, 2021:
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair
value
|
|
Non–vested at January 1, 2021
|
|
|
477,286
|
|
|
$
|
9.30
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
|
Non–vested at March 31, 2021
|
|
|
477,286
|
|
|
$
|
9.30
|
|
For the three months ended March 31, 2021 and 2020,
the Company recorded $554,547 and $0, in employee and director stock-based compensation expense. As of March 31, 2021, unamortized stock-based
compensation costs related to restricted share arrangements was $2,772,733 and will be recognized over a weighted average period of 1.25
years.
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
On January 22, 2021, the Company granted an aggregate
of 1,671,521 RSUs to its employees under the 2020 Omnibus Incentive Plan. The RSUs were valued at $1.97 per share, the value of the common
stock on the date of grant. The RSUs vest one third on January 22, 2021, one third on January 22, 2022, and one third on January 22, 2023.
The Company’s activity in restricted stock units
was as follows for three months ended March 31, 2021:
|
|
Number of
shares
|
|
|
Weighted average
grant date
fair
value
|
|
Non–vested at January 1, 2021
|
|
|
1,499,933
|
|
|
$
|
2.49
|
|
Granted
|
|
|
1,671,521
|
|
|
$
|
1.97
|
|
Vested
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non–vested at March 31, 2021
|
|
|
3,171,454
|
|
|
$
|
2.22
|
|
For the three months ended March 31, 2021 and 2020,
the Company recorded $831,996 and $0, respectively, in employee and director stock-based compensation expense, which is a component of
property operating expenses in the consolidated statement of operations. As of March 31, 2021, unamortized stock-based compensation costs
related to restricted stock units was $5,696,954 and will be recognized over a weighted average period of 2.13 years.
Warrants
The Company’s warrant activity was as follows for the three months
ended March 31, 2021:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price (USD)
|
|
|
Weighted Average Contractual Life (years)
|
|
|
Intrinsic Value (USD)
|
|
Outstanding - January 1, 2021
|
|
|
55,303,832
|
|
|
$
|
5.92
|
|
|
|
4.73
|
|
|
|
|
|
Exercised
|
|
|
(16,005,411
|
)
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
Outstanding – March 31, 2021
|
|
|
39,298,421
|
|
|
$
|
7.76
|
|
|
|
6.31
|
|
|
$
|
52,733,362
|
|
Exercisable – March 31, 2021
|
|
|
29,261,496
|
|
|
$
|
7.40
|
|
|
|
5.10
|
|
|
$
|
16,399,693
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
February 2021 Public Offering and Over-allotment
On February 12, 2021, the Company closed its public
offering of 12,244,897 shares of Common Stock at a public offering price of $2.45 per share pursuant to the terms of the underwriting
agreement between the Company and Maxim Group LLC, entered into on February 9, 2021 (the “Underwriting Agreement”). On February
18, 2021, the Company closed the sale of an additional 1,836,734 shares of Common Stock at $2.45 per share pursuant to the exercise of
the underwriters’ over-allotment option in connection with its public offering that closed on February 12, 2021. Under the terms
of the Underwriting Agreement, each of the Company’s executive officers, directors and stockholders of more than 5% of the outstanding
Common Stock signed lock-up agreements pursuant to which each agreed, subject to certain exceptions, not to transact in the Common Stock
for a period of 90 days following February 12, 2021. Gross proceeds including the over-allotment, before underwriting discounts and commissions
and estimated offering expenses, are approximately $34.5 million.
Proposed Private Placement of Preferred Stock and
Warrants to Purchase Common Stock
On January 28, 2021, the Company executed a binding
term sheet with IRG, LLC pursuant to which the Company agreed to issue and sell to IRG, LLC in a private placement for a purchase price
of $15,000,000 (i) shares of a new series of preferred stock, which are convertible into shares of the Common Stock, having an aggregate
liquidation preference of $15,000,000, and (ii) a number of warrants, convertible into shares of the Common Stock at an exercise price
of $6.90 per share, equal to 50% of the liquidation preference of the preferred stock to be sold divided by the closing price
of the Common Stock on a specified date (the “New Private Placement”). The New Private Placement is expected to close in the
second quarter of 2021. If the Company consummates the New Private Placement, the Company intends to use the net proceeds for general
corporate purposes. The Company cannot give any assurance that the New Private Placement will be completed on the terms described herein,
on a timely basis or at all. On May 13, 2021, the Company entered into a stock purchase agreement with IRG, LLG to formalize the binding
term sheet.
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 “Amended Sponsorship Agreement”) among Newco, PFHOF and Johnson
Controls, Inc. (“JCI”), that amended and restated the Sponsorship and Naming Rights Agreement, dated as of November 17, 2016
(the “Original Sponsorship Agreement”). Among other things, the Amended Sponsorship Agreement: (i) reduced the total amount
of fees payable to Newco during the term of the Amended Sponsorship Agreement from $135 million to $99 million; (ii) restricted the activation
proceeds from rolling over from year to year with a maximum amount of activation proceeds in one agreement year to be $750,000; and (iii)
renamed the “Johnson Controls Hall of Fame Village” to “Hall of Fame Village powered by Johnson Controls”. This
is a prospective change, which the Company reflected beginning in the third quarter of 2020.
JCI has the right to terminate the agreement if Phase
II is not substantially complete by January 2, 2024.
As of March 31, 2021, scheduled future cash to be
received and required activation spend under the non-cancellable period of the agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021 (nine months)
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
Total
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the Amended Sponsorship Agreement. During the three months ended March 31,
2021 and 2020, the Company recognized $1,109,062 and $1,237,347 of net sponsorship revenue related to this deal, respectively. Accounts
receivable from JCI totaled $0 and $0 at March 31, 2021 and December 31, 2020, respectively.
Aultman Health Foundation
In 2016, the Company and PFHOF entered into a 10-year
licensing agreement with Aultman Health Foundation (“Aultman”) allowing Aultman use of the HOF Village and PFHOF marks and
logos. Under terms of the agreement, the Company will receive $2.5 million in cash sponsorship funds. Of those funds, the Company is contractually
obligated to spend $700,000 as activation expenses for the benefit of Aultman.
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the agreement. During the three months ended March 31, 2021 and 2020, the Company
recognized $4,491 and $44,852 of net sponsorship revenue related to this deal, respectively. Accounts receivable from Aultman totaled
$0 and $0 at March 31, 2021 and December 31, 2020, respectively.
On January 12, 2021, the Company notified Aultman
that the Company terminated as to itself, effective as of January 26, 2021, the Sponsorship Agreement, dated December 6, 2016, among Aultman,
PFHOF and the Company. As such, the Company will no longer be receiving future sponsorship payments from Aultman.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
First Data Merchant Services LLC
In December 2018, the Company and PFHOF entered into
an 8-year licensing agreement with First Data Merchant Services LLC (“First Data”) and Santander Bank. As of March 31, 2021,
scheduled future cash to be received under the agreement are as follows:
Year ending December 31, 2020:
2021 (nine months)
|
|
$
|
200,000
|
|
2022
|
|
|
150,000
|
|
2023
|
|
|
150,000
|
|
2024
|
|
|
150,000
|
|
2025
|
|
|
150,000
|
|
Thereafter
|
|
|
150,000
|
|
|
|
|
|
|
Total
|
|
$
|
950,000
|
|
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the agreement. During the three months ended March 31, 2021 and 2020, the Company
recognized $36,635 and $37,042 of net sponsorship revenue related to this deal, respectively. As of March 31, 2021 and December 31, 2020,
accounts receivable from First Data totaled $94,776 and $58,141, respectively.
Constellation NewEnergy, Inc.
On December 19, 2018 the Company and PFHOF entered
into a sponsorship and services agreement with Constellation (the “Constellation Sponsorship Agreement”) whereby Constellation
and its affiliates will provide the gas and electric needs in exchange for certain sponsorship rights. The original term of the Company’s
Constellation Sponsorship Agreement was through December 31, 2028, however, in June 2020, the Company entered into an amended contract
with Constellation which extended the term of the Constellation Sponsorship Agreement through December 31, 2029.
The Constellation Sponsorship Agreement provides for
certain rights to Constellation and its employees, to benefit from the relationship with the Company from discounted pricing, marketing
efforts, and other benefits as detailed in the agreement. The Constellation Sponsorship Agreement also provides for Constellation to pay
sponsorship income and to provide activation fee funds. Activation fee funds are to be used in the year received and do not roll forward
for future years as unspent funds. The amounts are due by March 31 of the year to which they apply, which is represented in the chart
below.
The Constellation Sponsorship Agreement includes certain
contingencies reducing the sponsorship fee amount owed by Constellation if construction is not on pace with the timeframe noted in the
Constellation Sponsorship Agreement.
The Company also has a note payable with Constellation.
Refer to Note 4 for additional information.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Constellation NewEnergy, Inc. (continued)
As of March 31, 2021, scheduled future cash to be
received and required activation spend under the agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021 (nine months)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2022
|
|
|
1,396,000
|
|
|
|
200,000
|
|
|
|
1,596,000
|
|
2023
|
|
|
1,423,220
|
|
|
|
200,000
|
|
|
|
1,623,220
|
|
2024
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
2025
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
Thereafter
|
|
|
5,029,057
|
|
|
|
664,000
|
|
|
|
5,693,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,362,807
|
|
|
$
|
1,396,000
|
|
|
$
|
11,758,807
|
|
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the Constellation Sponsorship Agreement. During the three months ended March
31, 2021 and 2020, the Company recognized $289,165 and $326,736 of net sponsorship revenue related to this deal, respectively. Accounts
receivable from Constellation totaled $91,032 and $1,101,867 at March 31, 2021 and December 31, 2020, respectively.
Turf Nation, Inc.
During October 2018, the Company entered into a 5-year
sponsorship agreement with Turf Nation, Inc. (“Turf Nation”). Under the terms of the agreement, the Company will receive payments
over the term based on the sale of Turf Nation products based on rates defined in the sponsorship agreement. The minimum guaranteed fee
per year beginning in 2020 is $50,000 per year.
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the agreement. During the three months ended March 31, 2021 and 2020, the Company
recognized $14,786 and $14,951 of net sponsorship revenue related to this deal, respectively. Accounts receivable from Turf Nation totaled
$146,878 and $132,092 at March 31, 2021 and December 31, 2020, respectively.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments
Canton City School District
The Company has entered into cooperative agreements
with certain governmental entities that support the development of the project overall, where the Company is an active participant in
the agreement activity, and the Company would benefit from the success of the activity.
The Company had a commitment to the Canton City School
District (“CCSD”) to provide a replacement for their Football Operations Center (“FOC”) and to construct a Heritage
Project (“Heritage”). The commitment was defined in the Operations and Use Agreement for HOF Village Complex dated as of February
26, 2016.
Project and Ground Leases
Three wholly owned subsidiaries of the Company have
project leases with the Stark County Port Authority to lease project improvements and ground leased property at the Tom Benson Hall of
Fame Stadium, youth fields, and parking areas. On November 25, 2020, the Company entered into an amendment to its Stark County Port Authority
lease, whereby the lease term was extended from January 31, 2056 to September 30, 2114. The future minimum lease commitments under non-cancellable
operating leases described below reflect the amendment that was entered into on November 25, 2020, excluding the amounts yet to be paid
from escrow for the FOC noted above, as follows:
For the year ended December 31, 2020:
2021 (nine months)
|
|
$
|
243,925
|
|
2022
|
|
|
321,900
|
|
2023
|
|
|
321,900
|
|
2024
|
|
|
321,900
|
|
2025
|
|
|
321,900
|
|
Thereafter
|
|
|
41,320,800
|
|
|
|
|
|
|
Total
|
|
$
|
42,852,325
|
|
Rent expense on operating leases totaled $77,975 and
$100,949 during the three months ended March 31, 2021 and 2020, and is recorded as a component of property operating expenses on the Company’s
consolidated statement of operations.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
SMG Management Agreement
On September 1, 2019, the Company entered into a Service
Agreement with SMG to manage the Tom Benson Hall of Fame Stadium operations. Under that agreement, the Company incurs an annual management
fee of $200,000. Management fee expense for the three months ended March 31, 2021 and 2020 was $50,000 and $50,000, respectively, which
is included in property operating expenses on the Company’s consolidated statements of operations. The agreement term shall end
on December 31, 2022.
Employment Agreements
The Company has employment agreements with many of
its key executive officers that usually have terms between one year and three years.
Management Agreement with Crestline Hotels &
Resorts
On October 22, 2019, the Company entered into a management
agreement with Crestline Hotels & Resorts (“Crestline”). The Company appointed and engaged Crestline as the Company’s
exclusive agent to supervise, direct and control management and operation of the DoubleTree Canton Downtown Hotel. In consideration of
the services performed by Crestline, the Company agreed to the greater of: 2% of gross revenues or $10,000 per month in base management
fees and other operating expenses. The agreement will be terminated on the fifth anniversary of the commencement date, or October 22,
2024. For the three months ended March 31, 2021 and 2020, the Company paid and incurred $30,000 and $0 in management fees, respectively.
Constellation EME Express Equipment Services Program
On February 1, 2021, the Company entered into a contract
with Constellation whereby Constellation will sell and/or deliver materials and equipment purchased by the Company. The Company is required
to provide $2,000,000 to an escrow account held by Constellation, representing adequate assurance of future performance. Constellation
will invoice the Company in 60 monthly installments beginning in April 2021 for $103,095.
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.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions
Due to Affiliates
Due to affiliates consisted of the following at March
31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Due to IRG Member
|
|
$
|
1,700,174
|
|
|
$
|
1,456,521
|
|
Due to IRG Affiliate
|
|
|
163,214
|
|
|
|
140,180
|
|
Due to PFHOF
|
|
|
59,480
|
|
|
|
126,855
|
|
Total
|
|
$
|
1,922,868
|
|
|
$
|
1,723,556
|
|
IRG Canton Village Member, LLC, a member of HOF Village,
LLC controlled by our director Stuart Lichter (the “IRG Member”) and an affiliate provide certain supporting services to the
Company. As noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member, IRG Canton Village Manager, LLC, the
manager of HOF Village, LLC controlled by our director Stuart Lichter, may earn a master developer fee calculated as 4.0% of development
costs incurred for the Hall of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction supervision,
and project financing. These development costs incurred are netted against certain costs incurred for general project management.
For the three months ended March 31, 2021 and 2020,
costs incurred under these arrangements were $0 and $128,772, respectively, which were included in Project Development Costs.
The amounts due to the IRG Member above are for development
fees, human resources support, and the Company’s engagement with them to identify and obtain naming rights sponsorships and other
entitlement partners for the Company. The Company and IRG Member have an arrangement whereby the Company pays IRG Member $15,000 per month
plus commissions. For both the three months ended March 31, 2021 and 2020, the Company incurred $45,000 in costs to this affiliate, respectively.
The amounts above due to related party advances are
non-interest bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions with this affiliate
to establish repayment terms of these advances, however, there could be no assurance that the Company and IRG Member will come to terms
acceptable to both parties.
On January 13, 2020, the Company secured $9.9 million
in financing from Constellation through its Efficiency Made Easy (“EME”) program to implement energy efficient measures and
to finance the construction of the Constellation Center for Excellence and other enhancements, as part of Phase II development. The Hanover
Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations under the financing, and Stuart Lichter
and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance Company for payments made under the guarantee
bond.
The amounts above due to PFHOF relate to advances
to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales support, shared services, event tickets, and expense
reimbursements.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
License Agreement
On March 10, 2016, the Company entered into a license
agreement with PFHOF, whereby the Company has the ability to license and use certain intellectual property from PFHOF in exchange for
the Company paying a fee based on certain sponsorship revenue and expenses. On December 11, 2018, the license agreement was amended to
change the calculation of the fee to be 20% of eligible sponsorship revenue. The license agreement was further amended in a First Amended
and Restated License Agreement, dated September 16, 2019. The license agreement expires on December 31, 2033. During the three months
ended March 31, 2021 and 2020, the Company recognized expenses of $105,221 and $1,001,604, respectively, which are included in property
operating expenses on the Company’s consolidated statements of operations.
Media License Agreement
On November 11, 2019, the Company entered into a Media
License Agreement with PFHOF. On July 1, 2020, the Company entered into an Amended and Restated Media License Agreement that terminates
on December 31, 2034. In consideration of a license to use certain intellectual property of PFHOF, the Company agreed to pay to PFHOF
minimum guaranteed license fees of $1,250,000 each year during the term. After the first five years of the agreement, the minimum guarantee
shall increase by 3% on a year-over-year basis. The first annual minimum payment is due July 1, 2021, subject to potential acceleration
in the event of earlier use. There were no license fees incurred during the three months ended March 31, 2021 and 2020 under the Media
License Agreement.
