Hall of Fame Resort & Entertainment pany(HOFV) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's comprehensive financial information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, property, debt, equity, commitments, related-party transactions, and subsequent events Condensed Consolidated Balance Sheets This section details the company's financial position through its condensed consolidated balance sheets Metric | Metric | June 30, 2022 | December 31, 2021 | Change | Percentage Change | | :-------------------------- | :-------------- | :------------------ | :----- | :------------------ | | Total Assets | $377,767,171 | $337,287,911 | +$40,479,260 | +12.0% | | Total Liabilities | $164,463,584 | $132,709,667 | +$31,753,917 | +23.9% | | Total Equity | $213,303,587 | $204,578,244 | +$8,725,343 | +4.3% | | Cash | $10,615,810 | $10,282,983 | +$332,827 | +3.2% | | Warrant liability | $3,160,000 | $13,669,000 | -$10,509,000 | -76.9% | Condensed Consolidated Statements of Operations This section presents the company's financial performance through its condensed consolidated statements of operations Three Months Ended June 30 | Metric | June 30, 2022 | June 30, 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Total Revenues | $2,685,535 | $2,363,759 | +$321,776 | +13.6% | | Loss from operations | $(9,474,309) | $(8,685,724) | -$788,585 | +9.1% | | Net (loss) income | $(9,095,025) | $15,461,132 | -$24,556,157 | -158.8% | | Net (loss) income per share, basic | $(0.08) | $0.16 | -$0.24 | -150.0% | Six Months Ended June 30 | Metric | June 30, 2022 | June 30, 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Total Revenues | $4,792,059 | $4,279,078 | +$512,981 | +12.0% | | Loss from operations | $(19,429,791) | $(16,633,173) | -$2,796,618 | +16.8% | | Net (loss) income | $(17,018,494) | $(110,636,339) | +$93,617,845 | -84.6% | | Net (loss) income per share, basic | $(0.16) | $(1.30) | +$1.14 | -87.7% | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in the company's stockholders' equity for the reported periods - Total equity attributable to HOFRE stockholders increased from $205,175,010 as of January 1, 2022, to $214,136,317 as of June 30, 2022[13][14] - Key changes include $14,234,932 from the sale of shares under an ATM program and $3,736,000 from the modification of Series C and Series D warrants[13] - The company recorded a net loss of $(7,846,097) for the period ending March 31, 2022, and $(8,936,433) for the period ending June 30, 2022[13][14] Condensed Consolidated Statements of Cash Flows This section provides an overview of the company's cash inflows and outflows from operating, investing, and financing activities Six Months Ended June 30 | Cash Flow Activity | 2022 | 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Net cash provided by (used in) operating activities | $5,422,198 | $(12,256,168) | +$17,678,366 | +144.2% | | Net cash used in investing activities | $(40,022,805) | $(26,098,120) | -$13,924,685 | +53.4% | | Net cash provided by financing activities | $35,042,816 | $71,968,919 | -$36,926,103 | -51.3% | | Net increase in cash and restricted cash | $442,209 | $33,614,631 | -$33,172,422 | -98.7% | - Cash paid for interest increased from $1,702,523 in 2021 to $3,520,404 in 2022 for the six months ended June 30[16] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1: Organization and Nature of Business This note provides details on the company's organization and nature of business - HOFRE is a resort and entertainment company leveraging professional football, headquartered in Canton, Ohio, operating the Hall of Fame Village powered by Johnson Controls[21] - The company pursues a differentiation strategy across three pillars: destination-based assets, HOF Village Media Group, and gaming[21] - COVID-19 pandemic has impacted the business through reduced events and attendance, supply chain disruptions, and increased material and labor costs[24] - As of June 30, 2022, the company had approximately $11 million of unrestricted cash and $7 million of restricted cash[28] - Recent financing activities include extending the MKG DoubleTree Loan to September 2023, extending $22.8 million in debt with IRG affiliates and JKP to March 2024, securing a $10.5 million loan from CH Capital Lending, and a $5 million loan from Stark Community Foundation (with $2.5 million provided to date)[29][30][31][32] Note 2: Summary of Significant Accounting Policies This note provides details on the company's summary of significant accounting policies - The company is an "emerging growth company" and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[43][44] - Warrants not indexed to the company's own stock are accounted for as liabilities at fair value and are subject to remeasurement at each balance sheet date[49] - As of June 30, 2022, the company recorded an allowance for doubtful accounts of $2,125,000, compared to $0 at December 31, 2021[55] - Revenue