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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)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
|
|
|
|
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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, a smaller reporting company or an emerging growth company. See 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 | ☐ | Accelerated filer | ☐ |
|
|
☒ | Smaller reporting company |
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| 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 ☐ No
As of November 11, 2024,
ALLIED GAMING & ENTERTAINMENT INC.
Index to Condensed Consolidated Financial Statements
i
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Short-term investments |
|
|
||||||
| Interest receivable |
|
|
||||||
| Accounts receivable |
|
|
||||||
| Insurance recovery receivable |
|
-
|
||||||
| Loans receivable |
|
-
|
||||||
| Deposits, current portion |
|
|
||||||
| Prepaid expenses and other current assets |
|
|
||||||
| Total Current Assets |
|
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||||||
| Restricted cash |
-
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|
||||||
| Property and equipment, net |
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||||||
| Digital assets |
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||||||
| Intangible assets, net |
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||||||
| Deposits, non-current portion |
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||||||
| Operating lease right-of-use asset |
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||||||
| Goodwill |
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||||||
| Total Assets | $ |
|
$ |
|
||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ |
|
$ |
|
||||
| Accrued expenses and other current liabilities |
|
|
||||||
| Deferred revenue |
|
|
||||||
| Operating lease liability, current portion |
|
|
||||||
| Loans payable |
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||||||
| Total Current Liabilities |
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||||||
| Operating lease liability, non-current portion |
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||||||
| Deferred tax liability |
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||||||
| Total Liabilities |
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||||||
| Commitments and Contingencies (Note 8) |
|
|
||||||
| Stockholders’ Equity | ||||||||
|
Preferred stock, $
|
-
|
-
|
||||||
|
Common stock, $
|
|
|
||||||
| Additional paid in capital |
|
|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| Accumulated other comprehensive income |
|
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||||||
|
Treasury stock, at cost,
|
(
|
) |
(
|
) | ||||
| Total Allied Gaming & Entertainment Inc. Stockholders’ Equity |
|
|
||||||
| Non-controlling interest |
|
|
||||||
| Total Stockholders’ Equity |
|
|
||||||
| Total Liabilities and Stockholders’ Equity | $ |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| In-person | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Multiplatform content |
|
|
|
|
||||||||||||
| Casual mobile gaming |
|
-
|
|
-
|
||||||||||||
| Total Revenues |
|
|
|
|
||||||||||||
| Costs and Expenses: | ||||||||||||||||
| In-person (exclusive of depreciation and amortization) |
|
|
|
|
||||||||||||
| Multiplatform content (exclusive of depreciation and amortization) |
-
|
-
|
-
|
|
||||||||||||
| Casual mobile gaming (exclusive of depreciation and amortization) |
|
-
|
|
-
|
||||||||||||
| Research and development expenses |
|
-
|
|
-
|
||||||||||||
| Selling and marketing expenses |
|
|
|
|
||||||||||||
| General and administrative expenses |
|
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|
|
||||||||||||
| Depreciation and amortization |
|
|
|
|
||||||||||||
| Total Costs and Expenses |
|
|
|
|
||||||||||||
| Loss From Operations |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Other (expense) income, net |
(
|
) |
(
|
) |
|
|
||||||||||
| Loss on escrow settlement |
(
|
) |
-
|
(
|
) |
-
|
||||||||||
| Loss on foreign currency transactions |
(
|
) |
-
|
(
|
) |
-
|
||||||||||
| Interest income, net |
|
|
|
|
||||||||||||
| Pre-Tax (Loss) Income |
(
|
) |
|
(
|
) |
(
|
) | |||||||||
| Income tax benefit |
|
-
|
|
-
|
||||||||||||
| Net (Loss) Income |
(
|
) |
|
(
|
) |
(
|
) | |||||||||
| Less: net income (loss) attributable to non-controlling interest |
(
|
) |
-
|
(
|
) |
-
|
||||||||||
| Net (Loss) Income Attributable to Common Stockholders | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Net Loss per Common Share | ||||||||||||||||
| Basic | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Diluted | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic |
|
|
|
|
||||||||||||
| Diluted |
|
|
|
|
||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (Loss) Income | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustments |
|
-
|
|
|
||||||||||||
| Total comprehensive loss |
(
|
) |
|
(
|
) |
(
|
) | |||||||||
| Less: net loss attributable to non-controlling interest |
(
|
) |
-
|
(
|
) |
-
|
||||||||||
| Less: other comprehensive income attributable to non-controlling interest |
|
-
|
|
-
|
||||||||||||
| Comprehensive (Loss) Income Attributable to Common Stockholders | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| For The Three and Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock |
Additional
Paid-in |
Subscription |
Accumulated
Other Comprehensive |
Accumulated |
Allied
Gaming & Entertainment Inc. Stockholders’ |
Non-
Controlling |
Total
Stockholders’ |
||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Income | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance - January 1, 2024 |
|
$ |
|
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted common stock |
|
|
- | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Shares withheld for employee payroll tax |
(
|
) |
(
|
) | - | - |
(
|
) | - | - | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||
| Issuance of common stock pursuant to a Share Purchase Agreement |
|
|
- | - |
|
(
|
) | - | - |
|
- |
|
||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - |
(
|
) | - |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||
| Balance - March 31, 2024 |
|
|
|
(
|
) |
|
(
|
) |
|
(
|
) |
|
|
|
||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted common stock | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Cancellation of common stock previously issued pursuant to a Share Purchase Agreement |
(
|
) |
(
|
) | - | - |
(
|
) |
|
- | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - |
(
|
) | - |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||
| Balance - June 30, 2024 |
|
|
|
(
|
) |
|
- |
|
(
|
) |
|
|
|
|||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted common stock | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Shares withheld for employee payroll tax |
(
|
) |
(
|
) | - | - |
(
|
) | - | - | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - |
|
- |
|
|
|
|||||||||||||||||||||||||||||||||
| Balance - September 30, 2024 |
|
$ |
|
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| For The Three and Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock |
Additional
Paid-in |
Subscription |
Accumulated
Other Comprehensive |
Accumulated |
Allied
Gaming & Entertainment Inc. Stockholders’ |
Non-
Controlling |
Total
Stockholders’ |
||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Income | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 |
|
$ |
|
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Repurchases of common stock | - | - |
|
(
|
) | - | - | - | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - |
(
|
) |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - |
|
- |
|
- |
|
|||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 |
|
|
|
(
|
) |
|
- |
|
(
|
) |
|
- |
|
|||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Repurchases of common stock | - | - |
|
(
|
) | - | - | - | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - |
(
|
) |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||||
| Balance - June 30, 2023 |
|
|
|
(
|
) |
|
- |
|
(
|
) |
|
- |
|
|||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - |
|
- | - | - |
|
- |
|
|||||||||||||||||||||||||||||||||
| Repurchases of common stock | - | - |
|
(
|
) | - | - | - | - |
(
|
) | - |
(
|
) | ||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - |
|
|
- |
|
|||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 |
|
$ |
|
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
$ |
(
|
) | $ |
|
$ | - | $ |
|
||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ |
(
|
) | $ |
(
|
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation |
|
|
||||||
| Non-cash operating lease expense |
|
|
||||||
| Net gains on sale of equipment |
-
|
(
|
) | |||||
| Expenses paid using digital assets |
-
|
|
||||||
| Change in fair value of warrant liabilities |
(
|
) | - | |||||
| Depreciation and amortization |
|
|
||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable |
|
|
||||||
| Insurance recovery receivable |
(
|
) |
-
|
|||||
| Interest receivable |
(
|
) |
(
|
) | ||||
| Prepaid expenses and other current assets |
(
|
) |
(
|
) | ||||
| Deposit returns |
-
|
(
|
) | |||||
| Accounts payable |
(
|
) |
|
|||||
| Accrued expenses and other current liabilities |
(
|
) |
(
|
) | ||||
| Operating lease liability |
(
|
) |
(
|
) | ||||
| Deferred revenue |
|
(
|
) | |||||
| Total Adjustments |
(
|
) |
(
|
) | ||||