Other Liabilities
Other liabilities consisted of the following at March
31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Activation fund reserves
|
|
$
|
4,231,326
|
|
|
$
|
3,780,343
|
|
Deferred revenue
|
|
|
882,786
|
|
|
|
1,709,126
|
|
Total
|
|
$
|
5,114,112
|
|
|
$
|
5,489,469
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Purchase of Real Property from PFHOF
On February 3, 2021, the Company purchased for $1.75
million certain parcels of real property from PFHOF located at the site of the Hall of Fame Village powered by Johnson Controls. In connection
with the purchase, the Company granted certain easements to PFHOF to ensure accessibility to the PFHOF museum.
Shared Services Agreement with PFHOF
On March 9, 2021, the Company entered into an additional
Shared Services Agreement with PFHOF, which supplements the existing Shared Services Agreement by, among other things, providing for the
sharing of costs for activities relating to shared services.
Note 10: Concentrations
For the three months ended March 31, 2021, two customers
represented approximately 58% and 15% of the Company’s sponsorship revenue. For the three months ended March 31, 2020, two customers
represented approximately 63% and 17% of the Company’s sponsorship revenue. At March 31, 2021, three customers represented approximately
39%, 26% and 16% of the Company’s accounts receivable. At December 31, 2020, two customers represented approximately 71% and 15%
of the Company’s accounts receivable.
At any point in time, the Company can have funds in
their operating accounts and restricted cash accounts that are with third party financial institutions. These balances in the U.S. may
exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors the cash balances in their operating accounts,
these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse
conditions in the financial markets.
Note 11: Defined Contribution Plan
The Company has a defined contribution plan (the “Defined
Contribution Plan”) whereby employer contributions are discretionary and determined annually. In addition, the Defined Contribution
Plan allows participants to make elective deferral contributions through payroll deductions, of which the Company will match a portion
of those contributions. During the three months ended March 31, 2021 and 2020, the Company expensed matching contributions of $29,038
and $28,261, respectively.
Note 12: Subsequent Events
Private
Placement of Preferred Stock and Warrants to Purchase Common Stock
On June
4, 2021, in accordance with the previously announced Securities Purchase Agreement, dated May 13, 2021, between the Company and IRG,
LLC, as assigned by IRG, LLC to CH Capital Lending, LLC, and the binding term sheet dated January 28, 2021, the Company issued and sold
to CH Capital Lending, LLC for a purchase price of $15 million in a private placement (the “New Private Placement”) (i) 15,000
shares of 7.00% Series B Convertible Preferred Stock (the “Series B Preferred Stock”), which are convertible into shares
of Common Stock, having an aggregate liquidation preference of $15 million plus any accrued but unpaid dividends to the date of payment,
and (ii) 2,450,980 warrants, with a term of three years, exercisable six months after issuance, each exercisable for one share of Common
Stock at an exercise price of $6.90 per share, subject to certain adjustments (the “Series D Warrants”). Also on June 4,
2021, the Company closed a securities purchase agreement with another purchaser for 200 shares of Series B Preferred Stock and 32,680
Series D Warrants. The Company intends to deposit the net proceeds as necessary into the Proceeds Account (as defined herein), and use
the net proceeds for general corporate purposes.
Amendment
to 2020 Omnibus Incentive Plan
At the Company’s 2021 Annual Meeting
of Stockholders held on June 2, 2021 (the “2021 Annual Meeting”), the Company’s stockholders approved an amendment
to the 2020 Omnibus Incentive Plan to increase by four million the number of shares of Common Stock that will be available for issuance
under the 2020 Omnibus Incentive Plan, resulting in a maximum of 5,812,727 shares that can be issued under the amended Plan. The amendment
to the 2020 Omnibus Incentive Plan was previously approved by the board of directors of the Company, subject to stockholder approval
at the 2021 Annual Meeting. The amended 2020 Omnibus Incentive Plan became effective on June 2, 2021.
Election of Class A Directors
At the 2021 Annual Meeting, the Company’s
stockholders elected Edward J. Roth III, Mary Owen and Lisa Roy to serve as Class A directors for three-year terms expiring upon the
2024 Annual Meeting of Stockholders and the election and qualification of their respective successors.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Hall of Fame Resort & Entertainment
Company
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Hall of Fame Resort & Entertainment Company (the “Company”) as of December 31, 2020 and 2019,
the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years
in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As disclosed in Notes 2 and 15 to the financial statements,
the accompanying consolidated financial statements as of December 31, 2020 and for the year then ended have been restated to correct
an error.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s
auditor since 2019.
New York, NY
March 10, 2021, except for the effects of the restatement disclosed in Notes 2 and 15 to the consolidated financial statements as
to which the date is May 11, 2021
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
|
(Restated)
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
7,145,661
|
|
|
$
|
2,818,194
|
|
Restricted cash
|
|
|
32,907,800
|
|
|
|
5,796,398
|
|
Accounts receivable, net
|
|
|
1,545,089
|
|
|
|
1,355,369
|
|
Prepaid expenses and other assets
|
|
|
6,920,851
|
|
|
|
2,292,859
|
|
Property and equipment, net
|
|
|
154,355,763
|
|
|
|
134,910,887
|
|
Project development costs
|
|
|
107,969,139
|
|
|
|
88,587,699
|
|
Total assets
|
|
$
|
310,844,303
|
|
|
$
|
235,761,406
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
98,899,367
|
|
|
$
|
164,922,714
|
|
Accounts payable and accrued expenses
|
|
|
20,538,190
|
|
|
|
12,871,487
|
|
Due to affiliate
|
|
|
1,723,556
|
|
|
|
19,333,590
|
|
Warrant liability
|
|
|
19,112,000
|
|
|
|
-
|
|
Other liabilities
|
|
|
5,489,469
|
|
|
|
3,684,276
|
|
Total liabilities
|
|
|
145,762,582
|
|
|
|
200,812,067
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7 and 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; No shares issued or outstanding at December 31, 2020 and December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value; 300,000,000 shares authorized; 64,091,266 and 5,436,000 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
|
|
|
6,410
|
|
|
|
544
|
|
Additional paid-in capital
|
|
|
172,112,688
|
|
|
|
-
|
|
(Accumulated deficit) retained earnings
|
|
|
(6,840,871
|
)
|
|
|
34,948,795
|
|
Total equity attributable to HOFRE
|
|
|
165,278,227
|
|
|
|
34,949,339
|
|
Non-controlling interest
|
|
|
(196,506
|
)
|
|
|
-
|
|
Total equity
|
|
|
165,081,721
|
|
|
|
-
|
|
Total liabilities and stockholders’
equity
|
|
$
|
310,844,303
|
|
|
$
|
235,761,406
|
|
The accompanying notes are an integral part of these consolidated financial statements.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the Years Ended
December 31,
|
|
|
2020
|
|
2019
|
|
|
(Restated)
|
|
|
Revenues
|
|
|
|
|
Sponsorships, net of activation costs
|
|
$
|
6,424,201
|
|
|
$
|
6,720,298
|
|
Rents and cost recoveries
|
|
|
474,020
|
|
|
|
1,064,569
|
|
Event revenues
|
|
|
38,750
|
|
|
|
76,464
|
|
Hotel revenues
|
|
|
162,183
|
|
|
|
-
|
|
Total revenues
|
|
$
|
7,099,154
|
|
|
$
|
7,861,331
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
26,631,821
|
|
|
|
16,707,537
|
|
Hotel operating expenses
|
|
|
419,595
|
|
|
|
-
|
|
Commission expense
|
|
|
1,671,964
|
|
|
|
1,003,226
|
|
Depreciation expense
|
|
|
11,085,230
|
|
|
|
10,915,839
|
|
Loss on abandonment of project development costs
|
|
|
-
|
|
|
|
12,194,783
|
|
Total operating expenses
|
|
|
39,808,610
|
|
|
|
40,821,385
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(32,709,456
|
)
|
|
|
(32,960,054
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5,718,473
|
)
|
|
|
(9,416,099
|
)
|
Amortization of discount on note payable
|
|
|
(10,570,974
|
)
|
|
|
(13,274,793
|
)
|
Change in fair value of warrant liability
|
|
|
26,733,116
|
|
|
|
-
|
|
Loss on extinguishment of debt
|
|
|
(4,282,220
|
)
|
|
|
-
|
|
Loss in joint venture
|
|
|
-
|
|
|
|
(252,934
|
)
|
Business combination costs
|
|
|
(19,137,165
|
)
|
|
|
-
|
|
Total other expense
|
|
$
|
(12,975,716
|
)
|
|
$
|
(22,943,826
|
)
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
$
|
(45,685,172
|
)
|
|
$
|
(55,903,880
|
)
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,685,172
|
)
|
|
$
|
(55,903,880
|
)
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(196,506
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to HOFRE stockholders
|
|
$
|
(45,488,666
|
)
|
|
$
|
(55,903,880
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(1.71
|
)
|
|
$
|
(10.28
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
26,644,449
|
|
|
|
5,436,000
|
|
The accompanying notes are an integral part of these consolidated financial statements.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
(Accumulated
Deficit)
Retained
|
|
|
Total Equity
Attributable to
HOFRE
|
|
|
Non-controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2019
|
|
|
5,436,000
|
|
|
$
|
544
|
|
|
$
|
-
|
|
|
$
|
90,852,675
|
|
|
$
|
90,853,219
|
|
|
$
|
-
|
|
|
$
|
90,853,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55,903,880
|
)
|
|
|
(55,903,880
|
)
|
|
|
-
|
|
|
|
(55,903,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as
of December 31, 2019
|
|
|
5,436,000
|
|
|
$
|
544
|
|
|
$
|
-
|
|
|
$
|
34,948,795
|
|
|
$
|
34,949,339
|
|
|
$
|
-
|
|
|
$
|
34,949,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
from shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,699,000
|
|
|
|
3,699,000
|
|
|
|
-
|
|
|
|
3,699,000
|
|
Conversion
of the preferred equity loan
|
|
|
12,277,428
|
|
|
|
1,228
|
|
|
|
58,438,397
|
|
|
|
-
|
|
|
|
58,439,625
|
|
|
|
-
|
|
|
|
58,439,625
|
|
Shares of common
stock issued for accounts payable and due to affiliates
|
|
|
2,292,624
|
|
|
|
229
|
|
|
|
23,425,932
|
|
|
|
-
|
|
|
|
23,426,161
|
|
|
|
-
|
|
|
|
23,426,161
|
|
Business combination
with GPAQ on July 1, 2020 (Restated)
|
|
|
6,538,201
|
|
|
|
653
|
|
|
|
494,179
|
|
|
|
-
|
|
|
|
494,781
|
|
|
|
-
|
|
|
|
494,781
|
|
Shares of common
stock issued in exchange of debt
|
|
|
16,093,857
|
|
|
|
1,609
|
|
|
|
54,516,767
|
|
|
|
-
|
|
|
|
54,518,376
|
|
|
|
-
|
|
|
|
54,518,376
|
|
Stock-based
compensation on restricted stock awards
|
|
|
715,929
|
|
|
|
72
|
|
|
|
2,772,733
|
|
|
|
-
|
|
|
|
2,772,805
|
|
|
|
-
|
|
|
|
2,772,805
|
|
Stock-based
compensation on restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
1,554,968
|
|
|
|
-
|
|
|
|
1,554,968
|
|
|
|
-
|
|
|
|
1,554,968
|
|
Vesting of
restricted stock units
|
|
|
176,514
|
|
|
|
18
|
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based
compensation - common stock awards
|
|
|
25,000
|
|
|
|
3
|
|
|
|
195,997
|
|
|
|
-
|
|
|
|
196,000
|
|
|
|
-
|
|
|
|
196,000
|
|
Contingent
beneficial conversion feature on PIPE Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
14,166,339
|
|
|
|
-
|
|
|
|
14,166,339
|
|
|
|
-
|
|
|
|
14,166,339
|
|
November 18,
2020 capital raise, net of offering costs (Restated)
|
|
|
17,857,142
|
|
|
|
1,786
|
|
|
|
14,476,624
|
|
|
|
-
|
|
|
|
14,478,410
|
|
|
|
-
|
|
|
|
14,478,410
|
|
December 4,
2020 capital raise, net of offering costs (Restated)
|
|
|
2,678,571
|
|
|
|
268
|
|
|
|
2,070,821
|
|
|
|
-
|
|
|
|
2,071,089
|
|
|
|
-
|
|
|
|
2,071,089
|
|
Net
loss (Restated)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,488,666
|
)
|
|
|
(45,488,666
|
)
|
|
|
(196,506
|
)
|
|
|
(45,685,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2020 (Restated)
|
|
|
64,091,266
|
|
|
$
|
6,410
|
|
|
$
|
172,112,688
|
|
|
$
|
(6,840,871
|
)
|
|
$
|
165,278,227
|
|
|
$
|
(196,506
|
)
|
|
$
|
165,081,721
|
|
The accompanying notes are an integral part of these consolidated financial statements.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Restated)
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,685,172
|
)
|
|
$
|
(55,903,880
|
)
|
Adjustments to
reconcile net loss to cash flows (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
11,085,230
|
|
|
|
10,915,839
|
|
Amortization of note discounts
|
|
|
10,570,974
|
|
|
|
13,274,793
|
|
Change in fair value of warrant
liability
|
|
|
(26,733,116
|
)
|
|
|
|
|
Bad debt expense
|
|
|
-
|
|
|
|
788,689
|
|
Loss on abandonment of project
development costs
|
|
|
-
|
|
|
|
12,194,783
|
|
Loss from equity method investment
|
|
|
-
|
|
|
|
252,576
|
|
Interest paid in kind
|
|
|
4,066,691
|
|
|
|
5,722,638
|
|
Loss on extinguishment of debt
|
|
|
4,282,220
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
4,523,773
|
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(189,720
|
)
|
|
|
360,677
|
|
Prepaid expenses and other assets
|
|
|
(4,627,992
|
)
|
|
|
(1,631,829
|
)
|
Accounts payable and accrued expenses
|
|
|
29,264,412
|
|
|
|
3,650,041
|
|
Due to affiliates
|
|
|
(9,644,241
|
)
|
|
|
9,459,293
|
|
Other liabilities
|
|
|
4,721,670
|
|
|
|
1,849,398
|
|
Net cash (used
in) provided by operating activities
|
|
|
(18,365,271
|
)
|
|
|
933,018
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Additions to project development
costs and property equipment
|
|
|
(48,614,331
|
)
|
|
|
(16,723,883
|
)
|
Proceeds
from business combination
|
|
|
31,034,781
|
|
|
|
-
|
|
Net cash used
in investing activities
|
|
|
(17,579,550
|
)
|
|
|
(16,723,883
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
106,976,651
|
|
|
|
23,588,122
|
|
Repayments of notes payable
|
|
|
(62,593,562
|
)
|
|
|
(7,023,874
|
)
|
Payment of financing costs
|
|
|
(3,227,898
|
)
|
|
|
(576,741
|
)
|
Proceeds
from equity raises
|
|
|
26,228,499
|
|
|
|
-
|
|
Net cash provided
by financing activities
|
|
|
67,383,690
|
|
|
|
15,987,507
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and restricted
cash
|
|
|
31,438,869
|
|
|
|
196,642
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted
cash, beginning of year
|
|
|
8,614,592
|
|
|
|
8,417,950
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted
cash, end of year
|
|
$
|
40,053,461
|
|
|
$
|
8,614,592
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,145,661
|
|
|
$
|
2,818,194
|
|
Restricted Cash
|
|
|
32,907,800
|
|
|
|
5,796,398
|
|
Total
cash and restricted cash
|
|
$
|
40,053,461
|
|
|
$
|
8,614,592
|
|
The accompanying notes are an integral part of these consolidated financial statements.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Restated)
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
5,962,918
|
|
|
$
|
1,198,888
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Project development cost acquired through accounts payable
and accrued expenses, net
|
|
$
|
(1,297,215
|
)
|
|
$
|
(3,329,800
|
)
|
Conversion of the preferred equity loan to common equity
|
|
$
|
58,439,625
|
|
|
$
|
-
|
|
Shares of common stock issued for accounts payable and
due to affiliate
|
|
$
|
23,426,161
|
|
|
$
|
-
|
|
Non-cash contribution from PFHOF in shared services agreement
|
|
$
|
3,699,000
|
|
|
$
|
-
|
|
Shares of common stock issued in exchange of debt
|
|
$
|
54,518,376
|
|
|
$
|
-
|
|
Conversion of GPAQ Sponsor Loan into convertible PIPE
debt
|
|
$
|
500,000
|
|
|
$
|
-
|
|
Deferred financing costs in accounts payable and accrued
expenses, net
|
|
$
|
610,810
|
|
|
$
|
620,576
|
|
Contingent beneficial conversion feature on PIPE Notes
|
|
$
|
14,166,339
|
|
|
$
|
-
|
|
Initial value of warrants issued accounted for as liabilities
|
|
$
|
45,845,116
|
|
|
$
|
-
|
|
Reclassify amounts from capitalized development costs
to property and equipment
|
|
$
|
27,373,715
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 1: Organization and Nature of Business
Organization and Nature of Business
Hall of Fame Resort
& Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise, the
“Company” or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned
subsidiary of our legal predecessor, Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On July 1, 2020, the Company
consummated a business combination with HOF Village, LLC, a Delaware limited liability company (“HOF Village”), pursuant
to an Agreement and Plan of Merger dated September 16, 2019 (as amended on November 6, 2019, March 10, 2020 and May 22, 2020, the “Merger
Agreement”), by and among the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation (“Acquiror Merger Sub”),
GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”), HOF Village and HOF Village Newco,
LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by the Merger Agreement are referred to
in this Form 10-K/A as the “Business Combination.”
