UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______________ to ______________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Warrants to purchase 1.421333 shares of Common Stock | HOFVW | Nasdaq Capital Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
Large accelerated filer ☐ | |
Non–accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
Yes
☐
As of November 3, 2020, there were 32,741,778 shares of the registrant’s Common stock, $0.0001 par value per share, issued and outstanding.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY
FORM 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of : | ||||||||
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Cash | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable, net | ||||||||
Prepaid expenses and other assets | ||||||||
Property and equipment, net | ||||||||
Project development costs | ||||||||
Total assets | $ | $ | ||||||
Liabilities and stockholders’ equity | ||||||||
Liabilities | ||||||||
Notes payable, net | $ | $ | ||||||
Accounts payable and accrued expenses | ||||||||
Due to affiliate | ||||||||
Other liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
No shares issued or outstanding at September 30, 2020 and December 31, 2019 | ||||||||
32,741,778 and 5,436,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | ||||||||
Additional paid-in capital | ||||||||
Accumulated (deficit) earnings | ( | ) | ||||||
Total equity attributable to HOFRE | ||||||||
Non-controlling interest | ( | ) | ||||||
Total equity | - | |||||||
Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Sponsorships, net of activation costs | $ | $ | $ | $ | ||||||||||||
Rents and cost recoveries | ||||||||||||||||
Event revenues | ||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Operating expenses | ||||||||||||||||
Property operating expenses | ||||||||||||||||
Commission expense | ||||||||||||||||
Depreciation expense | ||||||||||||||||
Loss on abandonment of project development costs | - | - | - | |||||||||||||
Total operating expenses | $ | $ | $ | $ | ||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other expense | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Amortization of discount on note payable | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total interest expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss in joint venture | - | ( | ) | - | ( | ) | ||||||||||
Business combination costs | ( | ) | - | ( | ) | - | ||||||||||
Loss on extinguishment of debt | ( | ) | - | ( | ) | - | ||||||||||
Total other expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss before taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Income tax benefit | $ | $ | $ | $ | ||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Non-controlling interest | - | - | ||||||||||||||
Net loss attributable to HOFRE stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average shares outstanding, basic and diluted |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Common Stock | Additional Paid-In | Accumulated (Deficit) | Total Equity Attributable to HOFRE | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Stockholders | Interest | Equity | ||||||||||||||||||||||
Balance as of January 1, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
Balance as of March 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Contribution from shareholders | - | |||||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Balance as of June 30, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Conversion of the preferred equity loan | $ | $ | $ | $ | ||||||||||||||||||||||||
Shares of common stock issued for accounts payable | ||||||||||||||||||||||||||||
Business combination with GPAQ on July 1, 2020 | ||||||||||||||||||||||||||||
Shares of common stock issued in exchange of debt | ||||||||||||||||||||||||||||
Stock-based compensation on restricted stock awards | ||||||||||||||||||||||||||||
Stock-based compensation on restricted stock units | - | |||||||||||||||||||||||||||
Vesting of restricted stock units | ( | ) | ||||||||||||||||||||||||||
Stock-based compensation - common stock awards | ||||||||||||||||||||||||||||
Contingent beneficial conversion feature on PIPE Notes | - | - | - | - | ||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
Balance as of January 1, 2019 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Balance as of March 31, 2019 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2019 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Balance as of September 30, 2019 | $ | $ | $ | $ | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to cash flows (used in) provided by operating activities | ||||||||
Depreciation expense | ||||||||
Amortization of note discounts | ||||||||
Bad debt expense | - | |||||||
Loss on abandonment of project development costs | - | |||||||
Loss from equity method investment | - | |||||||
Deferred rent expense | - | ( | ) | |||||
Interest paid in kind | ||||||||
Loss on extinguishment of debt | - | |||||||
Stock based compensation expense | - | |||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ||||||||
Prepaid expenses and other assets | ( | ) | ||||||
Accounts payable and accrued expenses | ||||||||
Due to affiliates | ( | ) | ||||||
Other liabilities | ||||||||
Net cash (used in) provided by operating activities | ( | ) | ||||||
Cash Flows From Investing Activities | ||||||||
Additions to project development costs and property and equipment | ( | ) | ( | ) | ||||
Proceeds from business combination | - | |||||||
Net cash provided by (used in) investing activities | ( | ) | ||||||
Cash Flows From Financing Activities | ||||||||
Proceeds from notes payable | ||||||||
Repayments of notes payable | ( | ) | ( | ) | ||||
Payment of financing costs | ( | ) | ( | ) | ||||
Net cash provided by financing activities | ||||||||
Net increase (decrease) in cash and restricted cash | ( | ) | ||||||
Cash and restricted cash, beginning of period | ||||||||
Cash and restricted cash, end of period | $ | $ | ||||||
Cash | $ | $ | ||||||
Restricted Cash | ||||||||
Total cash and restricted cash | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HALL OF FAME RESORT & ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the year for interest | $ | $ | ||||||
Cash paid for income taxes | $ | $ | ||||||
Non-cash investing and financing activities | ||||||||
Project development cost acquired through accounts payable and accrued expenses, net | $ | $ | ||||||
Conversion of the preferred equity loan to common equity | $ | $ | - | |||||
Shares of common stock issued for accounts payable | $ | $ | - | |||||
Non-cash contribution from PFHOF in shared services agreement | $ | $ | - | |||||
Shares of common stock issued in exchange of debt | $ | $ | - | |||||
Conversion of GPAQ Sponsor Loan into Convertible PIPE debt | $ | $ | - | |||||
Contingent beneficial conversion feature on PIPE Notes | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Hall of Fame Resort & Entertainment Company and Subsidiaries
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 this Form 10-Q as the “Business Combination.”
Upon the consummation of the Business Combination: (i) Acquiror Merger Sub merged with and into GPAQ, with GPAQ continuing as the surviving entity (the “Acquiror Merger”) and (ii) Company Merger Sub merged with and into Newco, with Newco continuing as the surviving entity (the “Company Merger”). In advance of the Company Merger, HOF Village transferred all of its assets, liabilities and obligations to Newco pursuant to a contribution agreement. In connection with the closing of the Business Combination, the Company changed its name from “GPAQ Acquisition Holdings, Inc.” to “Hall of Fame Resort & Entertainment Company.” As a result of the Business Combination, GPAQ and Newco continue as the Company’s wholly owned subsidiaries. Upon consummation of the Business Combination and, in connection therewith, HOFRE became a successor issuer to GPAQ by operation of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Business Combination is, in substance, a reverse merger recapitalization and accordingly, the historical financials prior to the date of the Business Combination in these condensed consolidated financial statements are those of HOF Village LLC and its subsidiaries. The Business Combination is further described in Note 11.
The Company is a resort and entertainment company leveraging the power and popularity of professional football and its legendary players in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, the Company owns the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination centered around the PFHOF’s campus. The Company is creating a diversified set of revenue streams through developing themed attractions, premier entertainment programming, sponsorships and media.
On December 11, 2018, the HOF Village entered into the Master Transaction Agreement (the “Master Transaction Agreement”), whereby, among other things, it amended the HOF Village LLC Agreement (see Note 4).
6
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Organization and Nature of Business (continued)
Liquidity and Going Concern
The Company has sustained recurring losses
and negative cash flows from operations through September 30, 2020. In addition, its Bridge Loan (defined below) matures on November
30, 2020, which is within 12 months from the issuance of these condensed consolidated financial statements. Since inception, the
Company’s operations have been funded principally through the issuance of debt. As of September 30, 2020, the Company had
approximately $
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, or it may not be able to continue to fund its ongoing operations. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about the Company’s ability to continue as a going concern to sustain operations for at least one year from the issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2020 and 2019 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 Securities and Exchange commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for audited financial statements. However, in the opinion of management of the Company, all adjustments (consisting solely of normal recurring adjustments) necessary for the 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 for the year ended December 31, 2019, filed with the SEC on March 10, 2020 in GPAQ Acquisition Holdings, Inc.’s Registration Statement on Form S-4 (Registration No. 333-234655).
Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2020.
7
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies
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
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions for the Company relate to bad debt, depreciation, costs capitalized to project development costs, useful lives of assets, 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.
8
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Property and Equipment and Project Development Costs
Property and equipment are recorded at historical cost and are depreciated using the straight-line method over the estimated useful lives of the assets. During the construction period, the Company capitalizes all costs related to the development of the Hall of Fame Village powered by Johnson Controls. Project development costs include predevelopment costs, amortization of finance costs, real estate taxes, insurance, and other project costs incurred during the period of development. The capitalization of costs began during the preconstruction period, which the Company defines as activities that are necessary to the development of the project. The Company ceases cost capitalization when a portion of the project is held available for occupancy and placed into service. This usually occurs upon substantial completion of all costs necessary to bring a portion of the project to the condition needed for its intended use, but no later than one year from the completion of major construction activity. The Company will continue to capitalize only those costs associated with the portion still under construction. Capitalization will also cease if activities necessary for the development of the project have been suspended. As of September 30, 2020, the second two phases of the project remained subject to such capitalization.
The Company reviews its property and equipment and projects under development for impairment whenever events or changes indicate that the carrying value of the long-lived assets may not be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded.
The Company measures and records impairment
losses on its long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than their carrying amount. Considerable judgment by management is necessary to estimate undiscounted
future operating cash flows and fair values and, accordingly, actual results could vary significantly from such estimates. On
January 18, 2019, management determined that previously capitalized costs for the development of a hotel should be written off
because plans for this particular hotel and site location have been abandoned and will not benefit the current plans for another
hotel elsewhere on the site. Management reviewed its capitalized costs and identified the costs that had no future benefit. The
Company recorded a $
Cash and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less when purchased, to be cash equivalents. There were no cash equivalents at September 30, 2020 and December 31, 2019, respectively. The Company maintains its cash and escrow accounts at national financial institutions. The balances, at times, may exceed federally insured limits.
Restricted cash includes escrow reserve
accounts for capital improvements and debt service as required under certain of the Company’s debt agreements. The balances
at September 30, 2020 and December 31, 2019 were $
9
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Accounts Receivable
Accounts receivable are generally amounts due under sponsorship and other agreements. Accounts receivable are reviewed for delinquencies on a case by case basis and are considered delinquent when the sponsor or debtor has missed a scheduled payment. Interest is not charged on delinquencies.
The carrying amount of accounts receivable
is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management
individually reviews all delinquent accounts receivable balances and based on an assessment of current creditworthiness, estimates
the portion, if any, of the balance that will not be collected. At September 30, 2020 and December 31, 2019, the Company had an
allowance for doubtful accounts of $
Deferred Financing Costs
Costs incurred in obtaining financing are capitalized and amortized to additions in project development costs during the construction period over the term of the related loans, without regard for any extension options until the project or portion thereof is considered substantially complete. Upon substantial completion of the project or portion thereof, such costs are amortized as interest expense over the term of the related loan. Any unamortized costs are shown as an offset to Notes Payable on the accompanying unaudited condensed consolidated balance sheet.
Investment in Joint Venture
The Company previously used the equity
method to record the activities of its
The maximum exposure to loss represented
the potential loss of assets which may have been recognized by the Company relating to its investment in the joint venture. On
May 29, 2020,
10
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Income Taxes
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2020 and December 31, 2019, no liability for unrecognized tax benefits was required to be reported.
The Company’s policy for recording
interest and penalties associated with tax audits is to record such items as a component of general and administrative expense.
There were no amounts accrued for penalties and interest for the periods September 30, 2020 and 2019. The Company does not expect
its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review
that could result in significant payments, accruals or material deviations from its position. The Company’s effective tax
rates of
The Company has identified its United States tax return and its state tax return in Ohio as its “major” tax jurisdictions, and such returns for the years 2016 through 2019 remain subject to examination.
Net Loss Per Common Share
Net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding for the period. The Company has not considered the effect of warrants
sold in the Private Placement to purchase
Revenue Recognition
The Company has adopted ASC 606, Revenue with Contracts with Customers, with a date of initial application of January 1, 2019. As a result, the Company has updated its accounting policy for revenue recognition to reflect the new standard. 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.
11
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)
The Company generates revenues from various streams such as sponsorship agreements, rents, cost recoveries and events. The sponsorship arrangements, in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time, recognized revenue on a straight-line basis over the time period specified in the contract. Refer to Note 6 for more details. Revenue for rents, cost recoveries and events are recognized at the time the respective event or service has been performed.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Advertising
The Company expenses all advertising and
marketing costs as they are incurred. Total advertising and marketing costs for the three months ended September 30, 2020 and
2019 were $
The Company received a grant of $
Ground Rent Expense
Ground rent expense is recognized on a straight-line basis over the life of the related operating lease.
12
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2: Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company recognizes compensation expense for all equity-based payments in accordance with ASC 718 “Compensation – Stock Compensation.” Under fair value recognition provisions, the Company recognizes equity-based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock awards are granted at
the discretion of the Compensation Committee of the Company’s board of directors (the “Board of Directors”).
These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over
a
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”). 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. 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 unaudited condensed consolidated financial statements.
13
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 December 2019, the FASB issued ASU 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also simplifies aspects of accounting for franchise taxes and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim financial statement periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the pending adoption of this new standard on its unaudited condensed consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint-Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU is effective for private companies beginning after December 15, 2021. Early application is permitted, including early adoption in an interim period for public business entities for periods for which financial statements have not yet been issued. An entity should apply ASU No. 2020-01 prospectively at the beginning of the interim period that includes the adoption date. This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The Company is currently evaluating the impact of the pending adoption of this new standard on its unaudited condensed consolidated financial statements.
14
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)
Subsequent Events
Subsequent events have been evaluated through November 4, 2020, the date the unaudited condensed consolidated financial statements were issued. Other than what has been disclosed in the unaudited condensed consolidated financial statements, no other events have been identified requiring disclosure or recording.
Note 3: Property and Equipment and Project Development Costs
Property and equipment consists of the following:
Useful Life | September 30, 2020 | December 31, 2019 | ||||||||
Land | $ | $ | ||||||||
Land improvements | ||||||||||
Building and improvements | ||||||||||
Equipment | ||||||||||
Property and equipment, gross | ||||||||||
Less: accumulated depreciation | ( | ) | ( | ) | ||||||
Property and equipment, net | $ | $ | ||||||||
Project development costs | $ | $ |
15
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3: Property and Equipment and Project Development Costs (continued)
For the three months ended September 30,
2020 and 2019, the Company recorded depreciation expense of $
Note 4: Notes Payable, net
Notes payable, net consisted of the following at September 30, 2020:
Gross | Discount | Net | ||||||||||
Bridge loan | $ | $ | - | $ | ||||||||
TIF loan | ( | ) | ||||||||||
Syndicated unsecured term loan | - | |||||||||||
Naming rights securitization loan | ( | ) | ||||||||||
City of Canton Loan | ( | ) | ||||||||||
New Market/SCF | - | |||||||||||
Constellation EME | - | |||||||||||
IRG November Note | ( | ) | ||||||||||
Paycheck protection plan loan | - | |||||||||||
JKP Capital loan | ( | ) | ||||||||||
Convertible PIPE Notes | ( | ) | ||||||||||
MKG DoubleTree Loan | ( | ) | ||||||||||
Canton Cooperative Agreement | ( | ) | ||||||||||
Total | $ | $ | ( | ) | $ |
16
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes Payable, net (continued)
Notes payable, net consisted of the following at December 31, 2019:
Gross | Discount | Net | ||||||||||
Bridge loan | $ | $ | ( | ) | $ | |||||||
TIF loan | ( | ) | ||||||||||
Syndicated unsecured term loan | ( | ) | ||||||||||
Preferred equity loan | ( | ) | ||||||||||
Land loan with affiliate | - | |||||||||||
Naming rights securitization loan | ( | ) | ||||||||||
McKinley Grand Mortgage | ( | ) | ||||||||||
CH capital lending | - | |||||||||||
Convertible notes | ( | ) | ||||||||||
IRG November note | ( | ) | ||||||||||
Total | $ | $ | ( | ) | $ |
During the three months ended September 30, 2020 and 2019, the
Company recorded amortization of note discounts of $
Accrued Interest on Notes Payable
As of September 30, 2020 and December 31, 2019, accrued interest on notes payable, were as follows:
September 30, 2020 | December 31, 2019 | |||||||
Bridge loan | $ | $ | ||||||
Preferred equity loan | ||||||||
Land loan with affiliate | ||||||||
Constellation EME | ||||||||
New Market/SCF | ||||||||
Naming rights securitization loan | ||||||||
Mortgage McKinley Grand | ||||||||
Paycheck Protection Program Loan | ||||||||
JKP Capital Note | ||||||||
SCF Subordinated Note | ||||||||
Convertible notes | ||||||||
MKG Doubletree loan | ||||||||
Total | $ | $ |
17
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 (continued)
The amounts above were included in accounts payable and accrued expenses and other liabilities on the Company’s unaudited condensed consolidated balance sheet, as follows:
September 30, 2020 | December 31, 2019 | |||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Other liabilities | ||||||||
$ | $ |
Bridge Loan
On June 30, 2020, the Company entered into an amendment to the
$
At the date of the
Business Combination, on July 1, 2020, the Company used proceeds from the Business Combination to pay $
TIF Loan
For the Company, the Development Finance
Authority of Summit County (“DFA Summit”) offered a private placement of $
18
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
TIF Loan (continued)
Under the cooperative agreement entered
into by the Company, two subsidiaries, the City of Canton, DFA Summit, Stark County Port Authority, and the bank trustee, the
Company and certain subsidiaries have been exempted from certain real estate taxes.
