Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1: Organization and Nature of Business
Organization
and Nature of Business
Hall
of Fame Resort & Entertainment Company, a Delaware corporation (together with its subsidiaries, unless the context indicates otherwise,
the “Company” or “HOFRE”), was incorporated in Delaware as GPAQ Acquisition Holdings, Inc., a wholly owned subsidiary
of our legal predecessor, Gordon Pointe Acquisition Corp. (“GPAQ”), a special purpose acquisition company.
On
July 1, 2020, the Company consummated a business combination with HOF Village, LLC, a Delaware limited liability company (“HOF
Village”), pursuant to an Agreement and Plan of Merger dated September 16, 2019 (as amended on November 6, 2019, March 10, 2020
and May 22, 2020, the “Merger Agreement”), by and among the Company, GPAQ, GPAQ Acquiror Merger Sub, Inc., a Delaware corporation
(“Acquiror Merger Sub”), GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”),
HOF Village and HOF Village Newco, LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by
the Merger Agreement are referred to in the Company’s Form 10-K/A as the “Business Combination” filed on May 12, 2021.
The
Company is a resort and entertainment company leveraging the power and popularity of professional football and its legendary players
in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered
in Canton, Ohio, the Company owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination
centered around the PFHOF’s campus. The Company is creating a diversified set of revenue streams through developing themed attractions,
premier entertainment programming, sponsorships and media.
The
Company has entered into several agreements with PFHOF, an affiliate of HOFRE, and certain government entities, which outline the rights
and obligations of each of the parties with regard to the property on which the Hall of Fame Village powered by Johnson Controls sits,
portions of which are owned by the Company and portions of which are net leased to the Company by the government entities (see Note 7
for additional information). Under these agreements, the PFHOF and the government entities are entitled to use portions of the Hall of
Fame Village powered by Johnson Controls on a direct-cost basis.
COVID-19
During 2020 and continuing into 2021, the world
has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19 and measures to prevent its spread impacted
the Company’s business in a number of ways, most significantly with regard to a reduction in the number of events and attendance
at events at Tom Benson Hall of Fame Stadium and National Youth Football and Sports Complex, which negatively impacts the Company’s
ability to sell sponsorships. Also, the Company opened its newly renovated DoubleTree by Hilton in Canton in November 2020, but the occupancy
rate has been negatively impacted by the pandemic. The impact of these disruptions and the extent of their adverse impact on its financial
and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently
unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in response
to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward and developing strain mutations.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 1:
Organization and Nature of Business (continued)
Liquidity
The Company has sustained recurring losses and negative cash flows
from operations through March 31, 2021. In addition, the Company has significant debt obligations maturing in the 12 month period subsequent
to the date these consolidated financial statements are issued. Since inception, the Company’s operations have been funded principally
through the issuance of debt and equity. As of March 31, 2021, the Company had approximately $50 million of cash and cash equivalents
and $18 million of restricted cash, respectively.
On January 28, 2021, the Company executed a binding
term sheet with IRG, LLC pursuant to which the Company agreed to issue and sell to IRG, LLC in a private placement of preferred stock
and warrants to purchase shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), for a
purchase price of $15 million. The private placement is expected to close in the second quarter of 2021. In addition, during February
2021, the Company received approximately $34.5 million from the issuance of shares of its Common Stock, net of offering costs. The Company
will deposit up to $25 million of the net proceeds from the private placement and the underwritten public offering in the account (the
“Proceeds Account”) controlled by Aquarian (defined below) required under our term loan agreement among the Company, Newco,
and certain of Newco’s subsidiaries, as borrowers, and Aquarian Credit Funding LLC (“Aquarian”), as lead arranger,
administrative agent, collateral agent and representative of the lenders party thereto. The Company must have the lender’s prior
written approval to withdraw any amounts from the Proceeds Account, pursuant to a budget and schedule agreed upon by the parties.
The
Company believes that, as a result of these transactions, it currently has sufficient cash and financing commitments to meet its funding
requirements over the next year. Notwithstanding, the Company expects that it will need to raise additional financing to accomplish its
development plan over the next several years. The Company is seeking to obtain additional funding through debt, construction lending,
and equity financing. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at
all, or that cash flows generated from its operations will be sufficient to meet its current operating costs. If the Company is unable
to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm
its financial condition and operating results.
Note 2: Summary
of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial information and Rule 10 of SEC Regulation S–X.
Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of
the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in
these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2020, filed on May 12, 2021. Operating results for the three months ended March 31, 2021 are not necessarily indicative of
the results that may be expected for any subsequent quarters or for the year ending December 31, 2021.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Consolidation
The
unaudited condensed consolidated financial statements include the accounts and activity of the Company, and its wholly owned subsidiaries.
Investments in a variable interest entity in which the Company is not the primary beneficiary, or where the Company does not own a majority
interest but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity
method. All intercompany profits, transactions and balances have been eliminated in consolidation.
The
Company owns a 60% interest in Mountaineer GM, LLC (“Mountaineer”), whose results are consolidated into the Company’s
results of operations. The Company acquired 60% of the equity interests in Mountaineer for a purchase price of $100 from one of its related
parties. See Note 9 for additional information on the terms of the agreement. The portion of Mountaineer’s net (loss)/income that is not
attributable to the Company is included in non-controlling interest.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments
not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition
period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Use
of Estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most
significant estimates and assumptions for the Company relate to bad debt, depreciation, costs capitalized to project development costs,
useful lives of assets, fair value of financial instruments, and estimates and assumptions used to measure impairment. Management adjusts
such estimates when facts and circumstances dictate. Actual results could differ from those estimates.
Warrant
Liability
The Company accounts for warrants for shares
of the Company’s Common Stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. Such warrants
are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other expense on
the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise
or expiration of such Common Stock warrants. At that time, the portion of the warrant liability related to such Common Stock warrants
will be reclassified to additional paid-in capital.
Property
and Equipment and Project Development Costs
Property
and equipment are recorded at historical cost and are depreciated using the straight-line method over the estimated useful lives of the
assets. During the construction period, the Company capitalizes all costs related to the development of the Hall of Fame Village powered
by Johnson Controls. Project development costs include predevelopment costs, amortization of finance costs, real estate taxes, insurance,
and other project costs incurred during the period of development. The capitalization of costs began during the preconstruction period,
which the Company defines as activities that are necessary to the development of the project. The Company ceases cost capitalization
when a portion of the project is held available for occupancy and placed into service. This usually occurs upon substantial completion
of all costs necessary to bring a portion of the project to the condition needed for its intended use, but no later than one year from
the completion of major construction activity. The Company will continue to capitalize only those costs associated with the portion still
under construction. Capitalization will also cease if activities necessary for the development of the project have been suspended. As
of March 31, 2021, the second two phases of the project remained subject to such capitalization.
