AIFA 10-Q
All In FutureTech Alliance, Inc. (AIFA)
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 | ||
| 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 August 14, 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
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Interest receivable | ||||||||
| Accounts receivable | ||||||||
| Deposits, current portion | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Digital assets | ||||||||
| Intangible assets, net | ||||||||
| Deposits, non-current portion | ||||||||
| Operating lease right-of-use asset | ||||||||
| Goodwill | ||||||||
| 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 | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability, non-current portion | ||||||||
| Deferred tax liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Series A Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| 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 Six Months Ended | |||||||||||||||
| June 30, | June 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 | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Costs and Expenses | ||||||||||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Gain on foreign currency transactions | ||||||||||||||||
| Interest income, net | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss per Common Share | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
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 Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Less: other comprehensive income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive Loss 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 Six Months Ended June 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 income: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| For The Three and Six Months Ended June 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 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | - | |||||||||||||||||||||||||||||||
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 Six Months Ended | ||||||||
| June 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 | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Interest receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| 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 | ||||||||
| Expenditures on software development costs | ( | ) | ||||||
| Issuance of short-term loan | ( | ) | ||||||
| Proceeds from repayment of short-term loan | ||||||||
| Proceeds from maturing of short-term investments | ||||||||
| Purchases of short-term investments | ( | ) | ( | ) | ||||
| Proceeds from sale of equipment | ||||||||
| Purchases of intangible assets | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net Cash 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 Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Effect of Exchange Rate Changes on Cash | ( | ) | ( | ) | ||||
| Net Increase 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 restricted cash consisted of the following: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| $ | $ | |||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Operating ROU asset for lease liability | $ | $ | ||||||
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”), 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 June 30, 2024, and for the three and six months ended June 30, 2024 and 2023. The results of operations for the three and six months ended June 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.
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 June 30, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Digital assets | $ | $ | $ | $ | ||||||||||||
| Sponsor warrants | ||||||||||||||||
| 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, short-term investments, accounts receivable, interest receivable, accounts payable, operating lease liability, accrued liabilities, and loans payable approximate fair value due to the short-term nature of these instruments.
See Digital Assets below for further details on digital assets.
The sponsor warrants are carried at fair value as of June 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.
| Balance, January 1, 2024 | $ | |||
| Change in fair value of sponsor warrants | ||||
| Balance, June 30, 2024 | $ |
| June 30, | December 31, | |||||||
| Input | 2024 | 2023 | ||||||
| Risk-free rate | % | % | ||||||
| Remaining term in years | ||||||||
| Expected volatility | % | % | ||||||
| Exercise price | $ | $ | ||||||
| Fair value of common stock | $ | $ | ||||||
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.
8
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Less: weighted-average unvested restricted shares | ( | ) | ( | ) | ||||||||||||
| $ | $ | |||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| As of June 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 Six Months Ended | |||||||||||||||
| June 30, | June 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 Six Months Ended | |||||||||||||||
| June 30, | June 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.
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 $
10
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 Six Months Ended | |||||||||||||||
| June 30, | June 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: | ||||||||||||||||
| 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 June 30, 2024 and December 31, 2023,
the Company had contract liabilities of $
Through June 30, 2024, the
Company has satisfied $
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.
11
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 six months ended June 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 six months ended June 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,
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 June 30, 2024, two customers represented
an aggregate of
During the three months
ended June 30, 2024 and 2023,
During the three months ended
June 30, 2024, the Company’s two 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, Euro, and Chinese Yuan). 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 (
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 gains of approximately $
12
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 Z-Tech and Skyline are senior executives of these subsidiaries. Separate discrete financial information for each of Allied Esports, Z-Tech and Skyline are reviewed separately by chief operating decision makers and the operations of Allied Esports, Z-Tech and Skyline are managed separately. As such, the operations of Allied Esports (principally video game events and tournaments), Z-Tech (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
| For
the Three Months Ended June 30, 2023 | For
the Six Months Ended June 30, 2023 | |||||||||||||||||||||||
| Pro-forma | Pro-forma | |||||||||||||||||||||||
| As reported | Adjustments | Pro-forma | As reported | Adjustments | Pro-forma | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||
13
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 4 – Short-Term Investments
| Certificates of Deposit | Equity Linked Notes | FX Linked Notes | Total Short-term Investments | |||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ||||||||||||
| Maturing of short-term investments | ( | ) | ( | ) | ||||||||||||
| Purchase of short-term investments | ||||||||||||||||
| Purchase of equity linked notes | ||||||||||||||||
| Purchase of FX linked note | ||||||||||||||||
| Maturing of equity linked notes | ( | ) | ( | ) | ||||||||||||
| Maturing of FX linked note | ( | ) | ( | ) | ||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ||||||||||||
Short-term investments include certificates of deposit with original maturities of greater than three months but less than or equal to twelve months when purchased.
