Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business
Organization and Nature of Business
Hall of Fame Resort &
Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise, the “Company”
or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned subsidiary of our legal predecessor,
Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On July 1, 2020, the Company consummated a business combination with
HOF Village, LLC, a Delaware limited liability company (“HOF Village”), pursuant to an Agreement and Plan of Merger dated
September 16, 2019 (as amended on November 6, 2019, March 10, 2020 and May 22, 2020, the “Merger Agreement”), by and among
the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation (“Acquiror Merger Sub”), GPAQ Company Merger Sub,
LLC, a Delaware limited liability company (“Company Merger Sub”), HOF Village and HOF Village Newco, LLC, a Delaware limited
liability company (“Newco”). The transactions contemplated by the Merger Agreement are referred to as the “Business
Combination.”
The Company is a resort and entertainment company
leveraging the power and popularity of professional football and its legendary players in partnership with the National Football Museum,
Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, the Company owns the Hall
of Fame Village powered by Johnson Controls, a multi-use sports, entertainment, and media destination centered around the PFHOF’s
campus. The Company is pursuing a differentiation strategy across three pillars, including destination-based assets, HOF Village Media
Group, LLC (“Hall of Fame Village Media”), and gaming (including the fantasy football league in which the Company acquired
a majority stake in 2020). The Company is located in the only tourism development district in the state of Ohio.
The Company has entered
into several agreements with PFHOF, an affiliate of the Company, and certain government entities, which outline the rights and obligations
of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits, portions of which
are owned by the Company and portions of which are net leased to the Company by government and quasi-governmental entities (see Note
9 for additional information). Under these agreements, the PFHOF and the lessor entities are entitled to use portions of the Hall of
Fame Village powered by Johnson Controls on a direct-cost basis.
COVID-19
Since
2020, the world has been impacted by the novel coronavirus (“COVID-19”) pandemic. The COVID-19 pandemic and measures to prevent
its spread have impacted the Company’s business in a number of ways, most significantly with regard to a reduction in the number
of events and attendance at events at Tom Benson Hall of Fame Stadium and ForeverLawn Sports Complex, which has also negatively impacted
the Company’s ability to sell sponsorships. Further, the COVID-19 pandemic has caused a number of supply chain disruptions, which
have negatively impacted the Company’s ability to obtain the materials needed to complete construction as
well as increases in the costs of materials and labor. The continued
impact of these disruptions and the ultimate extent of their adverse impact on the Company’s financial and operating results will
continue to be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unpredictable
duration and severity of the impacts of the COVID-19 pandemic, and among other things, the impact of governmental actions imposed in
response to the COVID-19 pandemic as well as individuals’ and companies’ risk tolerance regarding health matters going forward
and developing strain mutations.
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 June 30, 2022. Since inception, the Company’s operations have been funded principally through the issuance
of debt and equity. As of June 30, 2022, the Company had approximately $11 million of unrestricted cash and cash equivalents and $7 million
of restricted cash.
On March 1, 2022, the Company and ErieBank agreed
to extend the MKG DoubleTree Loan (as defined in Note 4) in principal amount of $15,300,000 to September 13, 2023. See Note 4, Notes
Payable, for more information on this transaction.
On March 1, 2022, the Company executed a series
of transactions with affiliates of Industrial Realty Group, LLC, a Nevada limited liability company that is controlled by the Company’s
director Stuart Lichter (“IRG”), and JKP Financial, LLC (“JKP”), whereby the IRG affiliates and JKP extended certain
of the Company’s debt in aggregate principal amount of $22,853,831 to March 31, 2024. See Note 4, Notes Payable, for more information
on this transaction.
On June 16, 2022, the Company entered into a
loan agreement with CH Capital Lending, LLC, which is an affiliate of the Company’s director Stuart Lichter (“CH Capital Lending”),
whereby CH Capital Lending agreed to lend the Company $10,500,000.
On June 16, 2022, the Company entered into a loan agreement with Stark
Community Foundation, whereby Stark Community Foundation agreed to lend to the Company $5,000,000, of which $2,500,000 has been provided
to the Company to date. See Stark Community Foundation Loan under Note 4, Notes Payable, for more information on this transaction.
On July 1, 2022, the Company entered into an
Energy Project Cooperative Agreement (the “EPC Agreement”) with Canton Regional Energy Special Improvement District, Inc.,
SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC and City of Canton, Ohio. Under the EPC Agreement, the Company was
provided $33,387,844 in Property Assessed Clean Energy (“PACE”) financing. See Note 12, Subsequent Events, for more information
on this transaction.
The Company believes that, as a result of the
Company’s demonstrated historical ability to finance and refinance debt, the transactions described above and its current ongoing
negotiations, it will have sufficient cash and future financing to meet its funding requirements over the next 12 months from the issuance
of these unaudited condensed consolidated financial statements. Notwithstanding, the Company expects that it will need to raise additional
financing to accomplish its development plan over the next several years. The Company is seeking to obtain additional funding through
debt, construction lending, and equity financing. There are no assurances that the Company will be able to raise capital on terms acceptable
to the Company or at all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If
the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development,
which could harm its financial condition and operating results.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for interim financial information and Rule 10 of Regulation S-X under the Securities Act of 1933,
as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP.
However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position
and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended
December 31, 2021, filed on March 14, 2022. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative
of the results that may be expected for any subsequent quarters or for the year ending December 31, 2022.
Consolidation
The unaudited condensed consolidated financial
statements include the accounts and activity of the Company and its wholly owned subsidiaries. Investments in a variable interest entity
in which the Company is not the primary beneficiary, or where the Company does not own a majority interest but has the ability to exercise
significant influence over operating and financial policies, are accounted for using the equity method. All intercompany profits, transactions,
and balances have been eliminated in consolidation.
The Company owns a 60% interest in Mountaineer
GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s results of operations. The portion of Mountaineer’s
net income (loss) that is not attributable to the Company is included in non-controlling interest.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
It may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval
of any golden parachute payments not previously approved. The Company will cease to be an emerging growth company on January 30, 2023.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such an
extended transition period which means that when a standard is issued or revised and it has different application dates for public or
private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt
the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is
neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions for the
Company relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, stock-based compensation,
and fair value of financial instruments (including the fair value of the Company’s warrant liability). Management adjusts such
estimates when facts and circumstances dictate. Actual results could differ from those estimates.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Warrant Liability
The Company accounts for warrants for shares
of the Company’s common stock, par value $0.0001 per share (“Common Stock”) that are not indexed to its own stock as
liabilities at fair value on the balance sheet under U.S. GAAP. Such warrants are subject to remeasurement at each balance sheet date
and any change in fair value is recognized as a component of other expense on the statement of operations. The Company will continue
to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such Common Stock warrants. At that
time, the portion of the warrant liability related to such Common Stock warrants will be reclassified to additional paid-in capital.
Cash and Restricted Cash
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased, to be cash equivalents. There were no cash equivalents as of June 30,
2022 and December 31, 2021, respectively. The Company maintains its cash and escrow accounts at national financial institutions. The
balances, at times, may exceed federally insured limits.
Restricted cash includes escrow reserve accounts
for capital improvements and debt service as required under certain of the Company’s debt agreements. The balances as of June 30,
2022 and December 31, 2021 were $7,214,439 and $7,105,057, respectively.
Accounts Receivable
Accounts receivable are generally amounts due
under sponsorship and other agreements. Accounts receivable are reviewed for delinquencies on a case-by-case basis and are considered
delinquent when the sponsor or debtor has missed a scheduled payment. Interest is not charged on delinquencies.
The carrying amount of accounts receivable is
reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually
reviews all delinquent accounts receivable balances and based on an assessment of current creditworthiness, estimates the portion, if
any, of the balance that will not be collected. As of June 30, 2022 and December 31, 2021, the Company has recorded an allowance for doubtful
accounts of $2,125,000 and $0, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company follows the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue with Contracts
with Customers, to properly recognize revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods
or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the
following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) the entity satisfies a performance obligation.
The Company generates revenues from various streams
such as sponsorship agreements, rents, cost recoveries, events, hotel operation, Hall of Fantasy League, and through the sale of non-fungible
tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and
other benefits over a set period of time, recognize revenue on a straight-line basis over the time period specified in the contract.
The excess of amounts contractually due over the amounts of sponsorship revenue recognized are included in other liabilities on the accompanying
condensed consolidated balance sheets. Contractually due but unpaid sponsorship revenue are included in accounts receivable on the accompanying
condensed consolidated balance sheet. Refer to Note 6 for more details. Revenue for rents, cost recoveries, and events are recognized
at the time the respective event or service has been performed. Rental revenue for long term leases is recorded on a straight-line basis
over the term of the lease beginning on the commencement date.
A performance obligation is a promise in a contract
to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company
allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally
determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s
performance obligations are satisfied. If consideration is received in advance of the Company’s performance, including amounts
which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
The Company’s owned hotel revenues primarily
consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and
beverage sales, and other ancillary goods and services (e.g., parking) related to owned hotel properties. Revenue is recognized when
rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods
and services are provided. Although the transaction prices of hotel room sales, goods, and other services are generally fixed and based
on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected
to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the
package based on the estimated standalone selling price of each component.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Income Taxes
The Company utilizes an asset and liability approach
for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment
for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects
of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in
effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred
tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will
not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause
changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If
actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions
that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount
of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits”
is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
As of June 30, 2022 and December 31, 2021, no liability for unrecognized tax benefits was required to be reported.
The Company’s policy for recording interest
and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no
amounts incurred for penalties and interest during the three or six months ended June 30, 2022 and 2021. The Company does not expect
its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could
result in significant payments, accruals or material deviations from its position. The Company’s effective tax rates of zero differ
from the statutory rate for the years presented primarily due to the Company’s net operating loss, which was fully reserved for
all years presented.
The Company has identified its United States
tax return and its state tax return in Ohio as its “major” tax jurisdictions, and such returns for the years 2018 through
2021 remain subject to examination.