Upon the consummation
of the Business Combination: (i) Acquiror Merger Sub merged with and into GPAQ, with GPAQ continuing as the surviving entity (the
“Acquiror Merger”) and (ii) Company Merger Sub merged with and into Newco, with Newco continuing as the surviving
entity (the “Company Merger”). In advance of the Company Merger, HOF Village transferred all of its assets, liabilities
and obligations to Newco pursuant to a contribution agreement. In connection with the closing of the Business Combination, the
Company changed its name from “GPAQ Acquisition Holdings, Inc.” to “Hall of Fame Resort & Entertainment
Company.” As a result of the Business Combination, GPAQ and Newco continue as the Company’s wholly owned subsidiaries.
Upon consummation of the Business Combination and, in connection therewith, HOFRE became a successor issuer to GPAQ by operation
of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Business
Combination is, in substance, a reverse merger recapitalization and accordingly, the historical financials prior to the date of
the Business Combination in these consolidated financial statements are those of HOF Village LLC and its subsidiaries. The Business
Combination is further described in Note 11.
The Company is a resort
and entertainment company leveraging the power and popularity of professional football and its legendary players in partnership
with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered
in Canton, Ohio, the Company owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and
media destination centered around the PFHOF’s campus. The Company is creating a diversified set of revenue streams through
developing themed attractions, premier entertainment programming, sponsorships and media.
The Company has entered
into several agreements with PFHOF, an affiliate of HOFRE, and certain government entities, which outline the rights and obligations
of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits, portions
of which are owned by the Company and portions of which are net leased to the Company by the government entities (see Note 7).
Under these agreements, the PFHOF and the government entities are entitled to use portions of the Hall of Fame Village powered
by Johnson Controls on a direct-cost basis.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 1: Organization and Nature of Business (continued)
Organization and Nature of Business
(continued)
On December 11, 2018,
the HOF Village entered into the Master Transaction Agreement (the “Master Transaction Agreement”), whereby, among
other things, it amended the HOF Village LLC Agreement (see Note 4).
COVID-19
In December 2019, a novel strain of coronavirus,
COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United
States. As the COVID-19 continues to spread in the United States, the Company may experience disruptions that could severely impact
the Company. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact the Company’s
business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States
and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States to contain
and treat the disease. The Company has had to cancel events due to COVID-19 and is in process of monitoring COVID-19’s potential
impact on the Company’s operations. The Company has taken several steps to minimize COVID-19’s impact on the Company’s
business by furloughing some of its employees, deferring payments from certain of its vendors and lenders, and re-negotiating various
agreements with third parties.
Liquidity
The Company has sustained recurring losses
and negative cash flows from operations through December 31, 2020. In addition, the Company has significant debt obligations maturing
in the twelve-month period subsequent to the date these consolidated financial statements are issued. Since inception, the Company’s
operations have been funded principally through the issuance of debt and equity. As of December 31, 2020, the Company had approximately
$7 million of cash and cash equivalents and $33 million of restricted cash, respectively.
On January 28, 2021, the Company executed
a binding term sheet with IRG pursuant to which the Company agreed to issue and sell to IRG in a private placement of preferred stock
and warrants to purchase common stock for a purchase price of $15 million. The private placement is expected to close in the first quarter
of 2021. In addition, during February 2020, the Company received approximately $34.5 million from the issuance of shares of its common
stock, net of offering costs. See Note 14. We will deposit up to $25 million of the net proceeds from the private placement and the underwritten
public offering in the Proceeds Account required under the Term Loan. We must have the lender’s prior written approval to withdraw
any amounts from the Proceeds Account, pursuant to a budget and schedule agreed upon by the parties.
The Company believes that, as a result
of these transactions, it currently has sufficient cash and financing commitments to meet its funding requirements over the next
year. Notwithstanding, the Company expects that it will need to raise additional financing to accomplish its development plan
over the next several years. The Company is seeking to obtain additional funding through debt, construction lending, and equity
financing. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at all,
or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company is unable
to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could
harm its financial condition and operating results.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial
statements of the Company for the years ended December 31, 2020 and 2019 have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the United
States Securities and Exchange Commission (“SEC”).
Consolidation
The consolidated financial statements
include the accounts and activity of the Company, and its wholly owned subsidiaries. Investments in a variable interest entity
in which the Company is not the primary beneficiary, or where the Company does not own a majority interest but has the ability
to exercise significant influence over operating and financial policies, are accounted for using the equity method. All intercompany
profits, transactions and balances have been eliminated in consolidation.
The Company owns a 60% interest in Mountaineer
GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s results of operations. The Company
acquired 60% of the equity interests in Mountaineer for a purchase price of $100 from one of its related parties. See Note 9 for
additional information on the terms of the agreement. The portion of Mountaineer’s net loss that is not attributable to
the Company is included in non-controlling interest.
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies (continued)
Restatement of Previously Issued Financial
Statements
The Company has restated
its consolidated financial statements as of and for the year ended December 31, 2020, as well as the unaudited condensed consolidated
financial statements for the three and nine month periods ended September 30, 2020 and 2019, to correct misstatements in those prior
periods primarily related to misstatements identified in improperly applying accounting guidance on certain warrants, recognizing them
as equity instead of a warrant liability, under the guidance of Accounting Standards Codification (“ASC”) 815-40, Contracts
in Entity’s Own Equity.
See Note 15, Restatement
of Previously Issued Financial Statements for additional information regarding the errors identified and the restatement adjustments
made to the consolidated financial statements.
Emerging Growth Company
The Company is an “emerging growth
company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified
by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved.
Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) 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 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 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 consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions
for the Company relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, fair
value of financial instruments, and estimates and assumptions used to measure impairment. Management adjusts such estimates when
facts and circumstances dictate. Actual results could differ from those estimates.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies (continued)
Property and Equipment and Project Development
Costs
Property and equipment are recorded at
historical cost and are depreciated using the straight-line method over the estimated useful lives of the assets. During the construction
period, the Company capitalizes all costs related to the development of the Hall of Fame Village powered by Johnson Controls.
Project development costs include predevelopment costs, amortization of finance costs, real estate taxes, insurance, and other
project costs incurred during the period of development. The capitalization of costs began during the preconstruction period,
which the Company defines as activities that are necessary to the development of the project. The Company ceases cost capitalization
when a portion of the project is held available for occupancy and placed into service. This usually occurs upon substantial completion
of all costs necessary to bring a portion of the project to the condition needed for its intended use, but no later than one year
from the completion of major construction activity. The Company will continue to capitalize only those costs associated with the
portion still under construction. Capitalization will also cease if activities necessary for the development of the project have
been suspended. As of December 31, 2020, the second two phases of the project remained subject to such capitalization.
The Company reviews its property and equipment
and projects under development for impairment whenever events or changes indicate that the carrying value of the long-lived assets
may not be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is
recorded.
The Company measures and records impairment
losses on its long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than their carrying amount. Considerable judgment by management is necessary to estimate undiscounted
future operating cash flows and fair values and, accordingly, actual results could vary significantly from such estimates. On
January 18, 2019, management determined that previously capitalized costs for the development of a hotel should be written off
because plans for this particular hotel and site location have been abandoned and will not benefit the current plans for another
hotel elsewhere on the site. Management reviewed its capitalized costs and identified the costs that had no future benefit. The
Company recorded a $12,194,783 charge as a loss on abandonment of project development costs within the accompanying statement
of operations.
Cash and Restricted Cash
The Company considers all highly liquid
investments with an original maturity of three months or less when purchased, to be cash equivalents. There were no cash equivalents
at December 31, 2020 and 2019, respectively. The Company maintains its cash and escrow accounts at national financial institutions.
The balances, at times, may exceed federally insured limits.
Restricted cash includes escrow reserve
accounts for capital improvements and debt service as required under certain of the Company’s debt agreements. The balances
at December 31, 2020 and 2019 were $32,907,800 and $5,796,398, respectively.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies (continued)
Accounts Receivable
Accounts receivable
are generally amounts due under sponsorship and other agreements. Accounts receivable are reviewed for delinquencies on a case
by case basis and are considered delinquent when the sponsor or debtor has missed a scheduled payment. Interest is not charged
on delinquencies.
The carrying amount
of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not
be collected. Management individually reviews all delinquent accounts receivable balances and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not be collected. At December 31, 2020 and 2019, the
Company had an allowance for doubtful accounts of $0 and $1,306,047, respectively, which related to the Company’s receivable
from Youth Sports Management, LLC (“Youth Sports”). See Note 7 for additional information on Youth Sports.
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 on the accompanying consolidated balance sheet.
Investment in Joint Venture
The Company previously
used the equity method to record the activities of its 50% owned joint venture in Youth Sports. The equity method of accounting
required that the Company recognize its initial capital investment at cost and subsequently, its share of the earnings or losses
in the joint venture. The joint venture agreement was structured whereby the Company was not at risk for losses above its original
capital investment. Therefore, the Company did not record a deficit that would have resulted in the equity being negative from
the investment in joint venture.
The maximum exposure
to loss represented the potential loss of assets which may have been recognized by the Company relating to its investment in the
joint venture. On May 29, 2020, the Company acquired the remaining 50% in Youth Sports for the accounts receivable amounts due
from them, which was fully reserved as of the date of the transaction. The results of this non-cash transaction increased the
Company’s interest to 100%. Upon acquisition, the Company consolidated the Youth Sports joint venture, an inactive voting
interest entity. The Company accounted for the transaction as an asset acquisition under a cost accumulation model, and no gain
on the change of control of interest was recognized in the consolidation, resulting in no consolidated assets or liabilities.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
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 December 31, 2020 and 2019, no liability for unrecognized
tax benefits was required to be reported.
The Company’s
policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative
expense. There were no amounts accrued for penalties and interest for the years ended December 31, 2020 and 2019. 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 2016 through 2019 remain subject to examination.
Warrant Liabilities
(Restated)
The Company accounts for
warrants to purchase shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on
the balance sheet in accordance with ASC 815, “Derivatives and Hedging”. The warrants are subject to remeasurement at each
balance sheet date and any change in fair value is recognized as a component of other expense on the statement of operations. The Company
will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the common stock warrants.
At that time, the portion of the warrant liability related to the common stock warrants will be reclassified to additional paid-in capital.
Net Loss Per Common
Share (Restated)
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.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies (continued)
Net Loss Per Common
Share (Restated) (continued)
At December 31, 2020
and 2019, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because
their impact would be anti-dilutive.
|
|
For the
year
ended
December 31,
2020
|
|
|
For the
year
ended
December 31,
2019
|
|
Warrants to purchase shares of common stock
|
|
|
55,303,832
|
|
|
|
-
|
|
Restricted stock awards to purchase shares of common
stock
|
|
|
715,929
|
|
|
|
-
|
|
Restricted stock units to purchase
shares of common stock
|
|
|
1,672,177
|
|
|
|
-
|
|
Total potentially
dilutive securities
|
|
|
57,691,938
|
|
|
|
-
|
|
Revenue Recognition
The Company follows ASC 606, Revenue
with Contracts with Customers, under ASC 606, revenue is recognized when a customer obtains control of promised goods or services,
in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation.
The Company generates revenues from various
streams such as sponsorship agreements, rents, cost recoveries and events. 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, recognized
revenue on a straight-line basis over the time period specified in the contract. Refer to Note 6 for more details. Revenue for
rents, cost recoveries and events are recognized at the time the respective event or service has been performed.
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.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting
Policies (continued)
Revenue Recognition (continued)
The Company’s owned hotel revenues
primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g. packages 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 prices of each component.
Advertising
The Company expenses all advertising and
marketing costs as they are incurred. Total advertising and marketing costs for the years ended December 31, 2020 and 2019 were
$484,978 and $383,104, respectively, which are recorded as property operating expenses on the Company’s consolidated statements
of operations.
The Company received a grant of $100,000
from Visit Canton on April 3, 2020, which grant is to be used to generate visitors to the Canton area through the Company’s
events. This grant will be used to offset future marketing and tourism expenses. The grant is recorded in other liabilities on
the Company’s balance sheet.
Ground Rent Expense
Ground rent expense is recognized on a
straight-line basis over the life of the related operating lease.
Stock–Based Compensation
The Company recognizes compensation expense
for all equity-based payments in accordance with ASC 718 “Compensation – Stock Compensation.” Under fair
value recognition provisions, the Company recognizes equity-based compensation net of an estimated forfeiture rate and recognizes
compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock units are granted at
the discretion of the Compensation Committee of the Company’s board of directors (the “Board of Directors”).
These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over
a 12 to 36-month period.
Segments
The Company has evaluated its business
to determine whether it has multiple operating segments. The Company has concluded that, as of December 31, 2020, it only has
one operating segment, given that its chief operating decision maker reviews the Company’s results solely on a consolidated
basis.
Software Development Costs
The Company recognizes all costs incurred
to establish technological feasibility of a computer software product to be sold, leased, or otherwise marketed are research and
development costs. Prior to the point of reaching technological feasibility, all costs shall be charged to expense when incurred.
Once the development of the product establishes technological feasibility, the Company will begin capitalizing these costs. Technological
feasibility is established when a product design and working model have been completed and the completeness of the working model
and its consistency with the product design have been confirmed through testing. As of December 31, 2020, the Company did not have
any software development projects that had reached technological feasibility.
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.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting
Policies (continued)
Accounting for Real Estate Investments
(continued)
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 (Restated)
The
Company follows Accounting Standards Codification (“ASC”) 820–10 “Fair Value Measurement” of the Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification to measure the fair value of its financial
instruments and 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 (3) broad levels.
The
three (3) levels of fair value hierarchy defined by ASC 820–10 are described below:
Level
1
|
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level
2
|
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date.
|
|
|
|
Level
3
|
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial
assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than
one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of
the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts
payable and accrued expenses approximate their fair values due to the short-term nature of these instruments.
The Company uses Levels 1 and 3 of the fair
value hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period
and recognizes gains or losses as revenue and cost of revenue respectively in the consolidated statements of operations that are attributable
to the change in the fair value of the warrant liabilities.
The following table provides the financial
liabilities measured on a recurring basis and reported at fair value on the balance sheet as of December 31, 2020 and indicates the fair
value hierarchy of the valuation inputs the Company utilized to determine such fair value.
|
|
Level
|
|
|
December 31,
2020
|
|
Warrant liabilities – Public Warrants
|
|
|
1
|
|
|
$
|
4,130,000
|
|
Warrant liabilities – Private Warrants
|
|
|
3
|
|
|
|
420,000
|
|
Warrant liabilities – November Warrants
|
|
|
3
|
|
|
|
9,781,000
|
|
Warrant liabilities – December Warrants
|
|
|
3
|
|
|
|
4,781,000
|
|
The
Company had no assets or liabilities measured at fair value at December 31, 2019.
The Public 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 Private Warrants, November Warrants, and
December Warrants, for which there is no current market for these securities such that the determination of fair value requires significant
judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period
based on changes in estimates or assumptions and recorded as appropriate.