Since the bond debt service is fixed and determinable, a liability
has been recorded as of September 30, 2020 and December 31, 2019, representing the present value of the future bond debt service
payments.
Syndicated Unsecured Term Loan and Preferred Equity Loan
On January 1, 2016,
as amended and restated on October 15, 2017, the Company entered into a financing agreement with a syndicate of lenders, including
affiliates of IRG Canton Village Member, LLC, a member of HOF Village (the “IRG Member”), for a loan amount up to $
On December 11, 2018,
the Company and various parties signed the Master Transaction Agreement setting forth various terms and conditions for the development
of the Hall of Fame Village powered by Johnson Controls. As part of the Master Transaction Agreement, American Capital Center,
LLC (“ACC”), an affiliate of the Company, exchanged $
19
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
Syndicated Unsecured Term Loan and Preferred Equity Loan (continued)
Land Loan with Affiliate
On July 10, 2017,
the Company entered into a promissory note with the PFHOF, an affiliate of HOFRE, for purpose of the acquisition of land at the
Hall of Fame Village powered by Johnson Controls. The promissory note had an outstanding balance of $
Naming Rights Securitization Loan
On November 9, 2017,
the Company, through a subsidiary, JCIHOFV Financing, LLC, entered into a secured loan with a financial institution for $
City of Canton Loan
On December 30, 2019, the Company entered into a loan facility
with the City of Canton, OH, whereby it may borrow up to $
20
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
New Market/SCF
On December 30, 2019, the Company entered
into a loan facility with New Market Project, Inc., whereby it may borrow up to $
McKinley Grand Mortgage
On October 22, 2019, the Company purchased
the McKinley Grand Hotel in Canton, Ohio for $
The $
The $1,900,000 note payable had a maturity date of October 22, 2021. Interest accrued at a rate equal to the greater of (i) 3.75% or (ii) the sum of the LIBOR rate plus 2.75%. The Company was required to make interest payments commencing on November 1, 2019, and on the first day of each successive month until the note was repaid. In September 2020, the Company paid off the full outstanding $1,900,000 principal and interest owed, using proceeds from the MKG Double Tree Loan.
Constellation EME
On December 30, 2019, the Company entered into a loan facility
with Constellation NewEnergy, Inc. (“Constellation”) whereby it may borrow up to $
As of September 30, 2020, $
The Company also has a sponsorship agreement with Constellation. Refer to Note 6 for additional information.
21
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
Convertible Notes
On December 24, 2018, the Company issued
a series of convertible notes totaling $
IRG November Note
On February 7, 2020, as effective on November
27, 2019, HOF Village, as borrower, entered into a subordinated promissory note with Industrial Realty Group, as lender, in an
amount up to $
Paycheck Protection Program Loan
On April 22, 2020, the Company obtained
a Paycheck Protection Program Loan (“PPP Loan”) for $
JKP Capital Loan
On June 24, 2020, HOF Village and HOFV
Hotel II executed a loan evidenced by a promissory note (the “JKP Capital Loan”) in favor of JKP Financial, LLC for
the principal sum of $
On June 24, 2020, $
22
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
SCF Subordinated Note
On June 22, 2020, the Company entered into
a loan facility with Stark Community Foundation (the “SCF Subordinated Note”) for $
Convertible PIPE Notes
On July 1, 2020, concurrently with
Industrial Realty Group
23
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 $
Canton Cooperative Agreement
On September 1, 2020, HOFRE entered into a Cooperative Agreement
with DFA Summit, the City of Canton, Ohio (“Canton”), the Canton Regional Energy Special Improvement District, Inc.
(the “District”), and U.S Bank National Association for the construction of the Series 2020C Project. The Series 2020C
Project constitutes a port authority facility and a special energy improvement project under the Special Improvement District Act.
HOFRE applied and received approval from the District and Canton for the aforementioned project. The loan amount is $
In order to pay for the costs of the Series 2020C Project, the District and HOFRE have requested and been approved by DFA Summit, to issue and sell the Series 2020C Bonds pursuant to an Indenture and make a portion of the proceeds of the Series 2020C Bonds available to the developer to undertake the provision of the Series 2020C Project.
While the Series 2020C Bonds are outstanding,
HOFRE shall pay the special assessment and the service payments semi-annually to the Canton County Treasurer pursuant to and in
accordance with the Assessing Ordinance, the TIF Act, and the TIF Ordinance. The service payments shall be in the same amount as
the real property taxes that would have been charged and payable against the Improvements had the TIF Exemption not been granted.
24
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: Notes payable, Net (continued)
Future Minimum Principal Payments
The minimum required principal payments on notes payable outstanding as of September 30, 2020 are as follows:
For the year ended December 31, | Amount | |||
2020 (three months) | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total Gross Principal Payments | $ | |||
Less: Discount | ( | ) | ||
Total Net Principal Payments | $ |
Note 5: Stockholders’ Equity
Authorized Capital
On November 3, 2020,
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 to be authorized for issuance under the 2020 Omnibus Incentive Plan is
25
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
Issuance of Restricted Stock Awards
On July 2, 2020, the Company granted
The Company’s activity in restricted common stock was as follows for nine months ended September 30, 2020:
Number of shares | Weighted average grant date fair value | |||||||
Non–vested at January 1, 2020 | $ | |||||||
Granted | $ | |||||||
Vested | ( | ) | $ | |||||
Non–vested at September 30, 2020 | $ |
For the nine months ended September 30,
2020 and 2019, the Company recorded $
Issuance of Restricted Stock Units
On August 31, 2020, the Company granted
On September 1, 2020, the Company granted
On September 14, 2020, the Company granted
On September 22, 2020, the Company granted
On September 22, 2020, the Company granted
On September 22, 2020, the Company granted
On September 22, 2020, the Company granted
an aggregate of
26
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5: Stockholders’ Equity (continued)
The Company’s activity in restricted stock units was as follows for nine months ended September 30, 2020:
Number of shares | Weighted average fair | |||||||
Non–vested at January 1, 2020 | $ | |||||||
Granted | $ | |||||||
Vested | ( | ) | $ | |||||
Non–vested at September 30, 2020 | $ |
For the nine months ended September 30,
2020 and 2019, the Company recorded $
Warrants
The Company’s warrant activity was as follows for the nine months ended September 30, 2020:
Number of Shares | Weighted Average Exercise Price (USD) | Weighted Average Contractual Life (years) | Intrinsic Value (USD) | |||||||||||||
Outstanding - January 1, 2020 | $ | |||||||||||||||
Issued in connection with Business Combination | $ | |||||||||||||||
Outstanding – September 30, 2020 | $ | $ | ||||||||||||||
Exercisable – September 30, 2020 | $ | $ |
Shared Services Agreement
On June 30, 2020, HOF Village entered into
a Shared Services Agreement with PFHOF (the “Shared Services Agreement”). Under the agreement, PFHOF and HOF Village
mutually reduced certain outstanding amounts owed between the parties, with PFHOF forgiving $
27
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,
JCI has the right to terminate the agreement if the project is not substantially complete by December 31, 2021.
As amended, as of September 30, 2020, scheduled future cash to be received and required activation spend under the non-cancellable period of the agreement are as follows:
Unrestricted | Activation | Total | ||||||||||
Remainder of 2020 (three months) | $ | $ | $ | |||||||||
2021 | ||||||||||||
Total | $ | $ | $ |
As services are provided, the Company is
recognizing revenue on a straight-line basis over the expected term of the Amended Sponsorship Agreement. During the three months
ended September 30, 2020 and 2019, the Company recognized $
Aultman Health Foundation
In 2016, the Company
entered into a
28
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6: Sponsorship Revenue and Associated Commitments (continued)
Aultman Health Foundation (continued)
As of September 30, 2020, scheduled future cash to be received and required activation spend under the agreement are as follows:
Unrestricted | Activation | Total | ||||||||||
Remainder of 2020 (three months) | $ | $ | $ | |||||||||
2021 | ||||||||||||
2022 | ||||||||||||
2023 | ||||||||||||
2024 | ||||||||||||
Thereafter | ||||||||||||
Total | $ | $ | $ |
As services are provided, the Company is
recognizing revenue on a straight-line basis over the expected term of the agreement. During the three months ended September 30,
2020 and 2019, the Company recognized $
First Data Merchant Services LLC
In December 2018, the Company entered into an 8-year licensing agreement with First Data Merchant Services LLC (“First Data”) and Santander Bank. As of September 30, 2020, scheduled future cash to be received under the agreement are as follows:
Year ending December 31:
Remainder of 2020 (three months) | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total | $ |
29
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 (continued)
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the agreement. During the three months ended September
30, 2020 and 2019, the Company recognized $
Constellation NewEnergy, Inc.
On December 19, 2018 the Company entered into a sponsorship and services agreement with Constellation (the “Constellation Sponsorship Agreement”) whereby Constellation and its affiliates will provide the gas and electric needs of the Company in exchange for certain sponsorship rights. The original term of the Constellation Sponsorship Agreement was through December 31, 2028, however, in June 2020, the Company entered into an amended contract with Constellation which extended the term of the Constellation Sponsorship Agreement through December 31, 2029.
The Constellation Sponsorship Agreement provides for certain rights to Constellation and its employees, to benefit from the relationship with the Company from discounted pricing, marketing efforts, and other benefits as detailed in the agreement. The Constellation Sponsorship Agreement also provides for Constellation to pay sponsorship income and to provide activation fee funds. Activation fee funds are to be used in the year received and do not roll forward for future years as unspent funds. The amounts are due by March 31 of the year to which they apply, which is represented in the chart below.
The Constellation Sponsorship Agreement includes certain contingencies reducing the sponsorship fee amount owed by Constellation if construction is not on pace with the timeframe noted in the Constellation Sponsorship Agreement.
The Company also has a note payable with Constellation. Refer to Note 4 for additional information.
As of September 30, 2020, scheduled future cash to be received and required activation spend under the Constellation Sponsorship Agreement were as follows:
Unrestricted | Activation | Total | ||||||||||
Remainder of 2020 (three months) | $ | $ | $ | |||||||||
2021 | ||||||||||||
2022 | ||||||||||||
2023 | ||||||||||||
2024 | ||||||||||||
2025 | ||||||||||||
Thereafter | ||||||||||||
Total | $ | $ | $ |
30
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 services are provided, the Company is
recognizing revenue on a straight-line basis over the expected term of the Constellation Sponsorship Agreement. During the three
months ended September 30, 2020 and 2019, the Company recognized $
Turf Nation, Inc.
During October 2018, the Company entered into a
As services are provided, the Company
is recognizing revenue on a straight-line basis over the expected term of the agreement. During the three months ended September
30, 2020 and 2019, the Company recognized $
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.
On March 20, 2018, a Letter of Representations
was entered into by both parties whereby the Company has agreed to put money into escrow. The escrow balance at September 30,
2020 and December 31, 2019 of $
31
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Project and Ground Leases
Three wholly owned subsidiaries of the Company have project leases with the Stark County Port Authority to lease project improvements and ground leased property at the Tom Benson Hall of Fame Stadium, youth fields, and parking areas. Rent is comprised of certain fees and generally escalating ground rent over the term of the leases which run until January 31, 2056. Future minimum lease commitments under non-cancellable operating leases, excluding the amounts yet to be paid from escrow for the FOC noted above, are as follows:
For the years ended December 31:
Remainder of 2020 (three months) | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total | $ |
Rent expense on operating leases totaled
$
QREM Management Agreement
On August 15, 2018, the Company entered into an Interim Services Agreement with Q Real Estate Management (QREM) to manage the Tom Benson Hall of Fame Stadium operations. Under that agreement, the Company incurs a monthly management fee to QREM. The interim agreement ended March 1, 2019 and the agreement was not renewed between the parties.
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 $
32
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7: Other Commitments (continued)
Employment Agreements
The Company has an employment agreement with its chief financial officer, the terms of which expire in December 2021, with an automatic one-year extension. Such agreement provides for minimum salary levels and incentive bonus that is payable if specified management goals are attained as well as profits interest of 1.0% of future profits vesting over the terms of the agreement.
In addition, the Company has employment
agreements with certain of its executives, the terms of which expire through December 2022. Such agreements provide for minimum
salary levels and incentive bonuses that are payable if specified management goals are attained as well as restricted stock units
and restricted share awards with grant date values ranging from $
DoubleTree Canton Downtown Hotel
On January 2, 2020, the Company entered into a franchise agreement with Hilton Franchise Holding, LLC (“Hilton”) in order to obtain a license to use the Hilton brand in the operation of the DoubleTree Canton Downtown Hotel in Canton, Ohio. The Company will be responsible for operating the hotel full-time, complying with industry and brand standards, and using the reservation service provided by Hilton. While possessing exclusive control of day to day operations, the Company is required to display and maintain signage displaying Hilton’s brand name. The Company is also required to publish and make available to the traveling public, a directory that includes the Hilton brand. The monthly fee will be used for advertising, promotions, publicity, public relations, market research, and other marketing programs. The hotel is projected to open in November 2020.
Management Agreement with Crestline Hotels & Resorts
On October 22, 2019, the Company entered
into a management agreement with Crestline Hotels & Resorts (“Crestline”). The Company appointed and engaged Crestline
as the Company’s exclusive agent to supervise, direct and control management and operation of the Hilton to assist the Company
in preparing the Hilton for re-opening. In consideration of the services performed by Crestline, the Company agreed to the greater
of: 2% of gross revenues or $
Note 8: Contingencies
During the normal course of its business, the Company is subject to occasional legal proceedings and claims.
The Company’s wholly owned subsidiary, HOF Village Stadium, LLC, is a defendant in a lawsuit “National Football Museum, Inc. dba Pro Football Hall of Fame v. Welty Building Company Ltd., et al;” filed in the Stark County Court of Common Pleas. PFHOF, an affiliate, filed this suit for monetary damages as a result of the cancellation of the 2016 Hall of Fame Game. Plaintiff alleges that the game was cancelled as a result of negligent acts of subcontractors who were hired to perform field painting services.
33
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8: Contingencies (continued)
The Plaintiff alleged that HOF Village Stadium, LLC was contractually liable for damages Plaintiff sustained because it guaranteed the performance of Defendant Welty Building Company Ltd. (“Welty”) for the Tom Benson Hall of Fame Stadium renovation.
Potential damages claimed by Plaintiff included the refunds of ticket sales, lost commissions on food and beverage sales, and lost profits on merchandise sales. The parties involved have reached a global settlement, subject to final documentation and filing of a dismissal with prejudice.
Note 9: Related-Party Transactions
Due to Affiliates
Due to (from) affiliates consisted of the following at September 30, 2020 and December 31, 2019:
September 30, 2020 | December 31, 2019 | |||||||
Due to IRG Member | $ | $ | ||||||
Due to IRG Affiliate | ||||||||
Due to M. Klein | ||||||||
Due to Related Party Advances | ||||||||
Due to PFHOF | ||||||||
Total | $ | $ |
The IRG Member and an affiliate provide
certain supporting services to the Company. As noted in the Operating Agreement of HOF Village, LLC, an affiliate of the IRG Member,
IRG Canton Village Manager, LLC, may earn a master developer fee calculated as
For the three months ended September 30,
2020 and 2019, costs incurred under these arrangements were $
The IRG Member also provides certain general
administrative support to the Company. For the three months ended September 30, 2020 and 2019, expenses of $
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 $
34
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Related-Party Transactions (continued)
Due to Affiliates (continued)
The amounts above due to M. Klein relate to advisory services provided to the Company. The Company engages a company owned by an investor for advisory services. The Company has not incurred any advisory costs under this arrangement in any of the reported periods presented.