Advertising
The Company expenses all advertising and marketing
costs as they are incurred and records them as “Operating expenses” on the Company’s condensed consolidated statements
of operations. Total advertising and marketing costs for the three months ended June 30, 2022 and 2021 were $374,256 and $72,016, respectively
and for the six months ended June 30, 2022 and 2021 were $399,346 and 347,874, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Software Development Costs
The Company recognizes all costs incurred to
establish technological feasibility of a computer software product to be sold, leased, or otherwise marketed as research and development
costs. Prior to the point of reaching technological feasibility, all costs shall be expensed when incurred. Once the development of the
product establishes technological feasibility, the Company will begin capitalizing these costs. Management exercises its judgement in
determining when technological feasibility is established based on when a product design and working model have been completed and the
completeness of the working model and its consistency with the product design have been confirmed through testing.
Film and Media Costs
The Company capitalizes all costs to develop
films and related media as an asset, included in “project development costs” on the Company’s condensed consolidated
balance sheet. The costs for each film or media will be expensed over the expected release period.
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.
The three levels of fair value hierarchy defined
by ASC 820–10-20 are described below:
| Level
1 |
|
Quoted market prices available
in active markets for identical assets or liabilities as of the
reporting date. |
| |
|
|
| Level 2 |
|
Pricing inputs other than quoted
prices in active markets included in Level 1, which are either
directly or indirectly observable
as of the reporting date. |
| |
|
|
| Level 3 |
|
Pricing inputs that
are generally unobservable inputs and not corroborated by market data. |
Financial assets or liabilities are considered
Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at
least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If
the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is
based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial
assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their
fair values due to the short-term nature of these instruments.
The Company uses Levels 1 and 3 of the fair value
hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period and recognizes
gains or losses on the change in fair value of the warrant liabilities as “change in fair value of warrant liabilities” in
the condensed consolidated statements of operations.
The following table provides the financial liabilities
measured on a recurring basis and reported at fair value on the balance sheet as of June 30, 2022 and December 31, 2021 and indicates
the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| | |
Level | | |
June 30, 2022 | | |
December 31,
2021 | |
| Warrant liabilities – Public Series A
Warrants | |
| 1 | | |
$ | 2,706,000 | | |
$ | 4,617,000 | |
| Warrant liabilities – Private Series A Warrants | |
| 3 | | |
| 10,000 | | |
| 110,000 | |
| Warrant liabilities – Series B Warrants | |
| 3 | | |
| 444,000 | | |
| 2,416,000 | |
| Warrant liabilities – Series
C Warrants | |
| 3 | | |
| - | | |
| 6,526,000 | |
| Fair value of aggregate warrant liabilities | |
| | | |
$ | 3,160,000 | | |
$ | 13,669,000 | |
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 (“Series C Warrants”), for which there is no current
market for these securities, and the determination of fair value requires significant judgment or estimation. Changes in fair value measurement
categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded
appropriately.
Subsequent measurement
The following table presents the changes
in fair value of the warrant liabilities:
| | |
Public Series A Warrants | | |
Private Series A Warrants | | |
Series B Warrants | | |
Series C Warrants | | |
Total Warrant Liability | |
| Fair value as of December 31, 2021 | |
$ | 4,617,000 | | |
$ | 110,000 | | |
$ | 2,416,000 | | |
$ | 6,526,000 | | |
$ | 13,669,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Amendment of warrants to equity classification | |
| - | | |
| - | | |
| - | | |
| (3,336,000 | ) | |
| (3,336,000 | ) |
| Change in fair value | |
| (1,911,000 | ) | |
| (100,000 | ) | |
| (1,972,000 | ) | |
| (3,190,000 | ) | |
| (7,173,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fair value as of June 30, 2022 | |
$ | 2,706,000 | | |
$ | 10,000 | | |
$ | 444,000 | | |
$ | - | | |
$ | 3,160,000 | |
On March 1, 2022, the Company and CH Capital
Lending amended the Series C Warrants. The Amended and Restated Series C Warrants extend the term of the Series C Warrants to March 1,
2027. The exercise price of $1.40 per share was not modified, but the amendments subject the exercise price to a weighted-average antidilution
adjustment. The amendments also remove certain provisions that previously caused the Series C Warrants to be accounted for as a liability.
The key inputs into the Black Scholes valuation model for the Level
3 valuations as of June 30, 2022 and December 31, 2021 are as follows:
| | |
June 30, 2022 | | |
March 1,
2022 | | |
December 31, 2021 | |
| | |
Private Series A Warrants | | |
Series B Warrants | | |
Series C Warrants | | |
Private Series A Warrants | | |
Series B Warrants | | |
Series C Warrants | |
| Term (years) | |
| 3.0 | | |
| 3.4 | | |
| 3.8 | | |
| 3.5 | | |
| 3.9 | | |
| 4.0 | |
| Stock price | |
$ | 0.59 | | |
$ | 0.59 | | |
$ | 1.01 | | |
$ | 1.52 | | |
$ | 1.52 | | |
$ | 1.52 | |
| Exercise price | |
$ | 11.50 | | |
$ | 1.40 | | |
$ | 1.40 | | |
$ | 11.50 | | |
$ | 1.40 | | |
$ | 1.40 | |
| Dividend yield | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % |
| Expected volatility | |
| 59.9 | % | |
| 57.6 | % | |
| 54.7 | % | |
| 50.6 | % | |
| 50.6 | % | |
| 50.6 | % |
| Risk free interest rate | |
| 3.0 | % | |
| 3.0 | % | |
| 1.5 | % | |
| 1.3 | % | |
| 1.3 | % | |
| 1.3 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Number of shares | |
| 2,103,573 | | |
| 3,760,570 | | |
| 10,036,925 | | |
| 2,103,573 | | |
| 3,760,570 | | |
| 10,036,925 | |
| Value (per share) | |
$ | 0.005 | | |
$ | 0.12 | | |
$ | 0.33 | | |
$ | 0.05 | | |
$ | 0.64 | | |
$ | 0.65 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting
Policies (continued)
Net Income (Loss) Per
Common Share
Basic net income (loss)
per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods.
Diluted net income (loss)
per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company’s
potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding
stock options and warrants, (ii) vesting of restricted stock units and restricted stock awards, and (iii) conversion of preferred stock,
are only included in the calculation of diluted net loss per share when their effect is dilutive.
For the three months ended June 30, 2021, the Company calculated net
income per share, diluted, as follows:
| | |
For the Three Months Ended June 30,
2021 | |
| Numerator for net income per share | |
| | |
| Net income attributable to common stock – basic | |
$ | 15,541,053 | |
| Reverse: change in fair value of warrant liabilities | |
| (15,025,888 | ) |
| Net income available to common stockholders – diluted | |
$ | 515,165 | |
| | |
| | |
| Denominator for net income per share | |
| | |
| Weighted average shares outstanding – basic | |
| 94,397,222 | |
| Unvested restricted stock awards | |
| 477,286 | |
| Unvested restricted stock units | |
| 3,220,972 | |
| Warrants to purchase shares of common stock, treasury
method | |
| 9,257,792 | |
| Weighted average shares outstanding – diluted | |
| 107,353,272 | |
| | |
| | |
| Net income per share – basic | |
$ | 0.16 | |
| | |
| | |
| Net income per share – diluted | |
$ | 0.00 | |
For the three and six months ended June 30, 2022,
and for the six months ended June 30, 2021, the Company was in a loss position and therefore all potentially dilutive securities would
be anti-dilutive and the calculations are presented on the accompanying condensed consolidated statements of operations.
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)
At June 30, 2022 and 2021,
the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact
would be anti-dilutive.
| | |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Warrants to purchase shares of Common Stock | |
| 44,137,349 | | |
| 27,214,854 | | |
| 44,137,349 | | |
| 41,112,349 | |
| Unvested restricted stock awards | |
| 238,643 | | |
| - | | |
| 238,643 | | |
| 477,286 | |
| Unvested restricted stock units to be settled in shares
of Common Stock | |
| 2,929,187 | | |
| - | | |
| 2,929,187 | | |
| 3,220,972 | |
| Shares of Common Stock issuable upon conversion of convertible
notes | |
| 24,088,729 | | |
| 3,321,706 | | |
| 24,088,729 | | |
| 3,321,706 | |
| Shares of Common Stock issuable upon conversion of Series
B Preferred Stock | |
| 65,359 | | |
| - | | |
| 65,359 | | |
| - | |
| Shares of Common Stock issuable
upon conversion of Series C Preferred Stock | |
| 10,000,000 | | |
| - | | |
| 10,000,000 | | |
| - | |
| Total potentially dilutive securities | |
| 81,459,267 | | |
| 30,536,560 | | |
| 81,459,267 | | |
| 48,132,313 | |
Recent Accounting Standards
In February 2016, FASB issued Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11,
2018-20, and 2019-01 (collectively “ASU 2016-02”). ASU 2016-02 requires recognition of right-of-use assets and lease liabilities
on the balance sheet. In June 2020, FASB issued ASU 2020-05, further extending the effective date by one year making it effective for
the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15,
2022, with early adoption permitted. Most prominent among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use
asset and a lease liability for operating leases. The right-of-use asset and lease liability are initially measured based on the present
value of committed lease payments. Leases are classified as either finance or operating, with classification affecting the pattern of
expense recognition. Expenses related to operating leases are recognized on a straight-line basis, while those related to financing leases
are recognized under a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately
in the statement of operations. Similarly, lessors are required to classify leases as sales-type, finance, or operating with classification
affecting the pattern of income recognition. As the Company is an emerging growth company and following private company deadlines, the
Company implemented this ASU beginning on January 1, 2022.
