Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business
Organization and Nature of Business
Hall of Fame Resort &
Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise, the “Company”
or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned subsidiary of our legal predecessor,
Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On July 1, 2020, the Company
consummated a business combination with HOF Village, LLC, a Delaware limited liability company (“HOF Village”), pursuant to
an Agreement and Plan of Merger dated September 16, 2019 (as amended on November 6, 2019, March 10, 2020 and May 22, 2020, the “Merger
Agreement”), by and among the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation (“Acquiror Merger Sub”),
GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”), HOF Village and HOF Village Newco,
LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by the Merger Agreement are referred to
as the “Business Combination”.
The Company is a resort and
entertainment company leveraging the power and popularity of professional football and its legendary players in partnership with the National
Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, the Company
owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination centered around the
PFHOF’s campus. The Company is pursuing a differentiation strategy across three pillars, including destination-based assets, HOF
Village Media Group, LLC (“Hall of Fame Village Media”), and gaming (including the fantasy football league in which we acquired
a majority stake in 2020).
The Company has entered into
several agreements with PFHOF, an affiliate of the Company, and certain government entities, which outline the rights and obligations
of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits, portions of which
are owned by the Company and portions of which are net leased to the Company by 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
Since 2020, 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 the Company’s financial and
operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently
unpredictable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in
response to COVID-19 as well as individuals’ and companies’ risk tolerance regarding health matters going forward and developing
strain mutations.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business (continued)
Liquidity and Going Concern
The Company has sustained recurring losses and
negative cash flows from operations through September 30, 2021. In addition, the Company has significant debt obligations maturing in
the 12 month period subsequent to the date these unaudited condensed consolidated financial statements are issued. Since inception, the
Company’s operations have been funded principally through the issuance of debt and equity. As of September 30, 2021, the Company
had approximately $13 million of unrestricted cash and cash equivalents and $15 million of restricted cash, respectively. These conditions
initially raise substantial doubt regarding the Company’s ability to continue as a going concern. However, the Company believes
that management’s plans alleviate such substantial doubt. Management’s plans include raising additional capital, including
debt, construction lending, and equity financing or, if necessary, reducing the scope of planned development.
During February 2021, the Company received approximately
$34.5 million gross proceeds from the issuance of shares of the Company’s common stock, par value of $0.0001 per share (“Common
Stock”), before offering costs.
On June 4, 2021, the Company completed a private
placement with CH Capital Lending, LLC for a purchase price of $15 million (i) 15,000 shares of 7.00% Series B Convertible Preferred Stock
(the “Series B Preferred Stock”), which are convertible into shares of the Company’s 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 in exchange for $200,000.
On each of August 12, 2021 and September 22, 2021,
the Company issued to American Capital Center, LLC (the “Investor”) 900 shares (the “Series A Shares”) of 7.00%
Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) at a price of $1,000 per share for an aggregate
purchase price of $900,000. The Company will pay the Investor an origination fee of 2% of the aggregate purchase price.
On September 30, 2021, the Company entered into
an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Wedbush Securities Inc. and Maxim Group LLC with
respect to an at the market offering program (“ATM”) under which the Company may, from time to time, offer and sell shares
of the Company’s Common Stock having an aggregate offering price of up to $50 million. No shares had been sold under the Equity
Distribution Agreement through September 30, 2021. From the October 1 through November 10, 2021, approximately 202,489 shares were sold
resulting in net proceeds to the Company totaling approximately $512,273. The remaining availability under the Equity Distribution Agreement
as of the date of filing of this report is approximately $49.5 million.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business (continued)
Liquidity and Going Concern (continued)
The Company believes that, as a result of the
transactions described above and its current ongoing negotiations, it will have sufficient cash and future financing to meet its funding
requirements over the next twelve months. Notwithstanding, the Company expects that it will need to raise additional financing to accomplish
its development plan over the next several years. The Company is seeking to obtain additional funding through debt, construction lending,
and equity financing. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at
all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company is unable
to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm
its financial condition and operating results.
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 and nine months ended September
30, 2021 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31,
2021.
Consolidation
The unaudited condensed consolidated financial
statements include the accounts and activity of the Company, and its wholly owned subsidiaries. Investments in a variable interest entity
in which the Company is not the primary beneficiary, or where the Company does not own a majority interest but has the ability to exercise
significant influence over operating and financial policies, are accounted for using the equity method. All intercompany profits, transactions
and balances have been eliminated in consolidation.
The Company owns a 60% interest in Mountaineer
GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s results of operations. The Company acquired
60% of the equity interests in Mountaineer for a purchase price of $100 from one of its related parties. The portion of Mountaineer’s
net income (loss) that is not attributable to the Company is included in non-controlling interest.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), 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 Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions
for the Company relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, stock-based
compensation, 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 under U.S. GAAP 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.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Property and Equipment and Project Development
Costs
Property and equipment are recorded at historical
cost and 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 September 30, 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. In August 2021, management determined
that previously capitalized costs for the construction of the Center for Performance should be written off because of significant changes
to the plans for the project that render certain of the current capitalized costs no longer of use for the Center for Performance. Management
reviewed its capitalized costs and identified the costs that had no future benefit. As a result, in the third quarter of 2021, the Company
recorded a $1,748,448 charge as an impairment of project development costs within the accompanying statement of operations.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Common
Share
Basic net income (loss) per
common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods.