Between March 5, 2024 and May 15, 2024, the Company entered into four
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
Note 5 – Intangible Assets, net
| Trademarks | Software Licenses | Software Development Costs | Mobile Games Licenses | Customer Relationships | Total Intangibles | Accumulated Amortization | Total | |||||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Amortization expense | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Weighted average remaining amortization period at June 30, 2024 (in years) | ||||||||||||||||||||||||||||||||
On October 31, 2022, the
Company entered into a system development agreement to develop an Allied Gaming membership management system and event organizer system.
Pursuant to the terms of the agreement, the Company has committed to spend an aggregate amount of $
Note 6 – Loan Receivable
On February 21, 2024, Skyline
loaned an unrelated third-party vendor $
14
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 7 – Accrued Expenses and Other Current Liabilities
| June 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 8 – 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 $
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.
| Balance as of January 1, 2024 | $ | |||
| Additional borrowings under credit facility | ||||
| Balance as of June 30, 2024 | $ |
For the three and six months
ended June 30, 2024, the Company had recorded interest expense of $
Note 9 – 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. As discussed in more detail below, Knighted Pastures, LLC (“Knighted”) recently filed a complaint against, among other defendants, the Company and the members of the Company’s Board of Directors. The Company is incurring additional costs to defend such litigation and it may continue to cause the Company management to divert attention and resources from business operations.
On March 7, 2024, Knighted, an AGAE stockholder, filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) against the Company, the members of the Board of Directors, and certain additional defendants (the “Knighted Action”). The complaint alleged, 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 9, 2024. The Knighted Action sought both injunctive reliefs and money damages.
15
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
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. The Company intends to oppose the motion in its entirety.
Given that management is disputing all claims by Knighted for attorney fees and has determined that it is not probable that such claims will be paid, the Company has not accrued for these claims as of June 30, 2024.
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 June 30, 2024 and 2023 amounted to $
The Company’s aggregate
operating lease expense incurred during the six months ended June 30, 2024 and 2023 amounted to $
| For the Six Months Ended | ||||||||
| June 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 (July 1, 2024 through December 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: amount representing imputed interest | ( | ) | ||
| Present value of lease liability | ||||
| Less: current portion | ( | ) | ||
| Lease liability, non-current portion | $ | |||
16
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 $
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
17
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, June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable, June 30, 2024 | $ | $ | ||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||
| Weighted | ||||||||||||||
| Outstanding | Average | Exercisable | ||||||||||||
| Exercise | Number of | Remaining Life | Number of | |||||||||||
| Price | Options | In Years | Options | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
For the three months ended
June 30, 2024 and 2023, the Company recorded $
Restricted Common Stock
On February 22, 2024, the
Company awarded, in aggregate,
For the three months ended
June 30, 2024 and 2023, the Company recorded $
18
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 Z-Tech. |
| ● | Live concert promotion and events organizing, provided through Skyline. |
| For the Three Months Ended June 30, 2024 | For the Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| Causal Mobile | Causal Mobile | |||||||||||||||||||||||||||||||||||||||
| E-sports | Gaming | Concerts | Corporate (1) | TOTAL | E-sports | Gaming | Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Revenues from foreign operations | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Interest income | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| Causal Mobile | Causal Mobile | |||||||||||||||||||||||||||||||||||||||
| E-sports | Gaming | Concerts | Corporate (1) | TOTAL | E-sports | Gaming | Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Revenues from foreign operations | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Interest income | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| (1) |
19
ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
| As of June 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||
| Causal Mobile | Causal Mobile | |||||||||||||||||||||||||||||||||||||||
| E-sports | Gaming | Concerts | Corporate (1) | TOTAL | E-sports | Gaming | Concerts | Corporate (1) | TOTAL | |||||||||||||||||||||||||||||||
| Goodwill and intangible assets, net | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Property and equipment, net | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Property and equipment, net - foreign
operations | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Total assets (2) | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| (1) | Represents unallocated corporate assets not directly attributable to any |
| (2) |
Note 12 – Subsequent Events
Loan Receivable
On July 2, 2024, AME-HK
loaned an unrelated third party
Compensatory Arrangement of Mr. Yangyang Li
On August 16, 2024, the Board of Directors of the Company, upon recommendation by the Compensation Committee, approved an annual base
salary of $
20
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 June 30, 2024 and for the three and six months ended June 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.
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.
21
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.
Results of Operations
Our operations consist of our esports gaming operations, casual mobile games and live entertainment events organizing. Our esports gaming operations take place at global competitive esports properties designed to connect players and fans via a network of connected arenas. 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.