Hall of
Fame Resort & Entertainment Company and Subsidiaries
Notes to
Consolidated Financial Statements
Note 2: Summary of Significant Accounting
Policies (continued)
Fair Value Measurement (Restated) (continued)
Initial Measurement
The Company established the initial fair value of its warrant liabilities
at the respective dates of issuance. In the case of the Public Warrants, the Company valued the warrants using the quoted market price
on the date of issuance. In the case of the Private Warrants, November Warrants and December Warrants, the Company used a Black Scholes
valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations are
below:
|
|
Private
Warrants
|
|
|
November
Warrants
|
|
|
December
Warrants
|
|
|
|
July
1,
2020
|
|
|
November
18,
2020
|
|
|
December
29,
2020
|
|
Term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Stock price
|
|
$
|
8.44
|
|
|
$
|
1.22
|
|
|
$
|
1.29
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
13.3
|
%
|
|
|
49.4
|
%
|
|
|
49.5
|
%
|
Risk free interest rate
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,480,000
|
|
|
|
20,535,713
|
|
|
|
10,036,925
|
|
Value (per share)
|
|
$
|
1.74
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
Subsequent measurement
The following table presents the changes in fair value of the warrant
liabilities:
|
|
Public Warrants
|
|
|
Private Warrants
|
|
|
November Warrants
|
|
|
December Warrants
|
|
|
Total Warrant Liability
|
|
Fair value as of January 1, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial measurement
|
|
|
27,460,000
|
|
|
|
2,580,000
|
|
|
|
10,609,000
|
|
|
|
5,196,116
|
|
|
|
45,845,116
|
|
Change in fair value
|
|
|
(23,330,000
|
)
|
|
|
(2,160,000
|
)
|
|
|
(828,000
|
)
|
|
|
(415,116
|
)
|
|
|
(26,733,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2020
|
|
$
|
4,130,000
|
|
|
$
|
420,000
|
|
|
$
|
9,781,000
|
|
|
$
|
4,781,000
|
|
|
$
|
19,112,000
|
|
The key inputs into the Black Scholes valuation model for the Level
3 valuations as of December 31, 2020 are below:
|
|
Private
Warrants
|
|
|
November
Warrants
|
|
|
December
Warrants
|
|
Term (years)
|
|
|
4.5
|
|
|
|
4.9
|
|
|
|
5.0
|
|
Stock price
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
70.7
|
%
|
|
|
49.5
|
%
|
|
|
49.5
|
%
|
Risk free interest rate
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,480,000
|
|
|
|
20,535,713
|
|
|
|
10,036,925
|
|
Value (per share)
|
|
$
|
0.28
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In February 2016, FASB issued Accounting Standards Update (“ASU”)
No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01
(collectively “ASU 2016-02”). This ASU is effective for private companies beginning after December 15, 2021. ASU 2016-02
requires recognition of right-of-use assets and lease liabilities on the balance sheet. In June 2020, FASB issued ASU 2020-05,
further extending the effective date by one year making it effective for the Company for annual periods beginning after December
15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. Most prominent
among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use asset and a lease liability for operating
leases. The right-of-use asset and lease liability are initially measured based on the present value of committed lease payments.
Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Expenses
related to operating leases are recognized on a straight-line basis, while those related to financing leases are recognized under
a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately in the statement
of operations. As the Company is an emerging growth company and following private company deadlines, the Company has an additional
deferral under this ASU to adopt beginning after December 15, 2021. Similarly, lessors are required to classify leases as sales-type,
finance or operating with classification affecting the pattern of income recognition.
Classification for both lessees and lessors
is based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract.
ASU 2016-02 also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows
arising from leases. The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated
financial statements.
In August 2018, FASB issued ASU 2018-15,
“Intangibles – Goodwill and Other – Internal-Use Software (Topic 350): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This update clarifies the accounting treatment
for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes
a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those
years, beginning after December 15, 2019, with early adoption permitted. The amendments must be applied either retrospectively
or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this guidance on a prospective
basis in the first quarter of 2020. The adoption of this guidance did not have a material impact on our consolidated financial
statements and related disclosures.
In December 2019, the FASB issued ASU
2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes (“ASU 2019-12”).
ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.
ASU 2019-12 also simplifies aspects of accounting for franchise taxes and clarifies the accounting for transactions that result
in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim financial statement periods beginning
after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the pending adoption
of this new standard on its consolidated financial statements.
In January 2020, the FASB issued ASU No.
2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint-Ventures (Topic 323), and
Derivatives and Hedging (Topic 815), clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU is effective
for private companies beginning after December 15, 2021. Early application is permitted, including early adoption in an interim
period for public business entities for periods for which financial statements have not yet been issued. An entity should apply
ASU No. 2020-01 prospectively at the beginning of the interim period that includes the adoption date. This ASU among other things
clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity
method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement
alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies
that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether
upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01,
“Leases (Topic 842): Codification Improvements,” which requires an entity (a lessee or lessor) to provide transition
disclosures under Topic 250 upon adoption of Topic 842. In February 2020, the FASB issued ASU 2020-02, “Financial Instruments
– Credit Losses (Topic 326): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to
SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases.” The ASU adds and amends SEC
paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard
and comments by the SEC staff related to the revised effective date of the new leases standard. This new standard is effective
for fiscal years beginning after December 15, 2021, including interim periods within fiscal years beginning after December 15,
2022. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of this new standard
on its consolidated financial statements.
Subsequent Events
Subsequent events have been evaluated
through March 10, 2021, the date the consolidated financial statements were issued. Other than what has been disclosed
in the consolidated financial statements in Note 14, no other events have been identified requiring disclosure or recording.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 3: Property and Equipment and Project Development
Costs
Property and equipment consists of the
following:
|
|
Useful Life
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Land
|
|
|
|
$
|
535,954
|
|
|
$
|
278,556
|
|
Land improvements
|
|
25 years
|
|
|
31,078,211
|
|
|
|
31,078,211
|
|
Building and improvements
|
|
15 to 39 years
|
|
|
158,020,145
|
|
|
|
128,599,831
|
|
Equipment
|
|
5 to 10 years
|
|
|
2,165,882
|
|
|
|
1,313,488
|
|
Property and equipment, gross
|
|
|
|
|
191,800,192
|
|
|
|
161,270,086
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(37,444,429
|
)
|
|
|
(26,359,199
|
)
|
Property and equipment, net
|
|
|
|
$
|
154,355,763
|
|
|
$
|
134,910,887
|
|
|
|
|
|
|
|
|
|
|
|
|
Project development costs
|
|
|
|
$
|
107,969,139
|
|
|
$
|
88,587,699
|
|
For the years ended December 31, 2020 and
2019, the Company recorded depreciation expense of $11,085,230 and $10,915,839, respectively. Additionally, the Company recorded
a charge of $12,194,783 for the year ended December 31, 2019 for a loss on abandonment of project development costs for previously
capitalized development costs within the accompanying consolidated statement of operations. For the years ended December 31, 2020
and 2019, the Company incurred $19,381,440 and $7,403,848 of capitalized project development costs, respectively. During 2019,
the Company acquired the McKinley Grand hotel property for a purchase price of $3,800,000 including external acquisition-related
costs. The fair value of the assets acquired consisted of land and building in the amounts of $241,100 and $3,558,900, respectively,
which were capitalized and included in project development costs. During November 2020, the Company place the hotel property into
service.
Note 4: Notes Payable, net
Notes payable, net consisted of the following
at December 31, 2020:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
TIF loan
|
|
$
|
9,654,000
|
|
|
$
|
(1,666,725
|
)
|
|
$
|
7,987,275
|
|
Syndicated unsecured term loan
|
|
|
170,090
|
|
|
|
-
|
|
|
|
170,090
|
|
Preferred equity loan
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
1,800,000
|
|
Naming rights securitization loan
|
|
|
1,821,559
|
|
|
|
(113,762
|
)
|
|
|
1,707,797
|
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(7,681
|
)
|
|
|
3,492,319
|
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
Constellation EME
|
|
|
9,900,000
|
|
|
|
-
|
|
|
|
9,900,000
|
|
Paycheck protection plan loan
|
|
|
390,400
|
|
|
|
-
|
|
|
|
390,400
|
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(13,887
|
)
|
|
|
6,939,944
|
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(443,435
|
)
|
|
|
14,856,565
|
|
Convertible PIPE Notes, plus PIK accrual
|
|
|
21,797,670
|
|
|
|
(13,475,202
|
)
|
|
|
8,322,468
|
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(181,177
|
)
|
|
|
2,488,823
|
|
Aquarian Mortgage Loan
|
|
|
40,000,000
|
|
|
|
(2,156,303
|
)
|
|
|
37,843,697
|
|
Total
|
|
$
|
116,957,539
|
|
|
$
|
(18,058,172
|
)
|
|
$
|
98,899,367
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Notes payable, net consisted of the following
at December 31, 2019:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
Bridge loan
|
|
$
|
65,000,000
|
|
|
$
|
(361,655
|
)
|
|
$
|
64,638,345
|
|
TIF loan
|
|
|
9,847,000
|
|
|
|
(1,721,761
|
)
|
|
|
8,125,239
|
|
Syndicated unsecured term loan
|
|
|
6,803,530
|
|
|
|
(2,838,067
|
)
|
|
|
3,965,463
|
|
Preferred equity loan
|
|
|
99,603,847
|
|
|
|
(53,365,911
|
)
|
|
|
46,237,936
|
|
Land loan with affiliate
|
|
|
1,273,888
|
|
|
|
-
|
|
|
|
1,273,888
|
|
Naming rights securitization loan
|
|
|
9,235,845
|
|
|
|
(566,096
|
)
|
|
|
8,669,749
|
|
McKinley Grand Mortgage
|
|
|
1,900,000
|
|
|
|
(51,787
|
)
|
|
|
1,848,213
|
|
CH capital lending
|
|
|
1,807,339
|
|
|
|
-
|
|
|
|
1,807,339
|
|
Convertible notes
|
|
|
17,310,252
|
|
|
|
(471,965
|
)
|
|
|
16,838,287
|
|
IRG November Note
|
|
|
11,585,792
|
|
|
|
(67,537
|
)
|
|
|
11,518,255
|
|
Total
|
|
$
|
224,367,493
|
|
|
$
|
(59,444,779
|
)
|
|
$
|
164,922,714
|
|
During the years ended December 31, 2020
and 2019, the Company recorded amortization of note discounts of $10,570,974 and $13,274,793, respectively.
Accrued Interest on Notes Payable
As of December 31, 2020 and 2019, accrued
interest on notes payable, were as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Bridge loan
|
|
$
|
-
|
|
|
$
|
2,084,711
|
|
Preferred equity loan
|
|
|
27,125
|
|
|
|
717,286
|
|
Land loan with affiliate
|
|
|
-
|
|
|
|
101,662
|
|
Constellation EME
|
|
|
248,832
|
|
|
|
-
|
|
Paycheck protection plan loan
|
|
|
2,706
|
|
|
|
-
|
|
Naming rights securitization loan
|
|
|
-
|
|
|
|
30,786
|
|
City of Canton Loan
|
|
|
4,472
|
|
|
|
-
|
|
Mortgage McKinley Grand
|
|
|
-
|
|
|
|
41,821
|
|
JKP Capital Note
|
|
|
416,836
|
|
|
|
-
|
|
Convertible notes
|
|
|
-
|
|
|
|
269,271
|
|
MKG Doubletree loan
|
|
|
67,716
|
|
|
|
-
|
|
Canton Cooperative Agreement
|
|
|
20,593
|
|
|
|
-
|
|
Aquarian Mortgage Loan
|
|
|
333,333
|
|
|
|
-
|
|
Total
|
|
$
|
1,121,613
|
|
|
$
|
3,245,537
|
|
The amounts above were included in accounts
payable and accrued expenses and other liabilities on the Company’s consolidated balance sheet, as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Accounts payable and accrued expenses
|
|
$
|
1,094,488
|
|
|
$
|
2,528,251
|
|
Other liabilities
|
|
|
27,125
|
|
|
|
717,286
|
|
|
|
$
|
1,121,613
|
|
|
$
|
3,245,537
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Bridge Loan
On June 30, 2020, the Company entered into
an amendment to the $65 million bridge loan (the “Bridge Loan”) dated March 20, 2018, that the Company had originally
utilized to build the Tom Benson Stadium, among the Company, various lenders party thereto (“Lenders”) and GACP Finance
Co., LLC (“GACP”), as administrative agent (the “Term Loan Agreement”), which further extended the maturity
date to November 30, 2020, updated certain defined terms to align with the final transaction structure resulting from the Business
Combination, specified the amount of proceeds from the Business Combination and Private Placement (defined below) that were required
to be paid towards amounts outstanding under the Term Loan Agreement (the “Gordon Pointe Transaction Prepayment Amount”),
added a fee payable to certain Lenders relative to the amounts owed after giving effect to the Gordon Pointe Transaction Prepayment
Amount, amended various provisions related to mandatory prepayments of outstanding amounts owed under the Term Loan Agreement (including,
but not limited to, prepayments due in connection with future equity and debt raises), and other minor amendments regarding HOF
Village Hotel II, LLC (“HOF Village Hotel II”) and Mountaineer to facilitate their planned operations. The Bridge Loan
has an exit fee of 1% on the balance due at the maturity of the loan, which the Company is accreting over the term of the Bridge
Loan.
At the date of the Business Combination,
on July 1, 2020, the Company used proceeds from the Business Combination to pay $15,500,000 on the Bridge Loan, while an additional
$15,000,000 converted into equity in the newly formed HOFRE. The remaining balance following the Business Combination was approximately
$34,500,000. The maturity date on the remaining balance had been extended one month to November 30, 2020. During the fourth quarter
of 2020, the Company paid off the remaining $34,500,000 outstanding balance owed previously using a portion of the proceeds from
the November 2020 Public Offering and the Aquarian Mortgage Loan.
TIF Loan
For the Company, the Development Finance
Authority of Summit County (“DFA Summit”) offered a private placement of $10,030,000 in taxable development revenue
bonds, Series 2018. The bond proceeds are to reimburse the developer for costs of certain public improvements at the Hall of Fame
Village powered by Johnson Controls, which are eligible uses of tax-incremental funding (“TIF”) proceeds.
Under the cooperative agreement entered
into by the Company, two subsidiaries, the City of Canton, DFA Summit, Stark County Port Authority, and the bank trustee, the
Company and certain subsidiaries have been exempted from certain real estate taxes. However, the Company must make real estate
tax payments on the TIF parcels sufficient to cover future required payments on the bond debt service until the 2018 bonds are
no longer outstanding. This is a significant commitment made by the Company and is guaranteed by an individual’s trust,
an individual, and two subsidiaries of the Company.
Since the bond debt service is fixed and
determinable, a liability has been recorded as of December 31, 2020 and 2019, representing the present value of the future bond
debt service payments. The term of the TIF requires the Company to make installment payments through July 31, 2048. The current
imputed interest rate is 5.2%, which runs through July 31, 2028. The imputed interest rate then increases to 6.6% through July
31, 2038 and finally increases to 7.7% through the remainder of the TIF. The Company is required to make payments on the TIF semi-annually
in June and December each year. During the years ended December 31, 2020 and 2019, the Company made principal payments on this
loan totaling $193,000 and $183,000, respectively.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Syndicated Unsecured Term Loan and Preferred
Equity Loan
On January 1, 2016,
as amended and restated on October 15, 2017, the Company entered into a financing agreement with a syndicate of lenders, including
affiliates of IRG Canton Village Member, LLC, a member of HOF Village (the “IRG Member”), for a loan amount up to
$150,000,000 as an unsecured promissory note (the “Syndicated Unsecured Term Loan”). The Syndicated Unsecured Term
Loan may not be prepaid either in whole or in part until the initial maturity date without the express consent of the lender.
Proceeds from the Syndicated Unsecured Term Loan are intended to cover working capital and the construction costs for venues including
the Tom Benson Hall of Fame Stadium, youth fields, and campus infrastructure projects. The maturity date is February 26,
2021, and the Syndicated Unsecured Term Loan accrues interest at a rate of 12% per annum.
On December 11, 2018, the Company
and various parties signed the Master Transaction Agreement setting forth various terms and conditions for the development of
the Hall of Fame Village powered by Johnson Controls. As part of the Master Transaction Agreement, American Capital Center, LLC
(“ACC”), an affiliate of the Company, exchanged $106,450,000 of the Company’s debt and $24,470,142 of accrued
interest and origination fees, as well as $336,579 of amounts due to PFHOF, by converting it to preferred equity instruments with
a face value of $95,500,000 and an amended subordinated debt agreement with a face value of $6,450,000. In accordance with the
Extinguishment of Liabilities subtopic of the FASB ASC 470-50, given that ACC was a related party, the Company treated
the Master Transaction Agreement as a capital transaction and recapitalized the debt to equity in the amount of $96,076,120, net
of discounts and unamortized deferred financing costs.