The
Company reviews its property and equipment and projects under development for impairment whenever events or changes indicate that the
carrying value of the long-lived assets may not be fully recoverable. In cases where the Company does not expect to recover its carrying
costs, an impairment charge is recorded.
The
Company measures and records impairment losses on its long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than their carrying amount. Considerable judgment by management is necessary
to estimate undiscounted future operating cash flows and fair values and, accordingly, actual results could vary significantly from such
estimates.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Net
Loss Per Common Share
Basic
net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods.
Diluted net loss per share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive Common Stock equivalent
shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants, (ii) vesting
of restricted stock units and restricted stock awards, and (iii) conversion of preferred stock, are only included in the calculation of
diluted net loss per share when their effect is dilutive.
At March 31, 2021 and March 31, 2020, the following outstanding
Common Stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive. The
Company was not a public entity as of March 31, 2020; therefore, no warrants, restricted stock awards, or restricted stock units were
potentially dilutive securities.
|
|
For the Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants to purchase shares of Common Stock
|
|
|
39,298,421
|
|
|
|
-
|
|
Restricted stock awards to purchase shares of Common Stock
|
|
|
477,286
|
|
|
|
-
|
|
Restricted stock units to purchase shares of Common Stock
|
|
|
3,171,454
|
|
|
|
-
|
|
Total potentially dilutive securities
|
|
|
42,947,161
|
|
|
|
-
|
|
Revenue
Recognition
The
Company follows ASC 606, Revenue with Contracts with Customers, under ASC 606, revenue is recognized when a customer obtains
control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for
those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606,
the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company generates revenues from various streams
such as sponsorship agreements, rents, cost recoveries, events, hotel operation, Hall of Fantasy League, and through the sale of non-fungible
tokens. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and
other benefits over a set period of time, recognized revenue on a straight-line basis over the time period specified in the contract.
Refer to Note 6 for more details. Revenue for rents, cost recoveries and events are recognized at the time the respective event or service
has been performed.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Revenue
Recognition (continued)
A
performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify
the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative
standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected
cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied. If consideration is received in
advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance
obligation is satisfied or amounts are no longer refundable.
The
Company’s owned hotel revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other
services (e.g. packages reservations), food and beverage sales and other ancillary goods and services (e.g. parking) related to owned
hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively.
Payment terms typically align with when the goods and services are provided. Although the transaction prices of hotel room sales, goods
and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction
price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated
to the performance obligations within the package based on the estimated standalone selling prices of each component.
Advertising
The
Company expenses all advertising and marketing costs as they are incurred. Total advertising and marketing costs for the three months
ended March 31, 2021 and 2020 were $275,858 and $217,687, respectively, which are recorded as property operating expenses on the Company’s
consolidated statements of operations.
Software
Development Costs
The Company recognizes all costs incurred to establish
technological feasibility of a computer software product to be sold, leased, or otherwise marketed as research and development costs.
Prior to the point of reaching technological feasibility, all costs shall be charged to expense when incurred. Once the development of
the product establishes technological feasibility, the Company will begin capitalizing these costs. Technological feasibility is established
when a product design and working model have been completed and the completeness of the working model and its consistency with the product
design have been confirmed through testing.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Accounting
for Real Estate Investments
Upon
the acquisition of real estate properties, a determination is made as to whether the acquisition meets the criteria to be accounted for
as an asset or business combination. The determination is primarily based on whether the assets acquired, and liabilities assumed meet
the definition of a business. The determination of whether the assets acquired, and liabilities assumed meet the definition of a business
include a single or similar asset threshold. In applying the single or similar asset threshold, if substantially all the fair value of
the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired,
and liabilities assumed are not considered a business. Most of the Company’s acquisitions meet the single or similar asset threshold,
due to the fact that substantially all the fair value of the gross assets acquired is attributable to the real estate acquired.
Acquired
real estate properties accounted for as asset acquisitions are recorded at cost, including acquisition and closing costs. The Company
allocates the cost of real estate properties to the tangible and intangible assets and liabilities acquired based on their estimated
relative fair values. The Company determines the fair value of tangible assets, such as land, building, furniture, fixtures and equipment,
using a combination of internal valuation techniques that consider comparable market transactions, replacement costs and other available
information and fair value estimates provided by third party valuation specialists, depending upon the circumstances of the acquisition.
The Company determines the fair value of identified intangible assets or liabilities, which typically relate to in-place leases, using
a combination of internal valuation techniques that consider the terms of the in-place leases, current market data for comparable leases,
and fair value estimates provided by third party valuation specialists, depending upon the circumstances of the acquisition.
If
a transaction is determined to be a business combination, the assets acquired, liabilities assumed, and any identified intangibles are
recorded at their estimated fair values on the transaction date, and transaction costs are expensed in the period incurred.
Fair Value Measurement
The Company follows Accounting Standards Codification
(“ASC”) 820–10 “Fair Value Measurement” of the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial
instruments. ASC 820–10 establishes a framework for measuring fair value and expands disclosures about fair value measurements.
To increase consistency and comparability in fair value measurements and related disclosures, ASC 820–10 establishes a fair value
hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair
value hierarchy defined by ASC 820–10 are described below:
Level 1
|
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial assets or liabilities
are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques
and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization
is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the
Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable and accrued
expenses approximate their fair values due to the short-term nature of these instruments.
Hall of Fame
Resort & Entertainment Company and Subsidiaries
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Note 2: Summary
of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The Company uses Levels 1 and 3 of the fair value hierarchy to measure
the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period and recognizes gains or losses
as change in fair value of warrant liabilities in the consolidated statements of operations that are attributable to the change in the
fair value of the warrant liabilities.