Results of Operations for the Three Months Ended June 30, 2024 and 2023
| For the Three Months Ended June 30, | Favorable | |||||||||||
| (in thousands) | 2024 | 2023 | (Unfavorable) | |||||||||
| Revenues: | ||||||||||||
| In-person | $ | 917 | $ | 1,268 | $ | (351 | ) | |||||
| Multiplatform content | - | 2,000 | (2,000 | ) | ||||||||
| Casual mobile gaming | 1,723 | - | 1,723 | |||||||||
| Total Revenues | 2,640 | 3,268 | (628 | ) | ||||||||
| Costs and Expenses: | ||||||||||||
| In-person (exclusive of depreciation and amortization) | 502 | 644 | 142 | |||||||||
| Multiplatform content (exclusive of depreciation and amortization) | - | 1,517 | 1,517 | |||||||||
| Casual mobile gaming (exclusive of depreciation and amortization) | 1,561 | - | (1,561 | ) | ||||||||
| Research and development expenses | 174 | - | (174 | ) | ||||||||
| Selling and marketing expenses | 54 | 67 | 13 | |||||||||
| General and administrative expenses | 5,236 | 2,223 | (3,013 | ) | ||||||||
| Depreciation and amortization | 403 | 212 | (191 | ) | ||||||||
| Total Costs and Expenses | 7,930 | 4,663 | (3,267 | ) | ||||||||
| Loss From Operations | (5,290 | ) | (1,395 | ) | (3,895 | ) | ||||||
| Other Income (Expense): | ||||||||||||
| Other income (expense), net | 14 | (11 | ) | 25 | ||||||||
| Gain realized on foreign currency transactions | 351 | - | 351 | |||||||||
| Interest income, net | 1,042 | 715 | 327 | |||||||||
| Net Loss | (3,883 | ) | (691 | ) | (3,192 | ) | ||||||
| Less: net loss attributable to non-controlling interest | (80 | ) | - | (80 | ) | |||||||
| Net Loss Attributable to Common Stockholders | $ | (3,803 | ) | $ | (691 | ) | $ | (3,112 | ) | |||
22
Revenues
In-person experience revenues decreased by approximately $0.4 million, or 28%, to approximately $0.9 million for the three months ended June 30, 2024 from approximately $1.3 million for the three months ended June 30, 2023. The decrease of in-person experience revenues was driven by a $0.4 million decrease in arena and truck event revenue for the three months ended June 30, 2024 resulting from fewer events held during the period.
Multiplatform content revenue was $0.0 for the three months ended June 30, 2024 and $2.0 million for the three months ended June 30, 2023. The decrease was due to Season 2 of Elevated, a live streaming event, that occurred during the three months ended June 30, 2023 and did not occur in 2024.
Casual mobile gaming revenue was $1.7 million for the three months ended June 30, 2024 and $0.0 million for the three months ended June 30, 2023, respectively. The increase in casual mobile games revenue was due to the casual mobile gaming revenue earned as the result of the business combination with ZTech on October 31, 2023.
Costs and expenses
In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.1 million, or 22%, to approximately $0.5 million for the three months ended June 30, 2024 from approximately $0.6 million for the three months ended June 30, 2023. The decrease is the result of the decrease in costs associated with the arena and truck events for the three months ended June 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 for the three months ended June 30, 2024 from approximately $1.5 million for the three months ended June 30, 2023. The decrease in multiplatform costs corresponds to the decrease in revenue as discussed above.
Casual mobile gaming costs (exclusive of depreciation and amortization) were $1.6 million for the three months ended June 30, 2024 and $0 for the three months ended June 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 $174 thousand and $0 for the three months ended June 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 decreased by approximately $13 thousand, or 19%, to approximately $54 thousand for the three months ended June 30, 2024 from approximately $67 thousand for the three months ended June 30, 2023.
General and administrative expenses increased by approximately $3.0 million, or 136%, to approximately $5.2 million for the three months ended June 30, 2024, from approximately $2.2 million for the three months ended June 30, 2023. The increase in general and administrative expenses resulted primarily from a $3.0 million increase in legal and professional fees related to a shareholder complaint filed in 2024, a $0.2 million increase in other legal and professional fees, and a $0.1 million increase in stock-based compensation related to restricted share awards granted on February 22, 2024. These increases were slightly offset by a $0.1 million decrease in payroll and payroll related costs in 2024 due to a decrease in headcount, in addition to a $0.2 million decrease in insurance costs related to D&O insurance that was renewed at a lower cost in August 2023.