Classification for both lessees and lessors is
based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. ASU
2016-02 also requires qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from
leases.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting
Policies (continued)
Recent Accounting Standards (continued)
In March 2019, the FASB issued ASU 2019-01, Leases
(Topic 842): Codification Improvements, which requires an entity (a lessee or lessor) to provide transition disclosures under Topic
250 upon adoption of Topic 842. In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic
326): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related
to Accounting Standards Update No. 2016-02, Leases. The ASU adds and amends SEC paragraphs in the ASC to reflect the issuance of
SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised
effective date of the new leases standard. This new standard is effective for fiscal years beginning after December 15, 2021, including
interim periods within fiscal years beginning after December 15, 2022. Upon the adoption of ASC 842 on January 1, 2022, the Company
recognized a right of use asset of approximately $7.7 million and corresponding lease liability of approximately $3.4 million. The initial
recognition of the ROU asset included the reclassification of approximately $4.4 million of prepaid rent as of January 1, 2022. See Note
11 for additional disclosure regarding the Company’s right of use assets and lease liabilities.
In May 2021, the FASB issued ASU No. 2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation
(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for
Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting
for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years
beginning after December 15, 2021 and interim periods within those fiscal years, which is fiscal 2023 for us, with early adoption permitted.
The Company adopted this ASU on January 1, 2022, which did not have a significant impact on the Company’s financial statements.
In August 2020, the FASB issued ASU No. 2020-06,
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which amends the accounting
standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU No. 2020-06 eliminates
requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability
to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be
settled using shares. Instead, ASU No. 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance
sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. The required use of the
“if-converted” method will not impact the Company’s diluted earnings per share as long as the Company is in a net loss
position. The guidance in ASU No. 2020-06 is required for annual reporting periods, including interim periods within those annual periods,
beginning after December 15, 2021, for public business entities. Early adoption is permitted, but no earlier than annual reporting periods
beginning after December 15, 2020, including interim periods within those annual reporting periods. The Company early adopted this guidance
for the fiscal year beginning January 1, 2022, and did so on a modified retrospective basis, without requiring any adjustments.
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
August 11, 2022, the date the condensed consolidated financial statements were issued. Except for as disclosed in Notes 1 and 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 | |
June 30,
2022 | | |
December 31,
2021 | |
| Land | |
| |
$ | 4,186,090 | | |
$ | 4,186,090 | |
| Land improvements | |
25 years | |
| 31,194,623 | | |
| 31,194,623 | |
| Building and improvements | |
15 to 39 years | |
| 206,307,167 | | |
| 192,384,530 | |
| Equipment | |
5 to 10 years | |
| 2,977,886 | | |
| 2,338,894 | |
| Property and equipment, gross | |
| |
| 244,665,766 | | |
| 230,104,137 | |
| | |
| |
| | | |
| | |
| Less: accumulated depreciation | |
| |
| (56,413,441 | ) | |
| (49,643,575 | ) |
| Property and equipment, net | |
| |
$ | 188,252,325 | | |
$ | 180,460,562 | |
| | |
| |
| | | |
| | |
| Project development costs | |
| |
$ | 158,722,100 | | |
$ | 128,721,480 | |
For the three months ended June 30, 2022 and 2021, the Company recorded
depreciation expense of $3,527,581 and $2,972,130, respectively, and for the six months ended June 30, 2022 and 2021, of $6,769,866 and
$5,893,067, respectively. For the six months ended June 30, 2022 and 2021, the Company incurred $42,920,667 and $18,626,781 of capitalized
project development costs, respectively.
Included in project development costs are film
development costs of $464,000 and $464,000 as of June 30, 2022 and December 31, 2021, 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 June 30, 2022:
| | |
Gross | | |
Discount | | |
Net | | |
Interest Rate | | |
Maturity Date |
| TIF loan | |
$ | 9,345,000 | | |
$ | (1,583,943 | ) | |
$ | 7,761,057 | | |
| 5.20 | % | |
7/31/2048 |
| Preferred equity loan | |
| 3,600,000 | | |
| - | | |
| 3,600,000 | | |
| 7.00 | % | |
Various |
| City of Canton Loan | |
| 3,500,000 | | |
| (5,925 | ) | |
| 3,494,075 | | |
| 5.00 | % | |
7/1/2027 |
| New Market/SCF | |
| 2,999,989 | | |
| - | | |
| 2,999,989 | | |
| 4.00 | % | |
12/30/2024 |
| Constellation EME | |
| 2,639,242 | | |
| - | | |
| 2,639,242 | | |
| 6.05 | % | |
12/31/2022 |
| JKP Capital Loan | |
| 8,733,428 | | |
| (608,880 | ) | |
| 8,124,548 | | |
| 12.00 | % | |
3/31/2024 |
| MKG DoubleTree Loan | |
| 15,300,000 | | |
| - | | |
| 15,300,000 | | |
| 6.55 | % | |
9/13/2023 |
| Convertible PIPE Notes | |
| 25,288,079 | | |
| (9,663,632 | ) | |
| 15,624,447 | | |
| 10.00 | % | |
3/31/2025 |
| Canton Cooperative Agreement | |
| 2,670,000 | | |
| (171,581 | ) | |
| 2,498,419 | | |
| 3.85 | % | |
5/15/2040 |
| CH Capital Loan | |
| 8,462,640 | | |
| (844,218 | ) | |
| 7,618,422 | | |
| 12.00 | % | |
3/31/2024 |
| Constellation EME #2 | |
| 4,005,064 | | |
| - | | |
| 4,005,064 | | |
| 5.93 | % | |
4/30/2026 |
| IRG Split Note | |
| 4,273,543 | | |
| (334,615 | ) | |
| 3,938,928 | | |
| 8.00 | % | |
3/31/2024 |
| JKP Split Note | |
| 4,273,543 | | |
| (292,355 | ) | |
| 3,981,188 | | |
| 8.00 | % | |
3/31/2024 |
| ErieBank Loan | |
| 17,039,912 | | |
| (567,889 | ) | |
| 16,472,023 | | |
| 5.75 | % | |
6/15/2034 |
| PACE Equity Loan | |
| 8,250,966 | | |
| (276,713 | ) | |
| 7,974,253 | | |
| 6.05 | % | |
12/31/2046 |
| PACE Equity CFP | |
| 27,586 | | |
| (27,586 | ) | |
| - | | |
| 6.05 | % | |
12/31/2046 |
| CFP Loan | |
| 4,000,000 | | |
| (101,611 | ) | |
| 3,898,389 | | |
| 6.50 | % | |
4/30/2023 |
| Stark County Community Foundation | |
| 2,500,000 | | |
| - | | |
| 2,500,000 | | |
| 6.00 | % | |
5/31/2029 |
| CH Capital Bridge Loan | |
| 10,500,000 | | |
| - | | |
| 10,500,000 | | |
| 12.00 | % | |
9/10/2022 |
| Total | |
$ | 137,408,992 | | |
$ | (14,478,948 | ) | |
$ | 122,930,044 | | |
| | | |
|
Notes payable, net consisted of the following
at December 31, 2021:
| | |
Gross | | |
Discount | | |
Net | |
| TIF loan | |
$ | 9,451,000 | | |
$ | (1,611,476 | ) | |
$ | 7,839,524 | |
| Preferred equity loan | |
| 3,600,000 | | |
| - | | |
| 3,600,000 | |
| City of Canton Loan | |
| 3,500,000 | | |
| (6,509 | ) | |
| 3,493,491 | |
| New Market/SCF | |
| 2,999,989 | | |
| - | | |
| 2,999,989 | |
| Constellation EME | |
| 5,227,639 | | |
| - | | |
| 5,227,639 | |
| JKP Capital loan | |
| 6,953,831 | | |
| - | | |
| 6,953,831 | |
| MKG DoubleTree Loan | |
| 15,300,000 | | |
| (83,939 | ) | |
| 15,216,061 | |
| Convertible PIPE Notes | |
| 24,059,749 | | |
| (11,168,630 | ) | |
| 12,891,119 | |
| Canton Cooperative Agreement | |
| 2,670,000 | | |
| (174,843 | ) | |
| 2,495,157 | |
| Aquarian Mortgage Loan | |
| 7,400,000 | | |
| (439,418 | ) | |
| 6,960,582 | |
| Constellation EME #2 | |
| 4,455,346 | | |
| - | | |
| 4,455,346 | |
| IRG Note | |
| 8,500,000 | | |
| - | | |
| 8,500,000 | |
| ErieBank Loan | |
| 13,353,186 | | |
| (598,966 | ) | |
| 12,754,220 | |
| PACE Equity Loan | |
| 8,250,966 | | |
| (277,729 | ) | |
| 7,973,237 | |
| Total | |
$ | 115,721,706 | | |
$ | (14,361,510 | ) | |
$ | 101,360,196 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
During the three months ended June 30, 2022 and 2021, the Company recorded
amortization of note discounts of $1,122,324 and $1,164,613, respectively, and for the six months ended June 30, 2022 and 2021, of $2,478,298
and $2,398,727, respectively. During the three months ended June 30, 2022 and 2021, the Company recorded paid-in-kind interest of $963,428
and $741,243, respectively. During the six months ended June 30, 2022 and 2021, the Company recorded paid-in-kind interest of $1,681,722
and $952,012, respectively.
Accrued Interest on Notes Payable
As of June 30, 2022 and December 31, 2021, accrued
interest on notes payable, were as follows:
| | |
June 30, 2022 | | |
December 31,
2021 | |
| TIF loan | |
$ | 33,159 | | |
$ | 22,208 | |
| Preferred equity loan | |
| 48,825 | | |
| 203,350 | |
| New Market/SCF | |
| 17,833 | | |
| 89,682 | |
| Constellation EME | |
| 13,142 | | |
| - | |
| City of Canton Loan | |
| 1,484 | | |
| 5,979 | |
| JKP Capital Note | |
| - | | |
| 1,251,395 | |
| Canton Cooperative Agreement | |
| 39,511 | | |
| 39,416 | |
| CH Capital Loan | |
| 55,652 | | |
| - | |
| IRG Split Note | |
| 28,490 | | |
| - | |
| JKP Split Note | |
| 28,490 | | |
| - | |
| ErieBank Loan | |
| 31,910 | | |
| 26,706 | |
| PACE Equity Loan | |
| 284,242 | | |
| 30,824 | |
| Stark Community Foundation | |
| 5,834 | | |
| - | |
| CH Capital Bridge Loan | |
| 38,000 | | |
| - | |
| Total | |
$ | 626,572 | | |
$ | 1,669,560 | |
The amounts above were included in “accounts
payable and accrued expenses” on the Company’s consolidated balance sheets.