is recognized when a customer obtains control of promised goods or services, following a five-step model, with various streams including sponsorships, events, rents, hotel operations, and NFTs[59][60] Fair Value of Warrant Liabilities | Warrant Type | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :------------------ | | Public Series A Warrants | $2,706,000 | $4,617,000 | | Private Series A Warrants | $10,000 | $110,000 | | Series B Warrants | $444,000 | $2,416,000 | | Series C Warrants | $- | $6,526,000 | | Total Warrant Liabilities | $3,160,000 | $13,669,000 | - The company adopted ASC 842 (Leases) on January 1, 2022, recognizing a right-of-use asset of approximately $7.7 million and a corresponding lease liability of approximately $3.4 million[108] Note 3: Property and Equipment This note provides details on the company's property and equipment Property and Equipment, Net | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :------------------ | | Property and equipment, net | $188,252,325 | $180,460,562 | | Project development costs | $158,722,100 | $128,721,480 | - Depreciation expense for the six months ended June 30, 2022, was $6,769,866, up from $5,893,067 in the prior year[115] - Capitalized project development costs for the six months ended June 30, 2022, were $42,920,667, a substantial increase from $18,626,781 in 2021[115] Note 4: Notes Payable, net This note provides details on the company's notes payable, net Notes Payable, Net | Metric | June 30, 2022 | December 31, 2021 | | :---------------- | :-------------- | :------------------ | | Total Gross | $137,408,992 | $115,721,706 | | Less: Discount | $(14,478,948) | $(14,361,510) | | Total Net | $122,930,044 | $101,360,196 | - New CH Capital Bridge Loan of $10,500,000, maturing September 10, 2022, with a 12% interest rate[119][173] - New Stark Community Foundation Loan of $5,000,000 (with $2,500,000 borrowed), maturing May 31, 2029, with a 6.0% interest rate[119][168] - The MKG DoubleTree Loan was extended to September 13, 2023[134] - JKP Capital Loan, CH Capital Loan, IRG Split Note, and JKP Split Note were amended to extend maturity dates to March 31, 2024, and include conversion features[128][142][151][156] - The company was in compliance with all relevant debt covenants as of June 30, 2022[176] Note 5: Stockholders' Equity This note provides details on the company's stockholders' equity - Total equity increased from $204,578,244 at December 31, 2021, to $213,303,587 at June 30, 2022[10] - 15,000 shares of Series C Preferred Stock were issued in exchange for Series B Preferred Stock on March 28, 2022[190] - From January 1 to June 30, 2022, approximately 18.2 million shares were sold under the ATM program, generating $17.9 million in net proceeds[196] - Warrant liabilities decreased from $13,669,000 at December 31, 2021, to $3,160,000 at June 30, 2022, primarily due to a $7,173,000 change in fair value and the reclassification of Series C Warrants to equity[87][91][207] - The company granted 1,836,668 Restricted Stock Units (RSUs) during the six months ended June 30, 2022[200] Note 6: Sponsorship Revenue and Associated Commitments This note provides details on the company's sponsorship revenue and associated commitments Sponsorship Revenues (Net of Activation Costs) | Period | 2022 | 2021 | Change | Percentage Change | | :-------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Three Months Ended June 30 | $452,772 | $1,508,402 | -$1,055,630 | -70.0% | | Six Months Ended June 30 | $1,272,062 | $2,983,838 | -$1,711,776 | -57.4% | - The decrease in sponsorship revenue was primarily driven by pausing revenue recognition on the JCI sponsorship agreement due to a dispute[329][340] - JCI issued termination notices for the Naming Rights Agreement and TAAS Agreement on May 10, 2022, citing alleged payment breaches[224][225] - The company disputes JCI's claims, believes JCI is in breach, and is pursuing dispute resolution[226] - An allowance of $2,125,000 was recorded against amounts due from JCI as of June 30, 2022[226] - Scheduled future cash to be received under the Naming Rights Agreement is $66,031,251, and under other sponsorship agreements is $16,668,807[223][230] Note 7: Other Commitments This note provides details on the company's other commitments - Commitment to Canton City School District to provide a replacement Football Operations Center and construct a Heritage Project[234] Future Minimum Lease Commitments (Lessor) | Year Ending December 31 | Amount | | :------------------------ | :------- | | 2022 (six months) | $24,200 | | 2023 | $246,761 | | 2024 | $239,266 | | 2025 | $233,183 | | 2026 | $220,866 | | Thereafter | $846,636 | | Total | $1,810,912 | - Management agreement with Crestline Hotels & Resorts for the DoubleTree Canton Downtown Hotel, with fees of 2% of gross revenues or $10,000 per month, expiring October 22, 2024[241] Other Liabilities | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :------------------ | | Activation fund reserves | $3,629,085 | $3,537,347 | | Deferred sponsorship revenue | $3,387,224 | $203,278 | | Other liabilities | $1,554,903 | $- | | Total | $8,571,212 | $3,740,625 | Note 8: Contingencies This note provides details on the company's contingencies - No pending litigation that, separately or in the aggregate, would have a material adverse effect on results of operations, financial condition, or cash flows[246] Note 9: Related-Party Transactions This note provides details on the company's related-party transactions Due to Affiliates | Affiliate | June 30, 2022 | December 31, 2021 | | :---------------- | :-------------- | :------------------ | | Due to IRG Member | $1,770,390 | $1,041,847 | | Due to IRG Affiliate | $116,900 | $116,900 | | Due to PFHOF | $859,207 | $660,208 | | Total | $2,746,497 | $1,818,955 | - The Global License Agreement with PFHOF, effective April 8, 2022, consolidates prior license agreements[266] - It grants exclusive rights to use PFHOF marks for theme-based entertainment, youth sports, e-gaming, video games, and sports betting within Canton, Ohio[266] Future Minimum Payments Under Global License Agreement | Year Ending December 31 | Amount | | :------------------------ | :------- | | 2022 (six months) | $581,250 | | 2023 | $600,000 | | 2024 | $600,000 | | 2025 | $600,000 | | 2026 | $600,000 | | Thereafter | $7,350,000 | | Total | $10,331,250 | Note 10: Concentrations This note provides details on the company's concentrations - For the three months ended June 30, 2022, two customers represented approximately 65% and 28% of the company's sponsorship revenue[268] - As of June 30, 2022, one customer represented approximately 85% of the company's sponsorship accounts receivable[269] - Cash and restricted cash balances at national financial institutions may, at times, exceed federally insured limits[270] Note 11: ROU Assets and Lease Liabilities This note provides details on the company's ROU assets and lease liabilities - Adopted FASB ASC Topic 842, Leases, on January 1, 2022, using the modified retrospective approach[272] Operating Leases (as of June 30, 2022) | Metric | Amount | | :---------------- | :------- | | Right-of-use assets | $7,651,080 | | Lease liability | $3,404,682 | - Initial recognition of ROU asset included reclassification of $4,358,139 of prepaid rent as of January 1, 2022[273] - Weighted-average remaining lease term for operating leases is 92.03 years, with a weighted-average discount rate of 10.0%[280] Note 12: Subsequent Events This note provides details on the company's subsequent events - Secured $33,387,844 in Property Assessed Clean Energy (PACE) financing on July 1, 2022, for energy improvement projects at the Tom Benson Hall of Fame Stadium[285] - PACE financing involves 50 semi-annual payments of $1,314,913, beginning approximately January 31, 2024, at an annual rate of 6.0%[285] - The CH Capital Loan was amended on August 5, 2022, increasing its principal amount to $8,751,763[287] - Entered an Online Market Access Agreement with Instabet, Inc. on July 14, 2022, for a branded online sports betting service in Ohio (10-year term, equity interest, revenue sharing)[288][289] - Entered a Retail Sports Gaming Services Agreement with RSI OH, LLC on July 29, 2022, for a land-based sports betting location (10-year term, sponsorship fees, revenue sharing)[290] Item 2. Management's discussion and analysis of financial condition and results of operations This section provides management's perspective on the company's financial condition and operational results for the three and six months ended June 30, 2022. It covers the business overview, key revenue and expense components, the impact of COVID-19, recent developments including the Johnson Controls dispute and new sports betting agreements, detailed results of operations, liquidity, capital resources, and critical accounting policies Business Overview This section describes the company's core business, strategic plan, and operational assets - The company is a resort and entertainment company leveraging professional football, owning the Hall of Fame Village powered by Johnson Controls in Canton, Ohio[293] - The strategic plan involves three phases of growth: Phase I (operational), Phase II (under development), and Phase III (potential expansion)[293] - Phase I assets include Tom Benson Hall of Fame Stadium, ForeverLawn Sports Complex, and HOF Village Media Group[294] - Phase II development includes two hotels, an Indoor Waterpark, the Constellation Center for Excellence (opened Oct 2021), Center for Performance, Play Action Plaza, and Hall of Fame Retail Promenade[295] Key Components of the Company's Results of Operations This section identifies the primary revenue streams and operating expenses influencing the company's financial results - Revenue streams include sponsorship agreements, rents, cost