Depreciation and amortization increased by approximately $0.2 million, or 91%, to approximately $0.4 million for the three months ended June 30, 2024, from approximately $0.2 million for the three months ended June 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 income, net, of approximately $14 thousand during the three months ended June 30, 2024 compared to $11 thousand of other expense recorded for the three months ended June 30, 2023.
Gain realized on foreign currency transaction
The gain realized on foreign currency transaction was approximately $0.4 million for the three months ended June 30, 2024 compared to $0.0 for the three months ended June 30, 2023. The increase is a result of the change in the exchange rate of the Yen to United States Dollar for the loan received from Morgan Stanley Bank Asia Limited.
Interest income, net
Interest income, net, was approximately $1.0 million for the three months ended June 30, 2024 compared to approximately $0.7 million of interest income for the three months ended June 30, 2023. The increase is a result of the interest earned on a short-term investment purchased during the fourth quarter of 2023.
23
Results of Operations for the Six Months Ended June 30, 2024 and 2023
| For the Six Months Ended June 30, | Favorable | |||||||||||
| (in thousands) | 2024 | 2023 | (Unfavorable) | |||||||||
| Revenues: | ||||||||||||
| In-person | $ | 2,173 | $ | 2,461 | $ | (288 | ) | |||||
| Multiplatform content | - | 2,000 | (2,000 | ) | ||||||||
| Casual mobile gaming | 2,846 | - | 2,846 | |||||||||
| Total Revenues | 5,019 | 4,461 | 558 | |||||||||
| Costs and Expenses: | ||||||||||||
| In-person (exclusive of depreciation and amortization) | 1,138 | 1,316 | 178 | |||||||||
| Multiplatform content (exclusive of depreciation and amortization) | - | 1,517 | 1,517 | |||||||||
| Casual mobile gaming (exclusive of depreciation and amortization) | 2,498 | - | (2,498 | ) | ||||||||
| Research and development expenses | 369 | - | (369 | ) | ||||||||
| Selling and marketing expenses | 108 | 122 | 14 | |||||||||
| General and administrative expenses | 8,092 | 4,766 | (3,326 | ) | ||||||||
| Depreciation and amortization | 780 | 791 | 11 | |||||||||
| Total Costs and Expenses | 12,985 | 8,512 | (4,473 | ) | ||||||||
| Loss From Operations | (7,966 | ) | (4,051 | ) | (3,915 | ) | ||||||
| Other Income (Expense): | ||||||||||||
| Other income (expense), net | 1 | 16 | (15 | ) | ||||||||
| Gain realized on foreign currency transactions | 351 | - | 351 | |||||||||
| Interest income, net | 1,902 | 1,450 | 452 | |||||||||
| Net Loss | (5,712 | ) | (2,585 | ) | (3,127 | ) | ||||||
| Less: net loss attributable to non-controlling interest | (210 | ) | - | (210 | ) | |||||||
| Net Loss Attributable to Common Stockholders | $ | (5,502 | ) | $ | (2,585 | ) | $ | (2,917 | ) | |||
Revenues
In-person experience revenues decreased by approximately $0.3 million, or 12%, to approximately $2.2 million for the six months ended June 30, 2024 from approximately $2.5 million for the six months ended June 30, 2023. The decrease of in-person experience revenues was driven by a $0.3 million decrease in arena and truck event revenue for the six months ended June 30, 2024 resulting from fewer events held during the period.
Multiplatform content revenue was $0.0 for the six months ended June 30, 2024 and $2.0 million for the six months ended June 30, 2023. The decrease was due to Season 2 of Elevated, a live streaming event, that occurred during the six months ended June 30, 2023 and did not occur in 2024.
Casual mobile gaming revenue was $2.9 million for the six months ended June 30, 2024 and $0.0 million for the six months ended June 30, 2023, respectively. The increase in casual mobile games revenue was due to the casual mobile gaming revenue earned as the result of the business combination with ZTech on October 31, 2023.
Costs and expenses
In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.2 million, or 14%, to approximately $1.1 million for the six months ended June 30, 2024 from approximately $1.3 million for the six months ended June 30, 2023. The decrease is the result of the decrease in costs associated with the arena and truck events for the six months ended June 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 for the six months ended June 30, 2024 from approximately $1.5 million for the six months ended June 30, 2023. The decrease in multiplatform costs corresponds to the decrease in revenue as discussed above.
Casual mobile gaming costs (exclusive of depreciation and amortization) were $2.5 million for the six months ended June 30, 2024 and $0.0 million for the six months ended June 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 $369 thousand and $0 for the six months ended June 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 decreased by approximately $14 thousand, or 11%, to approximately $108 thousand for the six months ended June 30, 2024 from approximately $122 thousand for the six months ended June 30, 2023.