For more information on the notes payable above,
please see Note 4 of the Company’s Annual Report on Form 10-K, as filed on March 14, 2022.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
JKP Capital Loan
On June 24, 2020, HOF Village and HOFV Hotel
II executed a loan evidenced by a promissory note (the “JKP Capital Loan”) in favor of JKP Financial, LLC (“JKP”)
for the principal sum of $7,000,000. The JKP Capital Loan bears interest at a rate of 12% per annum and matured on December 2, 2021,
on which date all unpaid principal and accrued and unpaid interest is due. The JKP Capital Loan is secured by the membership interests
in HOFV Hotel II held by HOF Village.
On March 1, 2022, the Company amended the JKP
Capital Loan. The Second Amendment to JKP Capital Loan (i) revises the outstanding principal balance of the JKP Capital Loan to include
interest that has accrued and has not been paid as of March 1, 2022, and (ii) extends the maturity of the JKP Capital Loan to March 31,
2024, and (iii) amends the JKP Capital Loan to be convertible into shares of Common Stock at a conversion price of $1.09 per share, subject
to adjustment. The conversion price is subject to a weighted-average antidilution adjustment.
As part of the consideration for the Second Amendment
to JKP Capital Loan, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act:
(i) 280,000 shares of Common Stock to JKP and (ii) a Series F Warrant to purchase 1,000,000 shares of Common Stock to JKP.
The Company accounted for this transaction as
an extinguishment, given that a substantive conversion feature was added to the JKP Capital Loan. The Company recorded the relative fair
value of the shares of Common Stock and Series F Warrants as a discount against the JKP Capital Loan. The following assumptions were
used to calculate the fair value of Series F Warrants:
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 1.01 | |
| Exercise price | |
$ | 1.09 | |
| Dividend yield | |
| 0.0 | % |
| Expected volatility | |
| 51.2 | % |
| Risk free interest rate | |
| 1.6 | % |
| Number of shares | |
| 1,000,000 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
MKG DoubleTree Loan
On September 14, 2020, the Company entered into
a construction loan agreement with Erie Bank, a wholly owned subsidiary of CNB Financial Corporation, a Pennsylvania corporation, as
lender. The Company has applied and been approved for a first mortgage loan for $15.3 million (“MKG DoubleTree Loan”)
with a variable interest rate of 1.75% plus the prime commercial rate, at which no time can it drop below 5%, for the purpose
of renovating the McKinley Grand Hotel in the City of Canton, Ohio. The initial maturity date is 18 months after the exercised loan date,
March 13, 2022, and the agreement includes an extended maturity date of September 13, 2022, should HOFRE need more time with an extension
fee of 0.1% of the then outstanding principal balance. The MKG DoubleTree Loan has certain financial covenants whereby the Company must
maintain a minimum tangible net worth of $5,000,000 and minimum liquidity of not less than $2,000,000. These covenants are to be tested
annually based upon the financial statements at the end of each fiscal year.
On March 1, 2022, HOF Village Hotel II, LLC,
a subsidiary of the Company, entered into an amendment to the MKG DoubleTree Loan with the Company’s director, Stuart Lichter,
as guarantor, and ErieBank, a division of CNB Bank, a wholly owned subsidiary of CNB Financial Corporation, as lender, which extended
the maturity to September 13, 2023. The Company accounted for this amendment as a modification, and expensed approximately $38,000 in
loan modification costs.
CH Capital Loan (formerly known as Aquarian
Mortgage Loan)
On December 1, 2020, the Company entered into
a mortgage loan (the “Aquarian Mortgage Loan”) with Aquarian Credit Funding, LLC (“Aquarian”), as administrative
agent and with Investors Heritage Life Insurance Company and Lincoln Benefit Life Company, as lenders, for $40,000,000 of gross
proceeds. The Aquarian Mortgage Loan bears interest at 10% per annum. Upon the occurrence and during the continuance of an event
of default, Aquarian may, at its option, take such action, without notice or demand, that Aquarian deems advisable to protect and enforce
its rights against the Company, including declaring the debt to become immediately due and payable.
On August 30, 2021, the Company and Aquarian
amended the terms of the Aquarian Mortgage Loan whereby the Company paid $20 million to Lincoln Benefit Life Company. In accordance with
such payment, Lincoln Benefit Life Company was removed as a lender and the aggregate principal of the Aquarian Mortgage Loan was reduced
to $20 million as of September 30, 2021. The Company and Aquarian also agreed to extend the maturity date of the Aquarian Mortgage Loan
to March 31, 2022.
On December 15, 2021, the Company repaid approximately
$13 million of the Aquarian Mortgage Loan.
On March 1, 2022, CH Capital Lending purchased
and acquired, the Company’s $7.4 million Aquarian Mortgage Loan (as thereafter amended and acquired by CH Capital Lending, the
“CH Capital Loan”).
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CH Capital Loan (formerly known as Aquarian
Mortgage Loan) (continued)
On March 1, 2022, immediately
after CH Capital Lending became the lender and administrative agent under the CH Capital Loan, the maturity date of the Term Loan was
extended to March 31, 2024. Also under the amendment, the Term Loan was made convertible into shares of Common Stock at a conversion
price of $1.50 per share, subject to adjustment. The conversion price is subject to a weighted-average antidilution adjustment. Certain
current and historical fees and expenses were added to the principal amount of the CH Capital Loan so that the new principal amount is
$8,347,839. The interest rate was increased from 10% to 12%. Of such 12% per annum interest: (i) 8% per annum shall be payable monthly
and (ii) 4% per annum shall accumulate and be payable on the maturity date.
As part of the consideration
for the amendment: (i) the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act:
(A) 330,000 shares of Common Stock to CH Capital Lending, and (B) a warrant to purchase 1,000,000 shares of Common Stock (“Series
E Warrant”) to CH Capital Lending, (ii) the Company was required to, subject to approval of its board of directors, create a series
of preferred stock, to be known as 7.00% Series C Convertible Preferred Stock (“Series C Preferred Stock”), and, upon the
request of CH Capital Lending, exchange each share of the Company’s Series B Convertible Preferred Stock, that is held by CH Capital
Lending for one share of Series C Preferred Stock, and (iii) the Company and CH Capital Lending amended and restated the Series C Warrants
and Series D Warrants that the Company issued to CH Capital Lending.
The Series E Warrants
have an exercise price of $1.50 per share, subject to adjustment. The exercise price is subject to a weighted-average antidilution adjustment.
The Series E Warrants may be exercised from and after March 1, 2023, subject to certain terms and conditions set forth in the Series
E Warrants. Unexercised Series E Warrants will expire on March 1, 2027. The Series E Warrants shall be cancelled without any further
action on the part of the Company or the holder, in the event that the Company repays in full on or before March 1, 2023, the CH Capital
Loan.
The Company accounted for this transaction as
an extinguishment, given that a substantive conversion feature was added to the CH Capital Loan. The Company recorded the relative fair
value of the shares of Common Stock and Series E Warrants as a discount against the CH Capital Loan. The following assumptions were used
to calculate the fair value of Series E Warrants:
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 1.01 | |
| Exercise price | |
$ | 1.50 | |
| Dividend yield | |
| 0.0 | % |
| Expected volatility | |
| 51.2 | % |
| Risk free interest rate | |
| 1.6 | % |
| Number of shares | |
| 1,000,000 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
IRG Note
On November 23, 2021, the Company, and IRG entered
into a promissory note (the “IRG Note”) pursuant to which IRG made a loan to the Company in the aggregate amount of $8,500,000.
Interest will accrue on the outstanding balance of the Note at a rate of 8% per annum, compounded monthly. The Company will pay interest
to IRG under the Note on the first day of each month, in arrears. The Note has a maturity date of June 30, 2022.
On March 1, 2022, pursuant to an Assignment of
Promissory Note, dated March 1, 2022, IRG assigned (a) a one-half (½) interest in the IRG Note to IRG (the “IRG Split Note”)
and (b) a one-half (½) interest in the IRG Note to JKP (the “JKP Split Note”). See “IRG Split Note” and
“JKP Split Note,” below.
IRG Split Note
On March 1, 2022, the
Company entered into a First Amended and Restated Promissory Note with IRG, which amended and restated the IRG Split Note (the “Amended
IRG Split Note). The Amended IRG Split Note extended the maturity to March 31, 2024. Under the Amended IRG Split Note, the principal
and accrued interest are convertible into shares of Common Stock at a conversion price of $1.50 per share, subject to adjustment. The
conversion price is subject to a weighted-average antidilution adjustment. The principal amount of the Amended IRG Split Note is $4,273,543.
As part of the consideration
for the Amended IRG Split Note, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities
Act: (i) 125,000 shares of Common Stock to IRG, LLC, and (ii) a Series E Warrant to purchase 500,000 shares of Common Stock to IRG.
The Series E Warrants
shall be cancelled without any further action on the part of the Company or the holder, in the event that the Company repays in full,
on or before March 1, 2023, the Amended IRG Split Note.
The Company accounted for this transaction as
an extinguishment, given that a substantive conversion feature was added to the Amended IRG Split Note. The Company recorded the relative
fair value of the shares of Common Stock and Series E Warrants as a discount against the JKP Capital Loan. The following assumptions
were used to calculate the fair value of Series E Warrants:
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 1.01 | |
| Exercise price | |
$ | 1.50 | |
| Dividend yield | |
| 0.0 | % |
| Expected volatility | |
| 51.2 | % |
| Risk free interest rate | |
| 1.6 | % |
| Number of shares | |
| 500,000 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
JKP Split Note
On March 1, 2022, the
Company entered into a First Amended and Restated Promissory Note with JKP, which amended and restated the JKP Split Note (the “Amended
JKP Split Note”). The Amended JKP Split Note extended the maturity to March 31, 2024. Under the Amended JKP Split Note, the principal
and accrued interest are convertible into shares of Common Stock at a conversion price of $1.09 per share, subject to adjustment. The
conversion price is subject to a weighted-average antidilution adjustment. The principal amount of the Amended JKP Split Note is $4,273,543.