| Net Cash Used In Operating Activities |
(
|
) |
(
|
) | ||||
| Cash Flows From Investing Activities | ||||||||
| Issuance of short-term loan |
(
|
) |
-
|
|||||
| Proceeds from repayment of short-term loan |
|
-
|
||||||
| Proceeds from maturing of short-term investments |
|
|
||||||
| Purchases of short-term investments |
(
|
) |
(
|
) | ||||
| Loan to affiliate |
-
|
(
|
) | |||||
| Loans receivable |
(
|
) |
-
|
|||||
| Proceeds from sale of equipment |
-
|
|
||||||
| Purchases of intangible assets |
(
|
) |
(
|
) | ||||
| Purchases of property and equipment |
(
|
) |
(
|
) | ||||
| Net Cash (Used In) Provided By Investing Activities |
(
|
) |
|
|||||
| Cash Flows From Financing Activities | ||||||||
| Repurchases of common stock |
-
|
(
|
) | |||||
| Proceeds from issuance of common stock in share purchase agreement |
|
-
|
||||||
| Return of proceeds upon cancellation of common stock previously issued pursuant to a share purchase agreement |
(
|
) |
-
|
|||||
| Proceeds from short-term loans |
|
-
|
||||||
| Net Cash Provided By (Used In) Financing Activities |
|
(
|
) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, continued
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Effect of Exchange Rate Changes on Cash |
(
|
) |
(
|
) | ||||
| Net Decrease In Cash, Cash Equivalents, And Restricted Cash |
(
|
) |
(
|
) | ||||
| Cash, cash equivalents, and restricted cash - Beginning of Period |
|
|
||||||
| Cash, cash equivalents, and restricted cash - End of Period | $ |
|
$ |
|
||||
| Cash and cash equivalents and restricted cash consisted of the following: | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Restricted cash |
-
|
|
||||||
| $ |
|
$ |
|
|||||
| Non-Cash Investing and Financing Activities: | ||||||||
| ROU asset for lease liability | $ |
|
$ |
|
||||
| Property and equipment received as deferred revenue | $ |
-
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Business Organization and Nature of Operations
Allied Gaming &
Entertainment Inc. (“AGAE” and together with its subsidiaries, the “Company”) operates a public esports and
entertainment company through its wholly owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena
Las Vegas, LLC (“ESALV”), Allied Mobile Entertainment Inc. (“AME”), Allied Mobile Entertainment (Hong Kong)
Limited (“AME-HK”), Allied Experiential Entertainment Inc. (“AEE”), AGAE Investment Limited, formerly known
as Skyline Music Entertainment (Hong Kong) Limited (“Skyline HK”), Beijing Lianhuan Technology Co., Ltd
(“BLT”), and Allied Esports GmbH (“AEG”). AEII produces a variety of esports and gaming-related content,
including world class tournaments, live and virtual events, and original programming to continuously foster an engaged gaming
community. ESALV operates HyperX Arena Las Vegas, the world’s most recognized esports facility. AME-HK is a wholly owned
subsidiary of AME and owns a
Note 2 – Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024, as amended by the Form 10-K/A filed on April 29, 2024.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed consolidated financial statements have been derived from the Company’s accounting records and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 28, 2024, as amended by the Form 10-K/A filed on April 29, 2024.
Investments in Equity Linked and FX Linked Notes
The Company has elected the fair value option for recording its equity linked and FX linked notes (the “Notes”), pursuant to ASC 825-10, Financial Instruments (“ASC 825”), whereby the hybrid instrument is initially recorded in its entirety at fair value and changes in fair value are recorded in other income (expense) on the condensed consolidated statements of operations. The Company determines the appropriate classification of these investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company’s Notes are classified as current assets if the maturity date is less than one year from the balance sheet date.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”).
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities.
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).
7
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
| As of September 30, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Digital assets | $ |
|
$ |
-
|
$ |
-
|
$ |
|
||||||||
| Equity linked notes |
-
|
|
-
|
|
||||||||||||
| Total | $ |
|
$ |
|
$ |
-
|
$ |
|
||||||||
| As of December 31, 2023 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Digital assets | $ |
|
$ |
-
|
$ |
-
|
$ |
|
||||||||
| Sponsor warrants |
-
|
-
|
|
|
||||||||||||
| Total | $ |
|
$ |
-
|
$ |
|
$ |
|
||||||||
The carrying amounts of the Company’s financial instruments, such as cash equivalents, accounts receivable, short-term investments (excluding equity and FX linked notes), insurance recovery receivable, interest receivable, loans receivable, accounts payable, operating lease liabilities – current portion, accrued liabilities, and loans payable approximate fair value due to the short-term nature of these instruments.
Equity linked notes and FX linked notes are categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity securities or foreign exchange rates. See Note 4 – Short-Term Investments for further details on short-term investments.
See Digital Assets below for further details on digital assets.
The sponsor warrants are carried at fair value as of September 30, 2024 and December 31, 2023 and are included in accrued expenses on the accompanying condensed consolidated balance sheets. The sponsor warrants are valued using Level 3 inputs. The fair value of the sponsor warrants is estimated using the Black-Scholes option pricing method. Significant Level 3 inputs used to calculate the fair value of the sponsor warrants include the share price on the valuation date, expected volatility, expected term and the risk-free interest rate. The sponsor warrants expired on August 9, 2024.
| Balance, January 1, 2024 | $ |
|
||
| Expiration of sponsor warrants |
(
|
) | ||
| Balance, September 30, 2024 | $ |
-
|
| September 30, | December 31, | |||||
| Input | 2024 | 2023 | ||||
| Risk-free rate |
n/a
|
|
% | |||
| Remaining term in years |
n/a
|
|
||||
| Expected volatility |
n/a
|
|
% | |||
| Exercise price |
n/a
|
$ |
|
|||
| Fair value of common stock |
n/a
|
$ |
|
|||
8
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Net Loss per Common Share
Basic loss per common share is computed by dividing net loss attributable to the Company by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the potential exercise of outstanding stock options and warrants and vesting of restricted stock awards.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Denominator (weighted average quantities): | ||||||||||||||||
| Common shares outstanding |
|
|
|
|
||||||||||||
| Less: Unvested restricted shares |
(
|
) |
-
|
(
|
) |
-
|
||||||||||
| Denominator for basic net loss per share |
|
|
|
|
||||||||||||
| Add: Contingent consideration shares |
-
|
|
-
|
-
|
||||||||||||
| Denominator for fully diluted net loss per share |
|
|
|
|
||||||||||||
| Income (Loss) per common shares | ||||||||||||||||
| Basic | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| Diluted | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | |||||
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Options |
|
|
||||||
| Warrants |
|
|
||||||
| Contingent consideration shares (1) |
-
|
|
||||||
|
|
|
|||||||
| (1) |
|
Revenue Recognition
To determine the proper revenue recognition method, the Company evaluates each of its contractual arrangements to identify its performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of the Company’s contracts have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from other promises within the contract and is therefore not distinct. Some of the Company’s contracts have multiple performance obligations, primarily related to the provision of multiple goods or services. For contracts with more than one performance obligation, the Company allocates the total transaction price in an amount based on the estimated relative standalone selling prices underlying each performance obligation.
9
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company recognizes revenue primarily from the following sources:
In-person revenue
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Event revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Sponsorship revenue |
|
|
|
|
||||||||||||
| Food and beverage revenue |
|
|
|
|
||||||||||||
| Ticket and gaming revenue |
|
|
|
|
||||||||||||
| Merchandising revenue |
|
|
|
|
||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Event revenues from the rental of the ESALV arena and gaming trucks are recognized over the term of the event based on the number of days completed relative to the total days of the event, as this method best depicts the transfer of control to the customer. In-person revenue also includes revenue from ticket sales, admission fees and food and beverage sales for events held at the Company’s esports properties. Ticket revenue is recognized at the completion of the applicable event. Point of sale revenues, such as food and beverage, gaming and merchandising revenues, are recognized when control of the related goods are transferred to the customer.
The Company generates sponsorship revenue from the naming rights of its esports arena which is recognized on a straight-line basis over the contractual term of the agreement.
The Company records deferred revenue to the extent that payment has been received for services that have yet to be performed.