24
General and administrative expenses increased by approximately $3.3 million, or 70%, to approximately $8.1 million for the six months ended June 30, 2024, from approximately $4.8 million for the six months ended June 30, 2023. The increase in general and administrative expenses resulted primarily from a $3.1 million increase in legal and professional fees related to a shareholder complaint filed in 2024, a $0.3 million increase in other legal and professional fees, and a $0.6 million increase in stock-based compensation related to restricted share awards granted on February 22, 2024. These increases were slightly offset by a $0.4 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 D&O insurance that was renewed at a lower cost in August 2023.
Depreciation and amortization decreased by approximately $11 thousand, or 1%, to approximately $0.8 million for the six months ended June 30, 2024, from approximately $0.8 million for the six months ended June 30, 2023. The decrease was primarily due to the disposal of office equipment and production equipment in 2023 related to the winding up of the Germany business, in addition to assets that became fully depreciated in 2023.
Other income (expense), net
We recognized other income, net, of approximately $1 thousand during the six months ended June 30, 2024 compared to $16 thousand of other income recorded for the six months ended June 30, 2023.
Gain realized on foreign currency transaction
The gain realized on foreign currency transaction was approximately $0.4 million for the three months ended June 30, 2024 compared to $0.0 for the three months ended June 30, 2023. The increase is a result of the change in the exchange rate of the Yen to United States Dollar for the loan received from Morgan Stanley Bank Asia Limited.
Interest income, net
Interest income, net, was approximately $1.9 million for the six months ended June 30, 2024 compared to approximately $1.5 million of interest income for the six months ended June 30, 2023. The increase is a result of the interest earned on a short-term investment purchased during the fourth quarter of 2023.
Liquidity and Capital Resources
The following table summarizes our total current assets, current liabilities and working capital at June 30, 2024 and December 31, 2023, respectively:
| June 30, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Current Assets | $ | 94,734 | $ | 78,341 | ||||
| Current Liabilities | $ | 32,967 | $ | 11,952 | ||||
| Working Capital Surplus | $ | 61,767 | $ | 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 June 30, 2024, we had cash and cash equivalents of approximately $33.3 million (not including approximately $54.8 million of short-term investments and $5.0 million of restricted cash) and working capital of approximately $61.8 million. For the six months ended June 30, 2024 and 2023, we incurred a net loss of approximately $5.7 million and $2.6 million, respectively, and used cash in operations of approximately $4.5 million and $3.0 million, respectively.
Cash requirements for our current liabilities include approximately $29.1 million for loans payable, $2.0 million for accounts payable and accrued expenses, and $1.5 million for the current portion of an operating lease liability. Cash requirements for non-current liabilities include approximately $4.8 million for the non-current portion of an operating lease liability. The Company intends to meet these cash requirements from its current cash balance.
On December 13, 2023, AME-HK borrowed 1.3 billion Yen or approximately $9.0 million (USD) under a $10 million credit facility provided by Morgan Stanley Bank Asia Limited (the “Bank”) in connection with the Company’s $40 million investment in 12-month certificates of deposit with the Bank. The credit facility includes term loans, bank overdrafts, margin loans and certain other borrowings. The 12-month term loan is non-interest bearing.
On March 8, 2024, the credit facility was increased to $20 million under which, on March 15, 2024, AME-HK borrowed an additional 948.2 million Yen or approximately $6.5 million (USD). This 12-month term loan bears interest at a fixed rate of 0.3% per annum, payable at maturity on March 17, 2025.
On May 14, 2024, AME-HK borrowed an additional 837.4 million Yen or approximately $5.4 million (USD). This 12-month term loan bears interest at a fixed rate of 0.65% per annum, payable at maturity on May 14, 2025.
On June 28, 2024, the credit facility was increased to $35 million under which, on June 28, 2024, AME-HK borrowed an additional 1.6 billion Yen or approximately $10.0 million (USD). This 12-month term loan bears interest at a fixed rate of 0.45% per annum, payable at maturity on June 30, 2025.
The proceeds of these loans were used to acquire the equity and FX linked notes discussed in Note 4 – Short Term Investments.
25
Cash Flows from Operating, Investing and Financing Activities
The table below summarizes cash flows for the six months ended June 30, 2024 and 2023:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (4,539 | ) | $ | (3,011 | ) | ||
| Investing activities | $ | 1,687 | $ | 14,910 | ||||
| Financing activities | $ | 19,846 | $ | (1,874 | ) | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 and 2023 was approximately $4.5 million and $3.0 million, respectively, representing increased usage of cash of approximately $1.5 million. During the six months ended June 30, 2024 and 2023, the net cash used in operating activities was primarily attributable to the net loss of approximately $5.7 million and $2.6 million, respectively, adjusted for approximately $2.0 million and $1.3 million, respectively, of net non-cash expenses, and approximately $0.8 million and $1.7 million, respectively, of cash used in changes in the levels of operating assets and liabilities.