Diluted net income (loss)
per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period,
adjusted for 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, (iii)
conversion of preferred stock, and (iv) the conversion of convertible notes are only included in the calculation of diluted net loss per
share when their effect is dilutive.
For the three months ended September 30, 2021, the Company calculated
net income (loss) per share, diluted, as follows:
|
|
For the
Three Months
Ended
September 30,
2021
|
|
Numerator for net income per share
|
|
|
|
Net income attributable to Common Stock – basic
|
|
$
|
8,145,916
|
|
Reverse: change in fair value of warrant liabilities
|
|
|
(16,363,170
|
)
|
Net loss available to common stockholders – diluted
|
|
$
|
(8,217,254
|
)
|
|
|
|
|
|
Denominator for net income per share
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
|
95,044,250
|
|
Warrants to purchase shares of common stock, treasury method
|
|
|
7,496,560
|
|
Weighted average shares outstanding – diluted
|
|
|
102,540,809
|
|
|
|
|
|
|
Net income per share – basic
|
|
$
|
0.09
|
|
|
|
|
|
|
Net loss per share – diluted
|
|
$
|
(0.08
|
)
|
For the nine months ended September 30, 2021,
and for the three and nine months ended September 30, 2020, the Company was in a loss position and therefore all potentially dilutive
securities would be anti-dilutive and the calculations are presented on the accompanying condensed consolidated statements of operations.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Common
Share (continued)
For the three and nine months ended September
30, 2021 and 2020, the following outstanding Common Stock equivalents have been excluded from the calculation of net income (loss) per
share because their impact would be anti-dilutive.
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Warrants to purchase shares of Common Stock
|
|
|
27,214,854
|
|
|
|
24,731,194
|
|
|
|
41,012,349
|
|
|
|
24,731,194
|
|
Unvested restricted stock awards
|
|
|
238,643
|
|
|
|
477,286
|
|
|
|
238,643
|
|
|
|
477,286
|
|
Unvested restricted stock units to be settled in shares of Common Stock
|
|
|
2,869,754
|
|
|
|
749,720
|
|
|
|
2,869,754
|
|
|
|
749,720
|
|
Shares of Common Stock issuable upon conversion of convertible notes
|
|
|
3,401,180
|
|
|
|
3,079,639
|
|
|
|
3,401,180
|
|
|
|
3,079,639
|
|
Shares of Common Stock issuable upon conversion of Series B Preferred Stock
|
|
|
4,967,320
|
|
|
|
-
|
|
|
|
4,967,320
|
|
|
|
-
|
|
Total anti-dilutive securities
|
|
|
38,691,751
|
|
|
|
29,037,839
|
|
|
|
52,489,246
|
|
|
|
29,037,839
|
|
Revenue Recognition
The Company follows the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue with Contracts with Customers,
to properly recognize revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services,
in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five
steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation.
The Company generates revenues from various streams
such as sponsorship agreements, rents, cost recoveries, events, hotel operation, Hall of Fantasy League, and through the sale of non-fungible
tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and
other benefits over a set period of time, recognize revenue on a straight-line basis over the time period specified in the contract. 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., package reservations), food and
beverage sales, and other ancillary goods and services (e.g., parking) related to owned hotel properties. Revenue is recognized when rooms
are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and
services are provided. Although the transaction prices of hotel room sales, goods, and other services are generally fixed and based on
the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected
to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the
package based on the estimated standalone selling price of each component.
Advertising
The Company expenses all advertising and marketing
costs as they are incurred and records them as “property operating expenses” on the Company’s unaudited condensed consolidated
statements of operations. Total advertising and marketing costs for the three months ended September 30, 2021 and 2020 were $125,042 and
$45,976, respectively, and were $472,916 and $313,571 for the nine months ended September 30, 2021 and 2020, respectively.
Software Development Costs
The Company recognizes all costs incurred to establish
technological feasibility of a computer software product to be sold, leased, or otherwise marketed as research and development costs.
Prior to the point of reaching technological feasibility, all costs shall be charged to expense when incurred. Once the development of
the product establishes technological feasibility, the Company will begin capitalizing these costs. Management exercises its judgement
in determining when technological feasibility is established based on when a product design and working model have been completed and
the completeness of the working model and its consistency with the product design have been confirmed through testing.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Accounting for Real Estate Investments
Upon the acquisition of real estate properties,
a determination is made as to whether the acquisition meets the criteria to be accounted for as an asset or business combination. The
determination is primarily based on whether the assets acquired and liabilities assumed meet the definition of a business. The determination
of whether the assets acquired and liabilities assumed meet the definition of a business include a single or similar asset threshold.
In applying the single or similar asset threshold, if substantially all the fair value of the gross assets acquired is concentrated in
a single identifiable asset or group of similar identifiable assets, the assets acquired and liabilities assumed are not considered a
business. Most of the Company’s acquisitions meet the single or similar asset threshold due to the fact that substantially all the
fair value of the gross assets acquired is attributable to the real estate acquired.