The following table provides the financial liabilities
measured on a recurring basis and reported at fair value on the balance sheet as of March 31, 2021 and indicates the fair value hierarchy
of the valuation inputs the Company utilized to determine such fair value:
|
|
Level
|
|
|
March 31, 2021
|
|
Warrant liabilities – Public Warrants
|
|
|
1
|
|
|
$
|
26,260,000
|
|
Warrant liabilities – Private Warrants
|
|
|
3
|
|
|
|
2,500,000
|
|
Warrant liabilities – November Warrants
|
|
|
3
|
|
|
|
17,252,000
|
|
Warrant liabilities – December Warrants
|
|
|
3
|
|
|
|
38,286,000
|
|
Fair value of aggregate warrant liabilities as of March 31, 2021
|
|
|
|
|
|
$
|
84,298,000
|
|
The Public Warrants are classified as
Level 1 due to the use of an observable market quote in the active market. Level 3 financial liabilities consist of the Private Warrants,
November Warrants, and December Warrants, for which there is no current market for these securities such as the determination of fair
value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy
are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
Subsequent measurement
The following table presents the changes
in fair value of the warrant liabilities:
|
|
Public Warrants
|
|
|
Private Warrants
|
|
|
November Warrants
|
|
|
December Warrants
|
|
|
Total Warrant Liability
|
|
Fair value as of December 31, 2020
|
|
$
|
4,130,000
|
|
|
$
|
420,000
|
|
|
$
|
9,781,000
|
|
|
$
|
4,781,000
|
|
|
$
|
19,112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,165,000
|
)
|
|
|
-
|
|
|
|
(51,165,000
|
)
|
Change in fair value, exercised
|
|
|
|
|
|
|
|
|
|
|
43,542,000
|
|
|
|
|
|
|
|
43,542,000
|
|
Change in fair value, outstanding
|
|
|
22,130,000
|
|
|
|
2,080,000
|
|
|
|
15,094,000
|
|
|
|
33,505,000
|
|
|
|
72,809,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2021
|
|
$
|
26,260,000
|
|
|
$
|
2,500,000
|
|
|
$
|
17,252,000
|
|
|
$
|
38,286,000
|
|
|
$
|
84,298,000
|
|
The key inputs into the Black Scholes valuation model for the Level
3 valuations as of March 31, 2021 are below:
|
|
Private Warrants
|
|
|
November Warrants
|
|
|
December Warrants
|
|
Term (years)
|
|
|
4.2
|
|
|
|
4.6
|
|
|
|
4.7
|
|
Stock price
|
|
$
|
5.02
|
|
|
$
|
5.02
|
|
|
$
|
5.02
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
46.6
|
%
|
|
|
49.5
|
%
|
|
|
49.5
|
%
|
Risk free interest rate
|
|
|
0.7
|
%
|
|
|
0.9
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,480,000
|
|
|
|
4,530,302
|
|
|
|
10,036,925
|
|
Value (per share)
|
|
$
|
0.28
|
|
|
$
|
3.81
|
|
|
$
|
3.81
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2: Summary of Significant Accounting Policies (continued)
Recent
Accounting Pronouncements
In
February 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently
issued ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively “ASU 2016-02”). This ASU is effective for private
companies beginning after December 15, 2021. ASU 2016-02 requires recognition of right-of-use assets and lease liabilities on the balance
sheet. In June 2020, FASB issued ASU 2020-05, further extending the effective date by one year making it effective for the Company for
annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early
adoption permitted. Most prominent among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use asset and a lease
liability for operating leases. The right-of-use asset and lease liability are initially measured based on the present value of committed
lease payments. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition.
Expenses related to operating leases are recognized on a straight-line basis, while those related to financing leases are recognized
under a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately in the statement
of operations. As the Company is an emerging growth company and following private company deadlines, the Company has an additional deferral
under this ASU to adopt beginning after December 15, 2021. Similarly, lessors are required to classify leases as sales-type, finance
or operating with classification affecting the pattern of income recognition.
Classification
for both lessees and lessors is based on an assessment of whether risks and rewards as well as substantive control have been transferred
through a lease contract. ASU 2016-02 also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty
of cash flows arising from leases. The Company is currently evaluating the impact of the pending adoption of this new standard on its
condensed consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01, “Leases
(Topic 842): Codification Improvements,” which requires an entity (a lessee or lessor) to provide transition disclosures under
Topic 250 upon adoption of Topic 842. In February 2020, the FASB issued ASU 2020-02, “Financial Instruments – Credit Losses
(Topic 326): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date
Related to Accounting Standards Update No. 2016-02, Leases.” The ASU adds and amends SEC paragraphs in the ASC to reflect the
issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the
revised effective date of the new leases standard. This new standard is effective for fiscal years beginning after December 15, 2021,
including interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently
evaluating the impact of the pending adoption of this new standard on its condensed consolidated financial statements.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2: Summary of Significant Accounting Policies (continued)
Recent
Accounting Pronouncements (continued)
In August 2018, FASB issued ASU 2018-15, “Intangibles
– Goodwill and Other – Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service Contract.” This update clarifies the accounting treatment for fees paid by a
customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. This
guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December
15, 2019, with early adoption permitted. The amendments must be applied either retrospectively or prospectively to all implementation
costs incurred after the date of adoption. The Company adopted this guidance on a prospective basis in the first quarter of 2020. The
adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
Subsequent
Events
Subsequent events have been evaluated through May 14, 2021, the
date the condensed consolidated financial statements were issued. Other than what has been disclosed in the condensed consolidated financial
statements in Note 12, no other events have been identified requiring disclosure or recording.
Note
3: Property and Equipment
Property
and equipment consists of the following:
|
|
Useful
Life
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Land
|
|
|
|
$
|
2,300,564
|
|
|
$
|
535,954
|
|
Land improvements
|
|
25 years
|
|
|
31,078,211
|
|
|
|
31,078,211
|
|
Building and improvements
|
|
15 to 39 years
|
|
|
157,913,580
|
|
|
|
158,020,145
|
|
Equipment
|
|
5 to 10 years
|
|
|
2,520,532
|
|
|
|
2,165,882
|
|
Property and equipment,
gross
|
|
|
|
|
193,812,887
|
|
|
|
191,800,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
|
|
(40,365,366
|
)
|
|
|
(37,444,429
|
)
|
Property
and equipment, net
|
|
|
|
$
|
153,447,521
|
|
|
$
|
154,355,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
development costs
|
|
|
|
$
|
116,017,357
|
|
|
$
|
107,969,139
|
|
For
the three months ended March 31, 2021 and 2020, the Company recorded depreciation expense of $2,920,937 and $2,722,120, respectively.