Net Cash Provided By Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2024 was approximately $1.7 million, which consisted of approximately $41.6 million in proceeds from the maturing of short-term investments, partially offset by approximately $39.9 million used for the purchase of short-term investments.
Net cash provided by investing activities for the six months ended June 30, 2023 was approximately $14.9 million, which consisted primarily of proceeds from the maturing of certificate of deposits of $20.0 million and approximately $0.1 million in proceeds from the sale of equipment. This was partially offset by $4.5 million of certificate of deposit purchases, approximately $0.6 million related to the acquisition of a mobile games license, and $0.1 million of property and equipment purchases.
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 was approximately $19.8 million compared to approximately $1.9 million of net cash used in financing activities during the six months ended June 30, 2023. Net cash provided by financing activities during the six months ended June 30, 2024 represented proceeds from a short-term loan of approximately $19.8 million and proceeds from the issuance of common stock in a share purchase agreement of $2.0 million, offset by the $2.0 million return of proceeds upon cancellation of common stock previously issued. Net cash used in financing activities during the six months ended June 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.
26
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 June 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 June 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.
27
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 directions 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.
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 may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions can be costly and time-consuming, disrupt our business and operations and divert the attention of our board of directors, management and employees from the pursuit of our business strategies. Such activities could interfere 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, a proxy contest for the election of directors at our annual meeting would require 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.
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.
28
ITEM 5. OTHER INFORMATION.
10b5-1 Arrangements
To the best of the Company’s
knowledge during the fiscal quarter ended June 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange
Act) of the Company
Directors of the Company
The following sets forth the identities of directors and their biographies as of August 8, 2024.
| Name | Title | Director Class | ||
| Yangyang Li | President, Chairman of the Board | Class A | ||
| Jingsheng (Jason) Lu | Director | Class B | ||
| Mao Sun | Director | Class B | ||
| Yushi Guo | Director | Class B | ||
| Guanzhou (Jerry) Qin | Director | Class C | ||
| Yuanfei Qu | Director | Class C | ||
| Chi Zhao | Director | Class C |
| Name of Director | Principal Occupation, Business Experience For the Past Five Years and Directorships of Public Companies | |
| Yangyang Li | Yangyang Li has served as a director of the Company since 2021, and as the Company’s Chairman since December 2021. Mr. Li served as Chairman and an Executive Director of Ourgame International Holdings Limited (“Ourgame”) from June 2020 to March 2022 and served as Chairman and a non-executive Director of Ourgame from April 2022 to September 2022. In 2001, Mr. Li served as Assistant President to China Great Wall Industry Corporation. In 2003, Mr. Li founded the Business Media China Group (Frankfurt Stock Exchange: BMC) and served as its CEO in 2005, with a market value at the time in excess of 5 billion RMB. Mr. Li served as Chairman of the Board of Directors of Elephant Media Group in 2008. Since 2014, he has served as Chairman of the Board of Directors of World Business Services Union and Choi Shun Investment. Mr. Li received a Bachelor of Business Administration from the University of International Business & Economics in Beijing, China.
The Board believes that Mr. Li’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
| |
| Jingsheng (Jason) Lu | Jingsheng Lu has served as a director of the Company since 2021. Mr. Lu is the current Chairman and Chief Executive Officer of Ourgame and served as an independent director of Ourgame from June 2020 to April 2021. Prior to that, he served as a director of Zhejiang Xiangyuan Culture Co., Ltd.,(“Xiangyuan Culture”), which is a main board listed company in China (Code in Shanghai Stock Exchange: 600576). From 2015 to 2017, he served as co-CEO of Xiamen Xtone Animation Co., Ltd., (“Xtone”), and led the merger of Xtone by Xiangyuan Culture in 2014. He also served as CFO of Beijing International Advertising & Communication Group from 2018 to 2019. He previously served as a senior audit manager at Deloitte China for six years, and at Deloitte US for two years from 2001 to 2010. He is currently a non-practicing certified public accountant in China since 2007, as well as a member of the American Institute of Certified Public Accountants since 2009. He holds a Bachelor of Economics degree from University of International Business and Economics in Beijing, China.