The subordinated debt
accrues interest at a rate of 5% and the balance is due February 26, 2021. The remaining subordinated debt is subordinate to the
Bridge Loan. Additionally, the subordinated debt contains a payment-in-kind (“PIK”) interest provision, which represents
contractually deferred interest added to the subordinated debt outstanding balance that is due at maturity. For the years ended
December 31, 2020 and 2019, the Company incurred PIK interest of $256,441 and $353,530, respectively. As part of the Business Combination,
on July 1, 2020, the entire balance of the Preferred Equity Loan’s and all but $170,089 of the Syndicated Unsecured Term
Loan outstanding were converted into an aggregate of 13,762,039 shares of common stock.
Land Loan with Affiliate
On July 10, 2017,
the Company entered into a promissory note with the PFHOF, an affiliate of HOFRE, for purpose of the acquisition of land at the
Hall of Fame Village powered by Johnson Controls. The promissory note had an outstanding balance of $1,273,888 at June 30, 2020
and December 31, 2019, which bore interest at a rate of 1.22% per annum. The loan may be prepaid in whole or in part without penalty.
For any unpaid balance after December 31, 2017, the interest rate was increased by 5%. The loan was subordinate to the Bridge
Loan and had a maturity date of February 26, 2023. On July 2, 2020, the Company issued 580,000 shares in exchange of (a) full
satisfaction of the promissory note in the amount of $1,273,888, (b) accrued interest in the amount of $50,158, and (c) other
amounts due to PFHOF in the amount of $4,266,793. The Company determined that the issuance of shares for full satisfaction of
the note resulted in a loss on extinguishment of debt of $209,160.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Naming Rights Securitization Loan
On November 9, 2017,
the Company, through a subsidiary, JCIHOFV Financing, LLC, entered into a secured loan with a financial institution for $22,800,000,
collateralized by the entire payment stream of the Johnson Controls Naming Rights Agreement, dated November 17, 2016 (see Note
6). Monthly payments include principal and interest at 4% per annum with the remaining principal balance due on March 31, 2021.
The loan may not be prepaid, in whole or in part, without paying the prepayment premium, which is equal to the present value of
the remaining interest payments.
City of Canton Loan
On December 30, 2019, the Company entered
into a loan facility with the City of Canton, OH, whereby it may borrow up to $3,500,000. The loan accrues interest at a rate
of one-half percent (0.5%) per annum. Upon an event of default, the interest rate will increase to five percent (5%) per annum
on the outstanding balance at the time of default. The loan shall mature on July 1, 2027. During the year ended December 31,
2020, the Company borrowed the maximum amount of $3,500,000 on the loan. The Company has the option to extend the loan’s
maturity date for three years, to July 1, 2030 if the Company meets certain criteria in terms of the hotel occupancy level and
maintaining certain financial ratios.
New Market/SCF
On December 30, 2019, the Company entered
into a loan facility with New Market Project, Inc., whereby it may borrow up to $3,000,000, of which the proceeds are to be used
for the development of McKinley Grand Hotel, as described below. During the year ended December 31, 2020 the Company borrowed
$2,999,989 on this facility. The loan has a maturity date of December 30, 2024 and accrues interest at a rate of 4% per annum.
In the event of default, including failure to pay upon final maturity, the interest rate shall increase by adding a 5% fee that
applies to each succeeding interest rate change that would have applied had there been no default.
McKinley Grand Mortgage
On October 22, 2019, the Company purchased
the McKinley Grand Hotel in Canton, Ohio for $3.9 million, which was partially financed by separate notes payable of $1,900,000
and $1,807,339.
The $1,807,339 note payable, in favor
of CH Capital Lending, LLC (the “CH Capital Note”), accrued interest at a fixed rate equal to 10% per annum. The Company
was required to make payments commencing on or prior to December 30, 2019. The maturity date of the CH Capital Note was April
30, 2020 and interest was payable quarterly. The Company was previously in default on the CH Capital Note, however the CH Capital
Note was paid in full on June 24, 2020.
The $1,900,000 note payable had a maturity
date of October 22, 2021. Interest accrued at a rate equal to the greater of (i) 3.75% or (ii) the sum of the LIBOR rate plus 2.75%.
The Company was required to make interest payments commencing on November 1, 2019, and on the first day of each successive month
until the note was repaid. In September 2020, the Company paid off the full outstanding $1,900,000 principal and interest owed,
using proceeds from the MKG Double Tree Loan (defined below).
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Constellation EME
On December 30, 2019, the Company
entered into a loan facility with Constellation NewEnergy, Inc. (“Constellation”) whereby it may borrow up to $9,900,000
(the “Constellation Loan Facility”). The proceeds of the Constellation Loan Facility are to be held in escrow by a
custodian to fund future development costs. The proceeds will be released from escrow as development costs are incurred. The Constellation
Loan Facility was amended on April 13, 2020 to modify the payment schedule and maturity date, reflecting current project timetables.
The maturity date is December 31, 2022 and payments are due in 29 monthly installments totaling $11,075,000, with an effective
interest rate of 6.1%. Beginning in August 2020 through December 2020, the monthly installment amount is $55,000, which increases
in January 2021 to $450,000 through December 2022. During the years ended December 31, 2020, the Company borrowed the full amount
under the Constellation Loan Facility.
As of December 31, 2020, $5,318,820 of
such funds had been released from the custodial accounts to the Company under the Constellation Loan Facility.
The Company also has a sponsorship agreement
with Constellation. Refer to Note 6 for additional information.
Convertible Notes
On December 24, 2018, the Company issued
a series of convertible notes totaling $7,750,000 (the “Convertible Notes”). The notes accrued interest at a rate of
10%, with payments due semi-annually in arrears. The principal and all accrued interest amounts were due November 5, 2025. The
Company was able to redeem the Convertible Notes after December 24, 2023, subject to terms defined in the individual notes. Convertible
Notes redeemed between December 24, 2023 and December 24, 2024 would have been redeemed at 105% of face value. Convertible Notes
redeemed after December 24, 2024 would have been redeemed at 102.5% of face value. Additionally, the Convertible Notes contained
a PIK interest provision, which represented contractually deferred interest added to the Convertible Notes outstanding balance
that was due at maturity. For the years ended December 31, 2020 and 2019, the Company incurred PIK interest of $875,129 and $1,180,252,
respectively. On July 1, 2020, upon consummation of the Business Combination, all outstanding Convertible Notes were exchanged
for PIPE Notes (defined below).
IRG November Note
On February 7, 2020, as effective on November
27, 2019, HOF Village, as borrower, entered into a subordinated promissory note with Industrial Realty Group, as lender, in an
amount up to $30,000,000 (the “IRG November Note”). As of December 31, 2019, the aggregate principal amounts, excluding
PIK interest, borrowed under the IRG November Note was $11,585,792. The IRG November Note accrues interest at a rate of 12% per
annum and had a maturity date of November 1, 2020. Additionally, the IRG November Note contained a PIK interest provision, which
represents contractually deferred interest added to the IRG November Note outstanding balance that is due at maturity. For the
years ended December 31, 2020 and 2019, the Company incurred $1,858,744 and $85,009 of PIK interest, respectively. On July 1, 2020,
upon consummation of the Business Combination, Industrial Realty Group exchanged $9,000,000 of the outstanding balance under the
IRG November Note for PIPE Notes.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
IRG November Note (continued)
On December 29, 2020,
the Company entered into a securities purchase agreement with Industrial Realty Group, LLC, a Nevada limited liability company (“IRG”),
and CH Capital Lending, LLC, a Delaware limited liability company affiliated with IRG (the “Purchaser”), pursuant to which
the Company sold Purchaser 10,813,774 shares of the Company’s common stock, par value $0.0001 per share, and warrants to purchase
10,036,925 shares of common stock for an aggregate purchase price of $15,239,653. The Purchase Price was paid in the form of the cancellation
in full of certain financial obligations owed by the Company and its affiliates to IRG and its affiliates in the amount of the Purchase
Price, including the IRG November Note. The Company determined that the issuance of shares and warrants for full satisfaction of the
note resulted in a loss on extinguishment of debt of $3,404,244. The Company valued the warrants using the following assumptions:
|
|
Warrants
|
|
Stock Price
|
|
$
|
1.29
|
|
Exercise Price
|
|
$
|
1.40
|
|
Dividend Yield
|
|
|
N/A
|
|
Expected Volatility
|
|
|
49.45
|
%
|
Risk-Free Interest Rate
|
|
|
0.37
|
%
|
Number of Shares
|
|
|
10,036,925
|
|
Value (USD)
|
|
$
|
5,196,116
|
|
Term (in years)
|
|
|
5.00
|
|
Paycheck Protection Program Loan
On April 22, 2020, the Company obtained
a Paycheck Protection Program Loan (“PPP Loan”) for $390,400. The PPP Loan has a fixed interest rate of 1%, requires
the Company to make 18 monthly payments beginning on November 22, 2020, with a maturity date of April 22, 2022, subject to debt
forgiveness provisions from the Small Business Association. On February 1, 2021, the Company obtained notice from the Small Business
Association that the full outstanding amount of the PPP Loan was forgiven.
JKP Capital Loan
On June 24, 2020, HOF Village and HOFV
Hotel II executed a loan evidenced by a promissory note (the “JKP Capital Loan”) in favor of JKP Financial, LLC for
the principal sum of $7,000,000. The JKP Capital Loan bears interest at a rate of 12% per annum and matures on December 2, 2021,
on which date all unpaid principal and accrued and unpaid interest is due. The JKP Capital Loan is secured by the membership interests
in HOFV Hotel II held by HOF Village.
SCF Subordinated Note
On June 22, 2020, the Company entered into
a loan facility with Stark Community Foundation (the “SCF Subordinated Note”) for $1,000,000. The SCF Subordinated
Note has a fixed interest rate of 5% per annum, has a PIK interest provision that was payable semi-annually in arrears on each
July 22 and January 22 commencing July 22, 2020, and with a maturity date of June 22, 2023. On July 1, 2020, the SCF Subordinated
Note was exchanged for PIPE Notes, described in greater detail below, under “Convertible P Notes”.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Convertible PIPE Notes
On July 1, 2020,
concurrently with the closing of the Business Combination, the Company entered into a Note Purchase Agreement (the “Note
Purchase Agreement”) with certain funds managed by Magnetar Financial, LLC and other purchasers (together, the “Purchasers”),
pursuant to which the Company agreed to issue and sell to the Purchasers in a private placement (the “Private Placement”)
$20,721,293 in aggregate principal amount of the Company’s 8.00% Convertible Notes due 2025 (the “PIPE Notes”).
Pursuant to the terms of the Note Purchase Agreement, the PIPE Notes may be converted into shares of Common Stock at a conversion
price initially equal to $11.50 per share, subject to customary adjustment. Accordingly, the aggregate amount of PIPE Notes issued
and sold in the Private Placement is convertible into 1,801,851 shares of Common Stock based on the conversion rate applicable
on July 1, 2020. The conversion rate will convert at a conversion price of $11.50 per share. There are also Note Redemption Warrants
that may be issued pursuant to the Note Purchase Agreement that will be exercisable for a number of shares of common stock to
be determined at the time any such warrant is issued. The exercise price per share of common stock of any warrant will be set
at the time such warrant is issued pursuant to the Note Purchase Agreement.
The PIPE Notes provide for a conversion
price reset such that, if the last reported sale price of the common stock is less than or equal to $6.00 for any ten trading
days within any 30 trading day period preceding the maturity date, then the conversion price is adjusted down $6.90 per share.
On July 28, 2020, the conversion price reset was triggered. On this date, the Company recorded a beneficial conversion feature
of $14,166,339, which will be amortized over the remaining term of the PIPE Notes using the effective interest method. The Company
recorded $268,758 on amortization of debt discount related to the contingent beneficial conversion feature for the year ended
December 31, 2020 in the Company’s consolidated statements of operations.
Industrial Realty Group exchanged $9.0
million of the amount outstanding under the IRG November Note for PIPE Notes in the principal amount of $9.0 million. Gordon Pointe
Management, LLC exchanged $500,000 of the principal component of the indebtedness owed to such Purchaser by GPAQ under loan agreements
and related promissory notes for PIPE Notes in the principal amount of $500,000. Seven other Purchasers exchanged a total of $4,221,293
in GPAQ founder notes held by such Purchasers for PIPE Notes in the aggregate principal amount of $4,221,293. Consequently, the
Company received cash proceeds from the issuance and sale of the PIPE Notes of approximately $7 million. The Company used proceeds
of the Private Placement to fund the Company’s obligations related to the Merger Agreement and to pay transaction fees and
expenses and used the remaining proceeds of the Private Placement to satisfy the Company’s working capital obligations. The
PIPE Notes began to accrue interest on October 1, 2020, but the Company has elected to apply the PIK interest provision, thereby
increasing the outstanding balance of the PIPE Notes by the amount of accrued interest each month.
The Convertible PIPE Notes contain a PIK interest provision,
which represents contractually deferred interest added to the subordinated debt outstanding balance that is due at maturity. For
the year ended December 31, 2020, the Company incurred PIK interest of $1,076,378.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
MKG DoubleTree Loan
On September 14, 2020, the Company entered
into a construction loan agreement with Erie Bank, a wholly owned subsidiary of CNB Financial Corporation, a Pennsylvania corporation,
as lender. The Company has applied and been approved for a first mortgage loan for $15.3 million (“MKG DoubleTree Loan”)
with a variable interest rate of 1.75% plus the prime commercial rate, at which no time can it drop below 5%, for the purpose of
renovating the McKinley Grand Hotel in the City of Canton, Ohio. The initial maturity date is 18 months after the exercised loan
date, March 13, 2022, and the agreement includes an extended maturity date of September 13, 2022, should HOFRE need more time with
an extension fee of 0.1% of the then outstanding principal balance. The Company intends to use the proceeds of the MKG DoubleTree
Loan for building acquisition costs and costs incurred for material and labor in connection with the improvements, which make up
just under 75% of the MKG DoubleTree Loan. The remaining portion of the MKG DoubleTree Loan will be used for administrative, legal,
operational, and environmental costs. A bank account has been created with Erie Bank and the balance must be maintained between
$1 and $2 million within the account as collateral, which will promptly be refunded to the Company upon complete payment of the
MKG DoubleTree Loan on the maturity date. The MKG DoubleTree Loan has certain financial covenants whereby the Company must maintain
a minimum tangible net worth of $5,000,000 and minimum liquidity of not less than $2,000,000. These covenants are to be tested
annually based upon the financial statements at the end of each fiscal year. As of December 31, 2020, the amount of restricted
cash related to the MKG DoubleTree Loan was $199,645.
Canton Cooperative Agreement
On September 1, 2020, HOFRE entered into
a Cooperative Agreement with DFA Summit, the City of Canton, Ohio (“Canton”), the Canton Regional Energy Special Improvement
District, Inc. (the “District”), and U.S Bank National Association for the construction of the Series 2020C Project.
The Series 2020C Project constitutes a port authority facility and a special energy improvement project under the Special Improvement
District Act. HOFRE applied and received approval from the District and Canton for the aforementioned project. The loan amount
is $2,670,000, with a discount of $182,723, which will be amortized over the life of the loan using the effective interest method.
In order to pay for the costs of the Series
2020C Project, the District and HOFRE have requested and been approved by DFA Summit, to issue and sell the Series 2020C Bonds
pursuant to an Indenture and make a portion of the proceeds of the Series 2020C Bonds available to the developer to undertake
the provision of the Series 2020C Project.
While the Series 2020C Bonds are outstanding,
HOFRE shall pay the special assessment and the service payments semi-annually to the Canton County Treasurer pursuant to and in
accordance with the Assessing Ordinance, the TIF Act, and the TIF Ordinance. The service payments shall be in the same amount
as the real property taxes that would have been charged and payable against the Improvements had the TIF Exemption not been granted.
The special assessment payments will be made on January 31st and July 31st over the course of 17 years, commencing on January
31, 2022 with a maturity date of January 31, 2039. For the first eight years, each payment will consist of $188,188 and decrease
to $161,567 in 2030.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 4: Notes Payable, net (continued)
Aquarian Mortgage Loan
On December 1, 2020, the Company entered
into a mortgage loan with Aquarian Credit Funding, LLC (“Aquarian”) for $40,000,000 of gross proceeds. The Aquarian
Mortgage Loan bears interest at 10% per annum and the principal payments are due monthly, which began in December 2020. Upon the
occurrence and during the continuance of an event of default, Aquarian may, at its option, take such action, without notice or
demand that Aquarian deems advisable to protect and enforce its rights against the Company, including declaring the debt to become
immediately due and payable.
Issuance of 7.00% Series A Cumulative
Redeemable Preferred Stock
During October, 2020, the Company issued
to American Capital Center, LLC (the “Preferred Investor”) an aggregate of 1,800 shares of 7.00% Series A Cumulative
Redeemable Preferred Stock (“Series A Preferred Stock”) at $1,000 per share for an aggregate purchase price of $1,800,000.