Multiplatform revenue
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sponsorship revenue | $ |
-
|
$ |
-
|
$ |
-
|
$ |
|
||||||||
| Distribution revenue |
|
|
|
|
||||||||||||
| Total multiplatform revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The Company’s distribution revenue is generated primarily through the distribution of content to online channels. Any advertising revenue earned by online channels is shared with the Company. The Company recognizes online advertising revenue at the point in time when the advertisements are placed in the video content.
The Company generates sponsorship revenue from the production and distribution of programming over interactive live-streaming services.
10
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Casual mobile gaming revenue
The Company’s casual
mobile gaming revenue is generated through ZTech which was acquired on October 31, 2023. See Note 3 – Business Combination for
additional details. Casual mobile gaming revenue amounted to approximately $
The transaction price is generally the product of the advertising units delivered (e.g. impressions, click-throughs) and the contractually agreed upon price per advertising unit. The price per advertising unit can also be based on revenue share percentages stated in the contract. The number of advertising units delivered is determined at the end of each month so there is no uncertainty about the transaction price.
The Company’s casual games are played on various mobile third-party platforms for which such third parties collect monies from advertisers and remit the net proceeds after deducting payment processing fees and player incentive payments. The Company is primarily responsible for providing access to the games, has control over the content and functionality of games before they are accessed by players, and has the discretion to establish the pricing for the advertisements. Therefore, the Company concluded that it is the principal in the transaction, and as a result, revenues are reported gross of payment processing fees and player incentive fees. Payment processing fees and player incentive fees are recorded as components of cost of revenue in the accompanying condensed consolidated statements of operations.
Revenue recognition
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues Recognized at a Point in Time: | ||||||||||||||||
| Food and beverage revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Ticket and gaming revenue |
|
|
|
|
||||||||||||
| Merchandising revenue |
|
|
|
|
||||||||||||
| Casual mobile games |
|
-
|
|
-
|
||||||||||||
| Distribution revenue |
|
|
|
|
||||||||||||
| Total Revenues Recognized at a Point in Time |
|
|
|
|
||||||||||||
| Revenues Recognized Over a Period of Time: | ||||||||||||||||
| Event revenue |
|
|
|
|
||||||||||||
| Sponsorship revenue |
|
|
|
|
||||||||||||
| Total Revenues Recognized Over a Period of Time |
|
|
|
|
||||||||||||
| Total Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The timing of the Company’s
revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior
to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services,
the Company records deferred revenue until the performance obligations are satisfied. As of September 30, 2024 and December 31,
2023, the Company had contract liabilities of $
Through September 30, 2024,
the Company has satisfied $
11
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Digital Assets
The Company accounts for digital assets held as the result of the receipt of Ether, as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. The Company has ownership of and control over the digital assets and the Company may use third-party custodial services to secure them. The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since the date of acquisition.
The Company determines the fair value of its digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that the Company has determined is the principal market for Ether (Level 1 inputs). The Company performs an analysis each quarter to identify whether events or changes in circumstances, or decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the Company’s digital assets are impaired. In determining if an impairment has occurred, the Company considers the lowest market price quoted on an active exchange since acquiring the respective digital asset. If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value of such assets.
The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain or loss to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within operating expenses in our consolidated statements of operations and comprehensive loss. There were no impairment losses for the three and nine months ended September 30, 2024 and 2023 and no digital assets were sold during the same time periods.
There were no changes in the balance of the Company’s digital assets during the nine months ended September 30, 2024.
Concentration Risks
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents, restricted cash, short-term investments, loans receivable, insurance recovery receivable,
interest receivable, and accounts receivable. Concentrations of credit risk with respect to trade accounts receivable are generally diversified
due to the large number of entities comprising the Company’s customer base and their dispersion across many different industries
and geographies. The Company maintains cash deposits and short-term investments with major U.S. financial institutions that at various
times may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of September, 30, 2024, three customers
represented an aggregate of
During the three months
ended September 30, 2024 and 2023,
During the three months
ended September 30, 2024, the Company’s three largest customers accounted for
Foreign Currency Translation
The Company’s reporting currency is the United States Dollar.
The functional currencies of the Company’s operating subsidiaries are their local currencies (United States Dollar (“USD”),
Euro (“EUR”), and Chinese Yuan (“RMB”)). Since the acquisition of ZTech on October 31, 2023, Yuan-denominated
assets and liabilities are translated into the United States Dollar using the exchange rate at the balance sheet date (
12
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Euro-denominated assets
and liabilities are translated into the United States Dollar using the exchange rate at the balance sheet date
The Company engages in
foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional
currencies. Realized and unrealized losses of approximately $
Segment Reporting
Reportable segments are components of an enterprise about which separate financial information is available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The chief operating decision maker of Allied Esports is Allied Esports’s chief executive officer and the chief operating decision makers of ZTech and Skyline are senior executives of these subsidiaries. Separate discrete financial information for each of Allied Esports, ZTech and Skyline are reviewed separately by chief operating decision makers and the operations of Allied Esports, ZTech and Skyline are managed separately. As such, the operations of Allied Esports (principally video game events and tournaments), ZTech (casual mobile games) and Skyline (live concert promotion) are reported as separate operating segments. See Note 11 – Segment Data.
Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures (Topic 280), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The guidance becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.
In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350 – 06). This update requires an entity to subsequently measure certain assets at fair value with changes recognized in net income each reporting period. This update also requires that an entity present crypto assets measured at fair value separately from other intangible assets in the balance sheet and changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the consolidated statement of operations. Although early adoption is permitted, the new guidance becomes effective on January 1, 2025, and should be applied using a modified retrospective transition method with a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the beginning of the year of adoption. The Company does not believe the adoption of ASU 2023-06 will have a material impact on the Company’s financial position and expects the cumulative adjustment to increase retained earnings as of January 1, 2025 as a result of adopting this guidance in 2025.
Note 3 – Business Combination
On October 31, 2023, AME-HK completed its acquisition of a
13
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
For the Three Months Ended
September 30, 2023 |
For the Nine Months Ended
September 30, 2023 |
|||||||||||||||||||||||
| As | Pro-forma | As | Pro-forma | |||||||||||||||||||||
| reported | Adjustments | Pro-forma | reported | Adjustments | Pro-forma | |||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
| Net income (loss) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||
| Basic and diluted income (loss) per common share | ||||||||||||||||||||||||
| - Basic | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||||||||||
| - Diluted | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||
| - Basic |
|
|
|
|
||||||||||||||||||||
| - Diluted |
|
|
|
|
||||||||||||||||||||
Note 4 – Short-Term Investments
|
Certificates of
Deposit |
Fixed Rate
Deposits |
Equity Linked
Notes |
FX Linked
Notes |
Total
Short-Term Investments |
||||||||||||||||
| Balance as of January 1, 2024 | $ |
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
|
||||||||||
| Maturing of short-term investments |
(
|
) |
-
|
-
|
-
|
(
|
) | |||||||||||||
| Early withdrawal of short-term investments |
(
|
) |
-
|
-
|
-
|
(
|
) | |||||||||||||
| Purchase of fixed rate and certificates of deposit |
|
|
-
|
-
|
|
|||||||||||||||
| Purchase of equity linked notes |
-
|
-
|
|
-
|
|
|||||||||||||||
| Purchase of FX linked notes |
-
|
-
|
-
|
|
|
|||||||||||||||
| Foreign currency transaction adjustment |
-
|
-
|
|
-
|
|
|||||||||||||||
| Maturity of equity linked notes |
-
|
-
|
(
|
) |
-
|
(
|
) | |||||||||||||
| Maturity of FX linked notes |
-
|
-
|
-
|
(
|
) |
(
|
) | |||||||||||||
| Balance as of September 30, 2024 | $ |
|
$ |
|
$ |
|
$ |
-
|
$ |
|
||||||||||
Short-term investments include certificates of deposit and fixed rate
deposits with original maturities of greater than three months but less than or equal to twelve months when purchased. Interest income
on certificates of deposit and fixed rate deposits amounted to $
Between March 5, 2024 and
July 18, 2024, the Company entered into six one-month FX linked notes, an investment product which provides for a fixed interest payment
between
Between March 15, 2024 and
May 1, 2024, the Company entered into three three-month equity linked notes which are investment products that provide for a coupon amount
between
On July 12, 2024, the Company entered into two three-month equity linked
notes which are investment products that provide for a coupon between
14
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 5 – Loans Receivable
On February 21, 2024, Skyline
loaned an unrelated third-party vendor $
On July 2, 2024, AME-HK loaned an unrelated third party
On August 14, 2024, AME-HK loaned an unrelated third party
| Balance as of January 1, 2024 | $ |
-
|
||
| Loans issued |
|
|||
| Loan repayments |
(
|
) | ||
| Foreign currency transaction adjustment |
|
|||
| Balance as of September 30, 2024 | $ |
|
Note 6 – Accrued Expenses and Other Current Liabilities
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Compensation expense | $ |
|
$ |
|
||||
| Event costs |
|
|
||||||
| Legal and professional fees |
|
|
||||||
| Warrant liabilities |
-
|
|
||||||
| Other accrued expenses |
|
|
||||||
| Accrued expenses and other current liabilities | $ |
|
$ |
|
||||
Note 7 – Loans Payable
On December 13, 2023, AME-HK
borrowed
On March 8, 2024, the credit
facility was increased to $
On May 14, 2024, AME-HK
borrowed an additional
On June 28, 2024, the credit
facility was increased to $
On July 23, 2024, AME-HK
borrowed an additional
The proceeds of these low and non-interest-bearing loans were used to acquire the equity and FX linked notes discussed in Note 4 – Short Term Investments and the loans discussed in Note 5 – Loans Receivable.