As part of the consideration
for the Amended JKP Split Note, the Company issued in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities
Act: (i) 125,000 shares of Common Stock to JKP, and (ii) a Series F Warrant to purchase 500,000 shares of Common Stock to JKP.
The Series F Warrants
have an exercise price of $1.09 per share, subject to adjustment. The exercise price is subject to a weighted-average antidilution adjustment.
The Series F Note Warrants may be exercised from and after March 1, 2022, subject to certain terms and conditions set forth in the Series
F Warrants. Unexercised Series F Warrants will expire on March 1, 2027.
The Company accounted for this transaction as
an extinguishment, given that a substantive conversion feature was added to the Amended JKP Split Note. The Company recorded the relative
fair value of the shares of Common Stock and Series F Warrants as a discount against the Amended JKP Split Note. The following assumptions
were used to calculate the fair value of Series F Warrants:
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 1.01 | |
| Exercise price | |
$ | 1.09 | |
| Dividend yield | |
| 0.0 | % |
| Expected volatility | |
| 51.2 | % |
| Risk free interest rate | |
| 1.6 | % |
| Number of shares | |
| 500,000 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CFP Loan
On April 27, 2022, Midwest
Lender Fund, LLC, a limited liability company wholly owned by our director Stuart Lichter (“MLF”), loaned $4,000,000 (the
“CFP Loan”) to HOF Village Center For Performance, LLC (“HOF Village CFP”). Interest accrues on the outstanding
balance of the CFP Loan at 6.5% per annum, compounded monthly. The CFP Loan matures on April 30, 2023 or if HOF Village CFP exercises
its extension option, April 30, 2024. The CFP Loan is secured by a mortgage encumbering the Center For Performance.
As part of the consideration
for making the Loan, on June 8, 2022, the Company issued to MLF: (A) 125,000 shares (the “Commitment Fee Shares”) of Common
Stock, and (B) a warrant to purchase 125,000 shares of Common Stock (“Series G Warrants”). The exercise price of the Series
G Warrants will be $1.50 per share. The Series G Warrants will become exercisable one year after issuance, subject to certain terms and
conditions set forth in the Series G Warrants. Unexercised Series G Warrants will expire five years after issuance. The exercise price
of the Series G Warrants will be subject to a weighted-average antidilution adjustment.
The Company recorded the relative fair value of
the shares of Common Stock and Series G Warrants as a discount against the CFP Loan. The following assumptions were used to calculate
the fair value of Series G Warrants:
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 0.62 | |
| Exercise price | |
$ | 1.50 | |
| Dividend yield | |
| 0.0 | % |
| Expected volatility | |
| 52.4 | % |
| Risk free interest rate | |
| 3.0 | % |
| Number of shares | |
| 125,000 | |
PACE Financing
On April 28, 2022, the City of Canton, in coordination
with the Canton Regional Energy Special Improvement District, approved legislation that will enable the Company to receive $3,200,000
in Property Assessed Clean Energy (“PACE”) financing in conjunction with the implementation of various energy-efficient improvements
at the Center for Performance. Through June 30, 2022, the Company received $27,586 on this financing.
Stark Community Foundation Loan
On June 16, 2022, the Company entered into a loan agreement with Stark
pursuant to which Stark agreed to lend $5,000,000 to the Company. Of this amount, the Company borrowed $2,500,000 (the “SCF Loan”)
through June 30, 2022. The interest rate applicable to the SCF Loan is 6.0% annum. Interest payments are paid annually on December 31
of each year. The SCF Loan is unsecured and matures on May 31, 2029. The Company may prepay the SCF Loan without penalty.
Events of default under the loan include without
limitation: (i) a payment default, (ii) the Company’s failure to complete the infrastructure development for Phase II on or before
December 31, 2024, and (iii) the Company’s failure, following notice from Stark, to comply with any non-monetary covenant contained
in the loan agreement. Upon the occurrence of an event of default under the Business Loan Agreement: (a) interest due will increase by
5% per annum; and (b) Stark may, at its option, declare the Company’s obligations under the Business Loan Agreement to be immediately
due and payable.
The loan agreement contains
customary affirmative and negative covenants for this type of loan, including without limitation (i) affirmative covenants, including
furnish Stark with such financial statements and other related information at such frequencies and in such detail as Stark may reasonably
request and use all SCF Loan proceeds solely for the infrastructure development for the construction of Phase II, and (ii) negative covenants,
including restrictions on additional indebtedness, prepayment of other indebtedness, transactions with related parties, additional liens,
mergers and acquisitions, and standard prohibitions on change of control.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
CH Capital Bridge Loan
On June 16, 2022, The Company and its
subsidiaries HOF Village Retail I, LLC and HOF Village Retail II, LLC, as borrowers (the “Borrowers”), borrowed
$10,500,000 (the “CH Capital Bridge Loan”) from CH Capital Lending. The CH Capital Bridge Loan is evidenced by a
Promissory Note issued by the Borrowers to CH Capital Lending. Interest accrues on the Note at 12% per annum, compounded monthly. The
maturity date of the Note is September 10, 2022. Borrowers have the right to prepay all or any portion of the principal amount of
the Note at any time before the maturity date without penalty. Under the Note, the net proceeds of a financing that occurs after the
date of the Note shall be used to prepay the Note. The Note is secured by: (i) a mortgage on real property on which the Company is
building its Fan Engagement Zone (an 82,000-square-foot promenade located strategically within the campus footprint, which will
include restaurants, retailers and experiential offerings) and (ii) a pledge and security interest in all of the membership
interests of HOF Village Waterpark, LLC, and HOF Village Hotel I, LLC held by Newco, each of which is direct or indirect
wholly-owned subsidiary of the Company.
Upon the occurrence of an event of default
under the Note, including without limitation Borrowers’ failure to pay, on or before the due date any amount owing to CH
Capital Lending under the Note or Borrowers’ failure, following notice from CH Capital Lending, to comply with any
non-monetary covenant contained in the CH Capital Bridge Loan, (i) interest due will increase by 5% per annum; and (ii) CH Capital
Lending may, at its option, declare Borrowers’ obligations under the Note to be immediately due and payable.
Future Minimum Principal Payments
The minimum required principal payments on notes
payable outstanding as of June 30, 2022 are as follows:
| For the years ending December 31, | |
Amount | |
| 2022 (six months) | |
$ | 13,815,568 | |
| 2023 | |
| 16,889,801 | |
| 2024 | |
| 34,524,169 | |
| 2025 | |
| 31,051,820 | |
| 2026 | |
| 1,397,073 | |
| Thereafter | |
| 39,730,561 | |
| Total Gross Principal Payments | |
$ | 137,408,992 | |
| | |
| | |
| Less: Discount | |
| (14,478,948 | ) |
| | |
| | |
| Total Net Principal Payments | |
$ | 122,930,044 | |
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 June 30, 2022, the Company was
in compliance with all relevant debt covenants.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020, the Company’s stockholders
approved an amendment to the Company’s charter to increase the authorized shares of Common Stock from 100,000,000 to 300,000,000.
Consequently, the Company’s charter allows the Company to issue up to 300,000,000 shares of Common Stock and to issue and designate
its rights, without stockholder approval, of up to 5,000,000 shares of preferred stock, par value $0.0001.
Series A Preferred Stock Designation
On October 8, 2020, the Company filed a Certificate of Designations
with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of the Series A Preferred
Stock. The number of authorized shares of Series A Preferred Stock is 52,800.
Series B Preferred Stock Designation
On May 13, 2021, the Company filed a Certificate
of Designations with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of the
7.00% Series B Preferred Stock (as defined below). The number of authorized shares of Series B Preferred Stock is 15,200.
The Company had 200 and 15,200 shares of 7.00%
Series B Convertible Preferred Stock (“Series B Preferred Stock”) outstanding and 15,200 and 15,200 shares authorized as
of June 30, 2022 and December 31, 2021, respectively. On the third anniversary of the date on which shares of Series B Preferred Stock
are first issued (the “Automatic Conversion Date”), each share of Series B Preferred Stock, except to the extent previously
converted pursuant to an Optional Conversion (as defined below), shall automatically be converted into shares of Common Stock (the “Automatic
Conversion”). At any time following the date on which shares of Series B Preferred Stock are first issued, and from time to time
prior to the Automatic Conversion Date, each holder of Series B Preferred Stock shall have the right, but not the obligation, to elect
to convert all or any portion of such holder’s shares of Series B Preferred Stock into shares of Common Stock, on terms similar
to the Automatic Conversion (any such conversion, an “Optional Conversion”).
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity, (continued)
7.00% Series C Convertible Preferred Stock
On March 28, 2022, the Company filed a Certificate of Designations
with the Secretary of State of the State of Delaware to establish preferences, limitations, and relative rights of its Series C Preferred
Stock. The number of authorized shares of Series C Preferred Stock is 15,000.
On March 28, 2022, in accordance with the previously
announced Amendment Number 6 to Term Loan Agreement by and among the Company and CH Capital Lending, the Company entered into a Securities
Exchange Agreement (the “Exchange Agreement”) with CH Capital Lending, pursuant to which the Company exchanged in a private
placement (the “Private Placement”) each share of the Company’s Series B Convertible Preferred Stock, that is held
by CH Capital Lending for one share of the Company’s Series C Preferred Stock, resulting in the issuance of 15,000 shares of Series
C Preferred Stock to CH Capital Lending. The Series C Preferred Stock is convertible into shares of the Company’s common stock.
The shares of Series B Preferred Stock exchanged, and the Series C Preferred Stock acquired, have an aggregate liquidation preference
of $15 million plus any accrued but unpaid dividends to the date of payment.