recoveries, events, hotel operations, Hall of Fantasy League, and non-fungible tokens (NFTs)[296] - Sponsorship revenue is recognized on a straight-line basis over the contract period[296] - Operating expenses, including property operating, hotel operating, commission, and depreciation, are expected to increase with continued growth and development of assets[298][299][300][301] Impact of COVID-19 This section discusses the significant effects of the COVID-19 pandemic on the company's operations and financial performance - The COVID-19 pandemic has significantly reduced the number of events and attendance at Tom Benson Hall of Fame Stadium and ForeverLawn Sports Complex[302] - Supply chain disruptions caused by the pandemic have negatively impacted the ability to obtain construction materials and increased costs of materials and labor[302] Recent Developments This section highlights key recent events, including disputes, financing activities, and new business agreements - The company is in a dispute with Johnson Controls (JCI) regarding alleged breaches of the Naming Rights Agreement and Technology as a Service Agreement (TAAS Agreement), leading to JCI's termination notices[303][308][309] - The company disputes JCI's allegations, believes JCI is in breach, and has suspended revenue recognition from the JCI sponsorship agreement, recording a $2,125,000 allowance[304][310] - A new Global License Agreement with PFHOF, effective April 8, 2022, consolidates previous licenses and grants exclusive rights for theme-based entertainment, youth sports, e-gaming, video games, and sports betting[311] - Secured a $4,000,000 CFP Loan, $5,000,000 Stark Community Foundation Loan (with $2,500,000 drawn), and a $10,500,000 CH Capital Bridge Loan[313][316][319] - Approved for $3.2 million in Property Assessed Clean Energy (PACE) financing for energy-efficient improvements[315] - Entered into an Online Market Access Agreement with Instabet, Inc. and a Retail Sports Gaming Services Agreement with RSI OH, LLC for sports betting in Ohio[325][326] Results of Operations This section provides a detailed analysis of the company's revenues and expenses for the reported periods Three Months Ended June 30, 2022 vs 2021 | Metric | 2022 | 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Sponsorships, net of activation costs | $452,772 | $1,508,402 | -$1,055,630 | -70.0% | | Event, rents and cost recoveries | $668,863 | $60,135 | +$608,728 | +1012.3% | | Hotel revenues | $1,563,900 | $795,222 | +$768,678 | +96.7% | | Total revenues | $2,685,535 | $2,363,759 | +$321,776 | +13.6% | | Operating expenses | $6,799,280 | $6,219,781 | +$579,499 | +9.3% | | Net (loss) income | $(9,095,025) | $15,461,132 | -$24,556,157 | -158.8% | | Change in fair value of warrant liability | $2,423,000 | $26,315,888 | -$23,892,888 | -90.8% | Six Months Ended June 30, 2022 vs 2021 | Metric | 2022 | 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Sponsorships, net of activation costs | $1,272,062 | $2,983,838 | -$1,711,776 | -57.4% | | Event, rents and cost recoveries | $1,006,256 | $103,680 | +$902,576 | +870.5% | | Hotel revenues | $2,513,741 | $1,191,560 | +$1,322,181 | +111.0% | | Total revenues | $4,792,059 | $4,279,078 | +$512,981 | +12.0% | | Operating expenses | $14,325,979 | $12,228,780 | +$2,097,199 | +17.1% | | Net loss | $(17,018,494) | $(110,636,339) | +$93,617,845 | -84.6% | | Change in fair value of warrant liability | $7,173,000 | $(90,035,112) | +$97,208,112 | +108.0% | Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and funding needs - The company has sustained recurring losses and negative cash flows from operations through June 30, 2022[351] - As of June 30, 2022, the company had approximately $11 million of unrestricted cash and $7 million of restricted cash[351] - Recent financing activities include extending the MKG DoubleTree Loan, extending debt with IRG and JKP, and securing new loans from CH Capital Lending and Stark Community Foundation[352][353] - The company believes it has sufficient cash and future financing for the next 12 months but expects to need additional funding for its multi-year development plan[355] Cash Flows This section analyzes the company's cash generation and usage across operating, investing, and financing activities Cash Flows for the Six Months Ended June 30 | Cash Flow Activity | 2022 | 2021 | Change | Percentage Change | | :----------------------------------- | :-------------- | :-------------- | :----- | :------------------ | | Operating Activities | $5,422,198 | $(12,256,168) | +$17,678,366 | +144.2% | | Investing Activities | $(40,022,805) | $(26,098,120) | -$13,924,685 | +53.4% | | Financing Activities | $35,042,816 | $71,968,919 | -$36,926,103 | -51.3% | | Net (decrease) increase in cash and restricted cash | $442,209 | $33,614,631 | -$33,172,422 | -98.7% | - Net cash provided by operating activities significantly improved in 2022 due to non-cash