The Company paid the Preferred Investor an origination fee of 2%. The issuance and sale of the Series A Preferred Stock to the
Preferred Investor was exempt from registration pursuant to Section 4(a)(2) of the Securities Act. HOFRE used half of the proceeds
from the sale of the Series A Preferred Stock to pay down outstanding amounts under its Bridge Loan. The Series A Preferred Stock
is required to be redeemed in cash after five years and is recorded in notes payable, net on the Company’s consolidated
balance sheet.
Future Minimum Principal Payments
The minimum required principal payments
on notes payable outstanding as of December 31, 2020 are as follows:
For the year ended December 31,
|
|
Amount
|
|
2021
|
|
$
|
54,058,060
|
|
2022
|
|
|
21,044,819
|
|
2023
|
|
|
455,000
|
|
2024
|
|
|
3,521,989
|
|
2025
|
|
|
24,071,671
|
|
Thereafter
|
|
|
13,806,000
|
|
Total Gross Principal Payments
|
|
$
|
116,957,539
|
|
|
|
|
|
|
Less: Discount
|
|
|
(18,058,172
|
)
|
|
|
|
|
|
Total Net Principal Payments
|
|
$
|
98,899,367
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020, the Company’s
stockholders approved an amendment to the Company’s charter to increase the authorized shares of common stock from 100,000,000
to 300,000,000. Consequently, the Company’s charter allows the Company to issue up to 300,000,000 shares of common stock
and to issue and designate its rights of, without stockholder approval, up to 5,000,000 shares of preferred stock, par value $0.0001.
On October 8, 2020, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary
of State of the State of Delaware to establish preferences, limitations and relative rights of the 7.00% Series A Cumulative Redeemable
Preferred Stock (“Series A Preferred Stock”). The number of authorized shares of Series A Preferred Stock is 52,800.
2020 Omnibus Incentive Plan
On July 1, 2020, in connection with the
closing of the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”)
became effective immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved
by the Company’s stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of common stock
authorized for issuance under the 2020 Omnibus Incentive Plan is 1,812,728 shares. As of December 31, 2020, 561,290 shares remained
available for issuance under the 2020 Omnibus Incentive Plan.
Issuance of Restricted Stock Awards
On July 2, 2020, the Company granted 715,929 shares of the Company’s
restricted stock to the Company’s Chief Executive Officer under the 2020 Omnibus Incentive Plan. The shares will vest at
three separate dates, 238,643 on July 2, 2020, 238,643 on July 2, 2021, and fully vest on July 2, 2022 with a final installment
of 238,643. In connection with vesting of 238,643 shares on July 2, 2020, the Company withheld 106,840 shares for tax withholding.
The Company’s activity in restricted
common stock was as follows for years ended December 31, 2020:
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair
value
|
|
Non–vested at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
715,929
|
|
|
$
|
9.30
|
|
Vested
|
|
|
(238,643
|
)
|
|
$
|
9.30
|
|
Non–vested at December 31, 2020
|
|
|
477,286
|
|
|
$
|
9.30
|
|
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 5: Stockholders’ Equity (continued)
Issuance of Restricted Stock Awards (continued)
For the years ended December 31, 2020
and 2019, the Company recorded $3,327,280 and $0, in employee and director stock-based compensation expense. Of this amount, $2,218,187
is included as a component of business combination costs on the Company’s consolidated statement of operations, as the initial
vesting of the restricted stock award was directly related to the completion of the Company’s Business Combination. The
remaining stock-based compensation expense is included as a component of property operating expenses. As of December 31, 2020,
unamortized stock-based compensation costs related to restricted share arrangements was $3,327,280 and will be recognized over
a weighted average period of 1.5 years.
Issuance of Restricted Stock Units
On August 31, 2020, the Company granted 138,568
restricted stock units (“RSUs”) to an employee as an inducement grant not under the 2020 Omnibus Incentive Plan. The RSUs
will vest at three separate dates, 46,189 on August 31, 2021, 46,189 on August 31, 2022, and fully vest on August 31, 2023 with a final
installment of 46,190.
On September 1, 2020, the Company granted
64,240 RSUs to an employee as an inducement grant not under the 2020 Omnibus Incentive Plan. The RSUs will vest at three separate
dates, 21,413 on September 1, 2021, 21,413 on September 1, 2022, and fully vest on September 1, 2023 with a final installment of
21,414.
On September 16, 2020, the Company granted
148,883 RSUs to an employee as an inducement grant not under the 2020 Omnibus Incentive Plan. The RSUs will vest at three separate dates,
49,628 on September 14, 2021, 49,628 on September 14, 2022, and fully vest on September 14, 2023 with a final installment of 49,627.
On September 22, 2020, the Company granted
an aggregate of 529,543 RSUs to employees under the 2020 Omnibus Incentive Plan. The RSUs will vest at three separate dates, one
third on September 22, 2020, one third on July 1, 2021, and fully vest on July 1, 2022.
On September 22, 2020, the Company granted
an aggregate of 45,000 RSUs to independent directors under the 2020 Omnibus Incentive Plan. The RSUs will fully vest on September
22, 2021.
On November 16, 2020, the Company granted
131,694 RSUs to an employee under the 2020 Omnibus Incentive Plan as an inducement grant not under the 2020 Omnibus Incentive Plan.
The RSUs will vest at three separate dates, 43,898 on November 16, 2021, 43,898 on November 16, 2022, and fully vest on November
16, 2023 with a final installment of 43,898.
On December 22, 2020, the Company granted
an aggregate of 477,778 RSUs to the Chief Executive Officer under the 2020 Omnibus Incentive Plan. The RSUs vest contingent upon
shareholder approval to increase the number of authorized shares under the Omnibus Incentive Plan in the 2021 Annual Meeting of
Stockholders.
On December 22, 2020, the Company granted
an aggregate of 140,741 RSUs to employees under the 2020 Omnibus Incentive Plan. The RSUs vest in full on December 22, 2021.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 5: Stockholders’ Equity (continued)
Issuance of Restricted Stock Units
(continued)
The Company’s activity in restricted
stock units was as follows for years ended December 31, 2020:
|
|
Number
of
shares
|
|
|
Weighted
average
grant date
fair
value
|
|
Non–vested at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
1,676,447
|
|
|
$
|
2.52
|
|
Vested
|
|
|
(176,514
|
)
|
|
$
|
2.80
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non–vested at December
31, 2020
|
|
|
1,499,933
|
|
|
$
|
2.49
|
|
For the years ended December 31, 2020 and
2019, the Company recorded $1,003,255 and $0, respectively, in employee and director stock-based compensation expense, which is
a component of property operating expenses in the consolidated statement of operations. As of December 31, 2020, unamortized stock-based
compensation costs related to restricted stock units was $3,228,092 and will be recognized over a weighted average period of 1.62
years.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 5: Stockholders’ Equity (continued)
Warrants (Restated)
The Company’s warrant activity was as follows for the
years ended December 31, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price (USD)
|
|
|
Weighted
Average
Contractual
Life (years)
|
|
|
Intrinsic
Value (USD)
|
|
Outstanding - January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Issued in connection with Business Combination
|
|
|
24,731,194
|
|
|
$
|
11.50
|
|
|
|
4.50
|
|
|
|
|
|
Issued in connection with November 2020 Public Offering
|
|
|
17,857,142
|
|
|
$
|
1.40
|
|
|
|
4.88
|
|
|
|
|
|
Issued in connection with November 2020 overallotment
|
|
|
2,678,571
|
|
|
$
|
1.40
|
|
|
|
4.88
|
|
|
|
|
|
Issued in connection with IRG November Note Conversion
|
|
|
10,036,925
|
|
|
$
|
1.40
|
|
|
|
4.99
|
|
|
|
|
|
Outstanding – December 31, 2020
|
|
|
55,303,832
|
|
|
$
|
5.92
|
|
|
|
4.73
|
|
|
$
|
-
|
|
Exercisable – December 31, 2020
|
|
|
45,266,907
|
|
|
$
|
6.92
|
|
|
|
4.67
|
|
|
$
|
-
|
|
Shared Services Agreement
On June 30, 2020, HOF Village entered
into a Shared Services Agreement with PFHOF (the “Shared Services Agreement”). Under the agreement, PFHOF and HOF
Village mutually reduced certain outstanding amounts owed between the parties, with PFHOF forgiving $5.15 million owed by HOF
Village and HOF Village forgiving $1.2 million owed by PFHOF, which effectively resulted in no outstanding amounts owed between
the parties as of March 31, 2020. Additionally, the Company wrote-off the Tom Benson statue, which was valued as of the date of
the Shared Services Agreement at $251,000 while the Company had valued it at $300,000. As this is a related party transaction,
the Company recorded the resulting difference of $3,699,000 as a contribution from one of its members in the Company’s consolidated
balance sheet.
November 2020 Public Offering
On November 18, 2020, we closed our previously
announced offering (the “November 2020 Offering”) of 17,857,142 units (the “November 2020 Units”) at a
price of $1.40 per November 2020 Unit, each consisting of one share of our Common Stock, and one warrant to purchase one share
of Common Stock (each, a “Series B Warrant”) pursuant to the terms of the underwriting agreement between the Company
and Maxim Group LLC (for purposes of the November 2020 Offering, the “November 2020 Underwriter”), entered into on
November 16, 2020 (the “November 2020 Underwriting Agreement”). The Series B Warrants are exercisable at a price of
$1.40 per share of Common Stock and expire five years from the date of issuance. In addition, the November 2020 Underwriter exercised
in full its option to purchase up to an additional 2,678,571 shares of Common Stock and an additional 2,678,571 Warrants at the
public offering price less discounts and commissions. Under the terms of the November 2020 Underwriting Agreement, each of our
executive officers, directors and stockholders of more than 5% of the outstanding Common Stock signed lock-up agreements pursuant
to which each agreed, subject to certain exceptions, not to sell the Common Stock for a period of 90 days following November 16,
2020. The Company received approximately $26.2 million, net of offering costs in connect with these transactions.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 5: Stockholders’ Equity (continued)
November 2020 Public Offering (continued)
In connection with the November 2020 Offering,
on November 18, 2020, we entered into a Warrant Agency Agreement (the “Series B Warrant Agreement”) with Continental
Stock Transfer & Trust Company (“Continental”), pursuant to which Continental agreed to act as warrant agent with
respect to the Series B Warrants.
December 2020 Private Placement of Common
Stock and Series C Warrants
On December 29, 2020, we entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with IRG and CH Capital Lending, LLC, a Delaware limited liability company
(the “Purchaser”), pursuant to which we sold to the Purchaser in a private placement (the “December 2020 Private Placement”)
10,813,774 shares (the “Shares”) of Common Stock and warrants to purchase 10,036,925 shares of Common Stock (the “Series
C Warrants”). The aggregate purchase price for the Shares and Series C Warrants was $15,239,653 (the “Purchase Price”),
which was paid in the form of the cancellation in full of certain financial obligations owed by us and affiliates to IRG and its affiliates.
The Series C Warrants are exercisable for, in the aggregate, 10,036,925 shares of Common Stock at an exercise price of $1.40 per share
of Common Stock (subject to customary adjustments). The Series C Warrants may be exercised from and after June 29, 2021, subject to certain
terms and conditions set forth in the Series C Warrants. Unexercised Series C Warrants will expire on the fifth anniversary of the date
of issuance (see Note 2).
Note 6: Sponsorship Revenue and Associated Commitments
Johnson Controls, Inc.
On July 2, 2020, Newco entered into an
Amended and Restated Sponsorship and Naming Rights Agreement (the “Amended Sponsorship Agreement”) among Newco, PFHOF
and Johnson Controls, Inc. (“JCI”), that amended and restated the Sponsorship and Naming Rights Agreement, dated as
of November 17, 2016 (the “Original Sponsorship Agreement”). Among other things, the Amended Sponsorship Agreement:
(i) reduced the total amount of fees payable to Newco during the term of the Amended Sponsorship Agreement from $135 million to
$99 million; (ii) restricted the activation proceeds from rolling over from year to year with a maximum amount of activation proceeds
in one agreement year to be $750,000; and (iii) renamed the “Johnson Controls Hall of Fame Village” to “Hall
of Fame Village powered by Johnson Controls”. This is a prospective change, which the Company reflected beginning in the
third quarter of 2020.
JCI has the right
to terminate the agreement if Phase II is not substantially complete by January 2, 2024.
As amended, as of December 31, 2020, scheduled
future cash to be received and required activation spend under the non-cancellable period of the agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
Total
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 6: Sponsorship Revenue and Associated Commitments
(continued)
Johnson Controls, Inc. (continued)
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the Amended Sponsorship Agreement. During the years
ended December 31, 2020 and 2019, the Company recognized $4,742,111 and $4,962,985 of net sponsorship revenue related to this
deal, respectively. Accounts receivable from JCI totaled $0 and $91,932 at December 31, 2020 and 2019, respectively.
Aultman Health Foundation
In 2016, the Company and PFHOF entered
into a 10-year licensing agreement with Aultman Health Foundation (“Aultman”) allowing Aultman use of the HOF Village
and PFHOF marks and logos. Under terms of the agreement, the Company will receive $2.5 million in cash sponsorship funds. Of those
funds, the Company is contractually obligated to spend $700,000 as activation expenses for the benefit of Aultman.
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the agreement. During the years ended December 31, 2020
and 2019, the Company recognized $180,394 and $179,901 of net sponsorship revenue related to this deal, respectively. Accounts
receivable from Aultman totaled $0 and $165,115 at December 31, 2020 and 2019, respectively.
During the first quarter of 2021, the Company terminated the
Aultman sponsorship agreement. See Note 14.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 6: Sponsorship Revenue and Associated Commitments
(continued)
First Data Merchant Services LLC
In December 2018, the Company and PFHOF
entered into an 8-year licensing agreement with First Data Merchant Services LLC (“First Data”) and Santander Bank.
As of December 31, 2020, scheduled future cash to be received under the agreement are as follows:
Year ending December 31:
2021
|
|
$
|
150,000
|
|
2022
|
|
|
150,000
|
|
2023
|
|
|
150,000
|
|
2024
|
|
|
150,000
|
|
2025
|
|
|
150,000
|
|
Thereafter
|
|
|
150,000
|
|
|
|
|
|
|
Total
|
|
$
|
900,000
|
|
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the agreement. During the years ended December 31, 2020
and 2019, the Company recognized $148,982 and $148,575 of net sponsorship revenue related to this deal, respectively. As of December
31, 2020 and 2019, accounts receivable from First Data totaled $58,141 and $0, respectively.
Constellation NewEnergy, Inc.
On December 19, 2018
the Company and PFHOF entered into a sponsorship and services agreement with Constellation (the “Constellation Sponsorship
Agreement”) whereby Constellation and its affiliates will provide the gas and electric needs of the Company in exchange for
certain sponsorship rights. The original term of the Constellation Sponsorship Agreement was through December 31, 2028, however,
in June 2020, the Company entered into an amended contract with Constellation which extended the term of the Constellation Sponsorship
Agreement through December 31, 2029.
The Constellation
Sponsorship Agreement provides for certain rights to Constellation and its employees, to benefit from the relationship with the
Company from discounted pricing, marketing efforts, and other benefits as detailed in the agreement. The Constellation Sponsorship
Agreement also provides for Constellation to pay sponsorship income and to provide activation fee funds. Activation fee funds
are to be used in the year received and do not roll forward for future years as unspent funds. The amounts are due by March 31
of the year to which they apply, which is represented in the chart below.
The Constellation Sponsorship Agreement
includes certain contingencies reducing the sponsorship fee amount owed by Constellation if construction is not on pace with the
timeframe noted in the Constellation Sponsorship Agreement.
The Company also has a note payable with
Constellation. Refer to Note 4 for additional information.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 6: Sponsorship Revenue and Associated Commitments
(continued)
Constellation NewEnergy, Inc. (continued)
As of December 31, 2020, scheduled future
cash to be received and required activation spend under the agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021
|
|
$
|
1,300,000
|
|
|
$
|
187,193
|
|
|
$
|
1,487,193
|
|
2022
|
|
|
1,396,000
|
|
|
|
200,000
|
|
|
|
1,596,000
|
|
2023
|
|
|
1,423,220
|
|
|
|
200,000
|
|
|
|
1,623,220
|
|
2024
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
2025
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
Thereafter
|
|
|
5,029,057
|
|
|
|
664,000
|
|
|
|
5,693,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,662,807
|
|
|
$
|
1,583,193
|
|
|
$
|
13,246,000
|
|
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the Constellation Sponsorship Agreement. During the
years ended December 31, 2020 and 2019, the Company recognized $1,244,655 and $1,310,536 of net sponsorship revenue related to
this deal, respectively. Accounts receivable from Constellation totaled $1,101,867 and $857,213 at December 31, 2020 and 2019,
respectively.