Acquired real estate properties accounted for
as asset acquisitions are recorded at cost, including acquisition and closing costs. The Company allocates the cost of real estate properties
to the tangible and intangible assets and liabilities acquired based on their estimated relative fair values. The Company determines the
fair value of tangible assets, such as land, building, furniture, fixtures, and equipment, using a combination of internal valuation techniques
that consider comparable market transactions, replacement costs, and other available information and fair value estimates provided by
third party valuation specialists, depending upon the circumstances of the acquisition. The Company determines the fair value of identified
intangible assets or liabilities, which typically relate to in-place leases, using a combination of internal valuation techniques that
consider the terms of the in-place leases, current market data for comparable leases, and fair value estimates provided by third party
valuation specialists, depending upon the circumstances of the acquisition.
If a transaction is determined to be a business
combination, the assets acquired, liabilities assumed, and any identified intangibles are recorded at their estimated fair values on the
transaction date, and transaction costs are expensed in the period incurred.
Fair Value Measurement
The Company follows FASB’s ASC 820–10,
Fair Value Measurement, to measure the fair value of its financial instruments and to incorporate disclosures about fair value
of its financial instruments. ASC 820–10 establishes a framework for measuring fair value and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820–10 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The three levels of fair value hierarchy defined
by ASC 820–10 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 change in fair value of warrant liabilities in the unaudited condensed 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 September 30, 2021 and December 31, 2020 and indicates
the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
Level
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Warrant liabilities – Public Series A Warrants
|
|
1
|
|
$
|
10,794,000
|
|
|
$
|
4,130,000
|
|
Warrant liabilities – Private Series A Warrants
|
|
3
|
|
|
570,000
|
|
|
|
420,000
|
|
Warrant liabilities – Series B Warrants
|
|
3
|
|
|
5,918,000
|
|
|
|
9,781,000
|
|
Warrant liabilities – Series C Warrants
|
|
3
|
|
|
15,877,000
|
|
|
|
4,781,000
|
|
Fair value of aggregate warrant liabilities
|
|
|
|
$
|
33,159,000
|
|
|
$
|
19,112,000
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The Series A Warrants issued to the previous shareholders
of GPAQ (the “Public Series A Warrants”) are classified as Level 1 due to the use of an observable market quote in the active
market. Level 3 financial liabilities consist of the Series A Warrants issued to the sponsors of GPAQ (the “Private Series A Warrants”),
the Series B Warrants issued in the Company’s November 2020 follow-on public offering, and the Series C Warrants issued in the Company’s
December 2020 private placement, for which there is no current market for these securities, and the determination of fair value requires
significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed
each period based on changes in estimates or assumptions and recorded appropriately.
Subsequent measurement
The following table presents the changes
in fair value of the warrant liabilities:
|
|
Public
Series A
Warrants
|
|
|
Private
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Series C
Warrants
|
|
|
Total
Warrant
Liability
|
|
Fair value as of January 1, 2021
|
|
$
|
4,130,000
|
|
|
$
|
420,000
|
|
|
$
|
9,781,000
|
|
|
$
|
4,781,000
|
|
|
$
|
19,112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of warrants, exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(53,518,942
|
)
|
|
|
-
|
|
|
|
(53,518,942
|
)
|
Change in fair value, exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
43,070,206
|
|
|
|
-
|
|
|
|
43,070,206
|
|
Change in fair value, outstanding
|
|
|
6,664,000
|
|
|
|
150,000
|
|
|
|
6,585,736
|
|
|
|
11,096,000
|
|
|
|
24,495,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of September 30, 2021
|
|
$
|
10,794,000
|
|
|
$
|
570,000
|
|
|
$
|
5,918,000
|
|
|
$
|
15,877,000
|
|
|
$
|
33,159,000
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
Subsequent measurement (continued)
The key inputs into the Black Scholes valuation model for the Level
3 valuations as of September 30, 2021 and December 31, 2020 are as follows:
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Private
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Series C
Warrants
|
|
|
Private
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Series C
Warrants
|
|
Term (years)
|
|
|
3.8
|
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
4.5
|
|
|
|
4.9
|
|
|
|
5.0
|
|
Stock price
|
|
$
|
2.65
|
|
|
$
|
2.65
|
|
|
$
|
2.65
|
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
49.9
|
%
|
|
|
49.9
|
%
|
|
|
49.9
|
%
|
|
|
70.7
|
%
|
|
|
49.5
|
%
|
|
|
49.5
|
%
|
Risk free interest rate
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
2,103,573
|
|
|
|
3,760,570
|
|
|
|
10,036,925
|
|
|
|
1,480,000
|
|
|
|
20,535,713
|
|
|
|
10,036,925
|
|
Value (per share)
|
|
$
|
0.27
|
|
|
$
|
1.57
|
|
|
$
|
1.58
|
|
|
$
|
0.28
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
Hall of Fame Resort & Entertainment Company
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting
Policies (continued)
Recent Accounting Pronouncements
In February 2016, FASB issued Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11,
2018-20, and 2019-01 (collectively “ASU 2016-02”). ASU 2016-02 requires recognition of right-of-use assets and lease liabilities
on the balance sheet. In June 2020, FASB issued ASU 2020-05, further extending the effective date by one year making it effective for
the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15,
2022, with early adoption permitted. Most prominent among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use
asset and a lease liability for operating leases. The right-of-use asset and lease liability are initially measured based on the present
value of committed lease payments. Leases are classified as either finance or operating, with classification affecting the pattern of
expense recognition. Expenses related to operating leases are recognized on a straight-line basis, while those related to financing leases
are recognized under a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately
in the statement of operations. 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.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). The amendments in ASU
2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition
qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income
per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2023, for smaller reporting companies, as defined by the SEC. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of
this ASU on its consolidated financial statements and disclosures.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting
Policies (continued)
Subsequent Events
Subsequent events have been evaluated through
November 10, 2021, the date the condensed consolidated financial statements were issued. Except for as disclosed in Notes 1 and 4, no
other events have been identified requiring disclosure or recording.