The amounts above due to related party advances are non-interest bearing advances from an affiliate of IRG Member due on demand. The Company is currently in discussions with this affiliate to establish repayment terms of these advances, however, there could be no assurance that the Company and IRG Member will come to terms acceptable to both parties.
On January 13, 2020, the Company secured
$
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
35
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,
PFHOF Shared Services Agreement
On June 30, 2020,
Other Liabilities
Other liabilities consisted of the following at September 30, 2020 and December 31, 2019:
September 30, 2020 | December 31, 2019 | |||||||
Activation fund reserves | $ | $ | ||||||
Deferred revenue | ||||||||
Preferred stock dividend payable | ||||||||
Total | $ | $ |
36
Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10: Concentrations
For the nine months ended September 30,
2020,
At any point in time, the Company can have funds in their operating accounts and restricted cash accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors the cash balances in their operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.
Note 11: Business Combination
On July 1, 2020, the Company (formerly known as GPAQ Acquisition Holdings, Inc.) consummated the previously announced Business Combination with HOF Village, pursuant to the Merger Agreement, by and among GPAQ, Acquiror Merger Sub, Company Merger Sub, HOF Village and Newco.
Upon the consummation of the Business Combination: (i) Acquiror Merger Sub merged with and into GPAQ, with GPAQ continuing as the surviving entity (the “Acquiror Merger”) and (ii) Company Merger Sub merged with and into Newco, with Newco continuing as the surviving entity (the “Company Merger”). In advance of the Company Merger, HOF Village transferred all of its assets, liabilities and obligations to Newco pursuant to a contribution agreement. In connection with the closing of the Business Combination, the Company changed its name from “GPAQ Acquisition Holdings, Inc.” to “Hall of Fame Resort & Entertainment Company.” As a result of the Business Combination, GPAQ and Newco continue as our wholly owned subsidiaries.
In connection with the consummation of the Business Combination and pursuant to the Merger Agreement, (a) each issued and outstanding unit of GPAQ, if not already detached, was detached and each holder of such a unit was deemed to hold one share of GPAQ Class A common stock and one GPAQ warrant (“GPAQ Warrant”), (b) each issued and outstanding share of GPAQ Class A common stock (excluding any shares held by a GPAQ stockholder that elected to have its shares redeemed pursuant to GPAQ’s organizational documents) was converted automatically into the right to receive 1.421333 shares of our common stock, following which all shares of GPAQ Class A common stock ceased to be outstanding and were automatically canceled and cease to exist; (c) each issued and outstanding share of GPAQ Class F common stock was converted automatically into the right to receive one share of our common stock, following which all shares of GPAQ Class F common stock ceased to be outstanding and were automatically canceled and cease to exist; (d) each issued and outstanding GPAQ Warrant (including GPAQ private placement warrants) was automatically converted into one warrant to purchase 1.421333 shares of our common stock per warrant, following which all GPAQ Warrants ceased to be outstanding and were automatically canceled and retired and cease to exist; and (e) each issued and outstanding membership interest in Newco converted automatically into the right to receive a pro rata portion of the Company Merger Consideration (as defined in the Merger Agreement), which was payable in shares of our common stock. Our common stock is traded on The Nasdaq Capital Market, or Nasdaq, under the symbol “HOFV” and our outstanding series of warrants (the “Existing Warrants”) are traded on Nasdaq under the symbol “HOFVW”.
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Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11: Business Combination (continued)
The rights of holders of the Company’s common stock and Existing Warrants are governed by its amended and restated certificate of incorporation (the “Certificate of Incorporation”), its amended and restated bylaws (the “Bylaws’) and the Delaware General Corporation Law (the “DGCL”), and in the case of the Existing Warrants, the Warrant Agreement, dated January 24, 2018, between GPAQ and the Continental Stock Transfer & Trust Company.
The Company’s net assets acquired through the consummation of the Business Combination consisted of:
Cash | $ | |||
Sponsor loan | ( | ) | ||
Net assets acquired | $ |
Immediately following the acquisition,
the sponsor loan above was converted into the PIPE Notes. At the date of the Business Combination, on July 1, 2020, the Company
used proceeds from the Business Combination to pay $
On July 1, 2020, concurrently with the
closing of the Business Combination, the Company completed the Private Placement of $
On July 1, 2020, in connection with the closing of the Business Combination, holders of Newco’s membership interests as of immediately prior to the closing date entered into a lock-up agreement (the “Lock-Up Agreement”). Under the Lock-Up Agreement, each party thereto agreed not to sell, offer to sell, contract or agree to sell, hypothecate, pledge, sell any option or contract to purchase, grant any option, right or warrant, make any short sale or otherwise transfer or dispose of or lend its portion of any shares of common stock for a period after closing ending on the date that is the later of (i) 180 days after July 1, 2020 and (ii) the expiration of the Founder Shares Lock-Up Period under, dated January 24, 2018 among GPAQ, its officers and directors and initial shareholders.
The Company incurred $19,137,165 in costs related to the Business Combination. Of these costs, $16,718,978 were legal and professional fees, $2,218,187 was related to a restricted stock award to the Company’s Chief Executive Officer, and $200,000 was related to a cash bonus to the Company’s Chief Executive Officer.
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Hall of Fame Resort & Entertainment Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12: COVID-19 Coronavirus
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple countries, including the United States. As the COVID-19 coronavirus continues to spread in the United States, the Company may experience disruptions that could severely impact the Company. The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States to contain and treat the disease. The Company has had to cancel events due to COVID-19 and is in process of monitoring COVID-19’s potential impact on the Company’s operations. The Company has taken several steps to minimize COVID-19’s impact on the Company’s business by furloughing some of its employees, deferring payments from certain of its vendors and lenders, and re-negotiating various agreements with third parties.
Note 13: Subsequent Events
Refinancing Loan
On October 6, 2020,
TAAS Agreement
On October 9, 2020, Newco, entered into
a Technology as a Service Agreement (the “TAAS Agreement”) with Johnson Controls, Inc. (“Johnson Controls”).
Pursuant to the TAAS Agreement, Johnson Controls will provide certain services related to the construction and development of the
Hall of Fame Village powered by Johnson Controls (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 Johnson Controls up to an aggregate $
Issuance of 7.00% Series A Cumulative Redeemable Preferred Stock
During October, 2020, the Company issued
to American Capital Center, LLC (the “Preferred Investor”) an aggregate of
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Report”). Unless otherwise indicated, the terms “HOFRE,” “we,” “us,” or “our” refer to Hall of Fame Resort & Entertainment Company, a Delaware corporation, together with its consolidated subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are generally identified by use of words such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “projection,” “outlook,” “target,” “seek,” or words of similar meaning. These forward-looking statements include, but are not limited to, statements regarding future opportunities for the Company and the Company’s estimated future results. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results and the timing of events may differ materially from the results anticipated in these forward-looking statements.
In addition to factors identified elsewhere in this Report, the following risks, among others, could cause actual results and the timing of events to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: the benefits of the Business Combination; the future financial performance of the Company and its subsidiaries, including Newco (as defined below); changes in the market in which the Company competes; expansion and other plans and opportunities; the effect of the COVID-19 pandemic on the Company’s business; the Company’s ability to raise financing in the future; the Company’s ability to maintain the listing of its Common Stock on Nasdaq; other factors detailed under the section titled “Risk Factors” in this Report.
Actual results, performance or achievements may differ materially, and potentially adversely, from any projections and forward-looking statements and the assumptions on which those forward-looking statements are based. There can be no assurance that the data contained herein is reflective of future performance to any degree. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance. All information set forth herein speaks only as of the date hereof, in the case of information about the Company, or as of the date of such information, in the case of information from persons other than the Company, and we disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this Report. Forecasts and estimates regarding the Company’s industry and end markets are based on sources we believe to be reliable, however there can be no assurance these forecasts and estimates will prove accurate in whole or in part. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
Business Overview
We are a resort and entertainment company located in Canton, Ohio, leveraging the power and popularity of professional football and its legendary players in partnership with the National Football Museum, Inc., doing business as the Pro Football Hall of Fame (“PFHOF”). Headquartered in Canton, Ohio, we own the Hall of Fame Village powered by Johnson Controls, a multi-use sports, entertainment and media destination centered around the PFHOF’s campus. We expect to create a diversified set of revenue streams through developing themed attractions, premier entertainment programming, sponsorships and media. The strategic plan has been developed in three phases of growth.
Phase I of the Hall of Fame Village powered by Johnson Controls is operational, consisting of the Tom Benson Hall of Fame Stadium, the National Youth Football & Sports Complex, and HOF Village Media Group, LLC (“Hall of Fame Village Media”). In 2016, HOF Village completed the Tom Benson Hall of Fame Stadium, a sports and entertainment venue with a seating capacity of approximately 23,000. The Tom Benson Hall of Fame Stadium hosts multiple sports and entertainment events, including the NFL Hall of Fame Game, Enshrinement and Concert for Legends during the annual Pro Football Hall of Fame Enshrinement Week. In 2016, HOF Village opened the National Youth Football & Sports Complex, which will consist of eight full-sized, multi-use regulation football fields, five of which have been completed in Phase I. The facility hosts camps and tournaments for football players, as well as athletes from across the country in other sports such as lacrosse, rugby and soccer. In 2017, HOF Village formed a sports and entertainment media company, Hall of Fame Village Media, leveraging the sport of professional football to produce exclusive programming by licensing the extensive content controlled by the PFHOF as well as new programming assets developed from live events such as youth tournaments, camps and sporting events held at the National Youth Football & Sports Complex and the Tom Benson Hall of Fame Stadium.
We are developing new hospitality, attraction and corporate assets surrounding the Pro Football Hall of Fame Museum as part of a Phase II development plan. Plans for future components of the Hall of Fame Village powered by Johnson Controls include two hotels (one on campus and one in downtown Canton about five minutes from campus), the Hall of Fame Indoor Waterpark, the Constellation Center for Excellence (an office building including retail and dining establishments), the Center for Performance (a convention center/field house), and the Hall of Fame Retail Promenade. We are pursuing a differentiation strategy across three pillars, including Destination-Based Assets, the Media Company, and Gaming (including the Fantasy Football League we acquired a majority stake in). Phase III expansion plans include the addition of the Hall of Fame Experience (an immersive VR/AR attraction), a hotel with retail space, a performance center/arena, and multi-family housing.
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Business Combination
On July 1, 2020, we (formerly known as GPAQ Acquisition Holdings, Inc.) consummated the previously announced 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, Gordon Pointe Acquisition Corp., a Delaware corporation (“GPAQ”), GPAQ Acquiror Merger Sub, Inc., a Delaware corporation (“Acquiror Merger Sub”), GPAQ Company Merger Sub, LLC, a Delaware limited liability company (“Company Merger Sub”), HOF Village and HOF Village Newco, LLC, a Delaware limited liability company (“Newco”). The transactions contemplated by the Merger Agreement are referred to in this prospectus as the “Business Combination.”
Upon the consummation of the Business Combination: (i) Acquiror Merger Sub merged with and into GPAQ, with GPAQ continuing as the surviving entity (the “Acquiror Merger”) and (ii) Company Merger Sub merged with and into Newco, with Newco continuing as the surviving entity (the “Company Merger”). In advance of the Company Merger, HOF Village transferred all of its assets, liabilities and obligations to Newco pursuant to a contribution agreement. In connection with the closing of the Business Combination, the Company changed its name from “GPAQ Acquisition Holdings, Inc.” to “Hall of Fame Resort & Entertainment Company.” As a result of the Business Combination, GPAQ and Newco continue as our wholly owned subsidiaries.
In connection with the consummation of the Business Combination and pursuant to the Merger Agreement, (a) each issued and outstanding unit of GPAQ, if not already detached, was detached and each holder of such a unit was deemed to hold one share of GPAQ Class A common stock and one GPAQ warrant (“GPAQ Warrant”), (b) each issued and outstanding share of GPAQ Class A common stock (excluding any shares held by a GPAQ stockholder that elected to have its shares redeemed pursuant to GPAQ’s organizational documents) was converted automatically into the right to receive 1.421333 shares of our Common Stock, following which all shares of GPAQ Class A common stock ceased to be outstanding and were automatically canceled and cease to exist; (c) each issued and outstanding share of GPAQ Class F common stock was converted automatically into the right to receive one share of Common Stock, following which all shares of GPAQ Class F common stock ceased to be outstanding and were automatically canceled and cease to exist; (d) each issued and outstanding GPAQ Warrant (including GPAQ private placement warrants) was automatically converted into one Warrant to purchase 1.421333 shares of Common Stock per warrant, following which all GPAQ Warrants ceased to be outstanding and were automatically canceled and retired and cease to exist; and (e) each issued and outstanding membership interest in Newco converted automatically into the right to receive a pro rata portion of the Company Merger Consideration (as defined in the Merger Agreement), which was payable in shares of Common Stock. Our Common Stock is traded on The Nasdaq Capital Market, or Nasdaq, under the symbol “HOFV” and our outstanding series of warrants (the “Existing Warrants”) are traded on Nasdaq under the symbol “HOFVW”.
The rights of holders of our Common Stock and Existing Warrants are governed by our amended and restated certificate of incorporation (the “Certificate of Incorporation”), our amended and restated bylaws (the “Bylaws’) and the Delaware General Corporation Law (the “DGCL”), and in the case of our Existing Warrants, the Warrant Agreement, dated January 24, 2018, between GPAQ and the Continental Stock Transfer & Trust Company (the “Existing Warrant Agreement”).
Key Components of the Company’s Results of Operations
Revenue
The Company’s sponsorship revenue is derived from its agreements with third parties such as Johnson Controls, Inc. (“JCI”) and Constellation NewEnergy, Inc. (“Constellation”). These sponsorship agreements are generally multi-year agreements to provide cash or some other type of benefit to the Company. Some agreements require the Company to use a portion of the sponsorship revenue to incur marketing and other activation costs associated with the agreement, and this revenue is shown net of those associated costs. Additionally, the Company’s Tom Benson Hall of Fame Stadium is used to host premier entertainment and sports events to generate event revenues. In addition to top entertainers, the stadium is used to host a variety of sporting events, including high school, college and professional football games throughout the year. The Company plans to continue to expand programming where applicable for its live event business. The Company’s other revenue is derived primarily from rents and cost reimbursement.
The Company also entered into agreements with the NFL Alumni Association and the Hall of Fame Fantasy League earlier in 2020. The Company expects to recognize revenue from the NFL Alumni Association in the fourth quarter of 2020 and recognizing revenue from the Hall of Fame Fantasy League in the first half of 2021.
Operating Expenses
The Company’s operating expenses include property operating expenses, depreciation expense and other operating expenses. These expenses have increased in connection with putting the Company’s first phase into operation and the Company expects these expenses to continue to increase with the Company’s growth.
The Company’s property operating expenses include the costs associated with running its operational entertainment and destination assets such as the Tom Benson Hall of Fame Stadium and the Youth Sports Complex. As more of the Company’s Phase II assets become operational and additional events for top performers and sporting events are held, the Company expects these expenses to continue to increase with the Company’s development.
Other operating expenses include items such as management fees, commission expense and professional fees. The Company expects these expenses to continue to increase with the Company’s growth.
The Company’s depreciation expense includes the related costs to owning and operating significant property and entertainment assets. These expenses have grown as the Company completed Phase I development and the assets associated with Phase I became operational. The Company expects these expenses to continue to grow as Phase II and III assets are developed and become operational.