| Balance as of January 1, 2024 | $ |
|
||
| Additional borrowings under credit facility |
|
|||
| Foreign currency transaction adjustment |
|
|||
| Balance as of September 30, 2024 | $ |
|
For the three and nine
months ended September 30, 2024, the Company recorded interest expense of $
15
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 8 – Commitments and Contingencies
Litigations, Claims, and Assessments
The Company is periodically involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. Such litigation may have an adverse impact on the Company’s business and results of operations, may be costly to defend, or may cause disruptions to the Company’s operations.
On March 7, 2024, Knighted Pastures, LLC (“Knighted”), an AGAE stockholder, filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) against the Company (as a nominal defendant), the members of its Board of Directors, and certain additional defendants (the “Knighted Action”). The complaint alleged, among other things, that the members of the Company’s Board of Directors breached their fiduciary duty in connection with (1) the approval of a Share Purchase Agreement that AGAE entered into on or around December 28, 2023, (2) the approval and adoption of certain amendments to AGAE’s Bylaws on or around January 5, 2024, and (3) the approval and adoption of a rights agreement on or around February 9, 2024. The Knighted Action sought both injunctive reliefs and money damages.
On June 20, 2024, following expedited discovery and entry of resolutions by the Board of Directors addressing issues raised by the Knighted Action, the Court entered an Order granting in part the Company and Board of Directors’ motion to dismiss the Knighted Action as moot. The Court therefore cancelled the trial in the Knighted Action. The Court ordered the parties to submit further filings on Knighted’s claim for attorneys’ fees and costs and any other issues required to bring the Knighted Action to a final conclusion. On August 2, 2024, Knighted filed a motion for an attorney’s fee award based on the purported corporate benefit its case provided to the Company and its other shareholders.
On August 28, 2024, the
Court granted Knighted an attorney’s fee award of $
Operating Leases
The Company leases office
space in Beijing, China pursuant to a lease dated April 1, 2023 through an operating lease that expires on June 30, 2027. The lease provides
for a monthly base rent of
The Company’s aggregate
operating lease expense incurred during the three months ended September 30, 2024 and 2023 amounted to $
The Company’s aggregate operating lease expense incurred during
the nine months ended September 30, 2024 and 2023 amounted to $
16
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used in operating activities | $ |
|
$ |
|
||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||
| Operating leases | $ |
|
$ |
|
||||
| Weighted Average Remaining Lease Term (Years) | ||||||||
| Operating leases |
|
|
||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases |
|
% |
|
% | ||||
| For the Years Ending December 31, | Amount | |||
| 2024 (October 1, 2024 through December 31, 2024) | $ |
|
||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| Total lease payments |
|
|||
| Less: amount representing imputed interest |
(
|
) | ||
| Present value of lease liability |
|
|||
| Less: current portion |
(
|
) | ||
| Lease liability, non-current portion | $ |
|
||
Investment Agreement
On January 14, 2020, the
Company sold
To that end, half of the Purchase Price would be released from escrow to the Company upon the execution of a written lease agreement between Brookfield and the Company for the first Esports Venue, and the other half would be released to the Company upon the execution of a written lease agreement between Brookfield and the Company for the second Esports Venue.
On September 16, 2024, the
Company and Brookfield entered into a Settlement Agreement and Release (the “Settlement Agreement”) to resolve and terminate
all obligations under the Brookfield Agreement. Pursuant to the Settlement Agreement, the entire Purchase Price was released from escrow
of which $
17
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Employment Agreement
On March 6, 2024 (the “Effective
Date”), the Company entered into an employment agreement with Ms. Yinghua Chen, the Chief Executive Officer of the Company (the
“Employment Agreement”). Pursuant to the Employment Agreement, Ms. Chen will, among other things, (i) receive a base annual
salary of $
On August 16, 2024, the
Board of Directors of the Company, upon recommendation by the Compensation Committee, approved an annual base salary of $
Note 9 – Income Taxes
The Company recorded income tax benefit of $332 thousand and $0 during the three months ended September 30, 2024 and September 30, 2023, respectively. The Company recorded income tax benefit of $332 thousand and $0 during the nine months ended September 30, 2024 and September 30, 2023, respectively.
The Company’s effective
tax rate for nine months ended September 30, 2024 is
Note 10 – Stockholders’ Equity
Share Purchase Agreement
On December 28, 2023, the
Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Elite Fun Entertainment Co., Ltd. (the “Purchaser”),
pursuant to which the Purchaser agreed to purchase
The Purchase Agreement is subject to customary representations, warranties, covenants and conditions, including an agreement that the Company and Purchaser will each use its best efforts to negotiate and finalize a collaboration or partnership agreement under which the Purchaser will assist the Company with organizing live shows and events in Asia.
On March 7, 2024, the Company
closed on the share purchase agreement and received $
On June 15, 2024, the Company
and the Purchaser entered into a termination agreement pursuant to which each party agreed to terminate the Purchase Agreement. Pursuant
to the termination agreement, the Company agreed to pay the Purchaser $
Rights Agreement
On February 9, 2024, the
Company entered into a rights agreement with Continental Stock Transfer & Trust, as rights agent (the “Rights Agreement”)
pursuant to which the Board declared a dividend of
18
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Rights are not exercisable until the Distribution Date. Until a Right is exercised, the holder has no right as a stockholder of the Company, including dividend, voting or liquidation rights.
At any time until the earlier
of (a) a person becomes an Acquiring Person (as defined in the Rights Agreement) and (b) the final expiration date (as defined in the
Rights Agreement), the Board may, at its option and in its sole discretion, direct the Company to redeem the Rights in whole but not
in part, at a price of $
Stock Options
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Number of | Exercise | Remaining | Intrinsic | |||||||||||||
| Options | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding, January 1, 2024 |
|
$ |
|
|||||||||||||
| Granted |
-
|
-
|
||||||||||||||
| Exercised |
-
|
-
|
||||||||||||||
| Expired |
(
|
) |
|
|||||||||||||
| Outstanding, September 30, 2024 |
|
$ |
|
|
$ |
-
|
||||||||||
| Exercisable, September 30, 2024 |
|
$ |
|
|
$ |
-
|
||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||
| Outstanding | Weighted Average | Exercisable | ||||||||||||
| Number of | Remaining Life | Number of | ||||||||||||
| Exercise Price | Options | In Years | Options | |||||||||||
| $ |
|
|
|
|
||||||||||
| $ |
|
|
|
|
||||||||||
| $ |
|
|
|
|
||||||||||
| $ |
|
|
|
|
||||||||||
| $ |
|
|
|
|
||||||||||
| $ |
|
|
|
|
||||||||||
|
|
|
|
||||||||||||
For the three months ended
September 30, 2024 and 2023, the Company recorded $
Restricted Common Stock
On February 22, 2024, the
Company awarded, in aggregate,
For the three months ended
September 30, 2024 and 2023, the Company recorded $
19
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Warrants
In 2017, Black Ridge Acquisition Corp. (“BRAC”)
issued
As of result of the August 9, 2019 Merger, in
which the Company and BRAC merged, the Company issued to the former owners of Allied Gaming and WPT five-year warrants to purchase an
aggregate of
| Warrants Outstanding | Warrants Exercisable | |||||||||||||
| Exercise Price | Exercisable Into |
Outstanding
Number of Warrants |
Weighted Average
Remaining Life in Years |
Exercisable
Number of Warrants |
||||||||||
| $ |
|
|
|
|
|
|||||||||
|
|
|
|||||||||||||
Note 11 – Segment Data
Each of the Company’s business segments offer different, but synergistic products and services, and are managed separately, by different chief operating decision makers. Segment performance is evaluated based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.