Turf Nation, Inc.
During October 2018, the Company entered
into a 5-year sponsorship agreement with Turf Nation, Inc. (“Turf Nation”). Under the terms of the agreement, the
Company will receive payments over the term based on the sale of Turf Nation products based on rates defined in the sponsorship
agreement. The minimum guaranteed fee per year beginning in 2020 is $50,000 per year.
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the agreement. During the years ended December 31, 2020
and 2019, the Company recognized $15,115 of net sponsorship revenue related to this deal. During the years ended December 31,
2020 and 2019, the Company recognized $60,131 and $59,967 of net sponsorship revenue related to this deal, respectively. Accounts
receivable from Turf Nation totaled $132,092 and $171,961 at December 31, 2020 and 2019, respectively.
Note 7: Other Commitments
Canton City School District
The Company has entered
into cooperative agreements with certain governmental entities that support the development of the project overall, where the
Company is an active participant in the agreement activity, and the Company would benefit from the success of the activity.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 7: Other Commitments (continued)
Canton City School District (continued)
The Company had a commitment to the Canton
City School District (“CCSD”) to provide a replacement for their Football Operations Center (“FOC”) and
to construct a Heritage Project (“Heritage”). The commitment was defined in the Operations and Use Agreement for HOF
Village Complex dated as of February 26, 2016.
On March 20, 2018, a Letter of Representations
was entered into by both parties whereby the Company has agreed to put money into escrow. The escrow balance at December 31, 2020
and 2019 of $0 and $2,604,318, respectively, is included in restricted cash on the Company’s consolidated balance sheets.
Project and Ground Leases
Three wholly owned subsidiaries of the
Company have project leases with the Stark County Port Authority to lease project improvements and ground leased property at the
Tom Benson Hall of Fame Stadium, youth fields, and parking areas. On November 25, 2020, the Company entered into an amendment
to its Stark County Port Authority lease, whereby the lease term was extended from January 31, 2056 to September 30, 2114. The
future minimum lease commitments under non-cancellable operating leases described below reflect the amendment that was entered
into on November 25, 2020, excluding the amounts yet to be paid from escrow for the FOC noted above, as follows:
For the year ended December 31, 2020:
2021
|
|
$
|
321,900
|
|
2022
|
|
|
321,900
|
|
2023
|
|
|
321,900
|
|
2024
|
|
|
321,900
|
|
2025
|
|
|
321,900
|
|
Thereafter
|
|
|
41,320,800
|
|
|
|
|
|
|
Total
|
|
$
|
42,930,300
|
|
Rent expense on operating leases totaled
$418,862 and $331,916 during the years ended December 31, 2020 and 2019, and is recorded as a component of property operating
expenses on the Company’s consolidated statement of operations.
QREM Management Agreement
On August 15, 2018, the Company entered
into an Interim Services Agreement with Q Real Estate Management (“QREM”) to manage the Tom Benson Hall of Fame Stadium
operations. Under that agreement, the Company incurs a monthly management fee to QREM. The interim agreement ended March 1, 2019
and the agreement was not renewed between the parties.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 7: Other Commitments (continued)
SMG Management Agreement
On September 1, 2019, the Company entered
into a Service Agreement with SMG to manage the Tom Benson Hall of Fame Stadium operations. Under that agreement, the Company
incurs an annual management fee of $200,000. Management fee expense for the years ended December 31, 2020 and 2019 was $200,000
and $66,667, respectively, which is included in property operating expenses on the Company’s consolidated statements of
operations. The agreement term shall end on December 31, 2022.
Employment Agreements
The Company has employment agreements with
many of its key executive officers that usually have terms between one year and three years.
DoubleTree Canton Downtown Hotel
On January 2, 2020, the Company entered
into a franchise agreement with Hilton Franchise Holding, LLC (“Hilton”) in order to obtain a license to use the Hilton
brand in the operation of the DoubleTree Canton Downtown Hotel in Canton, Ohio. The Company will be responsible for operating
the hotel full-time, complying with industry and brand standards, and using the reservation service provided by Hilton. While
possessing exclusive control of day to day operations, the Company is required to display and maintain signage displaying Hilton’s
brand name. The Company is also required to publish and make available to the traveling public, a directory that includes the
Hilton brand. The monthly fee will be used for advertising, promotions, publicity, public relations, market research, and other
marketing programs. The hotel opened in November 2020.
Management Agreement with Crestline
Hotels & Resorts
On October 22, 2019, the Company entered
into a management agreement with Crestline Hotels & Resorts (“Crestline”). The Company appointed and engaged Crestline
as the Company’s exclusive agent to supervise, direct and control management and operation of the DoubleTree Canton Downtown
Hotel. In consideration of the services performed by Crestline, the Company agreed to the greater of: 2% of gross revenues or $10,000
per month in base management fees and other operating expenses. The agreement will be terminated on the fifth anniversary of the
commencement date, or October 22, 2024. For the year ended December 31, 2020, the Company paid and incurred $73,225 in management
fees.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 7: Other Commitments (continued)
TAAS Agreement
On October 9, 2020, Newco, entered into
a Technology as a Service Agreement (the “TAAS Agreement”) with Johnson Controls, Inc. (“JCI”). Pursuant
to the TAAS Agreement, JCI will provide certain services related to the construction and development of the Hall of Fame Village
powered by JCI (the “Project”), including, but not limited to, (i) design assist consulting, equipment sales and turn-key
installation services in respect of specified systems to be constructed as part of Phase 2 and Phase 3 of the Project and (ii)
maintenance and lifecycle services in respect of certain systems constructed as part of Phase 1, and to be constructed as part
of Phase 2 and Phase 3, of the Project. Under the terms of the TAAS Agreement, Newco has agreed to pay JCI up to an aggregate $217,934,637
for services rendered by JCI over the term of the TAAS Agreement.
Note 8: Contingencies
During the normal course of its business,
the Company is subject to occasional legal proceedings and claims.
The Company’s wholly owned subsidiary,
HOF Village Stadium, LLC, was a defendant in a lawsuit “National Football Museum, Inc. dba Pro Football Hall of Fame v. Welty
Building Company Ltd., et al;” filed in the Stark County Court of Common Pleas. PFHOF, an affiliate, filed this suit for
monetary damages as a result of the cancellation of the 2016 Hall of Fame Game. Plaintiff alleged that the game was cancelled as
a result of negligent acts of subcontractors who were hired to perform field painting services.
The Plaintiff alleged that HOF Village
Stadium, LLC was contractually liable for damages Plaintiff sustained because it guaranteed the performance of Defendant Welty
Building Company Ltd. (“Welty”) for the Tom Benson Hall of Fame Stadium renovation.
Potential damages claimed by Plaintiff
included the refunds of ticket sales, lost commissions on food and beverage sales, and lost profits on merchandise sales. The parties
reached a global settlement and the matter has been dismissed with prejudice.
Note 9: Related-Party Transactions
Due to Affiliates
Due to affiliates consisted of the following
at December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Due to IRG Member
|
|
$
|
1,456,521
|
|
|
$
|
6,257,840
|
|
Due to IRG Affiliate
|
|
|
140,180
|
|
|
|
145,445
|
|
Due to M. Klein
|
|
|
-
|
|
|
|
500,000
|
|
Due to Related Party Advances
|
|
|
-
|
|
|
|
5,800,000
|
|
Due to PFHOF
|
|
|
126,855
|
|
|
|
6,630,305
|
|
Total
|
|
$
|
1,723,556
|
|
|
$
|
19,333,590
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 9: Related-Party Transactions (continued)
Due to Affiliates (continued)
The IRG Member and an affiliate provide
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, may earn a master developer fee calculated as 4.0% of development costs incurred for the Hall
of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction supervision, and project
financing. These development costs incurred are netted against certain costs incurred for general project management.
For the years ended December 31, 2020
and 2019, costs incurred under these arrangements were $1,360,944 and $1,276,885, respectively, which were included in Project
Development Costs.
The IRG Member also provides certain general
administrative support to the Company. For the years ended December 31, 2020 and 2019, expenses of $275 and $344,426, respectively,
were included in Property Operating Expenses.
The amounts due to the IRG Member above
are for development fees, human resources support, and the Company’s engagement with them to identify and obtain naming
rights sponsorships and other entitlement partners for the Company. The Company and IRG Member have an arrangement whereby the
Company pays IRG Member $15,000 per month plus commissions. For both the years ended December 31, 2020 and 2019 the Company incurred
$120,000 in costs to this affiliate, respectively.
The amounts above
due to M. Klein as of December 31, 2019 relate to advisory services provided to the Company. The Company engages a company owned
by an investor for advisory services. The Company has not incurred any advisory costs under this arrangement in any of the reported
periods presented.
The amounts above due to related party
advances are non-interest bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions
with this affiliate to establish repayment terms of these advances, however, there could be no assurance that the Company and
IRG Member will come to terms acceptable to both parties.
On January 13, 2020, the Company secured
$9.9 million in financing from Constellation through its Efficiency Made Easy (“EME”) program to implement energy
efficient measures and to finance the construction of the Constellation Center for Excellence and other enhancements, as part
of Phase II development. The Hanover Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations
under the financing, and Stuart Lichter and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance
Company for payments made under the guarantee bond.
The amounts above due to PFHOF relate
to advances to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales support, shared services,
event tickets, and expense reimbursements.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 9: Related-Party Transactions (continued)
License Agreement
On March 10, 2016, the Company entered
into a license agreement with PFHOF, whereby the Company has the ability to license and use certain intellectual property from
PFHOF in exchange for the Company paying a fee based on certain sponsorship revenue and expenses. On December 11, 2018, the license
agreement was amended to change the calculation of the fee to be 20% of eligible sponsorship revenue. The license agreement was
further amended in a First Amended and Restated License Agreement, dated September 16, 2019. The license agreement expires on December
31, 2033. During the years ended December 31, 2020 and 2019, the Company recognized expenses of $2,476,946 and $1,706,290, respectively,
which are included in property operating expenses on the Company’s consolidated statements of operations.
Media License Agreement
On November 11, 2019, the Company entered
into a Media License Agreement with PFHOF. On July 1, 2020, the Company entered into an Amended and Restated Media License Agreement
that terminates on December 31, 2034. In consideration of a license to use certain intellectual property of PFHOF, the Company
agreed to pay to PFHOF minimum guaranteed license fees of $1,250,000 each year during the term. After the first five years of the
agreement, the minimum guarantee shall increase by 3% on a year-over-year basis. The first annual minimum payment is due July 1,
2021, subject to potential acceleration in the event of earlier use. There were no license fees incurred during the years ended
December 31, 2020 and 2019 under the Media License Agreement.
PFHOF Shared Services Agreement
On June 30, 2020, the HOF Village
entered into the Shared Services Agreement with PFHOF. Under the agreement, PFHOF and HOF Village mutually reduced certain
outstanding amounts owed between the parties, with PFHOF forgiving $5.15 million owed by HOF Village and HOF Village
forgiving $1.2 million owed by PFHOF, which effectively resulted in no outstanding amounts owed between the parties as of
March 31, 2020. Additionally, the Company wrote-off the Tom Benson statue, which was valued as of the date of the Shared
Services Agreement at $251,000 while the Company had valued it at $300,000. As this is a related party transaction, the
Company recorded the resulting difference of $3,699,000 as a contribution from one of its members in the Company’s
consolidated balance sheet. On March 9, 2021, the Company and PFHOF entered into an additional Shared Services Agreement, as
described in Note 14.
Other Liabilities
Other liabilities consisted of the following
at December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Activation fund reserves
|
|
$
|
3,780,343
|
|
|
$
|
2,876,149
|
|
Deferred revenue
|
|
|
1,709,126
|
|
|
|
90,841
|
|
Preferred stock dividend payable
|
|
|
-
|
|
|
|
717,286
|
|
Total
|
|
$
|
5,489,469
|
|
|
$
|
3,684,276
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 10: Concentrations
For the year ended December 31, 2020,
two customers represented approximately 74% and 19% of the Company’s sponsorship revenue. For the year ended December 31,
2019, two customers represented approximately 63% and 17% of the Company’s sponsorship revenue. At December 31, 2020, two
customers represented approximately 71% and 15% of the Company’s accounts receivable. At December 31, 2019, two customers
represented approximately 43% and 33% of the Company’s accounts receivable.
At any point in time, the Company can
have funds in their operating accounts and restricted cash accounts that are with third party financial institutions. These balances
in the U.S. may exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors the cash balances
in their operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions
fail or could be subject to other adverse conditions in the financial markets.
Note 11: Business Combination
On July 1, 2020,
the Company (formerly known as GPAQ Acquisition Holdings, Inc.) consummated the previously announced Business Combination with
HOF Village, pursuant to the Merger Agreement, by and among GPAQ, Acquiror Merger Sub, Company Merger Sub, HOF Village and Newco.
Upon the consummation
of the Business Combination: (i) Acquiror Merger Sub merged with and into GPAQ, with GPAQ continuing as the surviving entity (the
“Acquiror Merger”) and (ii) Company Merger Sub merged with and into Newco, with Newco continuing as the surviving
entity (the “Company Merger”). In advance of the Company Merger, HOF Village transferred all of its assets, liabilities
and obligations to Newco pursuant to a contribution agreement. In connection with the closing of the Business Combination, the
Company changed its name from “GPAQ Acquisition Holdings, Inc.” to “Hall of Fame Resort & Entertainment
Company.” As a result of the Business Combination, GPAQ and Newco continue as our wholly owned subsidiaries.
In connection with
the consummation of the Business Combination and pursuant to the Merger Agreement, (a) each issued and outstanding unit of GPAQ,
if not already detached, was detached and each holder of such a unit was deemed to hold one share of GPAQ Class A common stock
and one GPAQ warrant (“GPAQ Warrant”), (b) each issued and outstanding share of GPAQ Class A common stock (excluding
any shares held by a GPAQ stockholder that elected to have its shares redeemed pursuant to GPAQ’s organizational documents)
was converted automatically into the right to receive 1.421333 shares of our common stock, following which all shares of GPAQ
Class A common stock ceased to be outstanding and were automatically canceled and cease to exist; (c) each issued and outstanding
share of GPAQ Class F common stock was converted automatically into the right to receive one share of our common stock, following
which all shares of GPAQ Class F common stock ceased to be outstanding and were automatically canceled and cease to exist; (d)
each issued and outstanding GPAQ Warrant (including GPAQ private placement warrants) was automatically converted into one warrant
to purchase 1.421333 shares of our common stock per warrant, following which all GPAQ Warrants ceased to be outstanding and were
automatically canceled and retired and cease to exist; and (e) each issued and outstanding membership interest in Newco converted
automatically into the right to receive a pro rata portion of the Company Merger Consideration (as defined in the Merger Agreement),
which was payable in shares of our common stock. Our common stock is traded on The Nasdaq Capital Market, or Nasdaq, under the
symbol “HOFV” and our outstanding series of warrants (the “Existing Warrants”) are traded on Nasdaq under
the symbol “HOFVW”.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 11: Business Combination (continued)
The rights of holders
of the Company’s common stock and Existing Warrants are governed by its amended and restated certificate of incorporation
(the “Certificate of Incorporation”), its amended and restated bylaws (the “Bylaws’) and the Delaware
General Corporation Law (the “DGCL”), and in the case of the Existing Warrants, the Warrant Agreement, dated January
24, 2018, between GPAQ and the Continental Stock Transfer & Trust Company.
The Company’s net assets acquired through
the consummation of the Business Combination (restated) consisted of:
Cash
|
|
$
|
31,034,781
|
|
Sponsor loan
|
|
|
(500,000
|
)
|
Warrant liability
|
|
|
(30,040,000
|
)
|
Net assets acquired
|
|
$
|
494,781
|
|
Immediately following the acquisition,
the sponsor loan above was converted into the PIPE Notes. At the date of the Business Combination, on July 1, 2020, the Company
used proceeds from the Business Combination to pay $15,500,000 on the Bridge Loan, while an additional $15,000,000 converted into
equity in the newly formed Hall of Fame Entertainment & Resort entity. The remaining balance following the Business Combination
was approximately $34,500,000. The maturity date on the remaining balance has been extended one month to November 30, 2020. Should
the Company be unable to pay off the principal balance at maturity, Industrial Realty Group agreed to advance funds to the Company
to pay off the Bridge Loan, under the terms of the guarantee. As a result, Industrial Realty Group would become a lender to the
Company with a maturity date of August 2021.