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Results of Operations
The following table sets forth information comparing the components of net loss for the periods ended September 30, 2020 and the comparable period in 2019:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Sponsorships, net of activation costs | $ | 1,564,250 | $ | 1,820,293 | $ | 4,886,106 | $ | 5,457,785 | ||||||||
Rents and cost recoveries | 103,244 | 348,900 | 420,681 | 657,106 | ||||||||||||
Event revenues | 9,613 | 4,690 | 37,446 | 54,533 | ||||||||||||
Total revenues | $ | 1,677,107 | $ | 2,173,883 | $ | 5,344,233 | $ | 6,169,424 | ||||||||
Operating expenses | ||||||||||||||||
Property operating expenses | 8,987,167 | 3,995,624 | 18,099,436 | 10,025,750 | ||||||||||||
Commission expense | 199,668 | 228,961 | 1,257,648 | 798,788 | ||||||||||||
Depreciation expense | 2,753,046 | 2,751,229 | 8,198,469 | 8,163,962 | ||||||||||||
Loss on abandonment of project development costs | - | - | - | 12,194,783 | ||||||||||||
Total operating expenses | $ | 11,939,881 | $ | 6,975,814 | $ | 27,555,553 | $ | 31,183,283 | ||||||||
Loss from operations | (10,262,774 | ) | (4,801,931 | ) | (22,211,320 | ) | (25,013,859 | ) | ||||||||
Other expense | ||||||||||||||||
Interest expense | (615,250 | ) | (2,160,210 | ) | (4,825,045 | ) | (6,734,735 | ) | ||||||||
Amortization of discount on note payable | (3,043,738 | ) | (3,400,514 | ) | (9,721,484 | ) | (10,302,822 | ) | ||||||||
Total interest expense | $ | (3,658,988 | ) | $ | (5,560,724 | ) | $ | (14,546,529 | ) | $ | (17,037,557 | ) | ||||
Loss in joint venture | - | (275,564 | ) | - | (252,576 | ) | ||||||||||
Business combination costs | (19,137,165 | ) | - | (19,137,165 | ) | - | ||||||||||
Loss on forgiveness of debt | (877,976 | ) | - | (877,976 | ) | - | ||||||||||
Total other expense | $ | (23,674,129 | ) | $ | (5,836,288 | ) | $ | (34,561,670 | ) | $ | (17,290,133 | ) | ||||
Loss before taxes | $ | (33,936,903 | ) | $ | (10,638,219 | ) | $ | (56,772,990 | ) | $ | (42,303,992 | ) | ||||
Income tax benefit | $ | - | $ | - | $ | - | $ | - | ||||||||
Net loss | $ | (33,936,903 | ) | $ | (10,638,219 | ) | $ | (56,772,990 | ) | $ | (42,303,992 | ) | ||||
Non-controlling interest | 36,000 | - | 36,000 | - | ||||||||||||
Net loss attributable to HOFRE stockholders | $ | (33,900,903 | ) | $ | (10,638,219 | ) | $ | (56,736,990 | ) | $ | (42,303,992 | ) | ||||
Net loss per share – basic and diluted | $ | (1.04 | ) | $ | (1.96 | ) | $ | (3.90 | ) | $ | (7.78 | ) | ||||
Weighted average shares outstanding, basic and diluted | 32,576,553 | 5,436,000 | 14,548,887 | 5,436,000 |
Three Months Ended September 30, 2020 as Compared to the Three Months Ended September 30, 2019
Sponsorship Revenues
The Company’s sponsorship revenues for the three months ended September 30, 2020 decreased by $256,043, or 14.07%, to $1,564,250 as compared to $1,820,293 for the three months ended September 30, 2019. This change was primarily driven by revisions to sponsorship agreements that took effect in the third quarter of 2020 in addition to recognition of deferred revenue for sponsorship agreements in place at June 30, 2019.
Rents and cost recoveries
The Company’s revenue from rents and cost recoveries for the three months ended September 30, 2020 decreased to $103,244 from $348,900 for the three months ended September 30, 2019, for a decrease of $245,656, or 70.41%. This change was primarily driven by the impact of COVID-19 on youth sports events which were only permitted to commence in late August in Ohio.
Event Revenues
The Company’s event revenue for the three months ended September 30, 2020 was $9,613 compared to $4,690 from the three months ended September 30, 2019, for an increase of $4,923. This was primarily driven by youth sports events and stadium events in the third quarter of 2020.
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Property Operating Expenses
The Company’s property operating expenses were $8,987,167 for the three months ended September 30, 2020, as compared to $3,995,624 for the three months ended September 30, 2019, an increase of $4,991,543, or 124,93%. This increase was driven by the Company’s recording of $1,248,306 in stock based compensation for restricted stock issued to select HOFRE leadership, increased headcount year over year resulting in additional payroll and related expenses of $1,734,304, $1,050,000 in increased legal fees in conjunction with the Company’s registration statements, and $1,002,910 in increased insurance premiums and new Directors and Officers insurance policies entered into during the three months ended September 30, 2020.
Commission Expense
The Company’s commission expense was $199,668 for the three months ended September 30, 2020 as compared to $228,961 for the three months ended September 30, 2019, for a decrease of $29,293, or 12.79%. The decrease in commission expense is primarily the result of certain unbilled commission payables being forgiven in exchange for stock in consummation with the Business Combination.
Depreciation Expense
The Company’s depreciation expense of $2,753,046 for the three months ended September 30, 2020 was essentially flat as compared to $2,751,229 for the three months ended September 30, 2019.
Interest Expense
The Company’s total interest expense was $615,250 for the three months ended September 30, 2020, as compared to $2,160,210 for the three months ended September 30, 2019, for a decrease of $1,544,960, or 71.52%. The decrease in total interest expense is primarily due to a decrease in the interest rate paid on one of the Company’s debt instruments as well as partial extinguishment of debt following the Business Combination.
Business Combination Costs
The Company’s Business Combination costs were $19,137,165 for the three months ended September 30, 2020, as compared to $0 for the three months ended September 30, 2019. The Business Combination costs consisted of $2,218,187 related to our CEO’s restricted stock award in which one-third vested on July 2, 2020 in conjunction with the closing of the Business Combination, a $200,000 cash bonus to our CEO, and other legal and professional fees incurred in the Business Combination.
Nine Months Ended September 30, 2020 as Compared to the Nine Months Ended September 30, 2019
Sponsorship Revenues
The Company’s sponsorship revenues for the nine months ended September 30, 2020 decreased by $571,679, or 10.47%, to $4,886,106 as compared to $5,457,785 for the nine months ended September 30, 2019. This change was primarily driven by the recognition of deferred revenue for the sponsorship agreements in place at June 30, 2019 as well as the impact of revisions to two sponsorship agreements effective in the third quarter of 2020.
Rents and cost recoveries
The Company’s revenue from rents and cost recoveries for the nine months ended September 30, 2020 decreased to $420,681 from $657,106 for the nine months ended September 30, 2019, for a decrease of $236,425, or 35.98%. This change was primarily driven by the cancellation of youth sports events due to the COVID-19 pandemic between March and August 2020.
Event Revenues
The Company’s event revenue for the nine months ended September 30, 2020 was $37,446 compared to $54,533 from the nine months ended September 30, 2019, for a decrease of $17,087, or 31.33%. This was primarily driven by the cancellation and reduced capacity of private events that were to be held in the stadium during the COVID-19 pandemic.
Property Operating Expenses
The Company’s property operating expense was $18,099,436 for the nine months ended September 30, 2020 as compared to $10,025,750 for the nine months ended September 30, 2019, for an increase of $8,073,686, or 44.61%. This increase was driven by the Company’s recording of $1,248,306 in stock based compensation for restricted stock issued to select HOFRE leadership, increased headcount year over year resulting in additional payroll and related expenses of $3,289,288, $1,815,578 in increased legal fees and an increase of $1,857,018 in consulting fees for the nine months ended September 30, 2020.
Commission Expense
The Company’s commission expense was $1,257,648 for the nine months ended September 30, 2020, as compared to $798,788 for the nine months ended September 30, 2019, for an increase of $458,860, or 57.44%. The increase in commission expense is primarily the result of final prior year commissions fees paid per the agreements in place.
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Depreciation Expense
The Company’s depreciation expense was $8,198,469 for the nine months ended September 30, 2020 as compared to $8,163,962 for the nine months ended September 30, 2019, for an increase of $34,507, or 0.42%. The increase in depreciation expense is primarily the result of additional depreciation expense incurred in the first half of 2020 on assets whose costs basis was adjusted in the third quarter of 2019.
Interest Expense
The Company’s total interest expense was $4,825,045 for the nine months ended September 30, 2020, as compared to $6,734,735 for the nine months ended September 30, 2019, for a decrease of $1,909,690, or 28.36%. The decrease in total interest expense is primarily due to extinguishment of select debt instruments at the close of the business combination with Gordon Pointe, changes in interest rates and certain interest expense due to affiliate that was waived under a revised agreement at June 30, 2020.
Business Combination Costs
The Company’s Business Combination costs were $19,137,165 for the nine months ended September 30, 2020, as compared to $0 for the nine months ended September 30, 2019. The Business Combination costs consisted of $2,218,187 related to our CEO’s restricted stock award in which one-third vested on July 2, 2020 in conjunction with the closing of the Business Combination, a $200,000 cash bonus to our CEO, and other legal and professional fees incurred in the Business Combination.
Liquidity and Capital Resources
The Company is an early stage development company that has invested approximately $250 million to date to fund its Phase I development, which includes the Tom Benson Hall of Fame Stadium, Youth Sports Complex and infrastructure to support the Phase II and III expansion plans. The Company expects to need continued capital investment to fund the construction of its Phase II and III assets and anticipates the need for future funding requirements to supplement its own cash and cash equivalents generated from the Company’s operations.
The Company has sustained recurring losses and negative cash flows from operations through September 30, 2020. In addition, its Bridge Loan matures on November 30, 2020, which is within 12 months from the issuance of these condensed consolidated financial statements. Since inception, the Company’s operations have been funded principally through the issuance of debt. As of September 30, 2020, the Company had approximately $16 million of restricted cash. On July 1, 2020, the Company consummated the Business Combination, whereby the Company’s then outstanding convertible notes were converted into shares of common stock in HOFRE, $15.0 million of the Bridge Loan was converted into equity and $15.5 million of the Bridge Loan was repaid with proceeds from the Business Combination. The balance of the Bridge Loan of approximately $34.5 million as of September 30, 2020, and has been guaranteed by Industrial Realty Group, LLC (“Industrial Realty Group”). In the event that Industrial Realty Group advances funds to the Company to pay off the Bridge Loan, under the terms of the guarantee, Industrial Realty Group will become a lender to the Company with a new maturity date of August 2021. These factors raise doubt about the Company’s ability to continue operations as a going concern.
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, or it may not be able to continue to fund its ongoing operations. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about the Company’s ability to continue as a going concern to sustain operations for at least one year from the issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Cash Flows
Since inception, the Company has primarily used its available cash to fund its project development expenditures. The following table sets forth a summary of cash flows for the periods presented:
For the Nine Months Ended September 30 | ||||||||
2020 | 2019 | |||||||
Cash (used in) provided by: | ||||||||
Operating Activities | $ | (25,218,923 | ) | $ | 5,373,221 | |||
Investing Activities | 2,949,733 | (8,975,957 | ) | |||||
Financing Activities | 37,496,789 | 2,586,699 | ||||||
Net increase (decrease) in cash and cash equivalents | $ | 15,227,599 | $ | (1,016,037 | ) |
Cash Flows for the Nine Months Ended September 30, 2020 and 2019
Operating Activities
Net cash used in operating activities was $25,218,931 during the nine months ended September 30, 2020, which consisted primarily of a net loss of $56,772,990, offset by non-cash depreciation expense of $8,198,469, amortization of note discounts of $9,721,484, payment-in-kind interest rolled into debt of $3,135,035, an increase in loss on extinguishment of $877,976, an increase in stock-based compensation expense of $3,562,493, a decrease in prepaid expenses and other assets of $4,525,057, an increase in accounts payable and accrued expenses of $15,517,281, a decrease in due to affiliates of $9,126,691, and an increase in other liabilities of $4,090,150.
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Net cash provided by operating activities was $5,373,221 during the nine months ended September 30, 2019, which consisted primarily of a net loss of $42,303,992, offset by non-cash depreciation expense of $8,163,962, amortization of note discounts of $10,302,822, an increase on loss on abandonment of project development costs of $12,194,783, an increase in accounts receivable of $324,792, an increase in prepaid expenses and other assets of $1,046,025, an increase in accounts payable and accrued expenses of $5,211,233, an increase in due to affiliates of $5,556,646, and an increase in other liabilities of $4,368,407.
Investing Activities
Net cash provided by investing activities was $2,949,733 during the nine months ended September 30, 2020, and consisted of $28,085,048 of cash used for project development costs and $31,034,781 of proceeds from the Business Combination. During the nine months ended September 30, 2019, net cash used in investing activities was $8,975,957, which consisted solely of cash used for project development costs.
Financing Activities
Net cash provided by financing activities was $37,496,789 during the nine months ended September 30, 2020, which consisted primarily of $65,039,642 in proceeds from notes payable, offset by $26,113,861 in repayments of notes payable, and $1,428,992 in payment of financing costs.
Net cash provided by financing activities was $2,586,699 during the nine months ended September 30, 2019, which consisted primarily of $8,380,000 in proceeds from notes payable, offset by $5,216,560 in repayments of notes payable and $576,741 in payment of financing costs.
Subsequent Financing Activity since September 30, 2020
During October, 2020, the Company issued to American Capital Center, LLC (the “Preferred Investor”) an aggregate of 1,800 shares of 7.00% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) at $1,000 per share for an aggregate purchase price of $1,800,000. The Company paid the Preferred Investor an origination fee of 2%. The issuance and sale of the Series A Preferred Stock to the Preferred Investor was exempt from registration pursuant to Section 4(a)(2) of the Securities Act. HOFRE used half of the proceeds from the sale of the Series A Preferred Stock to pay down outstanding amounts under its Bridge Loan.
Contractual Obligations and Commitments
The following is a summary of the contractual obligations as of September 30, 2020 and the effect of such obligations are expected to have on the liquidity and cash flows in future periods:
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
Notes payable commitments | $ | 124,720,639 | $ | 50,282,340 | $ | 35,523,813 | $ | 3,384,980 | $ | 35,529,506 | ||||||||||
Project and ground leases | $ | 10,001,649 | $ | 3,591 | $ | 357,354 | $ | 238,236 | $ | 9,402,468 | ||||||||||
Total | $ | 134,722,288 | $ | 50,285,931 | $ | 35,881,167 | $ | 3,623,216 | $ | 44,931,974 |
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of September 30, 2020.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company base its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For information on the Company’s significant accounting policies please refer to Note 2 to the Company’s accompanying unaudited condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is not exposed to market risk related to interest rates on foreign currencies.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not effective as September 30, 2020 due to a material weakness in our internal control over financial reporting as described below.
Limitations on Internal Control over Financial Reporting
An internal control system over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management’s Quarterly Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer and principal accounting officer), we performed an assessment of the Company’s significant processes and key controls. Based on this assessment, management concluded that our internal control over financial reporting was not effective as of September 30, 2020 due to the material weaknesses described below.
A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We determined that our internal control over financial reporting had the following material weaknesses:
● | Due to the small size of the Company, the Company does not maintain sufficient segregation of duties to ensure the processing, review and authorization of all transactions including non-routine transactions. | |
● | Our processes lacked timely and complete reviews and analysis of information used to prepare our financial statements and disclosures in accordance with accounting principles generally accepted in the United States of America. |
The Company is evaluating these weaknesses to determine the appropriate remedy. Because disclosure controls and procedures include those components of internal control over financial reporting that provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, management also determined that its disclosure controls and procedures were not effective as a result of the foregoing material weaknesses in its internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2020, the Company engaged a consultant and began to develop a plan to remediate its material weaknesses and to design an effective internal control environment.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the normal course of its business, the Company is subject to occasional legal proceedings and claims.
The Company’s wholly owned subsidiary, HOF Village Stadium, LLC, is a defendant in a lawsuit “National Football Museum, Inc. dba Pro Football Hall of Fame v. Welty Building Company Ltd., et al;” filed in the Stark County Court of Common Pleas. PFHOF, an affiliate, filed this suit for monetary damages as a result of the cancellation of the 2016 Hall of Fame Game. Plaintiff alleges that the game was cancelled as a result of negligent acts of subcontractors who were hired to perform field painting services.
The Plaintiff alleged that HOF Village Stadium, LLC was contractually liable for damages Plaintiff sustained because it guaranteed the performance of Defendant Welty Building Company Ltd. (“Welty”) for the Tom Benson Hall of Fame Stadium renovation.
Potential damages claimed by Plaintiff included the refunds of ticket sales, lost commissions on food and beverage sales, and lost profits on merchandise sales. The parties involved have reached a global settlement, subject to final documentation and filing of a dismissal with prejudice.
Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. Before you make a decision to buy our securities, you should carefully consider the risks described in this prospectus. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.
Unless the context otherwise indicates or requires, as used in this section, the term “HOF Village” shall refer to HOF Village, LLC prior to the Business Combination and Newco following the consummation of the Business Combination.
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Risk Related to Our Business
We are an early stage company with a minimal track record and limited historical financial information available, and an investment in the offering is highly speculative.