The Company’s business consists of
| ● | E-sports, provided through Allied Esports, including video game events and tournaments. |
| ● | Casual mobile gaming, provided through ZTech. |
| ● | Live concert promotion and events organizing, provided through Skyline. |
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ | - | $ | - | $ |
|
$ |
|
$ | - | $ | - | $ | - | $ |
|
||||||||||||||||||||
| Revenues from foreign operations | $ | - | $ |
|
$ | - | $ | - | $ |
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
| Depreciation and amortization | $ |
|
$ |
|
$ | - | $ | - | $ |
|
$ |
|
$ | - | $ | - | $ | - | $ |
|
||||||||||||||||||||
| Loss from operations | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ | - | $ | - | $ |
(
|
) | $ |
(
|
) | |||||||||||||
| Interest income | $ | - | $ | - | $ | - | $ |
|
$ |
|
$ | - | $ | - | $ | - | $ |
|
$ |
|
||||||||||||||||||||
| Interest expense | $ | - | $ | - | $ | - | $ |
(
|
) | $ |
(
|
) | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
20
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
| For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ | - | $ | - | $ |
|
$ |
|
$ | - | $ | - | $ | - | $ |
|
||||||||||||||||||||
| Revenues from foreign operations | $ | - | $ |
|
$ | - | $ | - | $ |
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
| Depreciation and amortization | $ |
|
$ |
|
$ | - | $ |
|
$ |
|
$ |
|
$ | - | $ | - | $ |
|
$ |
|
||||||||||||||||||||
| Loss from operations | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | - | $ | - | $ |
(
|
) | $ |
(
|
) | ||||||||||||
| Interest income | $ | - | $ | - | $ | - | $ |
|
$ |
|
$ | - | $ | - | $ | - | $ |
|
$ |
|
||||||||||||||||||||
| Interest expense | $ | - | $ | - | $ | - | $ |
(
|
) | $ |
(
|
) | $ | - | $ | - | $ | - | $ |
(
|
) | $ |
(
|
) | ||||||||||||||||
| (1) |
|
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||
| E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | E-sports |
Causal
Mobile Gaming |
Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Goodwill and intangible assets, net | $ |
|
$ |
|
$ | - | $ |
|
$ |
|
$ |
|
$ |
|
$ | - | $ |
|
$ |
|
||||||||||||||||||||
| Property and equipment, net | $ |
|
$ |
|
$ | - | $ | - | $ |
|
$ |
|
$ |
|
$ | - | $ |
|
$ |
|
||||||||||||||||||||
| Property and equipment, net - foreign operations | $ | - | $ |
|
$ | - | $ | - | $ |
|
$ | - | $ |
|
$ | - | $ | - | $ |
|
||||||||||||||||||||
| Total assets (2) | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||
| (1) |
|
| (2) |
|
Note 12 – Subsequent Events
Securities Purchase Agreement
Blue Planet New Energy Technology Limited
On October 18, 2024, the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Blue Planet New Energy Technology Limited (“Blue
Planet”), pursuant to which the Company agreed to sell and issue and Blue Planet agreed to purchase (i)
The Purchase Agreement does not contain any voting commitment, and
Blue Planet may vote its shares of Common Stock in its discretion for any matter requiring a vote of the Company’s stockholders.
The Warrant may not be exercised if Blue Planet, together with its affiliates, would beneficially own more than
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements
The following discussion and analysis of the results of operations and financial condition of Allied Gaming & Entertainment Inc. (the “Company”) as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2023, which are included in the Form 10-K (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024, as amended on Form 10-K/A which was filed on April 29, 2024. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company and its subsidiaries. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” in our Annual Report, and other factors that we may not know. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements above, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
The Company
Allied Gaming and Entertainment Inc., along with its subsidiaries (“AGAE” or the “Company”) is a global experiential entertainment company focused on providing a growing audience of gamers with unique experiences through renowned assets, products, and services. Under the Allied Esports International subsidiary (“AEI”) we operate global competitive esports properties designed to connect players and fans via a network of connected arenas and creation of original esports content. Esports Arena Las Vegas, LLC subsidiary, operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. Meanwhile, Allied Mobile Entertainment subsidiary (“AME”), is dedicated to exploring opportunities in the massive and growing mobile games markets. AME’s ownership of a 40% equity interest in Beijing Lianzhong Zhihe Technology Co. Ltd (“ZTech”), a prominent mobile games developer and operator, is engaged in the development and distribution of casual mobile games in Mainland China, solidifies our presence in this lucrative sector. Moreover, our subsidiary Allied Experiential Entertainment (“AEE”), focuses on orchestrating live entertainment events and offers management and consultation service to experiential entertainment venue operation. The Company offers a variety of esports and gaming-related content, including world class tournaments, live and virtual entertainment and gaming events, and original programming to continuously nurture vibrant communities primarily comprising of Gen Y, Z, and Alpha consumers.
Allied’s in-person experiences include live events hosted at its flagship arena, HyperX Arena Las Vegas, an affiliate arena with one of its global network of esports arena partners, and its mobile arenas. Allied’s multiplatform content includes its partnerships with live streamers, post-produced episodic content, and short-form repackaged content. Allied’s casual mobile gaming includes contractual relationships with various advertising service providers for advertisements within the Company’s casual mobile games.
Our growth depends, in part, on our ability to adapt to technological advancements, shifts in gamer trends and demands, introductions of new games, evolving intellectual property practices among game publishers, the fusion of gaming and music and industry standards and practices. While change in this industry may be inevitable, we are committed to flexibly adjusting our business model as necessary to accommodate such shifts and maintain a leading position among our competitors.
Our business plan requires significant capital expenditures, and we expect our operating expenses to increase as we continue to expand our marketing efforts and operations in existing and new geographies as well as new vertical markets (including live influencer events, top artist events and concerts, experiential entertainment, casual mobile gaming, live streaming platforms and channels, interactive content monetization, and online esports tournament and gaming subscription platforms), which we believe will provide attractive returns on investment.
Corporate Developments
Elite Fun Entertainment Co., Ltd. Strategic Investment
On December 28, 2023, the Company entered into a Share Purchase Agreement (the “Elite Purchase Agreement”) with Elite Fun Entertainment Co., Ltd. (the “Purchaser”), pursuant to which the Purchaser agreed to purchase 7,330,000 shares of Common Stock at a purchase price of $0.90 per share (the “Purchased Shares”) for a total purchase price of $6,597,000. The Purchased Shares represented less than 20% of the total issued and outstanding shares of the Company prior to the closing of the transaction.
22
On March 7, 2024, the Company received an initial payment of the Purchase Price of $2 million for the Purchased Shares and entered into a side letter agreement (the “Elite Side Letter Agreement”) with the Purchaser whereby the Purchaser agreed to pay the remaining consideration of $4.597 million within 2 months of the closing along with interest thereon at a simple interest rate of 5% per annum. The remaining consideration was collateralized by a pledge and first priority lien and security interest in 5,107,778 shares of Common Stock of the Purchased Shares issued by the Company to the Purchaser. All obligations under the termination agreement were satisfied as of July 3, 2024.