The Board believes that Mr. Lu’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
|
29
| Mao Sun | Mao Sun has served as a director of the Company since 2024. Mr. Sun served as Chief Financial Officer of Hero Innovation Group Inc., a Canadian listed company, from June 2020 to February 2023, served as its Chief Executive Officer from February 2023 to April 2024, and currently serves as a director on its board since February 2023. Mr. Sun has served as Chief Financial Officer of Nickel North Exploration Corp. since 2020. Since October 2009, Mr. Sun has been a founding partner at Mao & Ying LLP, a private accounting firm offering tax, assurance and management consulting services. From 2004 to 2009, Mr. Sun was an audit manager in the Vancouver office of KPMG, an internationally recognized accounting firm. Mr. Sun also served as a director for Wildsky Resources Inc. from 2017 to 2020. Mr. Sun has served as an independent director for the SouthGobi Resources Ltd., a Hong Kong exchange and TSX-V listed company, since December 2015, and as a director of Yalian Steel Corporation, a publicly listed company in Canada, from 2012 to 2013. Mr. Sun graduated from Columbia University in New York with a M.A. in International Affairs, International Finance and Business, and a B.S. in Computer Science from Nanjing University, China. Mr. Sun is a member of the Institute of Chartered Professional Accountants Canada and British Columbia, the Canadian Institute of Corporate Directors.
The Board believes that Mr. Sun’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
| |
| Yushi Guo | Yushi Guo has served as a director of the Company since 2022. He served as an independent non-executive director of Ourgame International Holdings Limited from November 2021 to July 2024. He has broad experience in management consulting, board advisory and entrepreneurship. Mr. Guo is founder and CEO of PanoSoar Management Technology Co., Ltd, a company that builds technological platforms for small and medium-sized businesses. In 2011, Mr. Guo founded Beijing Panorfinity Consulting Co., Ltd., which offers management consulting, board advisory and executive search services. Prior to founding Beijing Panorfinity Consulting Co., Ltd., Mr. Guo served at a client partner at Korn Ferry International from 2009 – 2011 and Gallup Consulting from 2003 – 2009. Mr. Guo holds a Master of Science in Ecology and Bachelor of Science from Beijing Forestry University, Master of Science in Leisure Studies from University of Illinois at Urbana-Champaign, and Master of Business Administration from Emory University. We believe that Mr. Guo’s background and experience is of value to our Board and make him well-qualified to serve on our Board.
The Board believes that Mr. Guo’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
| |
| Guanzhou (Jerry) Qin | Guanzhou (Jerry) Qin has served as a director of the Company since 2021. Mr. Qin has served as CFO of Novlead Inc. since Nov 2021. Prior to that, he served as Finance Director of Content Business at Tencent Holdings from Feb 2020 to Nov 2021, and served as the Head of Finance at Aibee Inc., a top artificial-intelligence start-up, from September 2018 to February 2020. Mr. Qin also served as the Senior Finance Director of APAC for TripAdvisor and Glu Mobile from June 2012 to August 2018. Mr. Qin also served as Finance Controller at J&J China and Motorola China from 2003 to 2009. Prior to that, he served as consultant for Andersen/PWC. Mr. Qin received an International MBA from Peking University & Fordham University in 2008 and a Bachelor of Economics, University of International Business & Economics in 2001. Mr. Qin is a member of Australia CPA. Mr. Qin brings strong management skills from Fortune 500 companies, hands-on experiences in high-tech startups, and deep experience in finance and accounting.
The Board believes that Mr. Qin’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
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| Yuanfei Qu | Yuanfei (Cliff) Qu has served as a director of the Company since 2022. From July 2020 to March 2023, he served as Vice President of Ourgame International Holdings Limited, responsible for new investment and portfolio management. In June 2020, Mr. Qu founded Sansokuu Limited (Japan) to develop new UAV markets in other Asian countries. Prior to that, from 2018, he focused on the investment of civil use of unmanned aerial vehicles (“UAVs”), providing services like plant protection and UAV training qualification from AOPA-China, the only test center in southwest China. Mr. Qu established Beijing Sansokuu Consulting Company in 2009, providing consulting service for different businesses including exhibition, advertising, TMT, pawnshop, taxi, and wine. From 2004, Mr. Qu joined Macro Link Group Ltd and led acquisition transactions for Shanghai Stock Exchange listed company, Tonghua Grape Wine (SH 600365) as well as a reverse takeover transaction for a Hong Kong Exchange listed company, New Silkroad (HK 00472). Mr. Qu received his bachelor’s degree in 2001 from the University of International Business and Economics, majoring in marketing, and a Master of Commerce degree in 2003 from the University of Sydney, where he majored in Finance and Banking.
The Board believes that Mr. Qu’s background and experience is of value to the Board and makes him well-qualified to serve on the Board.
