Hall of Fame Resort & Entertainment pany(US:HOFV)2022-11-14 21:10PART I. FINANCIAL INFORMATION Financial Statements For the nine months ended September 30, 2022, the company saw significant revenue growth and a narrowed net loss, supported by increased assets and positive operating cash flow Condensed Consolidated Balance Sheets As of September 30, 2022, total assets and liabilities significantly increased, primarily due to growth in property and notes payable, while equity remained stable Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $421.3 | $337.3 | +$84.0 | | Cash & Restricted Cash | $32.6 | $17.4 | +$15.2 | | Property and equipment, net | $234.3 | $180.5 | +$53.8 | | Project development costs | $140.0 | $128.7 | +$11.3 | | Total Liabilities | $216.1 | $132.7 | +$83.4 | | Notes payable, net | $163.7 | $101.4 | +$62.3 | | Warrant liability | $1.3 | $13.7 | -$12.4 | | Total Stockholders' Equity | $205.2 | $204.6 | +$0.6 | Condensed Consolidated Statements of Operations Q3 2022 saw a significant increase in total revenues driven by event and hotel segments, though the net result shifted to a loss compared to prior year's gain from warrant liability changes Q3 2022 vs Q3 2021 Performance (in millions) | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $8.7 | $3.5 | +148.8% | | Event, rents and cost recoveries | $5.9 | $0.5 | +1080% | | Hotel revenues | $2.1 | $1.4 | +50% | | Sponsorships, net | $0.7 | $1.6 | -56.3% | | Loss from Operations | ($9.9) | ($11.9) | Improved | | Change in fair value of warrant liability | $1.8 | $22.5 | -$20.7 | | Net (Loss) Income | ($11.0) | $8.2 | Decreased | | Net (Loss) Income per Share (basic) | ($0.09) | $0.09 | - | Nine Months 2022 vs 2021 Performance (in millions) | Metric | 9M 2022 | 9M 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $13.5 | $7.8 | +73.4% | | Loss from Operations | ($29.3) | ($28.6) | Widened | | Change in fair value of warrant liability | $9.0 | ($67.6) | +$76.6 | | Net Loss | ($28.0) | ($102.4) | Narrowed | | Net Loss per Share (basic) | ($0.25) | ($1.16) | - | Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive for the nine months ended September 30, 2022, while increased investing activities were largely funded by significant financing from notes payable and stock sales Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net cash from Operating Activities | $2.4 | ($20.2) | +$22.6 | | Net cash used in Investing Activities | ($77.9) | ($42.3) | ($35.6) | | Net cash from Financing Activities | $90.7 | $51.0 | +$39.7 | | Net increase (decrease) in cash | $15.2 | ($11.6) | +$26.8 | | Cash and restricted cash, end of period | $32.6 | $28.5 | +$4.1 | - Financing activities in 2022 were primarily driven by $68.8 million in proceeds from notes payable and $20.4 million from the sale of common stock under the ATM program14 Notes to Condensed Consolidated Financial Statements The notes outline the company's resort and entertainment business, its reliance on financing due to recurring losses, a significant dispute with Johnson Controls, and key subsequent financing and licensing events - The company operates as a resort and entertainment company with a three-pillar strategy: destination-based assets, media, and gaming20 - The company has sustained recurring losses and relies on debt and equity financing to fund operations and development. As of September 30, 2022, it had approximately $16 million in unrestricted cash and $18.7 million of debt due through December 31, 202327 - A significant dispute with Johnson Controls, Inc. (JCI) over the Naming Rights and TAAS agreements has led the company to suspend revenue recognition from this major sponsor and record an allowance of $3.3 million against amounts due287 - Subsequent to the quarter end, the company received approximately $49 million in net proceeds from a failed sale-leaseback of its waterpark property and secured conditional approval for sports betting licenses in Ohio358360 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 revenue growth driven by events and hotel occupancy, offset by reduced sponsorship due to the JCI dispute, and highlights significant financing efforts for development - The company's business is structured around a three-phase development plan for the Hall of Fame Village, with Phase I operational and Phase II under development, focusing on destination assets, media, and gaming383384385 - A major dispute with Johnson Controls over the Naming Rights and Technology as a Service (TAAS) agreements has resulted in termination notices from JCI and the company suspending revenue recognition from the sponsorship agreement392393399 - The company has actively secured new financing in 2022, including a $33.4 million PACE loan, a $5 million loan from Stark County, a $5 million loan from the City of Canton, and a $14.7 million failed sale-leaseback transaction401407410415 - The company received conditional approval for both mobile and retail sports gaming licenses from the Ohio Casino Control Commission, with sports betting set to become legal in Ohio on January 1, 2023406 Results of Operations Q3 2022 revenues significantly increased due to event and hotel segments, despite a drop in sponsorship revenue, while operating expenses rose due to increased costs Revenue Comparison (Three Months Ended Sep 30) | Revenue Stream | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Sponsorships, net | $748,033 | $1,554,454 | -51.9% | | Event, rents and cost recoveries | $5,857,467 | $503,789 | +1062.7% | | Hotel revenues | $2,058,687 | $1,423,713 | +44.6% | | Total Revenues | $8,664,187 | $3,481,956 | +148.8% | - The decrease in Q3 sponsorship revenue was primarily due to pausing revenue recognition on the Johnson Controls (JCI) agreement amid an ongoing dispute444 - The significant increase in event revenue was driven by the resumption of tournaments and hosting major events like the USFL finals445 - Q3 operating expenses rose by 55.0% year-over-year, mainly from increased payroll due to higher headcount, event expenses, and insurance costs447 Liquidity and Capital Resources The company relies on debt and equity financing to fund operations and development, having secured significant loans and sale-leaseback proceeds in 2022, but anticipates needing further capital - The company had $16 million in unrestricted cash and $17 million in restricted cash as of September 30, 2022466 - Significant financing activities in 2022 include a $33.4 million PACE loan, a $10.5 million loan from CH Capital Lending, a $5 million loan from Stark Community Foundation, a $5 million loan from Stark County Port Authority, and a $5 million loan from the City of Canton468469470 - Subsequent to quarter-end, the company received approximately $49 million in net proceeds from a failed sale-leaseback transaction on November 7, 2022473 - Management believes it has sufficient cash and future financing for the next 12 months but will need to raise additional capital to accomplish its full development plan475 Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable - Not applicable486 Controls and Procedures The company's principal executive officer and principal financial officer concluded that as of September 30, 2022, the disclosure controls and procedures were effective - Management concluded that disclosure controls and procedures were effective as of September 30, 2022488 - A new accounting and financial reporting system was implemented during the third quarter of 2022489 PART II. OTHER INFORMATION Legal Proceedings The company is subject to occasional legal proceedings and claims in the normal course of business, but none are expected to have a material adverse effect - The Company is subject to occasional legal proceedings and claims during the normal course of its business492 Risk Factors Key risks include heavy reliance on sponsorship contracts, particularly the disputed JCI agreement, and the potential delisting of common stock from Nasdaq due to minimum bid price non-compliance - The company's revenue is heavily reliant on sponsorship contracts, and the ongoing dispute with its major sponsor, Johnson Controls, poses a significant risk to future revenues494500502 - The company's common stock is at risk of being delisted from Nasdaq for failing to meet the $1.00 minimum bid price requirement. The initial 180-day compliance period ends on November 21, 2022503504 - Stockholders have approved a potential reverse stock split to regain Nasdaq compliance, but there is no assurance this will be successful or that the stock price will increase proportionally508510 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None511 Exhibits This section lists the exhibits filed with the Form 10-Q, including various loan agreements, lease agreements, and officer certifications