2020 Omnibus Incentive Plan
On July 1, 2020, in connection with the closing
of the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective
immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved by the Company’s
stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of Common Stock authorized for issuance under
the 2020 Omnibus Incentive Plan was 1,812,727 shares. On June 2, 2021, the Company held its 2021 Annual Meeting whereby the Company’s
stockholders approved an amendment to the 2020 Omnibus Incentive Plan to increase by four million the number of shares of Common Stock,
that will be available for issuance under the 2020 Omnibus Incentive Plan, resulting in a maximum of 5,812,727 shares that can be issued
under the amended 2020 Omnibus Inventive Plan. The amendment to the 2020 Omnibus Incentive Plan was previously approved by the Board
of Directors of the Company, and the amended 2020 Omnibus Incentive Plan became effective on June 2, 2021. As of June 30, 2022, 2,154,595
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 under
which the Company may, from time to time, offer and sell shares of the Company’s Common Stock having an aggregate offering price
of up to $50 million. From January 1 through June 30, 2022, approximately 18.2 million shares were sold resulting in net proceeds to
the Company totaling approximately $17.9 million. The remaining availability under the Equity Distribution Agreement as of June 30, 2022
was approximately $28.1 million.
Issuance of Restricted Stock Awards
The Company’s activity in restricted Common
Stock was as follows for the six months ended June 30, 2022:
| | |
Number of shares | | |
Weighted
average
grant date
fair value | |
| Non–vested at January 1, 2022 | |
| 238,643 | | |
$ | 9.31 | |
| Granted | |
| 197,168 | | |
$ | 1.19 | |
| Vested | |
| (197,168 | ) | |
$ | 1.19 | |
| Non–vested at June 30, 2022 | |
| 238,643 | | |
$ | 9.31 | |
For the three months ended June 30, 2022 and
2021, stock-based compensation related to restricted stock awards was $720,703 and $673,005, respectively, and for the six months ended
June 30, 2022 and 2021, $1,453,460 and $1,227,551, respectively. As of June 30, 2022, unamortized stock-based compensation costs related
to restricted share arrangements were $12,161 and will be recognized over a weighted average period of 0.1 years.
Issuance of Restricted Stock Units
During
the six months ended June 30, 2022, the Company granted an aggregate of 1,836,668 Restricted Stock Units (“RSUs”) to its
employees and directors, of which
522,541 were granted under the 2020 Omnibus Incentive Plan and 1,314,127 were granted as inducement awards. The RSUs were valued at the
value of the Company’s Common Stock on the date of grant, which was a range of $0.55 to $1.16 for these awards. The RSUs granted
to employees vest one third on the first anniversary of their grant, one third on the second anniversary of their grant, and one third
on the third anniversary of their grant. The RSUs granted to directors vest one year from the date of grant.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity, (continued)
Issuance of Restricted Stock Units (continued)
The Company’s activity in RSUs was as follows
for the six months ended June 30, 2022:
| | |
Number of
shares | | |
Weighted average
grant date
fair value | |
| Non–vested at January 1, 2022 | |
| 2,207,337 | | |
$ | 2.34 | |
| Granted | |
| 1,836,668 | | |
$ | 0.95 | |
| Vested | |
| (541,377 | ) | |
$ | 2.00 | |
| Forfeited | |
| (573,442 | ) | |
$ | 2.50 | |
| Non–vested at June 30, 2022 | |
| 2,929,186 | | |
$ | 1.48 | |
For the three months ended June 30, 2022 and
2021, the Company recorded $586,547 and $947,144, respectively, in employee and director stock-based compensation expense, and for the
six months ended June 30, 2022 and 2021, $1,088,959 and $1,779,141, respectively. Employee and director stock-based compensation expense
is a component of “Operating expenses” in the condensed consolidated statement of operations. As of June 30, 2022, unamortized
stock-based compensation costs related to restricted stock units were $3,178,424 and will be recognized over a weighted average period
of 1.1 years.
Warrants
The Company’s warrant activity was as follows for the six months
ended June 30, 2022:
| | |
Number of Shares | | |
Weighted Average Exercise Price (USD) | | |
Weighted Average Contractual Life (years) | | |
Intrinsic Value (USD) | |
| Outstanding - January 1, 2022 | |
| 41,012,349 | | |
$ | 7.82 | | |
| 3.59 | | |
| | |
| Granted | |
| 3,125,000 | | |
$ | 1.30 | | |
| | | |
| | |
| Outstanding – June 30, 2022 | |
| 44,137,349 | | |
$ | 7.36 | | |
| 3.36 | | |
$ | - | |
| Exercisable – June 30, 2022 | |
| 42,512,349 | | |
$ | 7.59 | | |
| 3.31 | | |
$ | - | |
Amended and Restated
Series C Warrants
On March 1, 2022, in connection with the amendment
to the IRG Split Note (as described in Note 4), the Company amended its Series C Warrants to extend the term of the Series C Warrants
to March 1, 2027. The exercise price of $1.40 per share remains unchanged, but the amendments subject the exercise price to a weighted-average
antidilution adjustment. The amendments also remove certain provisions regarding fundamental transactions, which subsequently allowed
the Series C Warrants to be derecognized as a liability and classified as equity.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity, (continued)
Amended and Restated
Series C Warrants (continued)
The Company accounted for this modification as
a cost of the IRG Split Note, whereby the Company calculated the incremental fair value of the Series C Warrants and recorded them as
a discount against the IRG Split Note. The following assumptions were used to calculate the fair value of Series C Warrants immediately
before and after modification:
| | |
Original Series C
Warrants | | |
Modified Series C
Warrants | |
| Term (years) | |
| 3.8 | | |
| 5.0 | |
| Stock price | |
$ | 1.01 | | |
$ | 1.01 | |
| Exercise price | |
$ | 1.40 | | |
$ | 1.40 | |
| Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
| Expected volatility | |
| 54.7 | % | |
| 50.8 | % |
| Risk free interest rate | |
| 1.5 | % | |
| 1.5 | % |
| Number of shares | |
| 10,036,925 | | |
| 10,036,925 | |
| Aggregate fair value | |
$ | 3,336,000 | | |
$ | 3,648,000 | |
Amended and Restated Series D Warrants issue
to CH Capital Lending
On March 1, 2022, in
connection with the amendment to the CH Capital Loan (as described in Note 4), the Company amended the Series D Warrants issued to CH
Capital Lending to extend the term of such Series D Warrants to March 1, 2027. The exercise price of $6.90 per share remains unchanged,
but the amendments subject the exercise price to a weighted-average antidilution adjustment.
The Company accounted for this modification as
a cost of the CH Capital Loan, whereby the Company calculated the incremental fair value of the Series D Warrants and recorded them as
a discount against the CH Capital Loan. The following assumptions were used to calculate the fair value of Series D Warrants immediately
before and after modification:
| | |
Original Series D
Warrants | | |
Modified Series D
Warrants | |
| Term (years) | |
| 2.3 | | |
| 5.0 | |
| Stock price | |
$ | 1.01 | | |
$ | 1.01 | |
| Exercise price | |
$ | 6.90 | | |
$ | 6.90 | |
| Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
| Expected volatility | |
| 63.5 | % | |
| 50.8 | % |
| Risk free interest rate | |
| 1.3 | % | |
| 1.6 | % |
| Number of shares | |
| 2,450,980 | | |
| 2,450,980 | |
| Aggregate fair value | |
$ | 50,000 | | |
$ | 138,000 | |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments
Johnson Controls, Inc.
On July 2, 2020, the Company entered into an
Amended and Restated Sponsorship and Naming Rights Agreement (the “Naming Rights Agreement”) among Newco, PFHOF and Johnson
Controls, Inc. (“JCI”), that amended and restated the Sponsorship and Naming Rights Agreement, dated as of November 17, 2016
(the “Original Sponsorship Agreement”). Among other things, the Amended Sponsorship Agreement: (i) reduced the total amount
of fees payable to Newco during the term of the Amended Sponsorship Agreement from $135 million to $99 million; (ii) restricted the activation
proceeds from rolling over from year to year with a maximum amount of activation proceeds in one agreement year to be $750,000; and (iii)
renamed the “Johnson Controls Hall of Fame Village” to “Hall of Fame Village powered by Johnson Controls”. This
is a prospective change, which the Company reflected beginning in the third quarter of 2020.
JCI has a right to terminate
the Naming Rights Agreement if the Company does not provide evidence to JCI by October 31, 2021 that it has secured sufficient debt and
equity financing to complete Phase II, or if Phase II is not open for business by January 2, 2024, in each case subject to day-for-day
extension due to force majeure and a notice and cure period. In addition, under the Naming Rights Agreement JCI’s obligation
to make sponsorship payments to the Company may be suspended commencing on December 31, 2020, if the Company has not provided evidence
reasonably satisfactory to JCI on or before December 31, 2020, subject to day-for-day extension due to force majeure, that the Company
has secured sufficient debt and equity financing to complete Phase II.