On June 15, 2024, the Company entered into a Termination Agreement (the “Termination Agreement”) with the Purchaser, pursuant to which the Parties agreed to mutually terminate each of that certain Share Purchase Agreement, dated December 28, 2023 (the “SPA”), First Letter Agreement, dated February 1, 2024, Second Letter Agreement, dated February 28, 2024, and Third Letter Agreement, dated March 7, 2024. In addition, the Company agreed to (i) pay the Purchaser a total of $2,000,000, in cash, and (ii) forgive the Purchaser’s obligation to pay the remaining purchase price of $4.597 million for the shares, in exchange for the Purchaser transferring back to the Company all of the shares of common stock previously issued to the Purchaser pursuant to the SPA.
Brookfield Settlement
On September 16, 2024, the Company and Brookfield entered into a Settlement Agreement and Release (the “Settlement Agreement”) to resolve and terminate all obligations under the Brookfield Agreement. Pursuant to the Settlement Agreement, the entire Purchase Price was released from escrow of which $3,000,000 was paid to Brookfield and $2,000,000 was paid to the Company. The parties further agreed to release and discharge each other from any and all present and future obligations under the Brookfield Agreement.
Blue Planet New Energy Technology Limited Securities Purchase Agreement
On October 18, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Blue Planet New Energy Technology Limited (“Blue Planet”), pursuant to which the Company agreed to sell and issue and Blue Planet agreed to purchase (i) 6,000,000 shares of Common Stock of the Company at a purchase price of $1.10 per share (the “Purchased Shares”) for a total purchase price of $6,600,000 and (ii) a corresponding warrant (the “Warrant”) to purchase up to 6,000,000 shares of Common Stock, with an exercise price of $1.80 per share, which represents a 50% premium to the closing sales price of the Common Stock on October 17, 2024, issuable upon exercise of the Warrant (the “Warrant Shares” and together with the Purchased Shares and the Warrant, the “Registrable Securities”) (such transaction, the “Transaction”). The Warrant expires five years from the date of issuance. The Purchase Agreement is subject to customary representations, warranties, covenants and conditions. In addition, Blue Planet is subject to a 6-month lock-up period commencing from the date of closing.
The Purchase Agreement does not contain any voting commitment, and Blue Planet may vote its shares of Common Stock in its discretion for any matter requiring a vote of the Company’s stockholders. The Warrant may not be exercised if Blue Planet, together with its affiliates, would beneficially own more than 19.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such exercise, unless the Company obtains shareholder approval pursuant to applicable NASDAQ rules. Finally, the Company agreed to register the resale of Registrable Securities pursuant to a registration statement to be filed under the Securities Act of 1933, as amended.
Results of Operations
Our operations consist of our esports gaming operations, casual mobile games and live entertainment events organizing. Through our subsidiaries, we offer esports fans state-of-the-art facilities to compete against other players in esports competitions, host live events with esports superstars that potentially stream to millions of viewers worldwide and produce and distribute esports content at our on-site production facilities and studios. At our flagship arena in Las Vegas, Nevada, we provide an attractive facility for hosting a diverse range of events, including corporate events, tournaments, game launches, and brand activation. Furthermore, we boast a mobile esports arena, an 18-wheel semi-trailer, which seamlessly transforms into a top-tier esports arena and competition stage or a dynamic live show arena complete with full content production capabilities and an interactive talent studio.
23
Results of Operations for the Three Months Ended September 30, 2024 and 2023
| For the | ||||||||||||
| Three Months Ended | ||||||||||||
| September 30, | Favorable | |||||||||||
| (in thousands) | 2024 | 2023 | (Unfavorable) | |||||||||
| Revenues: | ||||||||||||
| In-person | $ | 1,345 | $ | 1,120 | $ | 225 | ||||||
| Casual mobile gaming | 818 | - | 818 | |||||||||
| Total Revenues | 2,163 | 1,120 | 1,043 | |||||||||
| Costs and Expenses: | ||||||||||||
| In-person (exclusive of depreciation and amortization) | 683 | 576 | (107 | ) | ||||||||
| Casual mobile gaming (exclusive of depreciation and amortization) | 701 | - | (701 | ) | ||||||||
| Research and development expenses | 158 | - | (158 | ) | ||||||||
| Selling and marketing expenses | 91 | 51 | (40 | ) | ||||||||
| General and administrative expenses | 1,310 | 894 | (416 | ) | ||||||||
| Depreciation and amortization | 401 | 239 | (162 | ) | ||||||||
| Total Costs and Expenses | 3,344 | 1,760 | (1,584 | ) | ||||||||
| Loss From Operations | (1,181 | ) | (640 | ) | (541 | ) | ||||||
| Other Income (Expense): | ||||||||||||
| Other income (expense), net | (1 | ) | - | (1 | ) | |||||||
| Loss on escrow settlement | (3,000 | ) | - | (3,000 | ) | |||||||
| Loss on foreign currency transactions | (1,213 | ) | - | (1,213 | ) | |||||||
| Interest income, net | 1,033 | 715 | 318 | |||||||||
| Pre-Tax (Loss) Income | (4,362 | ) | 75 | (4,437 | ) | |||||||
| Income tax benefit | 333 | - | 333 | |||||||||
| Net (Loss) Income | (4,029 | ) | 75 | (4,104 | ) | |||||||
| Less: net loss attributable to non-controlling interest | (1 | ) | - | 1 | ||||||||
| Net (Loss) Income Attributable to Common Stockholders | $ | (4,028 | ) | $ | 75 | $ | (4,105 | ) | ||||
Revenues
In-person experience revenues increased by approximately $0.2 million, or 20%, to approximately $1.3 million for the three months ended September 30, 2024 from approximately $1.1 million for the three months ended September 30, 2023. The increase of in-person experience revenues was driven by a $0.2 million increase in arena and truck event revenue for the three months ended September 30, 2024 resulting from an increase in revenue earned per event held during the period.
Casual mobile gaming revenue was $0.8 million for the three months ended September 30, 2024 and $0.0 million for the three months ended September 30, 2023, respectively. The increase in casual mobile games revenue was due to the casual mobile gaming revenue recognized in the current year as a result of the business combination with ZTech on October 31, 2023.
Costs and expenses
In-person costs (exclusive of depreciation and amortization) increased by approximately $0.1 million, or 19%, to approximately $0.7 million for the three months ended September 30, 2024 from approximately $0.6 million for the three months ended September 30, 2023. The increase is the result of the increase in costs associated with the arena and truck events for the three months ended September 30, 2024 resulting from an increase in costs per event held during the period.
Casual mobile gaming costs (exclusive of depreciation and amortization) were $0.7 million for the three months ended September 30, 2024 and $0.0 million for the three months ended September 30, 2023, respectively. The recognition of casual gaming costs and expenses began in connection with the business combination with ZTech on October 31, 2023.
Research and development expenses were $158 thousand and $0 for the three months ended September 30, 2024 and 2023, respectively. Research and development expenses consist principally of costs related to the development of new casual mobile games for ZTech.
24
Selling and marketing expenses increased by approximately $40 thousand, or 78%, to approximately $91 thousand for the three months ended September 30, 2024 from approximately $52 thousand for the three months ended September 30, 2023.
General and administrative expenses increased by approximately $0.4 million, or 47%, to approximately $1.3 million for the three months ended September 30, 2024, from approximately $0.9 million for the three months ended September 30, 2023. The increase in general and administrative expenses is primarily attributable to an increase in payroll and payroll related costs resulting from a $1.5 million Employee Retention Credit (“ERC”) received and recorded as a reduction of expense during the three months ended September 30, 2023, a $0.2 million increase in payroll due to the hiring of our new president during the second quarter of 2024, and a $0.2 million increase in stock-based compensation related to restricted share awards granted on February 22, 2024. These increases were slightly offset by a) a $1.3 million decrease in legal and professional fees resulting from (i) an insurance reimbursement of second quarter 2024 defense costs incurred in connection with a shareholder complaint filed in March 2024, and (ii) costs related to various merger and acquisition activities during the third quarter of 2023, and b) a $0.2 million decrease in insurance costs related to a D&O insurance policy that was renewed at a lower cost in August 2023.
Depreciation and amortization increased by approximately $0.2 million, or 68% to approximately $0.4 million for the three months ended September 30, 2024, from approximately $0.2 million for the three months ended September 30, 2023. The increase was primarily due to the amortization of intangibles that were recorded as part of the business combination with ZTech on October 31, 2023.