Note 3: Property and Equipment
Property and equipment consists of the following:
|
|
Useful Life
|
|
September 30,
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
|
|
|
2,334,678
|
|
|
|
2,165,882
|
|
Property and equipment, gross
|
|
|
|
|
193,627,033
|
|
|
|
191,800,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(46,331,077
|
)
|
|
|
(37,444,429
|
)
|
Property and equipment, net
|
|
|
|
$
|
147,295,956
|
|
|
$
|
154,355,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Project development costs
|
|
|
|
$
|
146,483,370
|
|
|
$
|
107,969,139
|
|
For the three months ended September 30, 2021
and 2020, the Company recorded depreciation expense of $2,993,581 and $2,753,046, respectively, and for the nine months ended September
30, 2021 and 2020, depreciation expense was $8,886,648 and $8,198,469, respectively. For the nine months ended September 30, 2021 and
2020, the Company incurred $39,514,231 and $33,423,918 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 September 30, 2021:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
|
Interest
Rate
|
|
|
Maturity
Date
|
TIF loan
|
|
$
|
9,554,000
|
|
|
$
|
(1,625,436
|
)
|
|
$
|
7,928,564
|
|
|
|
5.20
|
%
|
|
7/31/2048
|
Preferred equity loan
|
|
|
3,600,000
|
|
|
|
-
|
|
|
|
3,600,000
|
|
|
|
7.00
|
%
|
|
Various beginning 10/9/2025
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(6,805
|
)
|
|
|
3,493,195
|
|
|
|
5.00
|
%
|
|
7/1/2027
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
|
|
4.00
|
%
|
|
12/30/2024
|
Constellation EME
|
|
|
6,485,023
|
|
|
|
-
|
|
|
|
6,485,023
|
|
|
|
6.05
|
%
|
|
12/31/2022
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(4,921
|
)
|
|
|
6,948,910
|
|
|
|
12.00
|
%
|
|
12/2/2021
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(139,411
|
)
|
|
|
15,160,589
|
|
|
|
5.00
|
%
|
|
3/13/2022
|
Convertible PIPE Notes
|
|
|
23,468,143
|
|
|
|
(11,886,265
|
)
|
|
|
11,581,878
|
|
|
|
10.00
|
%
|
|
3/31/2025
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(176,450
|
)
|
|
|
2,493,550
|
|
|
|
3.85
|
%
|
|
5/15/2040
|
Aquarian Mortgage Loan
|
|
|
20,000,000
|
|
|
|
(1,008,537
|
)
|
|
|
18,991,463
|
|
|
|
10.00
|
%
|
|
3/1/2022
|
Constellation EME #2
|
|
|
4,673,939
|
|
|
|
-
|
|
|
|
4,673,939
|
|
|
|
5.93
|
%
|
|
4/30/2026
|
Total
|
|
$
|
99,204,925
|
|
|
$
|
(14,847,825
|
)
|
|
$
|
84,357,100
|
|
|
|
|
|
|
|
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
|
|
|
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 September 30, 2021
and 2020, the Company recorded amortization of note discounts of $1,326,620 and $3,043,738, respectively, and for the nine months ended
September 30, 2021 and 2020, amortization of note discounts was $3,725,347 and $9,721,484, respectively. During the three months ended
September 30, 2021 and 2020, the Company recorded paid-in-kind interest of $548,370 and $1,488,224, respectively. During the nine months
ended September 30, 2021 and 2020, the Company recorded paid-in-kind interest of $1,500,382 and $3,135,035, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
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.
Accrued Interest on Notes Payable
As of September 30, 2021 and December 31, 2020,
accrued interest on notes payable, were as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
TIF loan
|
|
$
|
140,883
|
|
|
$
|
-
|
|
Preferred equity loan
|
|
|
140,350
|
|
|
|
27,125
|
|
New Market/SCF
|
|
|
67,077
|
|
|
|
-
|
|
Constellation EME
|
|
|
-
|
|
|
|
248,832
|
|
Paycheck protection plan loan
|
|
|
-
|
|
|
|
2,706
|
|
City of Canton Loan
|
|
|
1,507
|
|
|
|
4,472
|
|
JKP Capital Note
|
|
|
1,042,654
|
|
|
|
416,836
|
|
MKG Doubletree loan
|
|
|
-
|
|
|
|
67,716
|
|
Canton Cooperative Agreement
|
|
|
69,520
|
|
|
|
20,593
|
|
Aquarian Mortgage Loan
|
|
|
-
|
|
|
|
333,333
|
|
Total
|
|
$
|
1,461,991
|
|
|
$
|
1,121,613
|
|
The amounts above were included in accounts payable
and accrued expenses and other liabilities on the Company’s unaudited condensed consolidated balance sheet, as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Accounts payable and accrued expenses
|
|
$
|
1,321,641
|
|
|
$
|
1,094,488
|
|
Other liabilities
|
|
|
140,350
|
|
|
|
27,125
|
|
|
|
$
|
1,461,991
|
|
|
$
|
1,121,613
|
|
7.00% Series A Cumulative Redeemable Preferred
Stock (“Preferred Equity Loan”)
On April 1, 2021, the Company received $900,000
in advance of a subscription agreement to purchase shares of 7.00% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred
Stock”). On August 12, 2021, the Company entered into a subscription agreement with American Capital Center, LLC (the “Investor”)
to issue to the Investor 900 shares of Series A Preferred Stock at a price of $1,000 per share for an aggregate purchase price of $900,000.