For the three months ended March 31, 2021 and 2020, the Company incurred $8,218,308 and $7,360,832 of capitalized project development
costs, respectively.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes
Payable, net
Notes
payable, net consisted of the following at March 31, 2021:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
|
Interest Rate
|
|
|
Maturity Date
|
TIF loan
|
|
$
|
9,654,000
|
|
|
$
|
(1,653,137
|
)
|
|
$
|
8,000,863
|
|
|
|
5.20
|
%
|
|
7/31/2048
|
7% Series A Cumulative Redeemable Preferred Stock
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
1,800,000
|
|
|
|
7.00
|
%
|
|
2/26/2023
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(7,392
|
)
|
|
|
3,492,608
|
|
|
|
5.00
|
%
|
|
7/1/2027
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
|
|
4.00
|
%
|
|
12/30/2024
|
Constellation EME
|
|
|
8,944,408
|
|
|
|
-
|
|
|
|
8,944,408
|
|
|
|
6.05
|
%
|
|
12/31/2022
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(13,547
|
)
|
|
|
6,940,284
|
|
|
|
12.00
|
%
|
|
12/2/2021
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(354,204
|
)
|
|
|
14,945,796
|
|
|
|
5.00
|
%
|
|
3/31/2022
|
Convertible PIPE Notes, plus PIK accrual
|
|
|
22,348,617
|
|
|
|
(13,028,557
|
)
|
|
|
9,320,060
|
|
|
|
10.00
|
%
|
|
3/31/2025
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(179,617
|
)
|
|
|
2,490,383
|
|
|
|
3.85
|
%
|
|
5/15/2040
|
Aquarian Mortgage Loan
|
|
|
40,000,000
|
|
|
|
(1,602,604
|
)
|
|
|
38,397,396
|
|
|
|
10.00
|
%
|
|
11/30/2021
|
Constellation EME #2
|
|
|
5,100,000
|
|
|
|
-
|
|
|
|
5,100,000
|
|
|
|
5.93
|
%
|
|
4/30/2026
|
Total
|
|
$
|
119,270,845
|
|
|
$
|
(16,839,058
|
)
|
|
$
|
102,431,787
|
|
|
|
|
|
|
|
Notes
payable, net consisted of the following at December 31, 2020:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
TIF loan
|
|
$
|
9,654,000
|
|
|
$
|
(1,666,725
|
)
|
|
$
|
7,987,275
|
|
Syndicated unsecured term loan
|
|
|
170,090
|
|
|
|
-
|
|
|
|
170,090
|
|
7% Series A Cumulative Redeemable Preferred Stock
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
1,800,000
|
|
Naming rights securitization loan
|
|
|
1,821,559
|
|
|
|
(113,762
|
)
|
|
|
1,707,797
|
|
City of Canton Loan
|
|
|
3,500,000
|
|
|
|
(7,681
|
)
|
|
|
3,492,319
|
|
New Market/SCF
|
|
|
2,999,989
|
|
|
|
-
|
|
|
|
2,999,989
|
|
Constellation EME
|
|
|
9,900,000
|
|
|
|
-
|
|
|
|
9,900,000
|
|
Paycheck protection plan loan
|
|
|
390,400
|
|
|
|
-
|
|
|
|
390,400
|
|
JKP Capital loan
|
|
|
6,953,831
|
|
|
|
(13,887
|
)
|
|
|
6,939,944
|
|
MKG DoubleTree Loan
|
|
|
15,300,000
|
|
|
|
(443,435
|
)
|
|
|
14,856,565
|
|
Convertible PIPE Notes, plus PIK accrual
|
|
|
21,797,670
|
|
|
|
(13,475,202
|
)
|
|
|
8,322,468
|
|
Canton Cooperative Agreement
|
|
|
2,670,000
|
|
|
|
(181,177
|
)
|
|
|
2,488,823
|
|
Aquarian Mortgage Loan
|
|
|
40,000,000
|
|
|
|
(2,156,303
|
)
|
|
|
37,843,697
|
|
Total
|
|
$
|
116,957,539
|
|
|
$
|
(18,058,172
|
)
|
|
$
|
98,899,367
|
|
During the three months ended March 31, 2021 and 2020, the Company
recorded amortization of note discounts of $1,234,114 and $3,234,413, respectively. During the three months ended March 31, 2021 and 2020,
the Company recorded paid-in-kind interest of $380,860 and $552,903, respectively.
For
more information on the notes payable above, please see Note 4 of the Company’s Annual Report on Form 10-K/A, as filed on May 12,
2021.
7%
Series A Cumulative Redeemable Preferred Stock
The
Company had 1,800 shares of 7% Series A Cumulative Redeemable Preferred Stock outstanding and 52,800 authorized as of March 31, 2021
and December 31, 2020. This preferred stock is required to be redeemed in cash after five years from the date of issuance and is
recorded in notes payable, net on the Company’s consolidated balance sheet.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 4:
Notes Payable, net (continued)
Accrued
Interest on Notes Payable
As
of March 31, 2021 and December 31, 2020, accrued interest on notes payable, were as follows:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
TIF loan
|
|
$
|
131,079
|
|
|
$
|
-
|
|
Preferred equity loan
|
|
|
27,125
|
|
|
|
27,125
|
|
New Market/SCF
|
|
|
22,112
|
|
|
|
-
|
|
Constellation EME
|
|
|
-
|
|
|
|
248,832
|
|
Paycheck protection plan loan
|
|
|
-
|
|
|
|
2,706
|
|
City of Canton Loan
|
|
|
8,847
|
|
|
|
4,472
|
|
JKP Capital Note
|
|
|
625,451
|
|
|
|
416,836
|
|
MKG Doubletree loan
|
|
|
-
|
|
|
|
67,716
|
|
Canton Cooperative Agreement
|
|
|
54,035
|
|
|
|
20,593
|
|
Aquarian
Mortgage Loan
|
|
|
-
|
|
|
|
333,333
|
|
Total
|
|
$
|
868,649
|
|
|
$
|
1,121,613
|
|
The
amounts above were included in accounts payable and accrued expenses and other liabilities on the Company’s consolidated balance
sheet, as follows:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Accounts payable
and accrued expenses
|
|
$
|
841,524
|
|
|
$
|
1,094,488
|
|
Other
liabilities
|
|
|
27,125
|
|
|
|
27,125
|
|
|
|
$
|
868,649
|
|
|
$
|
1,121,613
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 4:
Notes Payable, net (continued)
Paycheck
Protection Program Loan
On April 22, 2020, the Company obtained a Paycheck
Protection Program Loan (“PPP Loan”) for $390,400. The PPP Loan had a fixed interest rate of 1%, required the Company to
make 18 monthly payments beginning on November 22, 2020, with a maturity date of April 22, 2022, subject to debt forgiveness provisions
from the Small Business Association. On February 1, 2021, the Company obtained notice from the Small Business Association that the full
outstanding amount of the PPP Loan was forgiven. The Company recognized the forgiveness of the PPP Loan as “Gain on Forgiveness
of Debt” in the Company’s unaudited condensed consolidated statement of operations.