HOF Village was formed as a limited liability company on December 16, 2015 by certain affiliates of Industrial Realty Group and a subsidiary of PFHOF, to own and operate the Hall of Fame Village powered by Johnson Controls in Canton, Ohio, as a premiere destination resort and entertainment company leveraging the expansive popularity of professional football and the PFHOF. As a result of the Business Combination, HOF Village became a wholly owned subsidiary of HOFRE. As of the date hereof, we anticipate that the Hall of Fame Village powered by Johnson Controls will have the following major components:
Phase I:
● | Tom Benson Hall of Fame Stadium |
● | National Youth Football & Sports Complex |
● | Hall of Fame Village Media |
Phase II:
● | Hall of Fame Indoor Waterpark (“Hall of Fame Indoor Waterpark”) |
● | Two hotels |
● | Constellation Center for Excellence (Office Building, Auditorium and Dining) |
● | Center for Performance (Field House and Convention Center) |
● | Hall of Fame retail promenade |
Phase III:
● | Hall of Fame Experience (an immersive VR/AR experience) |
● | Hotel including retail space |
● | Multi-family housing |
While the components in Phase I are substantially complete and the DoubleTree by Hilton Canton Downtown Hotel is projected to open in November 2020, to date most components of Phase II and Phase III are still in the planning stage, and have not commenced operations or generated any revenues. The components of the Hall of Fame Village powered by Johnson Controls that have been developed in Phase I have limited operating history and business track record. In addition, our business strategy is broad and may be subject to significant modifications in the future. Our current strategy may not be successful, and if not successful, we may be unable to modify it in a timely and successful manner. A company with this extent of operations still in the planning stage, and thus your investment in the offering, is highly speculative and subject to an unusually high degree of risk. Prior to investing in the offering, you should understand that there is a significant possibility of the loss of your entire investment.
Because we are in the early stages of executing our business strategy, we cannot assure you that, or when, we will be profitable. We will need to make significant investments to develop and operate the Hall of Fame Village powered by Johnson Controls and expect to incur significant expenses in connection with operating components of the Hall of Fame Village powered by Johnson Controls, including costs for entertainment, talent fees, marketing, salaries and maintenance of properties and equipment. We expect to incur significant capital, operational and marketing expenses for a number of years in connection with our planned activities. Any failure to achieve or sustain profitability may have a material adverse impact on the value of the shares of our Common Stock.
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We may not be able to continue as a going concern.
The Company has sustained recurring losses and negative cash flows from operations through September 30, 2020. In addition, its Bridge Loan (defined below) matures on November 30, 2020, which is within 12 months from the issuance of these condensed consolidated financial statements. Since inception, the Company’s operations have been funded principally through the issuance of debt. As of September 30, 2020, the Company had approximately $16 million of restricted cash. On July 1, 2020, the Company consummated the Business Combination, whereby the Company’s then outstanding convertible notes were converted into shares of common stock in HOFRE, $15.0 million of the Bridge Loan was converted into equity and $15.5 million of the Bridge Loan was repaid with proceeds from the Business Combination. The balance of the Bridge Loan of approximately $34.5 million as of September 30, 2020, and has been guaranteed by Industrial Realty Group, LLC (“Industrial Realty Group”). In the event that Industrial Realty Group advances funds to the Company to pay off the Bridge Loan, under the terms of the guarantee, Industrial Realty Group will become a lender to the Company with a new maturity date of August 2021. These factors raise doubt about the Company’s ability to continue operations as a going concern. 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, or it may not be able to continue to fund its ongoing operations. If management is unable to execute its planned debt and equity financing initiatives, these conditions raise substantial doubt about the Company’s ability to continue as a going concern to sustain operations for at least one year from the issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Furthermore, HOF Village’s independent auditor included an explanatory paragraph in their audit opinion as of December 31, 2019 concluding that there was substantial doubt about HOF Village’s ability to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets, or be foreclosed upon, and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors in our Common Stock will lose all or a part of their investment.
Our ability to implement our proposed business strategy may be materially and adversely affected by many known and unknown factors.
Our business strategy relies upon our future ability to successfully develop and operate the Hall of Fame Village powered by Johnson Controls. Our strategy assumes that we will be able to, among other things: secure sufficient capital to repay our indebtedness; continue to lease or to acquire additional property in Canton, Ohio at attractive prices and develop such property into efficient and profitable operations; and maintain our relationships with key partners, including PFHOF, the general contractors for the Hall of Fame Village powered by Johnson Controls, and various other design firms, technology consultants, managers and operators and vendors that we are relying on for the successful development and operation of the Hall of Fame Village powered by Johnson Controls, as well as to develop new relationships and partnerships with third parties that will be necessary for the success of the Hall of Fame Village powered by Johnson Controls. These assumptions, which are critical to our prospects for success, are subject to significant economic, competitive, regulatory and operational uncertainties, contingencies and risks, many of which are beyond our control. These uncertainties are particularly heightened by the fact that we have significantly limited historical financial results or data on which financial projections might be based.
Our future ability to execute our business strategy and develop the various components of the Hall of Fame Village powered by Johnson Controls is uncertain, and it can be expected that one or more of our assumptions will prove to be incorrect and that we will face unanticipated events and circumstances that may adversely affect our proposed business. Any one or more of the following factors, or other factors which may be beyond our control, may have a material adverse effect on our ability to implement our proposed strategy:
● | the impact of the pandemic involving the novel strain of coronavirus, COVID-19, governmental reactions thereto, and economic conditions resulting from such governmental reactions to the pandemic on our business strategy, operations, financial results, as well as on our future ability to access debt or equity financing; |
● | inability to secure short-term liquidity in order to meet operating capital requirements and to secure capital to make principal payments on our Bridge Loan, together with any interest due thereunder, which would result in a default under the Bridge Loan and a likely suspension of development and construction for the Hall of Fame Village powered by Johnson Controls. We previously received notices of default under the Bridge Loan, which is secured by substantially all of our assets. Although the loan documents were amended to extend the time within which we must make principal payments and bring the loan back into performing status and an affiliate of Industrial Realty Group has guaranteed certain payment obligations under the Bridge Loan, there can be no assurance that we will be able to repay the obligation upon maturity or otherwise avoid a future default; |
● | failure to continue to lease or acquire additional property in Canton, Ohio at the level of prices estimated; |
● | inability to complete development and construction on schedule, on budget or otherwise in a timely and cost-effective manner; |
● | issues impacting the brand of the PFHOF; |
● | inability to secure and maintain relationships and sponsorships with key partners, or a failure by key partners to fulfill their obligations; |
● | failure to manage rapidly expanding operations in the projected time frame; |
● | our or our partners’ ability to provide innovative entertainment that competes favorably against other entertainment parks and similar enterprises on the basis of price, quality, design, appeal, reliability and performance; |
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● | failure of investments in technology and machinery, including our investments in virtual reality in connection with the proposed Hall of Fame Experience, to perform as expected; |
● | increases in operating costs, including capital improvements, insurance premiums, general taxes, real estate taxes and utilities, affecting our profit margins; |
● | general economic, political and business conditions in the United States and, in particular, in the Midwest and the geographic area around Canton, Ohio; |
● | inflation, appreciation of the real estate and fluctuations in interest rates; or |
● | existing and future governmental laws and regulations, including changes in our ability to use or receive Tourism Development District (“TDD”) funds, tax-increment financing (“TIF”) funds or other grants and tax credits (including Ohio Film Tax Credits). |
We are relying on various forms of public financing to finance the Company.
We currently expect to obtain a portion of the capital required for the development and operations of the Hall of Fame Village powered by Johnson Controls from various forms of public financing, including TDD funds, TIF funds, grants and tax credits (including Ohio Film Tax Credits), which depend, in part, on factors outside of our control. The concept of a TDD was created under state law specifically for Canton, Ohio and the Hall of Fame Village powered by Johnson Controls. Canton City Council was permitted to designate up to 200 acres as a TDD and to prove the collection of additional taxes within that acreage to be used to foster tourism development. Canton City Council passed legislation allowing the collection of a 5% admissions tax and an additional 2% gross receipts tax and agreed to give the revenue from its 3% municipal lodging tax collected at any hotels built in the TDD to the Hall of Fame Village powered by Johnson Controls for 30 years. Our ability to obtain funds from TDD depends on, among other things, ticket sales (including parking lots, garages, stadiums, auditoriums, museums, athletic parks, swimming pools and theaters), wholesale, retail and some food sales within the TDD and revenues from our hotels within the TDD. For TIF funds, the amount of property tax that a specific district generates is set at a base amount and as property values increase, property tax growth above that base amount, net of property taxes retained by the school districts, can be used to fund redevelopment projects within the district. Our ability to obtain TIF funds is dependent on the value of developed property in the specific district, the collection of general property taxes from property owners in the specific district, the time it takes the tax assessor to update the tax rolls and market interest rates at the time the tax increment bonds are issued.
If we are unable to realize the expected benefits from these various forms of public financing, we may need to obtain alternative financing through other means, including private transactions. If we are required to obtain alternative financing, such alternative financing may not be available at all or may not be available in a timely manner or on terms substantially similar or as favorable to public financing, which could significantly affect our ability to develop the Hall of Fame Village powered by Johnson Controls, increase our cost of capital and have a material adverse effect on our results of operations, cash flows and financial position.
If we were to obtain financing through private investment in public equity investments or other alternative financing, it could subject us to risks that, if realized, would adversely affect us, including the following:
● | our cash flows from operations could be insufficient to make required payments of principal of and interest on any debt financing, and a failure to pay would likely result in acceleration of such debt and could result in cross accelerations or cross defaults on other debt; |
● | such debt may increase our vulnerability to adverse economic and industry conditions; |
● | to the extent that we generate and use any cash flow from operations to make payments on such debt, it will reduce our funds available for operations, development, capital expenditures and future investment opportunities or other purposes; |
● | debt covenants may limit our ability to borrow additional amounts, including for working capital, capital expenditures, debt service requirements, executing our development plan and other purposes; |
● | restrictive debt covenants may limit our flexibility in operating our business, including limitations on our ability to make certain investments; incur additional indebtedness; create certain liens; incur obligations that restrict the ability of our subsidiaries to make payments to us; consolidate, merge or transfer all or substantially all of our assets; or enter into transactions with affiliates; and |
● | to the extent that such debt bears interest at a variable rate, we would be exposed to the risk of increased interest rates. |
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We are still assembling our management team and our leadership may change significantly.
The success of our business depends on our ability to hire and retain key employees and members of management who have extensive experience in project development and relationships with key partners. In late 2018, we hired CEO, Michael Crawford, to lead HOF Village and in September 2019, we hired a new Chief Financial Officer, Jason Krom. In December 2019, we hired an Executive Vice President for Public Affairs, Anne Graffice, to oversee community, investor, media and government relations, and manage all corporate social responsibility initiatives for the Company. In June 2020, we hired a President of Operations, Mike Levy, to be responsible for day-to-day operations of all on- and off-site assets owned by the Company. Moving forward, Mr. Levy will provide key operational input for all new construction development as the Company continues to execute Phase II of its project. In August 2020, we hired a Vice President, Human Resources, Lisa Gould and at the end of August 2020, we hired a General Counsel, Tara Charnes. In September 2020, we hired an Executive Vice President of New Business Development/Marketing and Sales, Erica Muhleman.
The ability of new members of our management team to quickly expand their knowledge of the Company, our business plans, operations, strategies and challenges will be critical to their ability to make informed decisions about our strategy and operations. If our management team is not sufficiently informed to make such decisions, our ability to compete effectively and profitably could be adversely affected. In addition, changes in our management team may be disruptive to, or cause uncertainty in, our business and the vision of the Company, and could have a negative impact on our ability to complete the construction and development components of the Hall of Fame Village powered by Johnson Controls in a timely and cost-effective manner and to manage and grow our business effectively. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key management roles could have a material adverse impact on our business and results of operations.
The success of our business is substantially dependent upon the continued success of the Pro Football Hall of Fame (“PFHOF”) brand and our ability to continue to secure favorable contracts with and maintain a good working relationship with PFHOF and its management team.
The success of our business is substantially dependent upon the continued success of the PFHOF brand and our ability to continue to secure favorable contracts with and maintain a good working relationship with PFHOF and its management team. PFHOF’s support and cooperation – through agreements, alliances, opportunities and otherwise – is of critical importance to our long-term success.
PFHOF is a 501(c)(3) not-for-profit organization that owns and operates the Pro Football Hall of Fame in Canton, Ohio. We are geographically located adjacent to PFHOF, and the local community and broader public generally view the Company and PFHOF as closely-connected affiliates. While PFHOF currently beneficially owns 19.3% of the Company’s outstanding Common Stock, the Company is neither a subsidiary of nor controlled by PFHOF. PFHOF is a party to the Director Nominating Agreement, which among other things provides PFHOF with the right to designate one individual to be appointed or nominated for election to the Company’s Board, subject to certain conditions. Our director Ed Roth was designated by PFHOF pursuant to the Director Nominating Agreement.
We have entered into several agreements with PFHOF that are of significance to our business, including: (i) a First Amended and Restated License Agreement, dated September 16, 2019 (the “License Agreement”), (ii) an Amended and Restated Media License Agreement, dated July 1, 2020 (the “Media License Agreement”), and (iii) a Shared Services Agreement, dated June 30, 2020 (the “Shared Services Agreement”). These agreements address topics that include, but are not limited to, the following:
● | License to use PFHOF marks. Under the License Agreement, PFHOF grants to our Company a non-transferable, non-exclusive right and license to use PFHOF marks in conjunction with the Hall of Fame Village complex (the “Village”), Legends Landing, any theme park, water park, theater, sports arena, sports facility, hotel, sports bar, general or specific location-based entertainment, youth sports programs (excluding certain NFL-sponsored youth sports programs) (“Exclusive Fields of Use”). The license is exclusive for the Exclusive Fields of Use only within the municipal boundary of the City of Canton, Ohio. Under the License Agreement, PFHOF agreed that it will not grant any third party a license to use PFHOF marks outside of Canton, Ohio, in connection with the themed entertainment industry without giving us a right of first refusal to accept such third-party offer. In addition, the License Agreement provides that, subject to certain exceptions, all communications with the National Football League (the “NFL”), its 32 member clubs and its Hall of Famers must be made exclusively through PFHOF rather than from the Company. Many of the Company’s events involve the participation of the NFL’s Hall of Famers. The Company therefore must rely on PFHOF’s cooperation and support to a significant extent in coordinating events and other activities involving any of these parties. |
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● | Sponsorships. The License Agreement provides that PFHOF and our Company have the right to jointly seek sponsorships from third parties in conjunction with the Village and to sublicense PFHOF marks to such sponsors. The License Agreement provides that PFHOF and our Company have the right to enter into exclusive sponsorships for their individually owned and operated assets. The License Agreement provides that our Company and PFHOF will use their best efforts to coordinate the marketing, sales and activation of sponsorships so as to maximize the revenue of both organizations and minimize any potential negative impact to either organization. We and PFHOF are both parties to sponsorship agreements that are important to our business, such as the Naming Rights Agreement and the Constellation Sponsorship Agreement. We also rely on a collaborative approach with PFHOF to pursue other joint sponsorship agreements with third parties. Our success in obtaining those sponsorship agreements is highly dependent on the maintenance of a good working relationship with PFHOF and its management team. In addition, once these sponsorships are obtained, the Company must rely on PFHOF’s cooperation in performing the obligations relating to PFHOF required by the sponsorship agreements. See “Risk Factors – Risk Related to Our Business – We rely on sponsorship contracts to generate revenues.” |
● | Use of PFHOF media assets. The Media License Agreement provides for the sharing of media-related opportunities between PFHOF and our Company and sets forth the terms under which PFHOF enables our Company to exploit existing PFHOF works and create new works. Our ability to successfully monetize PFHOF assets (e.g., photographs, videos, memorabilia and other historically significant football-related assets) under the Media License Agreement depends upon PFHOF’s providing access to such media assets as contemplated by the terms of the Media License Agreement. |
● | Shared Services. Under the Shared Services Agreement, our Company and PFHOF agree to act in good faith to coordinate with each other on certain services, including, without limitation, community relations, government relations, marketing and public relations, new business development, sponsorship activities and youth programming. Our success in these endeavors depends to a significant extent on PFHOF’s cooperation in coordinating these services and events. |
In the past, we have had to renegotiate payment terms and other provisions in certain of our agreements with PFHOF as part of improving the Company’s financial position. If we were to lose or be required to renegotiate any of these agreements or if PFHOF failed to perform any of these agreements, our business may be adversely affected.
Changes in consumer tastes and preferences for sports and entertainment products could reduce demand for our offerings and products and adversely affect the profitability of our business.