On July 1, 2020, concurrently with the
closing of the Business Combination, the Company completed the Private Placement of $20,721,293 in aggregate principal amount
of PIPE Notes with certain funds managed by Magnetar Financial, LLC and the Purchasers. Pursuant to the terms of the Note Purchase
Agreement, at the option of the holders thereof the PIPE Notes may be converted into shares of Common Stock at a conversion price
initially equal to $11.50 per share, subject to formula-based adjustment based on specified events. Accordingly, the aggregate
amount of PIPE Notes issued and sold in the Private Placement is convertible into 1,801,851 shares of Common Stock based on the
conversion rate applicable on July 1, 2020.
On July 1, 2020, in connection with the
closing of the Business Combination, holders of Newco’s membership interests as of immediately prior to the closing date
entered into a lock-up agreement (the “Lock-Up Agreement”). Under the Lock-Up Agreement, each party thereto agreed
not to sell, offer to sell, contract or agree to sell, hypothecate, pledge, sell any option or contract to purchase, grant any
option, right or warrant, make any short sale or otherwise transfer or dispose of or lend its portion of any shares of common
stock for a period after closing ending on the date that is the later of (i) 180 days after July 1, 2020 and (ii) the expiration
of the Founder Shares Lock-Up Period under, dated January 24, 2018 among GPAQ, its officers and directors and initial shareholders.
The Company incurred $19,137,165 in costs
related to the Business Combination. Of these costs, $16,718,978 were legal and professional fees, $2,218,187 was related to a
restricted stock award to the Company’s Chief Executive Officer, and $200,000 was related to a cash bonus to the Company’s
Chief Executive Officer.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 12: Income Tax (Restated)
Significant components of deferred tax
assets were as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
U.S. federal tax loss carry–forward
|
|
$
|
4,143,828
|
|
|
$
|
-
|
|
U.S. local tax loss carry–forward
|
|
|
389,717
|
|
|
|
-
|
|
Equity based compensation – RSUs
|
|
|
416,157
|
|
|
|
|
|
Property and equipment
|
|
|
(1,741,690
|
)
|
|
|
-
|
|
Prepaid rent
|
|
|
(1,040,888
|
)
|
|
|
-
|
|
Total deferred tax assets
|
|
|
2,167,124
|
|
|
|
-
|
|
Less: valuation allowance
|
|
|
(2,167,124
|
)
|
|
|
-
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2020, the Company had
the following tax attributes:
|
|
Amount
|
|
|
Begins to
expire
|
U.S. federal net operating loss carry–forwards
|
|
$
|
19,732,513
|
|
|
Indefinite
|
U.S. local net operating loss carry–forwards
|
|
|
19,732,513
|
|
|
Fiscal 2025
|
As it is not more likely than not that
the resulting deferred tax benefits will be realized, a full valuation allowance has been recognized for such deferred tax assets.
For the year ended December 31, 2020, the valuation allowance increased by $2,167,124.
The provision for/(benefit from) income
tax differs from the amount computed by applying the statutory federal income tax rate to income before the provision for/(benefit
from) income taxes. The sources and tax effects of the differences are as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Restated)
|
|
|
|
|
Expected Federal Tax
|
|
|
(21.0
|
)%
|
|
|
-
|
%
|
Local Tax (Net of Federal Tax Benefits)
|
|
|
(2.0
|
)
|
|
|
-
|
|
Business Combination Expenses
|
|
|
22.0
|
|
|
|
-
|
|
Change in FV of warrant liability
|
|
|
(27.1
|
)
|
|
|
|
|
Note Extinguishment
|
|
|
4.3
|
|
|
|
-
|
|
Deferred Tax Liabilities Resulting from Business Combination
|
|
|
13.2
|
|
|
|
-
|
|
Other permanent differences
|
|
|
1.0
|
|
|
|
|
|
Change in valuation allowance
|
|
|
9.6
|
|
|
|
-
|
|
Effective rate of income tax
|
|
|
-
|
%
|
|
|
-
|
%
|
The Company files income tax returns in the
U.S. federal jurisdiction and local (City of Canton) jurisdictions. As a result of the July 1, 2020 business combination and resulting
conversion from a limited liability company to a corporate taxable entity, deferred tax liabilities of $2,995,870 were recognized from
accrual and tax timing differences of property and equipment and prepaid rent existing at the time of the merger. Prior to the July 1,
2020 business combination the Company was a pass through entity and was not subject to income tax. The deferred tax liabilities were
subsequently offset by the deferred tax assets created primarily from net operating losses incurred during the period from the merger
date through the end of the year. See Note 15 for a discussion on the restatement of the Company’s financial statements.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 13: Defined Contribution Plan
The Company has a defined contribution plan (the “Defined
Contribution Plan”) whereby employer contributions are discretionary and determined annually. In addition, the Defined Contribution
Plan allows participants to make elective deferral contributions through payroll deductions, of which the Company will match a
portion of those contributions. During the years ended December 31, 2020 and 2019, the Company expensed matching contributions
of $67,817 and $15,729, respectively
Note 14: Subsequent Events
Proposed Private Placement of Preferred
Stock and Warrants to Purchase Common Stock
On January 28, 2021, the Company executed
a binding term sheet with IRG, LLC pursuant to which the Company agreed to issue and sell to IRG in a private placement for a
purchase price of $15,000,000 (i) shares of a new series of preferred stock, which are convertible into shares of the Company’s
Common Stock (the “New Private Placement Preferred Stock”), having an aggregate liquidation preference of $15,000,000,
and (ii) a number of warrants, convertible into shares of the Company’s Common Stock at an exercise price of $6.90 per
share (the “New Private Placement Warrants”), equal to 50% of the liquidation preference of the preferred stock
to be sold divided by the closing price of the Common Stock on a specified date (the “New Private Placement”). The
New Private Placement is expected to close in the first quarter of 2021. If the Company consummates the New Private Placement,
the Company intends to deposit the net proceeds as necessary into the Proceeds Account (as defined herein), and use the net
proceeds for general corporate purposes. The Company cannot give any assurance that the New Private Placement will be completed
on the terms described herein, on a timely basis or at all.
Termination of Sponsorship Agreement
with Aultman
On January 12, 2021, the Company notified
Aultman that the Company terminated as to itself, effective as of January 26, 2021, the Sponsorship Agreement, dated December 6,
2016, among Aultman, PFHOF and the Company. As such, the Company will no longer be receiving future sponsorship payments from Aultman.
Constellation EME Express Equipment Services
Program
On February 1, 2021, the Company entered
into a contract with Constellation whereby Constellation will sell and/or deliver materials and equipment purchased by the Company.
The Company is required to provide $2,000,000 to an escrow account held by Constellation, representing adequate assurance of future
performance. Constellation will invoice the Company in 60 monthly installments beginning in April 2021 for $103,095.
PPP Loan Forgiveness
On February 1, 2021, the Company obtained
notice from the Small Business Association that the full outstanding amount of the PPP Loan was forgiven.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Consolidated Financial Statements
Note 14: Subsequent Events (continued)
Follow-On Public Offering
On February 12, 2021, the Company closed its public offering
of 12,244,897 shares of Common Stock at a public offering price of $2.45 per share pursuant to the terms of the underwriting agreement
between the Company and Maxim Group LLC, entered into on February 9, 2021 (the “Underwriting Agreement”). On February
18, 2021, the Company closed the sale of an additional 1,836,734 shares of Common Stock at $2.45 per share pursuant to the exercise
of the underwriters’ over-allotment option in connection with its public offering that closed on February 12, 2021. Under
the terms of the Underwriting Agreement, each of the Company’s executive officers, directors and stockholders of more than
5% of the outstanding Common Stock signed lock-up agreements pursuant to which each agreed, subject to certain exceptions, not
to transact in the Common Stock for a period of 90 days following February 12, 2021. Gross proceeds including the over-allotment,
before underwriting discounts and commissions and estimated offering expenses, are approximately $34.5 million.
Purchase of Real Property from PFHOF
On February 3, 2021, the Company purchased
for $1.75 million certain parcels of real property from PFHOF located at the site of the Hall of Fame Village powered by Johnson
Controls. In connection with the purchase, the Company granted certain easements to PFHOF to ensure accessibility to the PFHOF
museum.
Shared Services
Agreement with PFHOF
On March 9, 2021, the Company entered into an additional Shared Services Agreement with PFHOF, which
supplements the existing Shared Services Agreement by, among other things, providing for the sharing of costs for activities relating
to shared services.
Note 15: Restatement of Previously Issued
Audit and Unaudited Financial Statements
As discussed in Note 2, the Company has restated
previously issued financial statements regarding the accounting and reporting for warrants.
The errors that caused the Company to conclude
that its financial statements should be restated are the result of a misapplication of the guidance on accounting for certain of its
issued warrants, which came to light when the staff of the SEC issued a public Staff Statement on Accounting and Reporting Considerations
for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”).
The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those issued by
the Company at the time of its business combination with GPAQ on July 1, 2020. Based on ASC 815-40, Contracts in Entity’s Own Equity,
warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified
as liabilities at their estimated fair values. In periods subsequent to issuance, changes in the estimated fair value of the derivative
instruments should be reported in the statement of operations.
The following presents a reconciliation of
the balance sheets, statements of operations, changes in stockholders’ equity and cash flows from the prior periods as previously
reported to the restated amounts as of and for the year ended December 31, 2020, as well as the unaudited condensed financial statements
for the three and nine month periods ended September 30, 2020.
Additionally, the Company has restated the
table of warrants within Note 5 to reflect that each of the Series A Warrants issued in connection with the Business Combination are
exercisable for 1.421333 shares of common stock.
Hall of
Fame Resort & Entertainment Company and Subsidiaries
Notes to
Consolidated Financial Statements
Note 15: Restatement of Previously Issued
Audit and Unaudited Financial Statements (continued)
Consolidated Balance Sheet as of December
31, 2020
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
19,112,000
|
|
|
$
|
19,112,000
|
|
Total liabilities
|
|
|
126,650,582
|
|
|
|
19,112,000
|
|
|
|
145,762,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
217,027,804
|
|
|
|
(44,915,116
|
)
|
|
|
172,112,688
|
|
Accumulated deficit
|
|
|
(32,643,987
|
)
|
|
|
25,803,116
|
|
|
|
(6,840,871
|
)
|
Total equity attributable to HOFRE
|
|
|
184,390,227
|
|
|
|
(19,112,000
|
)
|
|
|
165,278,227
|
|
Total equity
|
|
|
184,193,721
|
|
|
|
(19,112,000
|
)
|
|
|
165,081,721
|
|
Consolidated Statement of Operations for
the Year Ended December 31, 2020
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Property operating expenses
|
|
$
|
25,701,821
|
|
|
$
|
930,000
|
|
|
$
|
26,631,821
|
|
Total operating expenses
|
|
|
38,878,610
|
|
|
|
930,000
|
|
|
|
39,808,610
|
|
Loss from operations
|
|
|
(31,779,456
|
)
|
|
|
930,000
|
|
|
|
(32,709,456
|
)
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
26,733,116
|
|
|
|
26,733,116
|
|
Total other expense
|
|
|
(39,708,832
|
)
|
|
|
26,733,116
|
|
|
|
(12,975,716
|
)
|
Net loss before income taxes
|
|
|
(71,488,288
|
)
|
|
|
25,803,116
|
|
|
|
(45,685,172
|
)
|
Net loss
|
|
|
(71,488,288
|
)
|
|
|
25,803,116
|
|
|
|
(45,685,172
|
)
|
Net loss attributable to HOFRE stockholders
|
|
|
(71,291,782
|
)
|
|
|
25,803,116
|
|
|
|
(45,488,666
|
)
|
Net loss per share – basic and diluted
|
|
$
|
(2.68
|
)
|
|
$
|
0.97
|
|
|
$
|
(1.71
|
)
|
Consolidated Statement of Changes in Stockholders’
Equity for the Year Ended December 31, 2020
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Business combination with GPAQ on July 1,
2020
|
|
$
|
30,534,781
|
|
|
$
|
(30,040,000
|
)
|
|
$
|
494,781
|
|
Warrants issued in connection with IRG debt settlement
|
|
|
5,196,116
|
|
|
|
(5,196,116
|
)
|
|
|
-
|
|
November 18, 2020 capital raise, net of offering costs
|
|
|
22,945,410
|
|
|
|
(8,467,000
|
)
|
|
|
14,478,410
|
|
December 4, 2020 capital raise, net of offering costs
|
|
|
3,283,089
|
|
|
|
(1,212,000
|
)
|
|
|
2,071,089
|
|
Net loss
|
|
|
(71,488,288
|
)
|
|
|
25,803,116
|
|
|
|
(45,685,172
|
)
|
Consolidated Statement of Cash Flows for
the Year Ended December 31, 2020
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Net loss
|
|
$
|
(71,488,288
|
)
|
|
$
|
25,803,116
|
|
|
$
|
(45,685,172
|
)
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
(26,733,116
|
)
|
|
|
(26,733,116
|
)
|
Accounts payable and accrued expenses
|
|
|
28,334,412
|
|
|
|
930,000
|
|
|
|
29,264,412
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to
Consolidated Financial Statements
Note 15: Restatement of Previously Issued
Audit and Unaudited Financial Statements (continued)
Condensed Consolidated Balance Sheet as
of September 30, 2020 (unaudited)
|
|
As
Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
4,530,000
|
|
|
$
|
4,530,000
|
|
Total liabilities
|
|
|
130,780,485
|
|
|
|
4,530,000
|
|
|
|
135,310,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
168,134,414
|
|
|
|
(30,040,000
|
)
|
|
|
138,094,414
|
|
(Accumulated deficit) retained earnings
|
|
|
(18,089,195
|
)
|
|
|
25,510,000
|
|
|
|
7,420,805
|
|
Total equity attributable to HOFRE
|
|
|
150,048,494
|
|
|
|
(4,530,000
|
)
|
|
|
145,518,494
|
|
Total equity
|
|
|
150,012,494
|
|
|
|
(4,530,000
|
)
|
|
|
145,482,494
|
|
Condensed Consolidated Statement of Operations
for the Three Months Ended September 30, 2020 (unaudited)
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
25,510,000
|
|
|
$
|
25,510,000
|
|
Total other (expense) income
|
|
|
(23,674,129
|
)
|
|
|
25,510,000
|
|
|
|
1,835,871
|
|
Net loss before income taxes
|
|
|
(33,936,903
|
)
|
|
|
25,510,000
|
|
|
|
(8,426,903
|
)
|
Net loss
|
|
|
(33,936,903
|
)
|
|
|
25,510,000
|
|
|
|
(8,426,903
|
)
|
Net loss attributable to HOFRE stockholders
|
|
|
(33,900,903
|
)
|
|
|
25,510,000
|
|
|
|
(8,390,903
|
)
|
Net loss per share – basic and diluted
|
|
$
|
(1.04
|
)
|
|
$
|
0.78
|
|
|
$
|
(0.26
|
)
|
Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 2020 (unaudited)
|
|
As
Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Change in fair value of warrant
liability
|
|
$
|
-
|
|
|
$
|
25,510,000
|
|
|
$
|
25,510,000
|
|
Total other expense
|
|
|
(34,561,670
|
)
|
|
|
25,510,000
|
|
|
|
(9,051,670
|
)
|
Net loss before income taxes
|
|
|
(56,772,990
|
)
|
|
|
25,510,000
|
|
|
|
(31,262,990
|
)
|
Net loss
|
|
|
(56,772,990
|
)
|
|
|
25,510,000
|
|
|
|
(31,262,990
|
)
|
Net loss attributable to HOFRE stockholders
|
|
|
(56,736,990
|
)
|
|
|
25,510,000
|
|
|
|
(31,226,990
|
)
|
Net loss per share – basic and diluted
|
|
$
|
(3.90
|
)
|
|
$
|
1.75
|
|
|
$
|
(2.15
|
)
|
Condensed Consolidated Statement of Changes
in Stockholders’ Equity for the Nine Months Ended September 30, 2020 (unaudited)
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Business combination with GPAQ on July 1, 2020
|
|
$
|
30,534,781
|
|
|
$
|
(30,040,000
|
)
|
|
$
|
494,781
|
|
Net loss – three months ended September 30, 2020
|
|
|
(33,936,903
|
)
|
|
|
25,510,000
|
|
|
|
(8,426,903
|
)
|
Condensed Consolidated Statement of Cash
Flows for the Nine Months Ended September 30, 2020 (unaudited)
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
Net loss
|
|
$
|
(56,772,990
|
)
|
|
$
|
25,510,000
|
|
|
$
|
(31,262,990
|
)
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
(25,510,000
|
)
|
|
|
(25,510,000
|
)
|