On September 22, 2021, the Company issued an
additional 900 shares of Series A Preferred Stock to the Investor at a price of $1,000 per share for an aggregate purchase price of $900,000.
The Company had 3,600 and 1,800 shares of Series
A Preferred Stock outstanding and 52,800 and 52,800 shares of Series A Preferred Stock authorized as of September 30, 2021 and December
31, 2020, respectively. The Series A 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 unaudited condensed consolidated balance sheet.
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% and 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. During the nine months ended September 30, 2021, 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”). Interest on PIPE Notes is payable quarterly
in either cash or an increase in the principal amount of PIPE Notes (“PIK Interest”). If the Company pays interest as PIK
Interest, the interest rate for such payment is 10%, rather than 8%. Pursuant to the terms of the Note Purchase Agreement, the PIPE Notes
may be converted into shares of Common Stock at a conversion price equal to $6.90 per share. 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 equal to the conversion price of the PIPE Notes at the time such warrant is issued pursuant to the Note Purchase Agreement.
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.
Aquarian Mortgage Loan
On December 1, 2020, the Company entered into a mortgage loan (the
“Aquarian Mortgage Loan”) with Aquarian Credit Funding, LLC (“Aquarian”), as administrative agent and Investors
Heritage Life Insurance Company and Lincoln Benefit Life Company, as lenders, for $40,000,000 of gross proceeds. The Aquarian Mortgage
Loan bears interest at 10% per annum. Upon the occurrence and during the continuance of an event of default, Aquarian may, at its
option, take such action, without notice or demand that Aquarian deems advisable to protect and enforce its rights against the Company,
including declaring the debt to become immediately due and payable.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Aquarian Mortgage Loan (continued)
On
August 30, 2021, the Company and Aquarian amended the terms of the
Aquarian Mortgage Loan whereby the Company paid $20 million to Lincoln Benefit Life Company. In accordance with such payment, Lincoln
Benefit Life Company was removed as a lender and the aggregate principal of the Aquarian Mortgage Loan was reduced to $20 million as of
September 30, 2021. The Company and Aquarian also agreed to extend the maturity date of the Aquarian Mortgage Loan to March 1, 2022. In
connection with such extension, the Company paid to Aquarian $500,000, which was recorded as a deferred financing cost and will be amortized
over the remaining term of the Aquarian Mortgage Loan. No other material terms of the Aquarian Mortgage Loan changed.
Future Minimum Principal Payments
The minimum required principal payments on notes
payable outstanding as of September 30, 2021 are as follows:
For the years ending December 31,
|
|
Amount
|
|
2021 (three months)
|
|
$
|
8,429,807
|
|
2022
|
|
|
41,810,248
|
|
2023
|
|
|
1,448,706
|
|
2024
|
|
|
4,596,932
|
|
2025
|
|
|
28,704,965
|
|
Thereafter
|
|
|
14,214,267
|
|
Total Gross Principal Payments
|
|
$
|
99,204,925
|
|
|
|
|
|
|
Less: Discount
|
|
|
(14,847,825
|
)
|
|
|
|
|
|
Total Net Principal Payments
|
|
$
|
84,357,100
|
|
The Company has various
debt covenants that require certain financial information to be met. If the Company does not meet the requirements of the debt covenants,
the Company will be responsible for paying the full outstanding amount of the note immediately. As of September 30, 2021, the Company
was in compliance with all relevant debt covenants.
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020, the Company’s stockholders
approved an amendment to the Company’s charter to increase the authorized shares of Common Stock from 100,000,000 to 300,000,000.
Consequently, the Company’s charter allows the Company to issue up to 300,000,000 shares of Common Stock and to issue and designate
its rights, without stockholder approval, of up to 5,000,000 shares of preferred stock, par value $0.0001.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Series A Preferred Stock Designation
On October 8, 2020, the Company filed a Certificate
of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of the
Series A Preferred Stock. The number of authorized shares of Series A Preferred Stock is 52,800.
Series B Preferred Stock Designation
On May 13, 2021, the Company filed a Certificate
of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations and relative rights of the
7.00% Series B Preferred Stock (as defined below). The number of authorized shares of Series B Preferred Stock is 15,200.