The success of our business depends on our ability to consistently provide, maintain and expand attractions and events as well as create and distribute media programming, online material and consumer products that meet changing consumer preferences. Consumers who are fans of professional football will likely constitute a substantial majority of the attendance to Hall of Fame Village powered by Johnson Controls, and our success depends in part on the continued popularity of professional football and on our ability to successfully predict and adapt to tastes and preferences of this consumer group. If our sports and entertainment offerings and products do not achieve sufficient consumer acceptance or if consumer preferences change or consumers are drawn to other spectator sports and entertainment options, our business, financial condition or results of operations could be materially adversely affected. In the past, we have hosted major professional football events, as well as other musical and live entertainment events, and we can provide no assurance that we will be able to continue to host such events.
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Incidents or adverse publicity concerning Hall of Fame Village powered by Johnson Controls could harm our reputation as well as negatively impact our revenues and profitability.
Our reputation is an important factor in the success of our business. Our ability to attract and retain guests depends, in part, upon the external perceptions of our Company, the brands we are associated with, the quality of Hall of Fame Village powered by Johnson Controls and its services and our corporate and management integrity. If market recognition or the perception of Hall of Fame Village powered by Johnson Controls diminishes, there may be a material adverse effect on our revenues, profits and cash flow. In addition, the operations of Hall of Fame Village powered by Johnson Controls, particularly the Hall of Fame Indoor Waterpark, involve the risk of accidents, illnesses, environmental incidents and other incidents which may negatively affect the perception of guest and employee safety, health, security and guest satisfaction and which could negatively impact our reputation, reduce attendance at our facilities and negatively impact our business and results of operations.
We rely on sponsorship contracts to generate revenues.
We will receive a portion of our annual revenues from sponsorship agreements, including the amended and restated sponsorship and naming rights agreement, dated as of July 2, 2020 (the “Naming Rights Agreement”), by and among HOF Village, PFHOF and Johnson Controls, the sponsorship and services agreement, dated as of December 19, 2018, as amended (the “Constellation Sponsorship Agreement”), by and among HOF Village, PFHOF and Constellation NewEnergy, Inc., a Delaware corporation (“Constellation”), and other sponsorship agreements for various content, media and live events produced at Hall of Fame Village powered by Johnson Controls such as title, official product and promotional partner sponsorships, billboards, signs and other media. We are continuously in negotiations with existing sponsors and actively seeking new sponsors as there is significant competition for sponsorships. Some of our live events may not secure a title sponsor, may not secure a sufficient number of sponsorships on favorable terms, or may not secure sponsorships sufficiently enough in advance of an event, which may lead to event cancellations or otherwise adversely affect the revenue generated from such events.
The Naming Rights Agreement is scheduled to expire on December 31, 2034, but provides termination rights both to (a) HOF Village and PFHOF and (b) Johnson Controls, which may be exercised in the event the other party breaches any of its covenants and agreements under the Naming Rights Agreement beyond certain notice and cure periods, applies for or consents to the appointment of a custodian of any kind with respect to all or substantially all of its assets, becomes insolvent or is unable to pay its debts generally as they become due, makes a general assignment for the benefit of its creditors, files a voluntary petition seeking relief under any bankruptcy law, or an involuntary petition is filed by a creditor under any bankruptcy law and is approved by a court of competent jurisdiction. Additionally, Johnson Controls has a right to terminate the Naming Rights Agreement if Phase II is not open for business by January 2, 2024 and if HOF Village is in default beyond applicable notice and cure periods under certain agreements, such as the Technology as a Service Agreement, any loan document evidencing or securing any construction loan with respect to the Hall of Fame Village powered by Johnson Controls and any agreement with its general contractor with respect to the construction of the Hall of Fame Village powered by Johnson Controls, among others.
The Constellation Sponsorship Agreement is scheduled to expire on December 31, 2029, but provides termination rights both to (a) HOF Village and PFHOF and (b) Constellation, which may be exercised if a party would suffer material damage to its reputation by association with the other party or if there is an event of default. An event of default under the Constellation Sponsorship Agreement includes a party’s failure to perform its material obligations for 60 days after receiving written notice from the other party and failure to cure such default; a party’s becoming insolvent or filing a voluntary petition in bankruptcy; a party’s being adjudged bankrupt; an involuntary petition under any bankruptcy or insolvency law being filed against a party; a party’s sale, assignment or transfer of all or substantially all of its assets (other than to an affiliate in the case of HOF Village or PFHOF). Additionally, Constellation has a right to terminate the Constellation Sponsorship Agreement effective as of December 31, 2023 for failure to recover its investment in the form of new business, if it provides written notice on or prior to December 1, 2022.
Loss of our existing title sponsors or other major sponsorship agreements, including the Naming Rights Agreement and Constellation Sponsorship Agreement, or failure to secure sponsorship agreements in the future on favorable terms, could have a material adverse effect on our business, financial condition and results of operations.
We could be adversely affected by declines in discretionary consumer spending, consumer confidence and general and regional economic conditions.
Our success depends to a significant extent on discretionary consumer spending, which is heavily influenced by general economic conditions and the availability of discretionary income. The current economic downturn as a result of COVID-19, coupled with high volatility and uncertainty as to the future global economic landscape, has had an adverse effect on consumers’ discretionary income and consumer confidence. Future volatile, negative or uncertain economic conditions and recessionary periods or periods of significant inflation may adversely impact attendance and guest spending levels at Hall of Fame Village powered by Johnson Controls, which would materially adversely affect our business, financial condition and results of operations.
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Hall of Fame Village powered by Johnson Controls will be located in Canton, Ohio. The concentration of our operations in this market exposes us to greater risks than if our operations were more geographically diverse. As a result, negative developments in the local economic conditions in the Midwest region, particularly those impacting travel, hotel or other real estate operations, could reduce guest attendance, negatively impact consumer spending, increase tenant defaults and otherwise have a material adverse effect on our profitability.
Other factors that can affect consumer spending and confidence include severe weather, hurricanes, flooding, earthquakes and other natural disasters, elevated terrorism alerts, terrorist attacks, military actions, air travel concerns, outbreaks of disease, and geopolitical events, as well as various industry and other business conditions, including an ever increasing number of sporting and entertainment options that compete for discretionary spending. Such factors or incidents, even if not directly impacting us, can disrupt or otherwise adversely impact the spending sentiment and interest of our present or potential customers and sponsors.
Hall of Fame Village powered by Johnson Controls will operate in highly competitive industries and our revenues, profits or market share could be harmed if we are unable to compete effectively.
We will face substantial competition in each of our businesses. For example:
● | Tom Benson Hall of Fame Stadium, the National Youth Football & Sports Complex and the Center for Performance will compete with other facilities and venues across the region and country for hosting concerts, athletic events (including professional sports events, sports camps and tournaments) and other major conventions; |
● | Hall of Fame Village Media will compete (i) with other media and content producers to obtain creative and performing talent, sports and other programming content, story properties, advertiser support, distribution channels and market share and (ii) for viewers with other broadcast, cable and satellite services as well as with home entertainment products, new sources of broadband and mobile delivered content and internet usage; |
● | The Hall of Fame Indoor Waterpark, the Hall of Fame hotels, and the Hall of Fame retail promenade, if and when completed, will compete for guests with other theme parks and resorts, such as Cedar Point, located in Sandusky, Ohio, and other theme parks, retail and tourist destinations in Ohio and around the country, and with other forms of entertainment, lodging, tourism and recreation activities; and |
● | The planned Constellation Center for Excellence will compete for tenants with other suppliers of commercial and/or retail space. |
Competition in each of these areas may increase as a result of technological developments, changes in consumer preferences, economic conditions, changes in market structure and other factors that affect the recreation, entertainment, vacation, retail, tourism and leisure industries generally. Increased competition may divert consumers from Hall of Fame Village powered by Johnson Controls to other forms of entertainment, which could reduce our revenue or increase our marketing costs. Our competitors may have substantially greater financial resources than we do, and they may be able to adapt more quickly to changes in consumer preferences or devote greater resources to promotion of their offerings and services or to development or acquisition of offerings and services that are perceived to be of a higher quality or value than our offerings and services. As a result, we may not be able to compete successfully against such competitors.
We may not be able to fund capital expenditures and investment in future attractions and projects.
A principal competitive factor for Hall of Fame Village powered by Johnson Controls is the originality and perceived quality of its events, attractions and offerings. Even after completion of the various components of the Hall of Fame Village powered by Johnson Controls, we will need to make continued capital investments through maintenance and the regular addition of new events, attractions and offerings. Our ability to fund capital expenditures will depend on our ability to generate sufficient cash flow from operations and to raise capital from third parties. We cannot assure you that our operations will be able to generate sufficient cash flow to fund such costs, or that we will be able to obtain sufficient financing on adequate terms, or at all, which could cause us to delay or abandon certain projects or plans.
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The high fixed cost structure of the Company’s operations may result in significantly lower margins if revenues decline.
We expect a large portion of our operating expenses to be relatively fixed because the costs for full-time employees, maintenance, utilities, advertising and insurance will not vary significantly with attendance. These fixed costs may increase at a greater rate than our revenues and may not be able to be reduced at the same rate as declining revenues. If cost-cutting efforts are insufficient to offset declines in revenues or are impracticable, we could experience a material decline in margins, revenues, profitability and reduced or negative cash flows. Such effects can be especially pronounced during periods of economic contraction or slow economic growth.
Increased labor costs, labor shortages or labor disruptions could reduce our profitability.
Because labor costs are and will continue to be a major component of our operating expenses, higher labor costs could reduce our profitability. Higher labor costs could result from, among other things, labor shortages that require us to raise labor rates in order to attract employees, and increases in minimum wage rates. Higher employee health insurance costs could also adversely affect our profitability. Additionally, increased labor costs, labor shortages or labor disruptions by employees of our third-party contractors and subcontractors could disrupt our operations, increase our costs and affect our profitability.
Cyber security risks and the failure to maintain the integrity of internal or guest data could result in damages to our reputation, the disruption of operations and/or subject us to costs, fines or lawsuits.
We anticipate that we will collect and retain large volumes of internal and guest data, including credit card numbers and other personally identifiable information, for business purposes, including for transactional or target marketing and promotional purposes, and our various information technology systems enter, process, summarize and report such data. We also expect to maintain personally identifiable information about our employees. The integrity and protection of our guest, employee and company data will be critical to our business and our guests and employees are likely to have a high expectation that we will adequately protect their personal information. The regulatory environment, as well as the requirements imposed on us by the credit card industry, governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our theme parks, products and services to our guests.
We also expect to rely on accounting, financial and operational management information technology systems to conduct our operations. If these information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations could be materially adversely affected.
We may face various security threats, including cyber security attacks on our data (including our vendors’ and guests’ data) and/or information technology infrastructure. Although we will utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent penetrations or disruptions to our systems. Furthermore, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss, fraudulent or unlawful use of guest, employee or company data which could harm our reputation or result in remedial and other costs, fines or lawsuits and require significant management attention and resources to be spent. In addition, our insurance coverage and indemnification arrangements that we enter into, if any, may not be adequate to cover all the costs related to cyber security attacks or disruptions resulting from such events. To date, cyber security attacks directed at us have not had a material impact on our financial results. Due to the evolving nature of security threats, however, the impact of any future incident cannot be predicted.
Investors are subject to litigation risk and their respective investments in the shares of our Common Stock may be lost as a result of our legal liabilities or the legal liabilities of our affiliates.
We or our affiliates may from time to time be subject to claims by third parties and may be plaintiffs or defendants in civil proceedings, including in connection with the development and operations of Hall of Fame Village powered by Johnson Controls. In January 2018, several subcontractors who helped construct the Tom Benson Hall of Fame Stadium filed mechanics’ liens against the stadium. Although we have settled these particular claims, there can be no assurance that similar claims will not be brought in the future if we cannot generate the revenue that we forecast or raise sufficient capital to pay contractors in connection with constructing other components of the project. The expense of prosecuting claims, for which there is no guarantee of success, and/or the expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments, would generally be borne by the Company and could result in the reduction or complete loss of all of the assets of the Company, which could result in the loss of your entire investment.
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Our business may be adversely affected by tenant defaults or bankruptcy.
Our business may be adversely affected if any future tenants at the Constellation Center for Excellence or Hall of Fame retail promenade default on their obligations to us. A default by a tenant may result in the inability of such tenant to re-lease space from us on economically favorable terms, or at all. In the event of a default by a tenant, we may experience delays in payments and incur substantial costs in recovering our losses. In addition, our tenants may file for bankruptcy or be involved in insolvency proceedings and we may be required to expense costs associated with leases of bankrupt tenants and may not be able to replace future rents for tenant space rejected in bankruptcy proceedings, which could adversely affect our properties. Any bankruptcies of our tenants could make it difficult for us to enforce our rights as lessor and protect our investment.
Fluctuations in real estate values may require us to write down the carrying value of our real estate assets or investments.
Real estate valuations are subject to significant variability and fluctuation. The valuation of our real estate assets or real estate investments is inherently subjective and based on the individual characteristics of each asset. Factors such as competitive market supply and demand for inventory, changes in laws and regulations, political and economic conditions and interest and inflation rate fluctuations subject our valuations to uncertainty. Our valuations are or will be made on the basis of assumptions that may not prove to reflect economic or demographic reality. If the real estate market deteriorates, we may reevaluate the assumptions used in our analyses. As a result, adverse market conditions may require us to write down the book value of certain real estate assets or real estate investments and some of those write-downs could be material. Any material write-downs of assets could have a material adverse effect on our financial condition and results of operations.
Our property taxes could increase due to rate increases or reassessments or the imposition of new taxes or assessments or loss of tax credits, which may adversely impact our financial condition and results of operations.
We are required to pay state and local real property taxes and assessments on our properties. The real property taxes and assessments on our properties may increase as property or special tax rates increase or if our properties are assessed or reassessed at a higher value by taxing authorities. In addition, if we are obligated to pay new taxes or if there are increases in the property taxes and assessments that we currently pay, our financial condition and results of operations could be adversely affected. We are relying on various forms of public financing to finance the development and operations of the Company.
Our insurance coverage may not be adequate to cover all possible losses that we could suffer and our insurance costs may increase.
We seek to maintain comprehensive insurance coverage at commercially reasonable rates. Although we maintain various safety and loss prevention programs and carry property and casualty insurance to cover certain risks, our insurance policies do not cover all types of losses and liabilities. There can be no assurance that our insurance will be sufficient to cover the full extent of all losses or liabilities for which we are insured, and we cannot guarantee that we will be able to renew our current insurance policies on favorable terms, or at all. In addition, if we or other theme park operators sustain significant losses or make significant insurance claims, then our ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected.
Our operations and our ownership of property subject us to environmental requirements, and to environmental expenditures and liabilities.
We incur costs to comply with environmental requirements, such as those relating to water use, wastewater and storm water management and disposal, air emissions control, hazardous materials management, solid and hazardous waste disposal, and the clean-up of properties affected by regulated materials.
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We may be required to investigate and clean-up hazardous or toxic substances or chemical releases, and other releases, from current or formerly owned or operated facilities. In addition, in the ordinary course of our business, we generate, use and dispose of large volumes of water, which requires us to comply with a number of federal, state and local regulations and to incur significant expenses. Failure to comply with such regulations could subject us to fines and penalties and/or require us to incur additional expenses.
We cannot assure you that we will not incur substantial costs to comply with new or expanded environmental requirements in the future or to investigate or clean-up new or newly identified environmental conditions, which could also impair our ability to use or transfer the affected properties and to obtain financing.
Our planned sports betting, fantasy sports and eSports operations are subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business. Any change in existing regulations or their interpretation, or the regulatory climate applicable to our products and services, or changes in tax rules and regulations or interpretation thereof related to our products and services, could adversely impact our ability to operate our business as currently conducted or as we seek to operate in the future, which could have a material adverse effect on our financial condition and results of operations.
Our planned sports betting, fantasy sports and eSports operations are generally subject to laws and regulations relating to sports betting, fantasy sports and eSports in the jurisdictions in which we are planning to conduct such operations or in some circumstances, in those jurisdictions in which we offer our services or they are available, as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information, tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative and regulatory action, court decisions or other governmental action, which may be affected by, among other things, political pressures, attitudes and climates, as well as personal biases, may have a material impact on our operations and financial results. In particular, some jurisdictions have introduced regulations attempting to restrict or prohibit online gaming, while others have taken the position that online gaming should be licensed and regulated and have adopted or are in the process of considering legislation and regulations to enable that to happen. Additionally some jurisdictions in which we may operate could presently be unregulated or partially regulated and therefore more susceptible to the enactment or change of laws and regulations.