Convertible
PIPE Notes
On July 1, 2020, concurrently with the closing of the Business
Combination, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with certain funds managed
by Magnetar Financial, LLC and other purchasers (together, the “Purchasers”), pursuant to which the Company agreed to issue
and sell to the Purchasers in a private placement (the “Private Placement”) $20,721,293 in aggregate principal amount of the
Company’s 8.00% Convertible Notes due 2025 (the “PIPE Notes”). Pursuant to the terms of the Note Purchase Agreement,
the PIPE Notes may be converted into shares of Common Stock at a conversion price initially equal to $11.50 per share, subject to customary
adjustment. Accordingly, the aggregate amount of PIPE Notes issued and sold in the Private Placement is convertible into 1,801,851 shares
of Common Stock based on the conversion rate applicable on July 1, 2020. The conversion rate will convert at a conversion price of $11.50
per share based upon the conversion rate applicable on July 1, 2020. There are also Note Redemption Warrants that may be issued pursuant
to the Note Purchase Agreement upon redemption of the PIPE Notes that will be exercisable for a number of shares of Common Stock to be
determined at the time any such warrant is issued. The exercise price per share of Common Stock of any warrant will be set at the time
such warrant is issued pursuant to the Note Purchase Agreement.
The PIPE Notes provide for a conversion price
reset such that, if the last reported sale price of the Common Stock is less than or equal to $6.00 for any ten trading days within any
30 trading day period preceding the maturity date, then the conversion price is adjusted down $6.90 per share. On July 28, 2020, the
conversion price reset was triggered. On this date, the Company recorded a beneficial conversion feature of $14,166,339, which will be
amortized over the remaining term of the PIPE Notes using the effective interest method. The Company recorded $446,644 on amortization
of debt discount related to the contingent beneficial conversion feature for the three months ended March 31, 2021 in the Company’s
consolidated statements of operations.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes
Payable, net (continued)
Constellation
EME #2
On
February 1, 2021, the Company entered into a loan facility with Constellation whereby it may borrow up to $5,100,000 (the “Constellation
EME #2”). The proceeds of the Constellation EME #2 are to be held in escrow by a custodian to fund future development costs. The
proceeds will be released from escrow as development costs are incurred. The maturity date is April 30, 2026 and payments are due in
60 monthly installments totaling $6,185,716, with an effective interest rate of 8.7%.
The
Company also has a sponsorship agreement with Constellation. Refer to Note 6 for additional information.
Future
Minimum Principal Payments
The
minimum required principal payments on notes payable outstanding as of March 31, 2021 are as follows:
For the years
ended December 31,
|
|
Amount
|
|
2021 (nine months)
|
|
$
|
51,583,589
|
|
2022
|
|
|
21,891,174
|
|
2023
|
|
|
1,516,602
|
|
2024
|
|
|
4,649,120
|
|
2025
|
|
|
25,820,130
|
|
Thereafter
|
|
|
13,810,230
|
|
Total Gross Principal
Payments
|
|
$
|
119,270,845
|
|
|
|
|
|
|
Less:
Discount
|
|
|
(16,839,058
|
)
|
|
|
|
|
|
Total
Net Principal Payments
|
|
$
|
102,431,787
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’
Equity
Authorized
Capital
On November 3, 2020, the Company’s stockholders approved
an amendment to the Company’s charter to increase the authorized shares of Common Stock from 100,000,000 to 300,000,000. Consequently,
the Company’s charter allows the Company to issue up to 300,000,000 shares of Common Stock and to issue and designate its rights
of, without stockholder approval, up to 5,000,000 shares of preferred stock, par value $0.0001. On October 8, 2020, the Company filed
a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to
establish preferences, limitations and relative rights of the 7.00% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred
Stock”). The number of authorized shares of Series A Preferred Stock is 52,800.
2020
Omnibus Incentive Plan
On July 1, 2020, in connection with the closing
of the Business Combination, the Company’s omnibus incentive plan (the “2020 Omnibus Incentive Plan”) became effective
immediately upon the closing of the Business Combination. The 2020 Omnibus Incentive Plan was previously approved by the Company’s
stockholders and Board of Directors. Subject to adjustment, the maximum number of shares of Common Stock authorized for issuance under
the 2020 Omnibus Incentive Plan is 1,812,728 shares. As of March 31, 2021, 516,289 shares remained available for issuance under the 2020
Omnibus Incentive Plan.
Issuance
of Restricted Stock Awards
The Company’s activity in restricted Common
Stock was as follows for the three months ended March 31, 2021:
|
|
Number
of shares
|
|
|
Weighted
average
grant date
fair
value
|
|
Non–vested at January
1, 2021
|
|
|
477,286
|
|
|
$
|
9.30
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
|
Non–vested at
March 31, 2021
|
|
|
477,286
|
|
|
$
|
9.30
|
|
For
the three months ended March 31, 2021 and 2020, the Company recorded $554,547 and $0, in employee and director stock-based compensation
expense. As of March 31, 2021, unamortized stock-based compensation costs related to restricted share arrangements was $2,772,733 and
will be recognized over a weighted average period of 1.25 years.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’
Equity (continued)
Issuance
of Restricted Stock Units
On January 22, 2021, the Company granted an aggregate of 1,671,521
RSUs to its employees under the 2020 Omnibus Incentive Plan. The RSUs were valued at $1.97 per share, the value of the common stock on
the date of grant. The RSUs vest one third on January 22, 2021, one third on January 22, 2022, and one third on January 22, 2023.
The
Company’s activity in restricted stock units was as follows for three months ended March 31, 2021:
|
|
Number
of
shares
|
|
|
Weighted
average
grant date
fair
value
|
|
Non–vested at January
1, 2021
|
|
|
1,499,933
|
|
|
$
|
2.49
|
|
Granted
|
|
|
1,671,521
|
|
|
$
|
1.97
|
|
Vested
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non–vested at
March 31, 2021
|
|
|
3,171,454
|
|
|
$
|
2.22
|
|
For
the three months ended March 31, 2021 and 2020, the Company recorded $831,996 and $0, respectively, in employee and director stock-based
compensation expense, which is a component of property operating expenses in the consolidated statement of operations. As of March 31,
2021, unamortized stock-based compensation costs related to restricted stock units was $5,696,954 and will be recognized over a weighted
average period of 2.13 years.