7.00% Series B Convertible Preferred Stock
The Company had 15,200 and 0 shares of 7.00%
Series B Convertible Preferred Stock (“Series B Preferred Stock”) outstanding and 15,200 and 0 shares authorized as of September
30, 2021 and December 31, 2020, respectively. On the third anniversary of the date on which shares of Series B Preferred Stock are first
issued (the “Automatic Conversion Date”), each share of Series B Preferred Stock, except to the extent previously converted
pursuant to an Optional Conversion (as defined below), shall automatically be converted into shares of Common Stock (the “Automatic
Conversion”). At any time following the date on which shares of Series B Preferred Stock are first issued, and from time to time
prior to the Automatic Conversion Date, each holder of Series B Preferred Stock shall have the right, but not the obligation, to elect
to convert all or any portion of such holder’s shares of Series B Preferred Stock into shares of Common Stock, on terms similar
to the Automatic Conversion (any such conversion, an “Optional Conversion”).
2020 Omnibus Incentive Plan
On July 1, 2020, in connection with the closing
of the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective
immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved by the Company’s
stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of Common Stock authorized for issuance under
the 2020 Omnibus Incentive Plan was 1,812,727 shares. On June 2, 2021, the Company held its 2021 Annual Meeting whereby the Company’s
stockholders approved an amendment to the 2020 Omnibus Incentive Plan to increase by four million the number of shares of Common Stock,
par value $0.0001 per share, of the Company that will be available for issuance under the 2020 Omnibus Incentive Plan, resulting in a
maximum of 5,812,727 shares that can be issued under the amended 2020 Omnibus Inventive Plan. The amendment to the 2020 Omnibus Incentive
Plan was previously approved by the Board of Directors of the Company, and the amended 2020 Omnibus Incentive Plan became effective on
June 2, 2021. As of September 30, 2021, 2,503,247 shares remained available for issuance under the 2020 Omnibus Incentive Plan.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Equity Distribution Agreement
On September 30, 2021, the Company entered into
an Equity Distribution Agreement with Wedbush Securities Inc. and Maxim Group LLC with respect to an at the market offering program (“ATM”)
under which the Company may, from time to time, offer and sell shares of the Company’s Common Stock having an aggregate offering
price of up to $50 million. No shares had been sold under the Equity Distribution Agreement through September 30, 2021. From the October
1 through November 10, 2021, approximately 202,489 shares were sold resulting in net proceeds to the Company totaling approximately $512,273.
The remaining availability under the Equity Distribution Agreement as of the date of filing of this report is approximately $49.5 million.
Issuance of Restricted Stock Awards
The Company’s activity in restricted Common
Stock was as follows for the nine months ended September 30, 2021:
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Non–vested at January 1, 2021
|
|
|
477,286
|
|
|
$
|
9.30
|
|
Granted
|
|
|
50,393
|
|
|
$
|
4.41
|
|
Vested
|
|
|
(289,036
|
)
|
|
$
|
8.44
|
|
Non–vested at September 30, 2021
|
|
|
238,643
|
|
|
$
|
9.30
|
|
For the three months ended September 30, 2021
and 2020, the Company recorded $554,547 and $2,772,733, respectively, in employee and director stock-based compensation expense for restricted
stock awards. For the nine months ended September 30, 2021 and 2020, $1,885,723 and $2,772,733, respectively. Of the 2020 employee and
director stock-based compensation expense, $2,218,187 is included as a component of business combination costs on the Company’s
condensed consolidated statement of operations. As of September 30, 2021, unamortized stock-based compensation costs related to restricted
share arrangements were $1,663,640 and will be recognized over a weighted average period of 0.7 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
During the nine months ended September 30, 2021,
the Company granted an aggregate of 1,734,197 Restricted Stock Units (“RSUs”) to its employees and directors under the 2020
Omnibus Incentive Plan. The RSUs were valued at the value of the Company’s Common Stock on the date of grant, which was a range
of $1.98 to $5.29 for these awards. The RSUs granted to employees vest one third on the first anniversary of their grant, one third on
the second anniversary of their grant, and one third on the third anniversary of their grant. The RSUs granted to directors vest one
year from the date of grant.
The Company’s activity in RSUs was as follows
for the nine months ended September 30, 2021:
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Non–vested at January 1, 2021
|
|
|
1,499,933
|
|
|
$
|
2.49
|
|
Granted
|
|
|
1,734,197
|
|
|
$
|
2.00
|
|
Vested
|
|
|
(338,060
|
)
|
|
$
|
3.31
|
|
Forfeited
|
|
|
(26,316
|
)
|
|
$
|
1.98
|
|
Non–vested at September 30, 2021
|
|
|
2,869,754
|
|
|
$
|
2.12
|
|
For the three months ended September 30,
2021 and 2020, the Company recorded $848,108 and $593,760, respectively, in employee and director stock-based compensation expense,
and for the nine months ended September 30, 2021 and 2020, $2,615,301 and $593,760, respectively. Employee and director stock-based
compensation expense is a component of “Property operating expenses” in the unaudited condensed consolidated statement
of operations. As of September 30, 2021, unamortized stock-based compensation costs related to restricted stock units were
$4,018,279 and will be recognized over a weighted average period of 1.6 years.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Warrants
The Company’s warrant activity was as follows for the nine months
ended September 30, 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
|
|
|
|
|
|
Granted
|
|
|
2,483,660
|
|
|
$
|
6.90
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(16,775,143
|
)
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
Outstanding – September 30, 2021
|
|
|
41,012,349
|
|
|
$
|
7.82
|
|
|
|
3.84
|
|
|
$
|
17,246,869
|
|
Exercisable – September 30, 2021
|
|
|
38,528,689
|
|
|
$
|
7.88
|
|
|
|
3.92
|
|
|
$
|
17,246,869
|
|
During the nine months ended September 30, 2021,
warrants to purchase 16,775,143 shares of Common Stock were exercised with an exercise price of $1.40 per share. These exercises resulted
in cash proceeds to the Company of $23,485,200 and the settlement of the Company’s warrant liability of $53,518,942.