adjustments and changes in operating assets and liabilities[357][358] - Net cash used in investing activities increased due to higher project development costs[359] - Financing activities in 2022 included $20.7 million from notes payable and $18.0 million from equity raises under the ATM program[360] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet arrangements impacting the company's financial position - The company did not have any off-balance sheet arrangements as of June 30, 2022[362] Critical Accounting Policies and Significant Judgments and Estimates This section outlines the key accounting policies and significant management judgments and estimates used in financial reporting - Financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions[363] - Significant estimates include bad debt, depreciation, capitalized project development costs, useful lives of assets, stock-based compensation, and fair value of financial instruments (e.g., warrant liability)[46] Item 3. Quantitative and qualitative disclosures about market risk This section states that it is "Not applicable," indicating the company does not have material market risks requiring quantitative or qualitative disclosure in this interim report - The company has no material quantitative or qualitative disclosures about market risk for this reporting period[365] Item 4. Controls and procedures The company's management concluded that its disclosure controls and procedures were effective as of June 30, 2022, ensuring timely and accurate financial reporting. There were no changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[367] Changes in Internal Control over Financial Reporting This section addresses any changes in the company's internal control over financial reporting during the period - There were no changes in the company's internal control over financial reporting during the quarter ended June 30, 2022[369] PART II. OTHER INFORMATION This section provides additional disclosures and other relevant information Item 1. Legal proceedings This section details any ongoing legal proceedings and their potential impact on the company - The company is subject to occasional legal proceedings and claims during the normal course of its business[372] - Management does not believe any pending litigation would have a material adverse effect on its results of operations, financial condition, or cash flows[246] Item 1A. Risk factors This section identifies significant risks and uncertainties that could materially affect the company's business and financial results - The company relies on sponsorship contracts for revenues and faces significant competition in securing them[374] - An ongoing dispute with Johnson Controls (JCI) has led to JCI's termination notices for the Naming Rights and TAAS Agreements, and the company has suspended revenue recognition from JCI[375][379][380][381] - The company received a deficiency letter from Nasdaq on May 24, 2022, for its common stock bid price falling below $1.00, risking delisting from the Nasdaq Capital Market[384] - The compliance period to regain the minimum bid price requirement expires on November 21, 2022[385] - Delisting could adversely impact the price and liquidity of the common stock, making it difficult for investors to trade and for the company to raise additional capital[388] Item 2. Unregistered sales of equity securities and use of proceeds This section reports on the issuance of equity securities not registered under the Securities Act and the use of proceeds - As consideration for a $4,000,000 CFP Loan, the company issued 125,000 shares of Common Stock and Series G Warrants to purchase 125,000 shares of Common Stock to Midwest Lender Fund, LLC[389][390] - The Series G Warrants have an exercise price of $1.50 per share, become exercisable one year after issuance, and expire five years after issuance[390] Item 3. Defaults upon senior securities This section discloses any defaults on the company's senior securities - No defaults upon senior securities were reported[392] Item 4. Mine safety disclosures This section addresses disclosures related to mine safety, if applicable to the company - This item is not applicable to the company[393] Item 5. Other information This section includes any other material information not covered elsewhere in the report - No other information was disclosed[394] Item 6. Exhibits This section lists all documents filed as exhibits to the report - Exhibits include Series G Warrant, Promissory Note, Business Loan Agreement, Energy Project Cooperative Agreement, and Amendment Number 7 to Term Loan Agreement[395] - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are filed[395] - Interactive Data Files (Inline XBRL) are included[395] SIGNATURES This section provides the official signatures certifying the report's submission - The report was signed by Michael Crawford, Chief Executive Officer, on August 11, 2022[397]