Warrants
The Company’s
warrant activity was as follows for the three months ended March 31, 2021:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price (USD)
|
|
|
Weighted Average Contractual Life (years)
|
|
|
Intrinsic Value (USD)
|
|
Outstanding - January 1, 2021
|
|
|
55,303,832
|
|
|
$
|
5.92
|
|
|
|
4.73
|
|
|
|
|
|
Exercised
|
|
|
(16,005,411
|
)
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
Outstanding – March 31, 2021
|
|
|
39,298,421
|
|
|
$
|
7.76
|
|
|
|
6.31
|
|
|
$
|
52,733,362
|
|
Exercisable – March 31, 2021
|
|
|
29,261,496
|
|
|
$
|
7.40
|
|
|
|
5.10
|
|
|
$
|
16,399,693
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 5:
Stockholders’ Equity (continued)
February
2021 Public Offering and Over-allotment
On
February 12, 2021, the Company closed its public offering of 12,244,897 shares of Common Stock at a public offering price of $2.45 per
share pursuant to the terms of the underwriting agreement between the Company and Maxim Group LLC, entered into on February 9, 2021 (the
“Underwriting Agreement”). On February 18, 2021, the Company closed the sale of an additional 1,836,734 shares of Common
Stock at $2.45 per share pursuant to the exercise of the underwriters’ over-allotment option in connection with its public offering
that closed on February 12, 2021. Under the terms of the Underwriting Agreement, each of the Company’s executive officers, directors
and stockholders of more than 5% of the outstanding Common Stock signed lock-up agreements pursuant to which each agreed, subject to
certain exceptions, not to transact in the Common Stock for a period of 90 days following February 12, 2021. Gross proceeds including
the over-allotment, before underwriting discounts and commissions and estimated offering expenses, are approximately $34.5 million.
Proposed
Private Placement of Preferred Stock and Warrants to Purchase Common Stock
On January 28, 2021, the Company executed a binding term sheet
with IRG, LLC pursuant to which the Company agreed to issue and sell to IRG, LLC in a private placement for a purchase price of $15,000,000 (i)
shares of a new series of preferred stock, which are convertible into shares of the Common Stock, having an aggregate liquidation preference
of $15,000,000, and (ii) a number of warrants, convertible into shares of the Common Stock at an exercise price of $6.90 per share,
equal to 50% of the liquidation preference of the preferred stock to be sold divided by the closing price of the Common Stock on
a specified date (the “New Private Placement”). The New Private Placement is expected to close in the second quarter of 2021.
If the Company consummates the New Private Placement, the Company intends to use the net proceeds for general corporate purposes.
The Company cannot give any assurance that the New Private Placement will be completed on the terms described herein, on a timely basis
or at all. On May 13, 2021, the Company entered into a stock purchase agreement with IRG, LLG to formalize the binding term sheet.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship
Revenue and Associated Commitments
Johnson
Controls, Inc.
On
July 2, 2020, the Company entered into an Amended and Restated Sponsorship and Naming Rights Agreement (the “Amended Sponsorship
Agreement”) among Newco, PFHOF and Johnson Controls, Inc. (“JCI”), that amended and restated the Sponsorship and Naming
Rights Agreement, dated as of November 17, 2016 (the “Original Sponsorship Agreement”). Among other things, the Amended Sponsorship
Agreement: (i) reduced the total amount of fees payable to Newco during the term of the Amended Sponsorship Agreement from $135 million
to $99 million; (ii) restricted the activation proceeds from rolling over from year to year with a maximum amount of activation proceeds
in one agreement year to be $750,000; and (iii) renamed the “Johnson Controls Hall of Fame Village” to “Hall of Fame
Village powered by Johnson Controls”. This is a prospective change, which the Company reflected beginning in the third quarter
of 2020.
JCI
has the right to terminate the agreement if Phase II is not substantially complete by January 2, 2024.
As
of March 31, 2021, scheduled future cash to be received and required activation spend under the non-cancellable period of the agreement
are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021
(nine months)
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
Total
|
|
$
|
3,968,750
|
|
|
$
|
750,000
|
|
|
$
|
4,718,750
|
|
As
services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the Amended Sponsorship
Agreement. During the three months ended March 31, 2021 and 2020, the Company recognized $1,109,062 and $1,237,347 of net sponsorship
revenue related to this deal, respectively. Accounts receivable from JCI totaled $0 and $0 at March 31, 2021 and December 31, 2020, respectively.
Aultman
Health Foundation
In
2016, the Company and PFHOF entered into a 10-year licensing agreement with Aultman Health Foundation (“Aultman”) allowing
Aultman use of the HOF Village and PFHOF marks and logos. Under terms of the agreement, the Company will receive $2.5 million in cash
sponsorship funds. Of those funds, the Company is contractually obligated to spend $700,000 as activation expenses for the benefit of
Aultman.
As
services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the agreement. During the
three months ended March 31, 2021 and 2020, the Company recognized $4,491 and $44,852 of net sponsorship revenue related to this deal,
respectively. Accounts receivable from Aultman totaled $0 and $0 at March 31, 2021 and December 31, 2020, respectively.
On
January 12, 2021, the Company notified Aultman that the Company terminated as to itself, effective as of January 26, 2021, the Sponsorship
Agreement, dated December 6, 2016, among Aultman, PFHOF and the Company. As such, the Company will no longer be receiving future sponsorship
payments from Aultman.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship
Revenue and Associated Commitments (continued)
First
Data Merchant Services LLC
In
December 2018, the Company and PFHOF entered into an 8-year licensing agreement with First Data Merchant Services LLC (“First Data”)
and Santander Bank. As of March 31, 2021, scheduled future cash to be received under the agreement are as follows:
Year
ending December 31, 2020:
2021 (nine months)
|
|
$
|
200,000
|
|
2022
|
|
|
150,000
|
|
2023
|
|
|
150,000
|
|
2024
|
|
|
150,000
|
|
2025
|
|
|
150,000
|
|
Thereafter
|
|
|
150,000
|
|
|
|
|
|
|
Total
|
|
$
|
950,000
|
|
As
services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the agreement. During the
three months ended March 31, 2021 and 2020, the Company recognized $36,635 and $37,042 of net sponsorship revenue related to this deal,
respectively. As of March 31, 2021 and December 31, 2020, accounts receivable from First Data totaled $94,776 and $58,141, respectively.
Constellation
NewEnergy, Inc.
On December 19, 2018 the Company and PFHOF entered into a sponsorship
and services agreement with Constellation (the “Constellation Sponsorship Agreement”) whereby Constellation and its affiliates
will provide the gas and electric needs in exchange for certain sponsorship rights. The original term of the Company’s Constellation
Sponsorship Agreement was through December 31, 2028, however, in June 2020, the Company entered into an amended contract with Constellation
which extended the term of the Constellation Sponsorship Agreement through December 31, 2029.