Additionally, on October 9, 2020, Newco,
entered into a Technology as a Service Agreement (the “TAAS Agreement”) with JCI. Pursuant to the TAAS Agreement, JCI will
provide certain services related to the construction and development of the Hall of Fame Village powered by JCI (the “Project”),
including, but not limited to, (i) design assist consulting, equipment sales and turn-key installation services in respect of specified
systems to be constructed as part of Phase 2 and Phase 3 of the Project and (ii) maintenance and lifecycle services in respect of certain
systems constructed as part of Phase 1, and to be constructed as part of Phase 2 and Phase 3, of the Project. Under the terms of the
TAAS Agreement, Newco has agreed to pay JCI up to an aggregate of approximately $217 million for services rendered by JCI over the term
of the TAAS Agreement. As of June 30, 2022 and December 31, 2021, approximately $195 million and $199 million, respectively, was
remaining under the TAAS Agreement.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Johnson Controls, Inc. (continued)
As of June 30, 2022, scheduled future cash to
be received under the Naming Rights Agreement is as follows:
| | |
Unrestricted | | |
Activation | | |
Total | |
| 2022 (six months) | |
$ | 4,000,000 | | |
$ | 750,000 | | |
$ | 4,750,000 | |
| 2023 | |
| 4,000,000 | | |
| 750,000 | | |
| 4,750,000 | |
| 2024 | |
| 4,250,000 | | |
| 750,000 | | |
| 5,000,000 | |
| 2025 | |
| 4,250,000 | | |
| 750,000 | | |
| 5,000,000 | |
| Thereafter | |
| 39,781,251 | | |
| 6,750,000 | | |
| 46,531,251 | |
| | |
| | | |
| | | |
| | |
| Total | |
$ | 56,281,251 | | |
$ | 9,750,000 | | |
$ | 66,031,251 | |
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the Amended Sponsorship Agreement. During the three and six months ended June
30, 2021, the Company recognized $1,121,385 and $2,230,447, respectively, of net sponsorship revenue related to the Naming Rights Agreement.
On May 10, 2022, the Company received from JCI
a notice of termination (the “TAAS Notice”) of the TAAS Agreement effective immediately. The TAAS Notice states that termination
of the TAAS Agreement by JCI is due to Newco’s alleged breach of its payment obligations. Additionally, JCI in the TAAS Notice demands
the amount which is the sum of: (i) all past due payments and any other amounts owed by Newco under the TAAS Agreement; (ii) all commercially
reasonable and documented subcontractor breakage and demobilization costs; and (iii) all commercially reasonable and documented direct
losses incurred by JCI directly resulting from the alleged default by the Company and the exercise of JCI’s rights and remedies
in respect thereof, including reasonable attorney fees.
Also on May 10, 2022, the Company received from
JCI a notice of termination (“Naming Rights Notice”) of the Name Rights Agreement, effective immediately. The Naming Rights
Notice states that the termination of the Naming Rights Agreement by JCI is due to JCI’s concurrent termination of the TAAS Agreement.
The Naming Rights Notice further states that the Company must pay JCI, within 30 days following the date of the Naming Rights Notice,
$4,750,000. The Company has not made such payment to date. The Naming Rights Notice states that Newco is also in breach of its covenants
and agreements, which require Newco to provide evidence reasonably satisfactory to JCI on or before October 31, 2021, subject to day-for-day
extension due to force majeure, that Newco has secured sufficient debt and equity financing to complete Phase II.
The Company disputes that it is in default under either the TAAS Agreement
or the Naming Rights Agreement. The Company believes JCI is in breach of the Naming Rights Agreement and the TAAS Agreement due to their
failure to make certain payments in accordance with the Naming Rights Agreement, and, on May 16, 2022, provided notice to JCI of these
breaches. The Company is pursuing dispute resolution pursuant to the terms of the Naming Rights Agreement to simultaneously defend against
JCI’s allegations and pursue its own claims. The ultimate outcome of this dispute cannot presently be determined. However, in management’s
opinion, the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution
of this matter have not been reflected in the accompanying condensed consolidated financial statements. During the three and six months
ended June 30, 2022, the Company suspended its revenue recognition until the dispute is resolved and has recorded an allowance against
the amounts due as of June 30, 2022 in the amount of $2,125,000. The balances due under the Naming Rights Agreement as of June 30, 2022
and December 31, 2021 amounted to $4,010,417 and $1,885,417, respectively.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Other
Sponsorship Revenue
The Company has additional revenue primarily
from sponsorship programs that provide its sponsors with strategic opportunities to reach customers through our venue including advertising
on our website. Sponsorship agreements may contain multiple elements, which provide several distinct benefits to the sponsor over the
term of the agreement and can be for a single or multi-year term. These agreements provide sponsors various rights such as venue naming
rights, signage within our venues, and advertising on our website and other benefits as detailed in the agreements.
As of June 30, 2022, scheduled future cash to
be received under the agreements, excluding the Johnson Controls Naming Rights Agreement, is as follows:
Year ending December 31,
| 2022 (six months) | |
$ | 762,000 | |
| 2023 | |
| 2,744,220 | |
| 2024 | |
| 2,406,265 | |
| 2025 | |
| 2,317,265 | |
| 2026 | |
| 2,167,265 | |
| Thereafter | |
| 6,271,792 | |
| | |
| | |
| Total | |
$ | 16,668,807 | |
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 June 30, 2022 and 2021, the Company
recognized $452,772 and $1,508,402 of net sponsorship revenue, respectively, and for the six months ended June 30, 2022 and 2021, $1,272,062
and $2,983,838, 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
February 26, 2016.
Lessor Commitments
As of June 30, 2022, the Company’s Constellation
Center for Excellence and retail facilities were partially leased including leases by the Company’s subsidiaries. The future minimum
lease commitments under this lease, excluding leases of the Company’s subsidiaries, are as follows:
Year ending December 31:
| 2022 (six months) | |
$ | 24,200 | |
| 2023 | |
| 246,761 | |
| 2024 | |
| 239,266 | |
| 2025 | |
| 233,183 | |
| 2026 | |
| 220,866 | |
| Thereafter | |
| 846,636 | |
| | |
| | |
| Total | |
$ | 1,810,912 | |
Employment Agreements
The Company has employment agreements with many
of its key executive officers that usually have terms between one and three years.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
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 June 30, 2022 and 2021, the Company paid and incurred $32,844 and $30,000, respectively
in management fees, and for the six months ended June 30, 2022 and 2021, $62,844 and $60,000, 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.
Other Liabilities
Other liabilities consisted of the following
at June 30, 2022 and December 31, 2021:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Activation fund reserves | |
$ | 3,629,085 | | |
$ | 3,537,347 | |
| Deferred sponsorship revenue | |
| 3,387,224 | | |
| 203,278 | |
| Other liabilities | |
| 1,554,903 | | |
| - | |
| Total | |
$ | 8,571,212 | | |
$ | 3,740,625 | |
Note 8: Contingencies
During the normal course of its business, the
Company is subject to occasional legal proceedings and claims. The Company does not have any pending litigation that, separately or in
the aggregate, would, in the opinion of management, have a material adverse effect on its results of operations, financial condition,
or cash flows.
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
June 30, 2022 and December 31, 2021:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Due to IRG Member | |
$ | 1,770,390 | | |
$ | 1,041,847 | |
| Due to IRG Affiliate | |
| 116,900 | | |
| 116,900 | |
| Due to PFHOF | |
| 859,207 | | |
| 660,208 | |
| Total | |
$ | 2,746,497 | | |
$ | 1,818,955 | |
IRG Canton Village Member, LLC, a member of HOF
Village, LLC controlled by our director Stuart Lichter (the “IRG Member”) and an affiliate, provides certain supporting services
to the Company. As noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member, IRG Canton Village Manager,
LLC, the manager of HOF Village, LLC controlled by our director Stuart Lichter, may earn a master developer fee calculated as 4.0% of
development costs incurred for the Hall of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction
supervision, and project financing. These development costs incurred are netted against certain costs incurred for general project management.
The due to related party amounts in the table
above are non-interest bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions with this
affiliate to establish repayment terms of these advances. However, there could be no assurance that the Company and IRG Member will come
to terms acceptable to both parties.
On January 13, 2020, the Company secured $9.9
million in financing from Constellation through its Efficiency Made Easy (“EME”) program to implement energy efficient measures
and to finance the construction of the Constellation Center for Excellence and other enhancements, as part of Phase II development. The
Hanover Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations under the financing, and Stuart
Lichter and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance Company for payments made under the
guarantee bond.
The amounts above due to PFHOF relate to advances
to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales support, shared services, event tickets, and
expense reimbursements.
License Agreement
On March 10, 2016, the Company entered into a
license agreement with PFHOF, whereby the Company has the ability to license and use certain intellectual property from PFHOF in exchange
for the Company paying a fee based on certain sponsorship revenues and expenses. On December 11, 2018, the license agreement was amended
to change the calculation of the fee to be 20% of eligible sponsorship revenue. The license agreement was further amended in a First
Amended and Restated License Agreement, dated September 16, 2019. The license agreement expires on December 31, 2033.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Media License Agreement
On November 11, 2019, the Company entered into
a Media License Agreement with PFHOF. On July 1, 2020, the Company entered into an Amended and Restated Media License Agreement that
terminates on December 31, 2034. In consideration of a license to use certain intellectual property of PFHOF, the Company agreed to pay
PFHOF minimum guaranteed license fees of $1,250,000 each year during the term. After the first five years of the agreement, the minimum
guarantee shall increase by 3% on a year-over-year basis. The first annual minimum payment was due July 1, 2021, which was not paid by
December 31, 2021. On April 12, 2022, the Company and PFHOF terminated the Media License Agreement and entered into a new license agreement.
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.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Global License Agreement
Effective April 8, 2022, Newco and PFHOF, entered
into a Global License Agreement (the “Global License Agreement”). The Global License Agreement consolidates and replaces
the First Amended and Restated License Agreement, the Amended and Restated Media License Agreement, and the Branding Agreement the parties
had previously entered into. The Global License Agreement sets forth the terms under which PFHOF licenses certain marks and works to
Newco and its affiliates to exploit existing PFHOF works and to create new works. The Global License Agreement grants Newco and its affiliates
an exclusive right and license to use the PFHOF marks in conjunction with theme-based entertainment and attractions within the City of
Canton, Ohio; youth sports programs, subject to certain exclusions; e-gaming and video games; and sports betting. The Global License
Agreement also grants Newco and its affiliates a non-exclusive license to use the PFHOF marks and works in other areas of use, with a
right of first refusal, subject to specified exclusions. The Global License Agreement acknowledges the existence of agreements in effect
between PFHOF and certain third parties that provide for certain restrictions on the rights of PFHOF, which affects the rights that can
be granted to Newco and its affiliates. These restrictions include, but are not limited to, such third parties having co-exclusive rights
to exploit content based on the PFHOF enshrinement ceremonies and other enshrinement events. The Global License Agreement requires Newco
to pay PFHOF an annual license fee of $900,000 in the first contract year, inclusive of calendar years 2021 and 2022; an annual license
fee of $600,000 in each of contract years two through six; and an annual license fee of $750,000 per year starting in contract year seven
through the end of the initial term. The Global License Agreement also provides for an additional license royalty payment by Newco to
PFHOF for certain usage above specified financial thresholds, as well as a commitment to support PFHOF museum attendance through Newco’s
and its affiliates’ ticket sales for certain concerts and youth sports tournaments. The Global License Agreement has an initial
term through December 31, 2036, subject to automatic renewal for successive five-year terms, unless timely notice of non-renewal is provided
by either party.