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 owning 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.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
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 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 Series D 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. 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.
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 Amended Sponsorship Agreement if Phase II is not substantially funded by October 31, 2021 or substantially complete by January 2,
2024.
As of September 30, 2021, scheduled future cash
to be received and required activation spend under the non-cancellable period of the Amended Sponsorship Agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021 (three months)
|
|
$
|
937,500
|
|
|
$
|
187,500
|
|
|
$
|
1,125,000
|
|
Total
|
|
$
|
937,500
|
|
|
$
|
187,500
|
|
|
$
|
1,125,000
|
|
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 September
30, 2021 and 2020, the Company recognized $1,130,708 and $1,133,708 of net sponsorship revenue related to this deal, and for the nine
months ended September 30, 2021 and 2020, $3,364,155 and $3,608,402, respectively.
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 September
30, 2021, scheduled future cash to be received under the agreement is as follows:
Year ending December 31,
|
|
|
|
|
2021 (three months)
|
|
$
|
-
|
|
2022
|
|
|
150,000
|
|
2023
|
|
|
150,000
|
|
2024
|
|
|
150,000
|
|
2025
|
|
|
150,000
|
|
Thereafter
|
|
|
150,000
|
|
|
|
|
|
|
Total
|
|
$
|
750,000
|
|
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the agreement. During the three months ended September 30, 2021 and 2020,
the Company recognized $37,449 and $37,449 of net sponsorship revenue related to this deal, and for the nine months ended September 30,
2021 and 2020, $111,126 and $111,533, respectively. As of September 30, 2021 and December 31, 2020, accounts receivable from First Data
totaled $0 and $58,141, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Constellation NewEnergy, Inc.
On December 19, 2018, the
Company and PFHOF entered into a sponsorship and services agreement with Constellation (the “Constellation Sponsorship Agreement”)
whereby Constellation and its affiliates will provide the gas and electric needs in exchange for certain sponsorship rights. The original
term of the Company’s Constellation Sponsorship Agreement was through December 31, 2028. However, in June 2020, the Company entered
into an amended contract with Constellation which extended the term of the Constellation Sponsorship Agreement through December 31, 2029.
The Constellation Sponsorship
Agreement provides for certain rights to Constellation and its employeess 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.
As of September 30, 2021, scheduled future cash
to be received and required activation spend under the Constellation Sponsorship Agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021 (three 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 September
30, 2021 and 2020, the Company recognized $295,591 and $295,591, respectively, of net sponsorship revenue related to this deal, and for
the nine months ended September 30, 2021 and 2020, $877,133 and $949,064, respectively. Accounts receivable from Constellation totaled
$679,000 and $1,101,867 at September 30, 2021 and December 31, 2020, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
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 September 30, 2021 and 2020,
the Company recognized $15,115 and $15,115, respectively, of net sponsorship revenue related to this deal, and for the nine months ended
September 30, 2021 and 2020, $44,852 and $45,016, respectively. Accounts receivable from Turf Nation totaled $176,944 and $132,092 at
September 30, 2021 and December 31, 2020, 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.
The Company had a commitment to the Canton City
School District (“CCSD”) to provide a replacement for their Football Operations Center (“FOC”) and to construct
a Heritage Project (“Heritage”). The commitment was defined in the Operations and Use Agreement for HOF Village Complex dated
February 26, 2016.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
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:
Year ending December 31:
2021 (three months)
|
|
$
|
77,975
|
|
2022
|
|
|
321,900
|
|
2023
|
|
|
321,900
|
|
2024
|
|
|
321,900
|
|
2025
|
|
|
321,900
|
|
Thereafter
|
|
|
41,320,800
|
|
|
|
|
|
|
Total
|
|
$
|
42,686,375
|
|
Rent expense on operating leases totaled $81,927
and $104,366 during the three months ended September 30, 2021 and 2020, respectively, and for the nine months ended September 30, 2021
and 2020, $245,091 and $310,829 respectively, and is recorded as a component of “Property operating expenses” on the Company’s
unaudited condensed consolidated statement of operations.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Stadium 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 September 30, 2021 and 2020 was $50,000 and for the nine
months ended September 30, 2021 and 2020 was $150,000 which is included in “Property operating expenses” on the Company’s
unaudited condensed consolidated statements of operations. The agreement term shall end on December 31, 2022. On November 2, 2021, the
Company and SMG agreed to terminate the Service Agreement. In connection with such termination, the Company will pay to SMG $76,370 prior
to November 16, 2021.