In May 2018, the U.S. Supreme Court struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992 (“PASPA”). This decision has the effect of lifting federal restrictions on sports betting and thus allows states to determine by themselves the legality of sports betting. Since the repeal of PASPA, several states (including Washington D.C.) have legalized online sports betting. To the extent new real money gaming or sports betting jurisdictions are established or expanded, we cannot guarantee that we will be successful in penetrating such new jurisdictions. If we are unable to effectively develop and operate directly or indirectly within existing or new jurisdictions or if our competitors are able to successfully penetrate geographic jurisdictions that we cannot access or where we face other restrictions, there could be a material adverse effect on our sports betting, fantasy sports and eSports operations. Our failure to obtain or maintain the necessary regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business. To operate in any jurisdiction, we may need to be licensed and obtain approvals of our product offerings. This is a time-consuming process that can be extremely costly. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing jurisdictions or into new jurisdictions can negatively affect our opportunities for growth, including the growth of our customer base, or delay our ability to recognize revenue from our offerings in any such jurisdictions.
Future legislative and regulatory action, and court decisions or other governmental action, may have a material impact on our planned sports betting, fantasy sports and eSports operations. Governmental authorities could view us as having violated local laws, despite our efforts to obtain all applicable licenses or approvals. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent monopoly providers, or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, advertisers and others involved in the sports betting industry. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us or our licensees or other business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as impact our reputation.
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The growth prospects of our planned sports betting operations depend on the legal status of real-money gaming in various jurisdictions, predominantly within the United States, which is an initial area of focus, and legalization may not occur in as many states as we expect, or may occur at a slower pace than we anticipate. Additionally, even if jurisdictions legalize real money gaming, this may be accompanied by legislative or regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process of implementing regulations or securing the necessary licenses to operate in a particular jurisdiction may take longer than we anticipate, which could adversely affect our future results of sports betting operations and make it more difficult to meet our expectations for financial performance.
A number of states have legalized, or are currently considering legalizing, real money gaming, and the growth prospects of our planned sports betting operations are significantly dependent upon such legalization. The legalization of real money gaming may not occur as we have anticipated. Additionally, if a large number of additional states or the federal government enact real money gaming legislation and we are unable to obtain, or are otherwise delayed in obtaining the necessary licenses to operate online sports betting websites in U.S. jurisdictions where such games are legalized, our future growth in online sports betting could be materially impaired.
As we enter into new jurisdictions, states or the federal government may legalize real money gaming in a manner that is unfavorable to us. As a result, we may encounter legal, regulatory and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new opportunity. For example, certain states require a relationship with a land-based, licensed casino for online Sportsbook access. States that have established state-run monopolies may limit opportunities for private sector participants like us. States also impose substantial tax rates on online sports betting revenue, in addition to sales taxes in certain jurisdictions and a federal excise tax of 25 basis points on the amount of each wager.
Therefore, even in cases in which a jurisdiction purports to license and regulate sports betting, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees. Therefore, some “liberalized” regulatory regimes are considerably more commercially attractive than others.
Failure to comply with regulatory requirements in a particular jurisdiction, or the failure to successfully obtain a license or permit applied for in a particular jurisdiction, could impact our ability to comply with licensing and regulatory requirements in other jurisdictions, or could cause the rejection of license applications or cancelation of existing licenses in other jurisdictions, or could cause financial institutions, online and mobile platforms, advertisers and distributors to stop providing services to us which we rely upon to receive payments from, or distribute amounts to, our users, or otherwise to deliver and promote our services.
Compliance with the various regulations applicable to fantasy sports and real money gaming is costly and time-consuming. Regulatory authorities at the non-U.S., U.S. federal, state and local levels have broad powers with respect to the regulation and licensing of fantasy sports and real money gaming operations and may revoke, suspend, condition or limit our fantasy sports or real money gaming licenses, impose substantial fines on us and take other actions, any one of which could have a material adverse effect on our business, financial condition, results of operations and prospects. These laws and regulations are dynamic and subject to potentially differing interpretations, and various legislative and regulatory bodies may expand current laws or regulations or enact new laws and regulations regarding these matters. We will strive to comply with all applicable laws and regulations relating to our business. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules. Non-compliance with any such law or regulations could expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business.
Any fantasy sports or real money gaming license obtained could be revoked, suspended or conditioned at any time. The loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for such a license in another jurisdiction, and any of such losses, or potential for such loss, could cause us to cease offering some or all of our offerings in the impacted jurisdictions. We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, which could adversely affect our operations. Our delay or failure to obtain or maintain licenses in any jurisdiction may prevent us from distributing our offerings, increasing our customer base and/or generating revenues. We cannot assure you that we will be able to obtain and maintain the licenses and related approvals necessary to conduct our planned sports betting operations. Any failure to maintain or renew our licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our growth prospects and market potential for our proposed sports betting, fantasy sports and eSports operations will depend on our ability to obtain licenses to operate in a number of jurisdictions and if we fail to obtain such licenses our business, financial condition, results of operations and prospects could be impaired.
Our ability to grow our proposed sports betting, fantasy sports and eSports operations will depend on our ability to obtain and maintain licenses to offer our product offerings in a large number of jurisdictions or in heavily populated jurisdictions. If we fail to obtain and maintain licenses in large jurisdictions or in a greater number of mid-market jurisdictions, this may prevent us from expanding the footprint of our product offerings, increasing our user base and/or generating revenues. We cannot be certain that we will be able to obtain and maintain licenses and related approvals necessary to conduct our proposed sports betting, fantasy sports and eSports operations. Any failure to obtain and maintain licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects.
Negative events or negative media coverage relating to, or a declining popularity of, fantasy sports, sports betting, the underlying sports or athletes, or online sports betting in particular, or other negative coverage may adversely impact our ability to retain or attract users, which could have an adverse impact on our proposed sports betting, fantasy sports and eSports operations.
Public opinion can significantly influence our business. Unfavorable publicity regarding us, for example, our product changes, product quality, litigation, or regulatory activity, or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes) could seriously harm our reputation. In addition, a negative shift in the perception of sports betting by the public or by politicians, lobbyists or others could affect future legislation of sports betting, which could cause jurisdictions to abandon proposals to legalize sports betting, thereby limiting the number of jurisdictions in which we can operate such operations. Furthermore, illegal betting activity by athletes could result in negative publicity for our industry and could harm our brand reputation. Negative public perception could also lead to new restrictions on or to the prohibition of sports betting in jurisdictions in which such operations are currently legal. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.
The suspension or termination of, or the failure to obtain, any business or other licenses may have a negative impact on our business.
We maintain a variety of business licenses issued by federal, state and local authorities that are renewable on a periodic basis. We cannot guarantee that we will be successful in renewing all of our licenses on a periodic basis. The suspension, termination or expiration of one or more of these licenses could materially adversely affect our revenues and profits. Any changes to the licensing requirements for any of our licenses could affect our ability to maintain the licenses. In addition, we do not yet have all of the appropriate licenses required for our operations, including liquor licenses. The failure to obtain liquor or other licenses may negatively impact our business.
Delays or restrictions in obtaining permits for capital investments could impair our business.
Our capital investments require regulatory permits from one or more governmental agencies in order to build new theme parks, attractions and shows. Such permits are typically issued by state agencies, but federal and local governmental permits may also be required. The requirements for such permits vary depending on the location of such capital investments. As with all governmental permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit to be issued, and the conditions that may be imposed in connection with the granting of the permit. Therefore, our capital investments in certain areas may be delayed, interrupted or suspended for varying lengths of time, causing a loss of revenue to us and adversely affecting our results of operations.
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We received a subpoena request from the Auditor of the State of Ohio requesting documents related to the funding of the Tom Benson Hall of Fame Stadium, and we could in the future receive other subpoenas or requests related to this or other matters.
On March 26, 2019, we received an administrative subpoena (the “Subpoena”) from the Auditor of the State of Ohio (the “Ohio Auditor”). The Subpoena required us to furnish a broad range of documents related to the funding sources and disbursements relating to the construction of the Tom Benson Hall of Fame Stadium and related youth fields to the Ohio Auditor by April 30, 2019. We believe we have provided copies of all of the requested documents in our files on the compliance date in a timely manner, and we intend to continue to cooperate with the Ohio Auditor in its investigation of this matter. We believe the investigation is in its preliminary stages, however, we cannot predict the ultimate scope, duration or outcome or any findings the Ohio Auditor may make as part of its investigation. We could in the future receive other regulatory or governmental information requests or subpoenas, or be subject to other actions, investigations or proceedings, the outcome of which could materially adversely affect our business or prospects.
The maturity date of the Bridge Loan, which is secured by substantially all of our assets, was extended to November 30, 2020; however, we have previously received notices of default under this agreement (which previous defaults were waived). While this agreement was amended to extend the time within which we must repay the debt in full to November 30, 2020, there can be no assurance that we will be able to repay the obligation upon maturity to avoid a future default.
HOF Village entered into the $65 million Bridge Loan on March 20, 2018 with the Lenders and GACP, as administrative agent (the “Term Loan Agreement”). On August 17, 2018, we received a notice of default from GACP (which default was waived) due to our failure to receive cash proceeds from the issuance to us of a permitted loan, or the issuance by us of equity, in an aggregate net amount of not less than $75 million by August 15, 2018 (the “Fundraising Obligation”). Pursuant to an amendment entered into on September 14, 2018, the deadline for the Fundraising Obligation was extended to December 31, 2018 and the interest rate paid to the Lenders was increased to 11% per annum above the prime rate from August 1, 2018 onwards. Pursuant to an amendment entered into on February 19, 2019, the terms of the Fundraising Obligations were further revised, the deadline for the fulfilment of the Fundraising Obligations was extended to March 1, 2019 (or the maturity date, if certain requirements have been met), and the Fundraising Obligation covenant was fully and permanently waived in connection with the deadline extension. We entered into another amendment to the Bridge Loan on August 15, 2019, which extended the maturity date of the Bridge Loan to September 13, 2019. On September 17, 2019, we received a notice of default from GACP due to our failure to pay the principal balance of the Bridge Loan together with interest, fees and other costs in full. We entered into another amendment to the Bridge Loan on November 16, 2019, which further extended the maturity date of the Bridge Loan to October 31, 2020, and required a $25 million principal payment on April 30, 2020, and the applicable interest rate paid to the Lenders was increased to 12% per annum. We did not make the required $25 million principal payment on April 30, 2020. On June 30, 2020, we entered into another amendment to the Bridge Loan, which further extended the maturity date to November 30, 2020, updated certain defined terms to align with the final transaction structure resulting from the Business Combination, specified the Gordon Pointe Transaction Prepayment Amount, added a fee payable to certain Lenders relative to the amounts owed after giving effect to the Gordon Pointe Transaction Prepayment Amount, amended various provisions related to mandatory prepayments of outstanding amounts owed under the Term Loan Agreement (including, but not limited to, prepayments cue in connection with future equity and debt raises) and other minor amendment regarding HOF Village Hotel II, LLC and Mountaineer GM LLC to facilitate their planned operations.
On July 1, 2020, we used proceeds from the Business Combination to pay $15.5 million on the Bridge Loan, while an additional $15.0 million converted into equity in HOFRE. The remaining balance of the Bridge Loan following the Business Combination was approximately $34.5 million. While we expect to secure sufficient capital to repay our indebtedness under our Bridge Loan, currently, we do not have the capital to repay the Bridge Loan in full upon maturity and we cannot provide any assurance that we will be able to source such capital by the Bridge Loan maturity date. Our inability to repay the obligations under the Bridge Loan when due would result in another default under the Bridge Loan, which, if enforced, would (a) cause all obligations under the Bridge Loan to become immediately due and payable and (b) grant GACP, as administrative agent, the right to take any or all actions and exercise any remedies available to a secured party under the relevant documents or applicable law or in equity, including commencing foreclosure proceedings on our properties. To the extent we do not have sufficient funds to pay the outstanding balance at maturity, an affiliate of Industrial Realty Group has agreed to advance funds to the Company to pay off the Bridge Loan, under the terms of the guarantee. As a result, Industrial Realty Group would become a lender to the Company with a maturity date of August 2021. As of June 30, 2020, Industrial Realty Group had advanced $22.3 million to HOF Village under IRG November Note. Any other future advances under the IRG November Note require the approval of both HOF Village and Industrial Realty Group (each in their sole discretion), except for advances required to prevent a default under the Bridge Loan (which advances Industrial Realty Group may make without HOF Village’s consent). Additionally, we have reached an agreement with Industrial Realty Group that in the event that Industrial Realty Group or any of its affiliates or related entities advance funds to pay off the Bridge Loan under the guaranty or otherwise and assume the role of Lender, (i) certain mandatory prepayment provisions will be deleted and no longer be applicable, (ii) the maturity date of the Term Loan Agreement will be extended to August 31, 2021 and (iii) we will not be required to pay to any IRG Entity any principal, interest, or other obligations due under the Term Loan Agreement if payment of such amounts would cause the borrowers to violate applicable Nasdaq or securities-law requirements. The IRG November Note is intended to provide us with available funding that can help prevent a default under the Bridge Loan and, if approved by Industrial Realty Group and HOF Village and not otherwise depleted, to provide additional working capital to the Company and/or to pay all or some portion of the remaining balance of the Bridge Loan. Industrial Realty Group exchanged $9.0 million of the amount outstanding under the IRG November Note for the PIPE Notes issued by HOFRE at the time of the closing of the Business Combination and, at present, the outstanding balance of the IRG November Note is $13.3 million.
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In addition to amounts advanced under the IRG November Note, various affiliates of Industrial Realty Group have advanced other funds to us and our subsidiaries, of which approximately $2.2 million is classified as “New ACC Funded Debt”, approximately $3.5 million is classified as IRG “preferred equity”, and approximately $0.1 million is classified as “ACC Funded Debt”. These figures include four advances totaling $1.1 million made under the IRG November Note since March 31, 2020, but do not include the PIK interest which has accrued on all advances from date of funding.
There can be no assurance that we will be able to meet certain construction deadlines under a Letter of Representations, which could cause a cross-default under the Bridge Loan.
If construction is delayed for any reason and we do not meet certain construction deadlines, we could be in breach of a letter of representations agreement with the Canton City School District and Stark County Port Authority (the “Letter of Representations”). A breach of the Letter of Representations would cause a cross-default under the Bridge Loan. If we default on our obligations under the Bridge Loan, GACP could accelerate the entire amount of the Bridge Loan, declare the unpaid balance (plus interest, fees and expenses) immediately due and payable and take other action to enforce the Bridge Loan, including foreclosure of substantially all of our assets that secure the Bridge Loan. An affiliate of Industrial Realty Group has guaranteed certain payment obligations under the Bridge Loan in the event of a default. Additionally, we have reached an agreement with Industrial Realty Group that in the event that Industrial Realty Group or any of its affiliates or related entities advance funds to pay off the Bridge Loan under the guaranty or otherwise and assume the role of Lender (as defined in the Term Loan Agreement), (i) certain mandatory prepayment provisions will be deleted and no longer be applicable, (ii) the maturity date of the Term Loan Agreement will be extended to August 31, 2021 and (iii) we will not be required to pay to any IRG Entity any principal, interest, or other obligations due under the Term Loan Agreement if payment of such amounts would cause Borrowers to violate applicable Nasdaq or securities-law requirements.
In connection with the Bridge Loan, HOF Village entered into a mortgage granting a security interest in its rights to certain premises that HOF Village leases from the Canton City School District and Stark County Port Authority. The Letter of Representations provides that any lien created by the mortgage or any other security interest granted in such premises in connection with the Bridge Loan will attach only to HOF Village’s and the other Borrowers’ interest in such premises and would remain subordinate to and not disturb the rights and interests of the City of Canton, Ohio, the Canton City School District, Stark County Port Authority, PFHOF, the State of Ohio, Plain Local School District, the Canton Symphony Orchestra, and persons identified as benefitted parties under any TIF revenue bond declaration. Additionally, the Letter of Representations provides that HOF Village and its relevant affiliates will remain bound to fulfill their respective obligations under the existing ground leases, project leases and certain other agreements with the Canton City School District and Stark County Port Authority and that HOF Village will cause certain payments to be made to Canton City School District and Stark County Port Authority.
If we do not receive sufficient capital to substantially repay our indebtedness, our indebtedness may have a material adverse effect on our business, our financial condition and results of operations and our ability to secure additional financing in the future, and we may not be able to raise sufficient funds to repay our indebtedness.