The future minimum payments under this agreement
as of June 30, 2022 are as follows:
| For the years ending December 31, | |
Amount | |
| 2022 (six months) | |
$ | 581,250 | |
| 2023 | |
| 600,000 | |
| 2024 | |
| 600,000 | |
| 2025 | |
| 600,000 | |
| 2026 | |
| 600,000 | |
| Thereafter | |
| 7,350,000 | |
| Total Gross Principal Payments | |
$ | 10,331,250 | |
During the three months ended June 30, 2022 and
2021, the Company paid $318,750 and $0 of the annual license fee, respectively, and for the six months ended June 30, 2022 and 2021, $318,750
and $0, respectively.
Note 10: Concentrations
For the three months ended June 30, 2022, two
customers represented approximately 65% and 28% of the Company’s sponsorship revenue. For the three months ended June 30, 2021,
two customers represented approximately 47% and 12% of the Company’s sponsorship revenue. For the six months ended June 30, 2022,
two customers represented approximately 45.7% and 19.5% of the Company’s sponsorship revenue. For the six months ended June 30,
2021, two customers represented approximately 74.8% and 19.5% of the Company’s sponsorship revenue.
As of June 30, 2022, one customer represented
approximately 85% of the Company’s sponsorship accounts receivable. As of December 31, 2021, one customer represented approximately
88% of the Company’s sponsorship accounts receivable.
At any point in time, the Company can have funds
in their operating accounts and restricted cash accounts that are with third-party financial institutions. These balances in the U.S.
may exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors the cash balances in their operating
accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or other adverse conditions
in the financial markets occurs.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets
and Lease Liabilities
The Company has entered into operating leases
as the lessee primarily for ground leases under its stadium, sports complex, and parking facilities. On January 1, 2022 (“Effective
Date”), the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”), which increases
transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the
balance sheet as lease assets and lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”)
assets and related operating and finance lease liabilities on the balance sheet. The Company adopted the new guidance using the modified
retrospective approach on January 1, 2022. As a result, the consolidated balance sheet as of December 31, 2021 was not restated and is
not comparative.
The adoption of ASC 842 resulted in the recognition
of operating ROU assets of $7,741,946 and operating lease liabilities of $3,383,807 on the Company’s condensed consolidated balance
sheet as of January 1, 2022. The initial recognition of the ROU asset included the reclassification of $4,358,139 of prepaid rent as
of January 1, 2022.
The Company elected the package of practical
expedients permitted within the standard, which allow an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification
of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company
elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient
to allow the Company to not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting
policy under which the Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease
term of twelve months or less and does not include a purchase option that the Company is more than reasonably certain to exercise.
For contracts entered into on or after the Effective
Date, at the inception of a contract the Company will assess whether the contract is, or contains, a lease. The Company’s assessment
is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to
substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to
direct the use of the asset. Leases entered into prior to January 1, 2022, which were accounted for under ASC 840, were not reassessed
for classification.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets
and Lease Liabilities (continued)
For operating leases, the lease liability is
initially and subsequently measured at the present value of the unpaid lease payments. For finance leases, the lease liability is initially
measured in the same manner and date as for operating leases, and is subsequently presented at amortized cost using the effective interest
method. The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly
stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance
leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an
amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases
includes the noncancelable period of the lease plus any additional periods covered by either a Company option to extend the lease that
the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed periodically for
impairment.
Lease expense for operating leases consists of
the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term. Lease expense for finance
leases consists of the amortization of the asset on a straight-line basis over the shorter of the lease term or its useful life and interest
expense determined on an amortized cost basis, with the lease payments allocated between a reduction of the lease liability and interest
expense.
The Company’s operating leases are comprised
primarily of ground leases and equipment leases. Balance sheet information related to our leases is present below (ASC 842 was adopted
on January 1, 2022):
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Operating leases: | |
| | |
| |
| Right-of-use assets | |
$ | 7,651,080 | | |
$ | – | |
| Lease liability | |
| 3,404,682 | | |
| – | |
| Finance leases: | |
| | | |
| | |
| Right-of-use assets | |
| – | | |
| – | |
| Lease liability | |
| – | | |
| – | |
Other information related to leases is presented below:
| Six Months Ended June 30, 2022 | |
| |
| Operating lease cost | |
$ | 258,184 | |
| Other information: | |
| | |
| Operating cash flows from operating leases | |
| 158,083 | |
| Weighted-average remaining lease term – operating leases (in years) | |
| 92.03 | |
| Weighted-average discount rate – operating leases | |
| 10.0 | % |
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 11: ROU Assets
and Lease Liabilities (continued)
As of June 30, 2022, the annual minimum lease payments of our operating
lease liabilities were as follows:
| For The Years Ending December 31, | |
| |
| 2022 (six months) | |
$ | 167,035 | |
| 2023 | |
| 333,004 | |
| 2024 | |
| 311,900 | |
| 2025 | |
| 311,900 | |
| 2026 | |
| 311,900 | |
| Thereafter | |
| 41,436,900 | |
| Total future minimum lease payments, undiscounted | |
| 42,872,639 | |
| Less: imputed interest | |
| (39,467,957 | ) |
| Present value of future minimum lease payments | |
$ | 3,404,682 | |
Note 12: Subsequent Events
PACE Financing
On July 1, 2022, HOF
Village Stadium, LLC (the “Lessee”), a wholly-owned subsidiary of the Company that leases the Tom Benson Hall of Fame Stadium
(“Stadium”) from Stark County Port Authority, entered into the EPC Agreement with Canton Regional Energy Special Improvement
District, Inc. (the “ESID”), SPH Canton St, LLC, an affiliate of Stonehill Strategic Capital, LLC (“Investor”),
and City of Canton, Ohio.
Under the EPC Agreement,
the Investor provided $33,387,844 (the “Project Advance”) PACE financing to finance the costs of the special energy improvement
projects at the Stadium described in the Canton Regional Energy Special Improvement District Project Plan that have been completed (as
supplemented, the “Plan”). Of the Project Advance, $29,565,729 was disbursed to Lessee, $3,221,927 was retained by Investor
as capitalized interest, and $600,187 was used to pay closing costs. Pursuant to the EPC Agreement, the Lessee agreed to make special
assessment payments in an aggregate amount that will provide revenues sufficient to repay the Project Advance plus interest and certain
costs (the “Special Assessments”). The Special Assessments have been levied in the amounts necessary to amortize the Project
Advance, together with interest at the annual rate of 6.0% and a $6,542 semi-annual administrative fee to the ESID over 50 semi-annual
payments of $1,314,913 to be collected beginning approximately on January 31, 2024 and continuing through approximately July 31, 2048.
In connection with entering
into the EPC Agreement, the Company obtained the consent and agreement of Cuyahoga River Capital LLC (“CRC”), pursuant to
an agreement, dated June 27, 2022 (the “Consent Agreement”). CRC holds 100% of the interest in the Development Finance Authority
of Summit County Tax-Exempt Development Revenue Bonds, Series 2018 (Hall of Fame Village - Stadium and Youth Fields TIF Project), issued
in the original principal amount of $10,030,000 the “Series 2018 Bonds”). Pursuant to the Consent Agreement, upon the closing
of the EPC Agreement the Company deposited $9,895,197 into a bank account at The Huntington National Bank (“Huntington”)
subject to a deposit account control agreement (the “DACA”) executed by Huntington and CRC as secured party (the “Pledged
Account”). Under the Consent Agreement, in the event the Series 2018 Bonds are outstanding on December 29, 2022, the Company will
repurchase the Series 2018 Bonds. The Company granted CRC a lien on the Pledged Account to secure the Company’s obligations under
the Consent Agreement. In the event the Series 2018 Bonds are redeemed and/or defeased prior to December 29, 2022, upon such redemption
or defeasance the Consent Agreement shall automatically terminate, and CRC shall instruct Huntington to release the DACA.
CH Capital Loan Amendment
On August 5, 2022, the Company and CH Capital amended the CH Capital
Loan to increase the principal amount of the loan to reflect (a) certain legal and other fees incurred as part of the previous amendment
on March 1, 2022; and (b) to reflect paid-in-kind interest through July 31, 2022. The amount of the principal was increased to $8,751,763.
Sports Betting Agreements
On July 14, 2022, Newco entered into an Online
Market Access Agreement with Instabet, Inc. (“Instabet”), pursuant to which Instabet will serve as a Mobile Management Services
Provider (as defined under applicable Ohio gaming law) wherein Instabet will host, operate and support a branded online sports betting
service in Ohio, subject to procurement of all necessary licenses. The initial term of the Online Market Access Agreement is ten years.
As part of this agreement, Newco will receive a limited equity interest in Instabet and certain revenue sharing, along with the opportunity
for sponsorship and cross-marketing.
On July 29, 2022, Newco entered into a Retail
Sports Gaming Services Agreement with RSI OH, LLC, (“RSI”), pursuant to which RSI will serve as a land-based Management Services
Provider (as defined under applicable Ohio gaming law) wherein RSI will operate a retail sports betting location in the Fan Engagement
Zone at the Hall of Fame Village, subject to procurement of all necessary licenses. The initial term of the Retail Sports Gaming Services
Agreement is ten years. As part of this agreement, Newco will receive sponsorship fees and certain revenue sharing.