On November 2, 2021, the Company and ASM Global
entered into a new booking services agreement, whereby ASM Global will bring concerts, festivals, and other special events to the Tom
Benson Hall of Fame Stadium. ASM Global will receive a portion of all ticket sales for events booked, along with reimbursement of direct
expenses.
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 September 30, 2021 and 2020, the Company paid and incurred $30,000 and $0, respectively,
in management fees, respectively, and for the nine months ended September 30, 2021 and 2020, $90,000 and $0, 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, which began in April 2021 for $103,095. Additionally, the Company has two notes payable
with Constellation. See Note 4 for more information.
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
September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Due to IRG Member
|
|
$
|
1,420,960
|
|
|
$
|
1,456,521
|
|
Due to IRG Affiliate
|
|
|
140,762
|
|
|
|
140,180
|
|
Due to PFHOF
|
|
|
266,946
|
|
|
|
126,855
|
|
Total
|
|
$
|
1,828,668
|
|
|
$
|
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, provides certain supporting services
to the Company. As noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member, IRG Canton Village Manager, LLC,
the manager of HOF Village, LLC controlled by our director Stuart Lichter, may earn a master developer fee calculated as 4.0% of development
costs incurred for the Hall of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction supervision,
and project financing. These development costs incurred are netted against certain costs incurred for general project management.
For the three months ended September 30, 2021
and 2020, costs incurred under these arrangements were $0 and $677,359, respectively, and for the nine months ended September 30, 2021
and 2020, costs incurred were $0 and $886,305, respectively, which were included in “Project development costs” on the condensed
consolidated balance sheets.
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 September 30, 2021 and 2020, the Company incurred $45,000 in costs to this
affiliate, and for the nine months ended September 30, 2021 and 2020, the Company incurred $135,000 for both periods.
The due to related party amounts above are non-interest
bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions with this affiliate to establish
repayment terms of these advances. However, there could be no assurance that the Company and IRG Member will come to terms acceptable
to both parties.
On January 13, 2020, the Company secured $9.9
million in financing from Constellation through its Efficiency Made Easy (“EME”) program to implement energy efficient measures
and to finance the construction of the Constellation Center for Excellence and other enhancements, as part of Phase II development. The
Hanover Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations under the financing, and Stuart
Lichter and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance Company for payments made under the
guarantee bond.
The amounts above due to PFHOF relate to advances
to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales support, shared services, event tickets, and expense
reimbursements.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
License Agreement
On March 10, 2016, the Company entered into a
license agreement with PFHOF, whereby the Company has the ability to license and use certain intellectual property from PFHOF in exchange
for the Company paying a fee based on certain sponsorship revenues and expenses. On December 11, 2018, the license agreement was amended
to change the calculation of the fee to be 20% of eligible sponsorship revenue. The license agreement was further amended in a First Amended
and Restated License Agreement, dated September 16, 2019. The license agreement expires on December 31, 2033. During the three months
ended September 30, 2021 and 2020, the Company recognized expenses of $139,000 and $525,733, respectively, and for the nine months ended
September 30, 2021 and 2020, $349,442 and $992,955, respectively, which are included in “Property operating expenses” on the
Company’s unaudited condensed 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 PFHOF minimum
guaranteed license fees of $1,250,000 each year during the term. The first annual minimum payment was due July 1, 2021. The Company has
not yet made this payment and is in the process of renegotiating this agreement with PFHOF. The Company believes that it is not probable
that it will have to pay the $1,250,000 minimum payment, and as such has not accrued such amount. During the three months ended September
30, 2021, the Company paid $50,000 to PFHOF as a payment to be applied to the agreement in the process of renegotiation. There can be
no assurances that the Company and PFHOF will reach a favorable agreement. There were no other license fees incurred during the three
and nine months ended September 30, 2021 and 2020 under the Media License Agreement.
Other Liabilities
Other liabilities consisted of the following at
September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Activation fund reserves
|
|
$
|
3,472,502
|
|
|
$
|
3,780,343
|
|
Deferred revenue
|
|
|
785,826
|
|
|
|
1,709,126
|
|
Total
|
|
$
|
4,258,328
|
|
|
$
|
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 certain
parcels of real property from PFHOF, located at the site of the Hall of Fame Village powered by Johnson Controls, for $1.75 million. In
connection with the purchase, the Company granted certain easements to PFHOF to ensure accessibility to the PFHOF museum.
Shared Services Agreement with PFHOF
On March 9, 2021, the Company entered into an
additional Shared Services Agreement with PFHOF, which supplements the existing Shared Services Agreement by, among other things, providing
for the sharing of costs for activities relating to shared services.
Note 10: Concentrations
For the three months ended September 30, 2021,
one customer represented approximately 33% of the Company’s total revenue. For the three months ended September 30, 2020, two customers
represented approximately 68% and 18% of the Company’s total revenue. For the nine months ended September 30, 2021, two customers
represented approximately 43% and 11% of the Company’s total revenue. For the nine months ended September 30, 2020, two customers
represented approximately 74% and 19% of the Company’s total revenue. At September 30, 2021, three customers represented approximately
41%, 16%, and 11% 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 other adverse conditions
in the financial markets occurs.