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| Chi Zhao | Chi Zhao has served as a director of the Company since 2024. Ms. Zhao has served as the Secretary General for the Philanthropists Circle of China since August 2018. Prior to this, Ms. Zhao was an Investor Relation Director for Unity Ventures from February to July, 2022 and an Independent Consultant Shareholder Management for Asian Infrastructure Investment Bank from June 2020 to October 2020. Prior to this, Ms. Zhao was the Business Engagement Officer for the Asia-Pacific Economic Cooperation from September 2017 to August 2018. Prior to this, Ms. Zhao was a Senior Account Manager for Bluefocus Digital from June 2014 to August 2017. Prior to this, Ms. Zhao was a Reporter and Assistant to News Producer for CGTN from July 2012 to June 2014. Ms. Zhao received a B.A. from Eastern Kentucky University and Masters in Public Administration from Harvard Kennedy School and has served as a Research Fellow for the Harvard Kennedy School since June 2023.
The Board believes that Ms. Zhao’s background and experience is of value to the Board and makes her well-qualified to serve on the Board. |
Officers of the Company
The following sets forth the identities of officers and their biographies as of August 8, 2024.
| Name | Title | |
| Yangyang Li | President, Chairman of the Board | |
| Yinghua Chen | Chief Executive Officer | |
| Roy Anderson | Chief Financial Officer |
Yangyang Li
Yinghua Chen
Roy Anderson |
Mr. Li’s biography is included above under the section titled “Directors of the Company.”
Yinghua Chen served as director from 2020 until April 2024 and as President since February 2022. Currently Ms. Chen serves as the Company’s Chief Executive Officer since September 2022. Prior to this, Ms. Chen served as the Company’s Chief Investment Officer from November 2021 until September 2022 and Board Secretary from February 2022 until September 2022. Ms. Chen is a Co-Founder of Aupera Technologies, a leading video AI technology company, where she is responsible for corporate financing, business development, and strategic partnership. She has successfully raised multiple rounds of funding for Aupera, including from Silicon Valley giant Xilinx (Nasdaq: XLNX). Prior to this, she served as the Executive Vice President of Anthill Resources, a natural resources investment company in Canada, where she oversaw business operations and investment activities. Ms. Chen is also the former Managing Director of China for The Cavendish Group, a UK B2B media and public relations company. In that role, Ms. Chen built up subscriber networks for over ten vertical industry media products and managed the Group’s strategic relationship with the Boyao Forum for Asia. Ms. Chen was also part of the founding team of The Balloch Group, a boutique investment banking firm, later acquired by Canaccord Genuity, where she specialized in financial, pharmaceutical, resources and media industry transactions. Ms. Chen holds an EMBA from the University of Paris I: Panthéon-Sorbonne and a Bachelor of Arts degree from the University of International Business and Economics.
Roy L. Anderson has served as the Company’s Chief Financial Officer since October 2021. Mr. Anderson is a senior finance executive with deep expertise and experience in financial management and reporting, accounting, internal controls, and risk management. With a focus on Technology, Media and Telecommunications, he has been a strategic and trusted advisor to CEOs, Senior Executives, Board of Directors, and investors in these industries. From May 2005 to October 2021, Mr. Anderson was a partner with Mazars USA, an independent member firm of Mazars Group, an international accounting firm servicing clients in over 90 countries worldwide. In this role, Mr. Anderson worked closely with the top executives and investors of companies in the Technology, Media and Telecommunications (TMT) markets ranging from start-ups to companies with multinational/divisional components and revenues in excess of $500 million. As an audit, tax and advisory partner in the TMT Group of Mazars, Mr. Anderson’s clients included companies engaged in online media (B2B and B2C), entertainment, gaming, events, trade shows, digital marketing/advertising, SaaS, eCommerce, AI, lead generation, Tech-enabled services, cybersecurity, and software development. In addition, Mr. Anderson was a key member of Mazars’ SEC Practice Group. For the last several years, Mr. Anderson has been an invited speaker at key media and technology industry conferences, and presented educational webcasts on various technical issues including revenue recognition, share based compensation, and business combinations. A certified public accountant (CPA), he holds a Bachelor of Science degree from Long Island University’s School of Professional Accountancy. |
Compensatory Arrangement of Mr. Yangyang Li
On August 16, 2024, the Board of Directors of the Company, upon recommendation by the Compensation Committee, approved an annual base salary of $400,000 for Mr. Yangyang Li, the President of the Company. Mr. Li was appointed by the Board to serve as the President of the Company effective as of April 30, 2024.
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ITEM 6. EXHIBITS.
| * | 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: August 19, 2024 | By: | /s/ Yinghua Chen |
| Yinghua Chen, Chief Executive Officer, (Principal Executive Officer) | ||
| Dated: August 19, 2024 | By: | /s/ Roy Anderson |
| Roy Anderson, Chief Financial Officer (Principal Financial Officer) | ||
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