Other income (expense), net
We recognized other expense, net, of approximately $1 thousand during the three months ended September 30, 2024 compared to $0 thousand of other expense recorded for the three months ended September 30, 2023.
Loss on escrow settlement
We recognized a loss in connection with a Settlement and Release Agreement dated September 16, 2024, with Brookfield Property Partners (“Brookfield”), under which $3.0 million was released and paid to Brookfield from an escrow account established in January 2020 (see Note 8 – Commitments and Contingencies – Investment Agreement). The entire escrow account of $5.0 million was included in restricted cash on the condensed consolidated balance sheets since that date.
Loss on foreign currency transactions
The loss on foreign currency transactions was approximately $1.2 million for the three months ended September 30, 2024 compared to $0.0 million for the three months ended September 30, 2023. The increase is a result of changes in the exchange rate of the Japanese Yen to United States Dollar between the dates certain loans payable were borrowed, the dates certain loans receivable were issued, and the dates certain equity linked notes were purchased and September 30, 2024.
Interest income, net
Interest income, net, was approximately $1.0 million for the three months ended September 30, 2024 compared to approximately $0.7 million of interest income for the three months ended September 30, 2023. The increase is a result of the interest earned on certificates of deposit purchased during the fourth quarter of 2023, in addition to equity linked notes purchased in the third quarter of 2024.
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Results of Operations for the Nine Months Ended September 30, 2024 and 2023
| For the | ||||||||||||
| Nine Months Ended | ||||||||||||
| September 30, | Favorable | |||||||||||
| (in thousands) | 2024 | 2023 | (Unfavorable) | |||||||||
| Revenues: | ||||||||||||
| In-person | $ | 3,518 | $ | 3,581 | $ | (63 | ) | |||||
| Multiplatform content | - | 2,001 | (2,001 | ) | ||||||||
| Casual mobile gaming | 3,664 | - | 3,664 | |||||||||
| Total Revenues | 7,182 | 5,582 | 1,600 | |||||||||
| Costs and Expenses: | ||||||||||||
| In-person (exclusive of depreciation and amortization) | 1,821 | 1,891 | 70 | |||||||||
| Multiplatform content (exclusive of depreciation and amortization) | - | 1,518 | 1,518 | |||||||||
| Casual mobile gaming (exclusive of depreciation and amortization) | 3,199 | - | (3,199 | ) | ||||||||
| Research and development expenses | 527 | - | (527 | ) | ||||||||
| Selling and marketing expenses | 198 | 173 | (25 | ) | ||||||||
| General and administrative expenses | 9,402 | 5,661 | (3,741 | ) | ||||||||
| Depreciation and amortization | 1,182 | 1,030 | (152 | ) | ||||||||
| Total Costs and Expenses | 16,329 | 10,273 | (6,056 | ) | ||||||||
| Loss From Operations | (9,147 | ) | (4,691 | ) | (4,456 | ) | ||||||
| Other Income (Expense): | ||||||||||||
| Other income (expense), net | 1 | 16 | (15 | ) | ||||||||
| Loss on escrow settlement | (3,000 | ) | - | (3,000 | ) | |||||||
| Loss on foreign currency transactions | (862 | ) | - | (862 | ) | |||||||
| Interest income, net | 2,934 | 2,165 | 769 | |||||||||
| Pre-Tax Loss | (10,074 | ) | (2,510 | ) | (7,564 | ) | ||||||
| Income tax benefit | 333 | - | 333 | |||||||||
| Net Loss | (9,741 | ) | (2,510 | ) | (7,231 | ) | ||||||
| Less: net loss attributable to non-controlling interest | (211 | ) | - | 211 | ||||||||
| Net Loss Attributable to Common Stockholders | $ | (9,530 | ) | $ | (2,510 | ) | $ | (7,442 | ) | |||
Revenues
In-person experience revenues decreased by approximately $0.1 million, or 2%, to approximately $3.5 million for the nine months ended September 30, 2024 from approximately $3.6 million for the nine months ended September 30, 2023. The decrease of in-person experience revenues was driven by a $0.1 million decrease in truck event revenue for the nine months ended September 30, 2024 resulting from fewer events held during the period.
Multiplatform content revenue was $0.0 million for the nine months ended September 30, 2024 and $2.0 million for the nine months ended September 30, 2023. The decrease was due to Season 2 of Elevated, a live streaming event, that occurred during the nine months ended September 30, 2023 and did not occur in 2024.
Casual mobile gaming revenue was $3.7 million for the nine months ended September 30, 2024 and $0.0 million for the nine months ended September 30, 2023, respectively. The increase in casual mobile games revenue was due to the casual mobile gaming revenue recognized in the current year as a result of the business combination with ZTech on October 31, 2023.
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Costs and expenses
In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.1 million, or 4%, to approximately $1.8 million for the nine months ended September 30, 2024 from approximately $1.9 million for the nine months ended September 30, 2023. The decrease is the result of the decrease in costs associated with the truck events for the nine months ended September 30, 2024 resulting from fewer events held during the period.
Multiplatform costs (exclusive of depreciation and amortization) decreased by approximately $1.5 million to $0.0 million for the nine months ended September 30, 2024 from approximately $1.5 million for the nine months ended September 30, 2023. The decrease in multiplatform costs corresponds to the decrease in revenues, as discussed above.
Casual mobile gaming costs (exclusive of depreciation and amortization) were $3.2 million for the nine months ended September 30, 2024 and $0.0 million for the nine months ended September 30, 2023, respectively. The recognition of casual mobile gaming costs and expenses began in connection with the business combination with ZTech on October 31, 2023.
Research and development expenses were $527 thousand and $0.0 million for the nine months ended September 30, 2024 and 2023, respectively. Research and development expenses consist principally of costs related to the development of new casual mobile games for ZTech.
Selling and marketing expenses increased by approximately $25 thousand, or 14%, to approximately $198 thousand for the nine months ended September 30, 2024 from approximately $173 thousand for the nine months ended September 30, 2023.
General and administrative expenses increased by approximately $3.7 million, or 66%, to approximately $9.4 million for the nine months ended September 30, 2024, from approximately $5.7 million for the nine months ended September 30, 2023. The increase in general and administrative expenses resulted primarily from a $2.1 million increase in legal and professional fees related to a shareholder complaint filed in 2024, a $1.3 million increase in payroll and payroll related costs due to an Employee Retention Credit (“ERC”) received and recorded as a reduction of expenses during the nine months ended September 30, 2023, and a $0.8 million increase in stock-based compensation related to restricted share awards granted on February 22, 2024. These increases were slightly offset by a $0.2 million decrease in payroll and payroll related costs in 2024 due to a decrease in headcount, in addition to a $0.3 million decrease in insurance costs related to a D&O insurance policy that was renewed at a lower cost in August 2023.
Depreciation and amortization increased by approximately $152 thousand, or 15%, to approximately $1.2 million for the nine months ended September 30, 2024, from approximately $1.0 million for the nine months ended September 30, 2023. The increase was primarily due to the depreciation and amortization of fixed assets and intangibles that were part of the business combination in the fourth quarter of 2023.
Other income (expense), net
We recognized $0 thousand in other expense, net, during the nine months ended September 30, 2024 compared to $16 thousand of other income recorded for the nine months ended September 30, 2023.
Loss on escrow settlement
We recognized a loss in connection with a Settlement and Release Agreement dated September 16, 2024, with Brookfield Property Partners (“Brookfield”), under which $3.0 million was released and paid to Brookfield from an escrow account established in January 2020 (see Note 8 – Commitments and Contingencies – Investment Agreement). The entire escrow account of $5.0 million was included in restricted cash on the condensed consolidated balance sheets since that date.
Loss on foreign currency transactions
The loss on foreign currency transactions was approximately $0.8 million for the nine months ended September 30, 2024 compared to $0.0 million for the nine months ended September 30, 2023. The increase is a result of changes in the exchange rate of the Japanese Yen to United States Dollar between the dates certain loans payable were borrowed, the dates certain loans receivable were issued, and the dates certain equity linked notes were purchased and September 30, 2024.