As of September 30, 2020, the Company’s capital structure includes debt and debt-like obligations consisting of the following principal amounts:
● | approximately $34.5 million of secured indebtedness outstanding under the Bridge Loan (approximately $15.0 million of which is the principal portion of what is referred to in the Merger Agreement as the IRG, LLC Funded Debt Commitments); |
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● | approximately $3.7 million of indebtedness to Development Finance Authority of Summit County, Ohio, representing tax-increment financing proceeds; |
● | approximately $5.6 million of indebtedness outstanding pursuant to a loan and security agreement by and among JCIHOFV Financing, LLC (a wholly-owned subsidiary of the Company), HOF Village, PFHOF, other lenders and Wilmington Trust, National Association, as agent, collateralized by the Naming Rights Agreement; |
● | approximately $0.2 million of 10.0% unsecured subordinated convertible notes, of which approximately $7 million are classified as “Company Convertible Notes” and $13.7 million are classified as “New Company Convertible Notes” under the Merger Agreement; |
● | approximately $1.9 million of indebtedness to Home Federal Savings and Loan Association of Niles; |
● | approximately $13.8 million of indebtedness outstanding pursuant to the IRG November Note; |
● | approximately $2.9 million drawn on a loan facility of up to $3.0 million with New Market Project, Inc., the proceeds of which are to be used for the development of the McKinley Grand Hotel; |
● | approximately $3.5 million drawn on a loan facility of up to $3.5 million with the City of Canton, Ohio; |
● | approximately $9.9 million in financing from Constellation through its Efficiency Made Easy (“EME”) program; |
● | $390,400 of indebtedness outstanding representing a federal paycheck protection program loan to HOF Village; |
● | approximately $7.0 million of indebtedness outstanding pursuant to a promissory note, by HOF Village in favor of JKP Financial, LLC; and |
● | Approximately $21.2 million of 8.0% convertible PIPE Notes concurrent with the closing of the Business Combination |
● | Approximately $15.3 million of indebtedness outstanding pursuant to a construction loan agreement with Erie Bank, the proceeds of which are to be used for the development of the McKinley Grand Hotel |
● | Approximately $2.7 million of indebtedness representing a cooperating agreement with DFA Summit, the City of Canton, Ohio, the Canton Regional Special Improvement District, Inc. and the U.S. Bank National Association for the construction of the Series 2020C Project. |
If we do not have sufficient funds to repay our debt at maturity, our indebtedness could subject us to many risks that, if realized, would adversely affect us, including the following:
● | our cash flows from operations are currently insufficient to make required payments of principal of and interest on the debt, and a failure to pay would likely result in acceleration of such debt and could result in cross accelerations or cross defaults on other debt; |
● | our debt may increase our vulnerability to adverse economic and industry conditions; |
● | to the extent that we generate and use any cash flow from operations to make payments on our debt, it will reduce our funds available for operations, development, capital expenditures and future investment opportunities or other purposes; |
● | debt covenants limit our ability to borrow additional amounts, including for working capital, capital expenditures, debt service requirements, executing our development plan and other purposes; |
● | restrictive debt covenants may limit our flexibility in operating our business, including limitations on our ability to make certain investments; incur additional indebtedness; create certain liens; incur obligations that restrict the ability of our subsidiaries to make payments to us; consolidate, merge or transfer all or substantially all of our assets; or enter into transactions with affiliates; |
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● | to the extent that our indebtedness bears interest at a variable rate, we are exposed to the risk of increased interest rates; |
● | debt covenants may limit our subsidiaries’ ability to make distributions to us; |
● | causing an event of default under the Bridge Loan if it is not repaid in full at maturity; and |
● | if any debt is refinanced, the terms of any refinancing may not be as favorable as the terms of the debt being refinanced. |
If we do not have sufficient funds to repay our debt at maturity, it may be necessary to refinance the debt through additional debt or equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in a higher interest rate on such refinancing, increases in interest expense could adversely affect our cash flows and results of operations. If we are unable to refinance our debt on acceptable terms or at all, we may be forced to dispose of uncollateralized assets on disadvantageous terms, postpone investments in the development of our properties or the Hall of Fame Village powered by Johnson Controls or default on our debt. In addition, to the extent we cannot meet any future debt service obligations, we will risk losing some or all of our assets that are pledged to secure such obligations.
Our business plan requires additional liquidity and capital resources that might not be available on terms that are favorable to us, or at all.
While our strategy assumes that we will receive sufficient capital to have sufficient working capital, we currently do not have available cash and cash flows from operations to provide us with adequate liquidity for the near-term or foreseeable future. Our current projected liabilities exceed our current cash projections and we have very limited cash flow from current operations. We therefore will require additional capital and/or cash flow from future operations to fund the Company, our debt service obligations and our ongoing business. There is no assurance that we will be able to raise sufficient additional capital or generate sufficient future cash flow from our future operations to fund the Hall of Fame Village powered by Johnson Controls, our debt service obligations or our ongoing business. If the amount of capital we are able to raise, together with any income from future operations, is not sufficient to satisfy our liquidity and capital needs, including funding our current debt obligations, we may be required to abandon or alter our plans for the Company. If we are unable to continue as a going concern, we may have to liquidate our assets, or be foreclosed upon, and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors in our Common Stock will lose all or a part of their investment. As discussed in greater detail above, we have previously received notices of default under our Bridge Loan, which is secured by substantially all of our assets (which previous defaults were waived). While we have entered into an amendment to the Term Loan Agreement to extend the maturity date of the Bridge Loan by one month to November 30, 2020 and an affiliate of Industrial Realty Group has guaranteed certain payment obligations of the Company under the Bridge Loan, there can be no assurance that we will be able to repay the obligation upon maturity or otherwise avoid a future default.
Our ability to obtain necessary financing may be impaired by factors such as the health of and access to capital markets, our limited track record and the limited historical financial information available, or the substantial doubt about our ability to continue as a going concern. Any additional capital raised through the sale of additional shares of our capital stock, convertible debt or other equity may dilute the ownership percentage of our stockholders.
We will have to increase leverage to develop the Company, which could further exacerbate the risks associated with our substantial indebtedness.
While we used proceeds from the Business Combination to pay down certain outstanding debt, we will have to take on substantially more debt to complete the construction of the Hall of Fame Village powered by Johnson Controls. We may incur additional indebtedness from time to time in the future to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If and when we incur additional indebtedness, the risks related to our indebtedness could intensify.
We may not be able to generate sufficient cash flow from operations to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to generate a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Until such time as we can service our indebtedness with cash flow from operations, we intend to service our indebtedness from other sources.
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If our cash flows, cash on hand and other capital resources are insufficient to fund our debt service obligations, we could face continued and future liquidity concerns and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital, or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Bridge Loan restricts our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise indebtedness or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations.
An affiliate of Industrial Realty Group has guaranteed certain payment obligations of HOF Village under the Bridge Loan in the event of a default by HOF Village. Additionally, we have reached an agreement with Industrial Realty Group that in the event that Industrial Realty Group or any of its affiliates or related entities advance funds to pay off the Bridge Loan under the guaranty or otherwise and assume the role of Lender, (i) certain mandatory prepayment provisions will be deleted and no longer be applicable, (ii) the maturity date of the Term Loan Agreement will be extended to August 31, 2021 and (iii) we will not be required to pay to any IRG Entity any principal, interest, or other obligations due under the Term Loan Agreement if payment of such amounts would cause borrowers to violate applicable Nasdaq or securities-law requirements. If we cannot make scheduled payments on our indebtedness, we will be in default and holders of such indebtedness could declare all outstanding principal and interest to be due and payable, the lenders under the Bridge Loan could terminate their commitments to loan money, other indebtedness could be accelerated and we could be forced into bankruptcy or liquidation.
If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act, or if we fail to maintain adequate internal control over financial reporting, our business, financial condition, and results of operations, and investors’ confidence in us, could be materially and adversely affected.
As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports, quarterly reports, and current reports. Our failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety could subject us to penalties under federal securities laws and regulations of the Nasdaq, expose us to lawsuits, and restrict our ability to access financing on favorable terms, or at all.
In addition, pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to develop. evaluate and provide a management report of our systems of internal control over financial reporting. During the course of the evaluation of our internal control over financial reporting, we could identify areas requiring improvement and could be required to design enhanced processes and controls to address issues identified through this review. This could result in significant delays and costs to us and require us to divert substantial resources, including management time, from other activities.
If we fail to comply with the requirements of Section 404 on a timely basis this could result in the loss of investor confidence in the reliability of our financial statements, which in turn could, negatively impact the trading price of our stock, and adversely affect investors’ confidence in the Company and our ability to access capital markets for financing.
The requirements of being a public company may strain our resources and distract management
We expect to incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. These applicable rules and regulations are expected to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly than those for privately owned companies that are not registrants with the Commission. Compliance with these rules and regulations may divert management’s attention from other business concerns.
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The COVID-19 pandemic could have a material adverse effect on our business.
We are closely monitoring the outbreak of respiratory illness caused by a novel strain of coronavirus, COVID-19. The World Health Organization has declared COVID-19 a “pandemic” and the federal, state and local governments have implemented mandatory closures and other restrictive measures in response to the outbreak. Most large-scale events in the United States have been cancelled, including in the sports industry. These closures, restrictions on travel, stay-at-home orders and other mitigation measures, in addition to the greater public’s concern regarding the spread of coronavirus, have significantly impacted all facets of the economy, and will likely have an adverse impact on our business operations and financial results. The continued spread of coronavirus, or fear thereof, may also delay the implementation of our business strategy. The impact of COVID-19 on the capital markets may impact our future ability to access debt or equity financing.
Disruptions to the supply chain and limitations on large gatherings due to COVID-19 may delay the completion of the construction of the Hall of Fame Village powered by Johnson Controls. Any long term fear of the spread of COVID-19, as well as government shut-down orders, could also affect future attendance at the Hall of Fame Village powered by Johnson Controls. Our Tom Benson Hall of Fame Stadium is used for sports and entertainment events. Attendance at events that we schedule in the stadium could decrease or be restricted, which would further disrupt business operations and likely have an adverse impact on our business and financial results. For example, if the National Football League delayed, suspended or limited attendance for the 2020 football season or future seasons due to the continued spread of COVID-19, consumer interest in football, the Hall of Fame Village powered by Johnson Controls or events at Tom Benson Hall of Fame Stadium may decline.
Even after restrictions loosen, the demand for sports and entertainment events may decrease as fears over travel or attending large-scale events linger due to concerns over the spread of COVID-19. If unemployment levels persist and economic disruption continues, the demand for entertainment activities, travel and other discretionary consumer spending may also decline as consumers have less money to spend. We may be unable to recruit and train employees in sufficient numbers to fully staff our facilities. We may be required to enforce social distancing measures within our facilities by, among other things, limiting the number of people admitted or standing in lines at any time, or adding social distancing signage and markers. We may incur additional costs associated with maintaining the health and safety of our guests and employees, including facility improvements such as additional sanitization stations or requiring the broad use of personal protective equipment. If it is alleged or determined that illness associated with COVID-19 was contracted at one of our facilities, we may suffer reputational damage that could adversely affect attendance and future ticket sales.
Even after we are able to open our facilities, we may elect or be required to close them in the future in response to the continued impact of COVID-19 or outbreaks involving other epidemics. Any decrease in demand for the sports and entertainment industry would likely affect our business and financial results. The extent and duration of the long-term impact of COVID-19 remains uncertain and the full impact on our business operations cannot be predicted.
Risk Related to Our Common Stock
We currently do not intend to pay dividends on our Common Stock. Consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Stock.
We do not expect to pay cash dividends on our Common Stock. Any future dividend payments are within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem relevant.
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We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.
We may be forced to write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject. Accordingly, a stockholder could suffer a reduction in the value of their shares of Common Stock.
An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
The price of our securities may fluctuate significantly due to the market’s continued reaction to the Business Combination and general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established or sustained.
In addition, the price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control, including but not limited to our general business condition, the release of our financial reports and general economic conditions and forecasts. Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future. Any of these factors could have a material adverse effect on your investment in our securities, and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Anti-takeover provisions contained in our Certificate of Incorporation and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:
● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
● | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; |
● | the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our board of directors; |
● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; and |
● | the requirement that a meeting of stockholders may only be called by members of our board of directors or the stockholders holding a majority of our shares, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors. |
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Our Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in HOFRE’s name, actions against directors, officers, stockholders and employees for breach of fiduciary duty, actions under the Delaware general corporation law or under our Certificate of Incorporation, or actions asserting a claim governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, such exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived its compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Certificate of Incorporation. This choice of forum provision does not exclude stockholders from suing in federal court for claims under the federal securities laws but may limit a stockholder’s ability to bring such claims in a judicial forum that it finds favorable for disputes with HOFRE or any of its directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims.
Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline
The trading market for our securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our Company, the trading price for our securities would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our securities could decrease, which might cause our stock price and trading volume to decline.
Our executive officers and directors, and their affiliated entities, along with our six other largest stockholders, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our executive officers and directors, together with entities affiliated with such individuals, along with our six other largest stockholders, will beneficially own approximately 89% of our Common Stock. Accordingly, these stockholders are able to control the election of a majority of our directors and the determination of all corporate actions. This concentration of ownership could delay or prevent a change in control of the Company.
Item 2. Unregistered sales of equity securities and use of proceeds
Convertible Notes
On July 1, 2020, concurrently with the closing of the Business Combination, the Company completed the Private Placement of $20,721,293 in aggregate principal amount of PIPE Notes with certain funds managed by Magnetar Financial, LLC and the Purchasers. Pursuant to the terms of the Note Purchase Agreement, at the option of the holders thereof the PIPE Notes may be converted into shares of Common Stock at a conversion price initially equal to $11.50 per share, subject to formula-based adjustment based on specified events. Accordingly, the aggregate amount of PIPE Notes issued and sold in the Private Placement is convertible into 1,801,851 shares of Common Stock based on the conversion rate applicable on July 1, 2020. On July 28, 2020, the Company’s stock price was trading below the $6.00 conversion price for any ten trading days preceding the maturity date. As such, the Company accounted for this transaction by recording a deemed dividend of $4,760,066, which is reflected in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2020.
Note Redemption Warrants
The Note Redemption Warrants that may be issued pursuant to the Note Purchase Agreement will be exercisable for a number of shares of Common Stock to be determined at the time any such Note Purchase Warrant is issued. The exercise price per share of Common Stock of any Note Purchase Warrant will be set at the time such Note Purchase Warrant is issued pursuant to the terms of the Note Purchase Agreement and the Note Redemption Warrant Agreement. The Note Redemption Warrants may be exercised from and after the date of issuance, subject to certain terms and conditions set forth in the Note Redemption Warrant Agreement. Unexercised Note Redemption Warrants will expire on the maturity date of the PIPE Notes. The Note Redemption Warrants will not participate in cash distributions by the Company. If issued upon redemption of PIPE Notes, the Note Redemption Warrants will be issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.
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Crown League Services Agreement
HOF Village entered into a services agreement, dated as of June 16, 2020 (the “Crown League Services Agreement”), with Mountaineer GM, LLC (“Mountaineer”) and BXPG LLC (“Brand X”), whereby Mountaineer and HOF Village retain Brand X to provide services with regard to The Crown League, a professionalized fantasy sports league (the “Crown Business”). Mountaineer completed the acquisition of Crown assets under the Crown APA on July 22, 2020. Pursuant to an amended and restated limited liability company agreement of Mountaineer that HOF Village and Michael Klein & Associates, Inc., an affiliate of Michael Klein (“MKA”), entered into in connection with HOF Village’s purchase of the 60% interest in Mountaineer, MKA agreed to provide the consideration for Mountaineer to complete the acquisition of Crown as a capital contribution to Mountaineer, consisting of 90,287 shares of HOFRE’s Common Stock, and HOF Village agreed to provide the consideration owed to Brand X under the Crown League Services Agreement as a capital contribution to Mountaineer, consisting of $30,000 per month for 18 months plus 100,000 shares of HOFRE’s Common Stock, 25,000 shares of which were issued on August 6, 2020, and 25,000 shares of which are issuable on each of July 1, 2021, January 1, 2022 and July 1, 2022, until such capital contributions of HOF Village equal 60% of the total capital contributions to Mountaineer. The Services Agreement may be extended for an additional six months. Compensation during the extension period would be $30,000 per month and 25,000 shares of HOFRE’s Common Stock.
The sales of the above issued securities discussed in this Item 2. “Unregistered sales of equity securities and use of proceeds,” were exempt from the registration requirements of the Securities Act in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act. No sales involved underwriters, underwriting discounts or commissions or public offerings of securities of the registrant.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
* | Filed herewith |
+ | Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HALL OF FAME RESORT & ENTERTAINMENT COMPANY | ||
Date: November 4, 2020 | By: | /s/ Michael Crawford |
Michael Crawford | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
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