The
Constellation Sponsorship Agreement provides for certain rights to Constellation and its employees, to benefit from the relationship
with the Company from discounted pricing, marketing efforts, and other benefits as detailed in the agreement. The Constellation Sponsorship
Agreement also provides for Constellation to pay sponsorship income and to provide activation fee funds. Activation fee funds are to
be used in the year received and do not roll forward for future years as unspent funds. The amounts are due by March 31 of the year to
which they apply, which is represented in the chart below.
The
Constellation Sponsorship Agreement includes certain contingencies reducing the sponsorship fee amount owed by Constellation if construction
is not on pace with the timeframe noted in the Constellation Sponsorship Agreement.
The
Company also has a note payable with Constellation. Refer to Note 4 for additional information.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship
Revenue and Associated Commitments (continued)
Constellation
NewEnergy, Inc. (continued)
As
of March 31, 2021, scheduled future cash to be received and required activation spend under the agreement are as follows:
|
|
Unrestricted
|
|
|
Activation
|
|
|
Total
|
|
2021 (nine months)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2022
|
|
|
1,396,000
|
|
|
|
200,000
|
|
|
|
1,596,000
|
|
2023
|
|
|
1,423,220
|
|
|
|
200,000
|
|
|
|
1,623,220
|
|
2024
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
2025
|
|
|
1,257,265
|
|
|
|
166,000
|
|
|
|
1,423,265
|
|
Thereafter
|
|
|
5,029,057
|
|
|
|
664,000
|
|
|
|
5,693,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,362,807
|
|
|
$
|
1,396,000
|
|
|
$
|
11,758,807
|
|
As
services are provided, the Company is recognizing revenue on a straight-line basis over the expected term of the Constellation Sponsorship
Agreement. During the three months ended March 31, 2021 and 2020, the Company recognized $289,165 and $326,736 of net sponsorship revenue
related to this deal, respectively. Accounts receivable from Constellation totaled $91,032 and $1,101,867 at March 31, 2021 and December
31, 2020, respectively.
Turf
Nation, Inc.
During
October 2018, the Company entered into a 5-year sponsorship agreement with Turf Nation, Inc. (“Turf Nation”). Under the terms
of the agreement, the Company will receive payments over the term based on the sale of Turf Nation products based on rates defined in
the sponsorship agreement. The minimum guaranteed fee per year beginning in 2020 is $50,000 per year.
As services are provided, the Company is recognizing
revenue on a straight-line basis over the expected term of the agreement. During the three months ended March 31, 2021 and 2020, the Company
recognized $14,786 and $14,951 of net sponsorship revenue related to this deal, respectively. Accounts receivable from Turf Nation totaled
$146,878 and $132,092 at March 31, 2021 and December 31, 2020, respectively.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other
Commitments
Canton
City School District
The
Company has entered into cooperative agreements with certain governmental entities that support the development of the project overall,
where the Company is an active participant in the agreement activity, and the Company would benefit from the success of the activity.
The
Company had a commitment to the Canton City School District (“CCSD”) to provide a replacement for their Football Operations
Center (“FOC”) and to construct a Heritage Project (“Heritage”). The commitment was defined in the Operations
and Use Agreement for HOF Village Complex dated as of February 26, 2016.
Project
and Ground Leases
Three
wholly owned subsidiaries of the Company have project leases with the Stark County Port Authority to lease project improvements and ground
leased property at the Tom Benson Hall of Fame Stadium, youth fields, and parking areas. On November 25, 2020, the Company entered into
an amendment to its Stark County Port Authority lease, whereby the lease term was extended from January 31, 2056 to September 30, 2114.
The future minimum lease commitments under non-cancellable operating leases described below reflect the amendment that was entered into
on November 25, 2020, excluding the amounts yet to be paid from escrow for the FOC noted above, as follows:
For the year
ended December 31, 2020:
2021 (nine months)
|
|
$
|
243,925
|
|
2022
|
|
|
321,900
|
|
2023
|
|
|
321,900
|
|
2024
|
|
|
321,900
|
|
2025
|
|
|
321,900
|
|
Thereafter
|
|
|
41,320,800
|
|
|
|
|
|
|
Total
|
|
$
|
42,852,325
|
|
Rent
expense on operating leases totaled $77,975 and $100,949 during the three months ended March 31, 2021 and 2020, and is recorded as a
component of property operating expenses on the Company’s consolidated statement of operations.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other
Commitments (continued)
SMG
Management Agreement
On
September 1, 2019, the Company entered into a Service Agreement with SMG to manage the Tom Benson Hall of Fame Stadium operations. Under
that agreement, the Company incurs an annual management fee of $200,000. Management fee expense for the three months ended March 31,
2021 and 2020 was $50,000 and $50,000, respectively, which is included in property operating expenses on the Company’s consolidated
statements of operations. The agreement term shall end on December 31, 2022.
Employment
Agreements
The
Company has employment agreements with many of its key executive officers that usually have terms between one year and three years.
Management
Agreement with Crestline Hotels & Resorts
On
October 22, 2019, the Company entered into a management agreement with Crestline Hotels & Resorts (“Crestline”). The
Company appointed and engaged Crestline as the Company’s exclusive agent to supervise, direct and control management and operation
of the DoubleTree Canton Downtown Hotel. In consideration of the services performed by Crestline, the Company agreed to the greater of:
2% of gross revenues or $10,000 per month in base management fees and other operating expenses. The agreement will be terminated on the
fifth anniversary of the commencement date, or October 22, 2024. For the three months ended March 31, 2021 and 2020, the Company paid
and incurred $30,000 and $0 in management fees, respectively.
Constellation
EME Express Equipment Services Program
On
February 1, 2021, the Company entered into a contract with Constellation whereby Constellation will sell and/or deliver materials and
equipment purchased by the Company. The Company is required to provide $2,000,000 to an escrow account held by Constellation, representing
adequate assurance of future performance. Constellation will invoice the Company in 60 monthly installments beginning in April 2021 for
$103,095.