Interest income, net
Interest income, net, was approximately $2.9 million for the nine months ended September 30, 2024 compared to approximately $2.2 million for the nine months ended September 30, 2023. The increase is a result of the interest earned on certificates of deposit purchased during the fourth quarter of 2023, loans receivable issued in 2024, and equity linked and Fx notes purchased in 2024. This was slightly offset by interest expense of $0.04 million on loans borrowed during the fourth quarter of 2023 and the nine month period ended September 30, 2024.
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Liquidity and Capital Resources
The following table summarizes our total current assets, current liabilities and working capital at September 30, 2024 and December 31, 2023, respectively:
| September 30, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Current Assets | $ | 102,806 | $ | 78,341 | ||||
| Current Liabilities | $ | 40,039 | $ | 11,952 | ||||
| Working Capital Surplus | $ | 62,767 | $ | 66,389 | ||||
Our primary sources of liquidity and capital resources are cash and short-term investments on the balance sheet and funds that can be raised through debt or equity financing. We intend to utilize our credit facilities provided by our financial institutions for investment purposes, including but not limited to fixed interest returns on notes, bonds, and loans to qualified borrowers.
As of September 30, 2024, we had cash and cash equivalents of approximately $10.9 million (not including approximately $66.7 million of short-term investments) and working capital of approximately $62.8 million. For the nine months ended September 30, 2024 and 2023, we incurred a net loss of approximately $9.7 million and $2.5 million, respectively, and used cash in operations of approximately $13.2 million and $4.6 million, respectively.
Cash requirements for our current liabilities include approximately $37.3 million for loans payable, $0.4 million for accounts payable, $0.5 million for accrued expenses, and $1.6 million for the current portion of an operating lease liability. Cash requirements for non-current liabilities include approximately $1.5 million for the non-current portion of an operating lease liability. The Company intends to meet these cash requirements from its current cash and short-term investments balance.
Cash Flows from Operating, Investing and Financing Activities
The table below summarizes cash flows for the nine months ended September 30, 2024 and 2023:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (13,249 | ) | $ | (4,599 | ) | ||
| Investing activities | $ | (24,767 | ) | $ | 5,918 | |||
| Financing activities | $ | 28,027 | $ | (2,051 | ) | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 and 2023 was approximately $13.2 million and $4.6 million, respectively, representing increased usage of cash of approximately $8.6 million. During the nine months ended September 30, 2024 and 2023, the net cash used in operating activities was primarily attributable to the net loss of approximately $9.7 million and $2.5 million, respectively, adjusted for approximately $2.9 million and $1.9 million, respectively, of net non-cash expenses, and approximately $6.4 million and $4.0 million, respectively, of cash used in changes in the levels of operating assets and liabilities.
Net Cash Provided By Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 was approximately $24.7 million, which consisted of approximately $72.9 million used for the purchase of short-term investments and $14.4 million used for the issuance of a short-term loan. This was partially offset by approximately $62.7 million in proceeds from the maturing of short-term investments.
Net cash provided by investing activities for the nine months ended September 30, 2023 was approximately $5.9 million, which consisted primarily of proceeds from the maturing of certificate of deposits of $30.0 million and $0.1 million in proceeds from the sale of equipment. This was partially offset by $20.0 million of certificate of deposit purchases, $0.1 million of property and equipment purchases, $0.6 million related to the acquisition of a mobile games license, and $3.5 million in a loan to an affiliate.
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Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was approximately $28 million compared to approximately $2.1 million of net cash used in financing activities during the nine months ended September 30, 2023. Net cash provided by financing activities during the nine months ended September 30, 2024 represented proceeds from short-term loans of approximately $28 million and proceeds from the issuance of common stock in a share purchase agreement of $2 million, offset by the $2 million return of proceeds upon cancellation of common stock previously issued. Net cash used in financing activities during the nine months ended September 30, 2023 represented the purchase of treasury stock.
Off-Balance Sheet Arrangements
The Company does not engage in any off-balance sheet financing activities, nor does the Company have any interest in entities referred to as variable interest entities.
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We consider accounting for goodwill impairment to be a critical accounting estimate. There are additional items within our financial statements that require estimation but are not deemed critical, as defined above.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Effectiveness of Disclosure Controls and Procedures
Our management, under the direction of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2024. Based on this evaluation our management, including the Company’s Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024 to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.
Inherent Limitations on Effectiveness of Controls
Even assuming the effectiveness of our controls and procedures, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. In general, our controls and procedures are designed to provide reasonable assurance that our control system’s objective will be met, and our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2024, there were no changes in our internal control over financial reporting that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We may be subject to litigation from stockholders, suppliers and other third parties from time to time. Such litigation may have an adverse impact on our business and results of operations, may be costly to defend, or may cause disruptions to our operations. As discussed in more detail below, Knighted Pastures, LLC (“Knighted”) recently filed a complaint against, among other defendants, us and the members of our Board of Directors. We are incurring additional costs to defend such litigation and it may continue to cause our management to divert attention and resources from our business operations. In addition, the complaint states that Knighted seeks to nominate directors to AGAE’s Board and effect certain changes with respect to the business and management of AGAE. In the event directors nominated by Knighted are elected to our board of directors, such directors may disagree with the strategic direction of the Company or otherwise take actions that may adversely affect the interest of our shareholders.
Knighted Pastures, LLC
On March 7, 2024, Knighted Pastures, LLC (“Knighted”), an AGAE stockholder, filed a complaint captioned Knighted Pastures, LLC v. Yangyang Li, et al. , C.A. No. 2024-0222 in the Court of Chancery of the State of Delaware against us, the members of our Board of Directors, and certain additional defendants (the “Knighted Action”). The complaint alleges, among other things, that the members of our Board of Directors breached their fiduciary duty in connection with (1) the approval of a Share Purchase Agreement that AGAE entered into on or around December 28, 2023, (2) the approval and adoption of certain amendments to AGAE’s Bylaws on or around January 5, 2024, and (3) the approval and adoption of a rights agreement on or around February 8, 2024. The Knighted Action sought both injunctive reliefs and money damages.
On June 20, 2024, following expedited discovery and entry of resolutions by the Board of Directors addressing issues raised by the Knighted Action, the Court of Chancery entered an Order granting in part the Company and Board of Directors’ motion to dismiss the Knighted Action as moot. The Court therefore cancelled the trial in the Knighted Action. The Court ordered the parties to submit further filings on Knighted’s claim for attorneys’ fees and costs and any other issues required to bring the Knighted Action to a final conclusion. On August 2, 2024, Knighted filed a motion for an attorney’s fee award based on the purported corporate benefit its case provided to the Company and its other shareholders. The Company intends to oppose the motion in its entirety.
On August 28, 2024, the Court granted Knighted an attorney’s fee award of $3.0 million which was paid on September 11, 2024. On October 31, 2024, the Company received reimbursement of legal costs from the directors and officers insurance carrier of $3.7 million.
ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2023 and our other public filings, which could materially affect our business, financial condition or future results.
Our business could be negatively affected as a result of actions of activist stockholders or others.
We are subject to actions and proposals from stockholders and others that do not align with our business strategies or the interests of our other stockholders. Responding to such actions is costly and time-consuming, disrupts our business and operations and diverts the attention of our board of directors, management and employees from the pursuit of our business strategies. Such activities interferes with our ability to execute our strategic plan. Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential customers, and may affect our relationships with current customers, vendors, investors and other third parties. In addition, Knighted Pastures LLC has initiated a proxy contest for the election of directors at our 2024 annual meeting of stockholders which has required us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
10b5-1 Arrangements
To the best of the Company’s
knowledge during the fiscal quarter ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange
Act) of the Company
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ITEM 6. EXHIBITS.
| Exhibit | Description | |
| 10.1* | Settlement Agreement and Release, dated September 16, 2024, by and between the Company and BPR Cumulus LLC. | |
| 31.1* | Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a) | |
| 31.2* | Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a) | |
| 32.1** | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 | |
| 32.2** | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALLIED GAMING & ENTERTAINMENT INC. | ||
| Dated: November 14, 2024 | By: | /s/ Yinghua Chen |
|
Yinghua Chen, Chief Executive
Officer,
(Principal Executive Officer) |
||
| Dated: November 14, 2024 | By: | /s/ Roy Anderson |
|
Roy Anderson, Chief Financial
Officer
(Principal Financial Officer) |
||
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