Note 8: Contingencies
During
the normal course of its business, the Company is subject to occasional legal proceedings and claims. The Company does not have any pending
litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its results of
operations, financial condition or cash flows.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party
Transactions
Due
to Affiliates
Due
to affiliates consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Due
to IRG Member
|
|
$
|
1,700,174
|
|
|
$
|
1,456,521
|
|
Due to
IRG Affiliate
|
|
|
163,214
|
|
|
|
140,180
|
|
Due
to PFHOF
|
|
|
59,480
|
|
|
|
126,855
|
|
Total
|
|
$
|
1,922,868
|
|
|
$
|
1,723,556
|
|
IRG Canton Village Member, LLC, a member of HOF Village, LLC controlled
by our director Stuart Lichter (the “IRG Member”) and an affiliate provide certain supporting services to the Company. As
noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member, IRG Canton Village Manager, LLC, the manager of
HOF Village, LLC controlled by our director Stuart Lichter, may earn a master developer fee calculated as 4.0% of development costs incurred
for the Hall of Fame Village powered by Johnson Controls, including, but not limited to site assembly, construction supervision, and project
financing. These development costs incurred are netted against certain costs incurred for general project management.
For
the three months ended March 31, 2021 and 2020, costs incurred under these arrangements were $0 and $128,772, respectively, which were
included in Project Development Costs.
The
amounts due to the IRG Member above are for development fees, human resources support, and the Company’s engagement with them to
identify and obtain naming rights sponsorships and other entitlement partners for the Company. The Company and IRG Member have an arrangement
whereby the Company pays IRG Member $15,000 per month plus commissions. For both the three months ended March 31, 2021 and 2020, the
Company incurred $45,000 in costs to this affiliate, respectively.
The
amounts above due to related party advances are non-interest bearing advances from an affiliate of IRG Member due on demand. The Company
is currently in discussions with this affiliate to establish repayment terms of these advances, however, there could be no assurance
that the Company and IRG Member will come to terms acceptable to both parties.
On
January 13, 2020, the Company secured $9.9 million in financing from Constellation through its Efficiency Made Easy (“EME”)
program to implement energy efficient measures and to finance the construction of the Constellation Center for Excellence and other enhancements,
as part of Phase II development. The Hanover Insurance Company provided a guarantee bond to guarantee the Company’s payment obligations
under the financing, and Stuart Lichter and two trusts affiliated with Mr. Lichter have agreed to indemnify The Hanover Insurance Company
for payments made under the guarantee bond.
The
amounts above due to PFHOF relate to advances to and from PFHOF, including costs for onsite sponsorship activation, sponsorship sales
support, shared services, event tickets, and expense reimbursements.
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party
Transactions (continued)
License
Agreement
On
March 10, 2016, the Company entered into a license agreement with PFHOF, whereby the Company has the ability to license and use certain
intellectual property from PFHOF in exchange for the Company paying a fee based on certain sponsorship revenue and expenses. On December
11, 2018, the license agreement was amended to change the calculation of the fee to be 20% of eligible sponsorship revenue. The license
agreement was further amended in a First Amended and Restated License Agreement, dated September 16, 2019. The license agreement expires
on December 31, 2033. During the three months ended March 31, 2021 and 2020, the Company recognized expenses of $105,221 and $1,001,604,
respectively, which are included in property operating expenses on the Company’s consolidated statements of operations.
Media
License Agreement
On
November 11, 2019, the Company entered into a Media License Agreement with PFHOF. On July 1, 2020, the Company entered into an Amended
and Restated Media License Agreement that terminates on December 31, 2034. In consideration of a license to use certain intellectual
property of PFHOF, the Company agreed to pay to PFHOF minimum guaranteed license fees of $1,250,000 each year during the term. After
the first five years of the agreement, the minimum guarantee shall increase by 3% on a year-over-year basis. The first annual minimum
payment is due July 1, 2021, subject to potential acceleration in the event of earlier use. There were no license fees incurred during
the three months ended March 31, 2021 and 2020 under the Media License Agreement.
Other
Liabilities
Other
liabilities consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Activation fund reserves
|
|
$
|
4,231,326
|
|
|
$
|
3,780,343
|
|
Deferred revenue
|
|
|
882,786
|
|
|
|
1,709,126
|
|
Total
|
|
$
|
5,114,112
|
|
|
$
|
5,489,469
|
|
Hall
of Fame Resort & Entertainment Company and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party
Transactions (continued)
Purchase
of Real Property from PFHOF
On
February 3, 2021, the Company purchased for $1.75 million certain parcels of real property from PFHOF located at the site of the Hall
of Fame Village powered by Johnson Controls. In connection with the purchase, the Company granted certain easements to PFHOF to ensure
accessibility to the PFHOF museum.
Shared
Services Agreement with PFHOF
On
March 9, 2021, the Company entered into an additional Shared Services Agreement with PFHOF, which supplements the existing Shared Services
Agreement by, among other things, providing for the sharing of costs for activities relating to shared services.
Note 10: Concentrations
For
the three months ended March 31, 2021, two customers represented approximately 58% and 15% of the Company’s sponsorship revenue.
For the three months ended March 31, 2020, two customers represented approximately 63% and 17% of the Company’s sponsorship revenue.
At March 31, 2021, three customers represented approximately 39%, 26% and 16% of the Company’s accounts receivable. At December
31, 2020, two customers represented approximately 71% and 15% of the Company’s accounts receivable.
At
any point in time, the Company can have funds in their operating accounts and restricted cash accounts that are with third party financial
institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors
the cash balances in their operating accounts, these cash and restricted cash balances could be impacted if the underlying financial
institutions fail or could be subject to other adverse conditions in the financial markets.
Note 11:
Defined Contribution Plan
The
Company has a defined contribution plan (the “Defined Contribution Plan”) whereby employer contributions are discretionary
and determined annually. In addition, the Defined Contribution Plan allows participants to make elective deferral contributions through
payroll deductions, of which the Company will match a portion of those contributions. During the three months ended March 31, 2021 and
2020, the Company expensed matching contributions of $29,038 and $28,261, respectively.
Note 12: Subsequent Events
On May 13, 2021, the Company filed a certificate of designation with
the state of Delaware to designate 15,200 shares of Series B Preferred Stock.
On May 13, 2021, in accordance with the previously announced binding
term sheet dated January 28, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with
IRG, LLC (the “Purchaser”), pursuant to which the Company agreed to issue and sell to the Purchaser for a purchase price of
$15 million in a private placement (i) 15,000 shares of 7.00% Series B Convertible Preferred Stock (the “Series B Preferred Stock”),
which are convertible into shares of the Company’s Common Stock, having an aggregate liquidation preference of $15 million plus
any accrued but unpaid dividends to the date of payment, and (ii) 2,450,980 warrants, with a term of three years, exercisable six months
after issuance, each exercisable for one share of Common Stock at an exercise price of $6.90 per share, subject to certain adjustments
(the “Series D Warrants”).