UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to _______

 

Commission file number: 001-38226

 

ALLIED GAMING & ENTERTAINMENT INC.

(Exact Name of Registrant as Specified in Its Charter)

  

Delaware   82-1659427
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

745 Fifth Ave, Suite 500

New York, NY 10151

(Address of principal executive offices)

 

(646) 768-4240

(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
Common Stock   AGAE   NASDAQ Capital Market

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 11, 2024, 44,106,014 shares of common stock, par value $0.0001 per share, were outstanding.

 

 

 

 

 

ALLIED GAMING & ENTERTAINMENT INC.

Index to Condensed Consolidated Financial Statements

 

PART I FINANCIAL INFORMATION   1
     
Item 1. Financial Statements   1
     
  Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023   1
     
  Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023   2
     
  Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023   3
     
  Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023   4
     
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September, 2024 and 2023   5
     
  Notes to Unaudited Condensed Consolidated Financial Statements   7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   22
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.   30
     
ITEM 4. Controls and Procedures.   30
     
PART II - OTHER INFORMATION   31
     
ITEM 1. Legal Proceedings.   31
     
ITEM 1A. Risk Factors.   31
     
ITEM 2. Unregistered Sales of Equity and Use of Proceeds.   32
     
ITEM 3. Defaults Upon Senior Securities.   32
     
ITEM 4. Mine Safety Disclosures.   32
     
ITEM 5. Other Information.   32
     
ITEM 6. Exhibits.   33
     
SIGNATURES   34

 

i

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

   September 30,   December 31, 
   2024   2023 
   (unaudited)     
Assets        
Current Assets        
Cash and cash equivalents  $10,992,235   $16,320,583 
Short-term investments   66,739,322    56,500,000 
Interest receivable   2,432,372    792,223 
Accounts receivable   297,025    529,369 
Insurance recovery receivable   3,700,000    
-
 
Loans receivable   14,429,317    
-
 
Deposits, current portion   3,700,000    3,700,000 
Prepaid expenses and other current assets   515,430    498,886 
Total Current Assets   102,805,701    78,341,061 
Restricted cash   
-
    5,000,000 
Property and equipment, net   3,189,350    3,834,193 
Digital assets   49,300    49,300 
Intangible assets, net   5,875,048    6,254,731 
Deposits, non-current portion   376,324    392,668 
Operating lease right-of-use asset   4,668,461    5,415,678 
Goodwill   12,863,072    12,729,056 
Total Assets  $129,827,256   $112,016,687 
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts payable  $365,509   $371,830 
Accrued expenses and other current liabilities   453,901    763,512 
Deferred revenue   413,238    103,748 
Operating lease liability, current portion   1,550,004    1,482,977 
Loans payable   37,256,831    9,230,168 
Total Current Liabilities   40,039,483    11,952,235 
           
Operating lease liability, non-current portion   4,443,362    5,560,251 
Deferred tax liability   774,839    1,096,160 
Total Liabilities   45,257,684    18,608,646 
Commitments and Contingencies (Note 8)   
 
    
 
 
Stockholders’ Equity          
Preferred stock, $0.0001 par value, 1,000,000 shares authorized, Series A Preferred stock, $0.0001 par value, 50,000 shares designated, none issued and outstanding   
-
    
-
 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 40,385,798 and 39,085,470 shares issued at September 30, 2024 and December 31, 2023, and 38,106,014 and 36,805,686 shares outstanding at September 30, 2024 and December 31, 2023, respectively   4,039    3,909 
Additional paid in capital   199,401,299    198,677,132 
Accumulated deficit   (123,201,338)   (113,671,029)
Accumulated other comprehensive income   504,914    433,565 
Treasury stock, at cost, 2,279,784 shares at September 30, 2024 and December 31, 2023   (2,693,653)   (2,693,653)
Total Allied Gaming & Entertainment Inc. Stockholders’ Equity   74,015,261    82,749,924 
Non-controlling interest   10,554,311    10,658,117 
Total Stockholders’ Equity   84,569,572    93,408,041 
Total Liabilities and Stockholders’ Equity  $129,827,256   $112,016,687 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

 

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Revenues:                
In-person  $1,345,484   $1,119,865   $3,518,044   $3,580,968 
Multiplatform content   71    94    182    2,000,518 
Casual mobile gaming   817,986    
-
    3,664,244    
-
 
Total Revenues   2,163,541    1,119,959    7,182,470    5,581,486 
Costs and Expenses:                    
In-person (exclusive of depreciation and amortization)   682,652    575,176    1,820,818    1,891,229 
Multiplatform content (exclusive of depreciation and amortization)   
-
    
-
    
-
    1,517,707 
Casual mobile gaming (exclusive of depreciation and amortization)   700,918    
-
    3,198,988    
-
 
Research and development expenses   158,162    
-
    526,906    
-
 
Selling and marketing expenses   90,512    51,448    198,561    172,987 
General and administrative expenses   1,308,346    894,181    9,399,828    5,660,553 
Depreciation and amortization   403,524    239,413    1,183,692    1,030,191 
Total Costs and Expenses   3,344,114    1,760,218    16,328,793    10,272,667 
Loss From Operations   (1,180,573)   (640,259)   (9,146,323)   (4,691,181)
Other Income (Expense):                    
Other (expense) income, net   (827)   (388)   414    15,954 
Loss on escrow settlement   (3,000,000)   
-
    (3,000,000)   
-
 
Loss on foreign currency transactions   (1,213,446)   
-
    (862,012)   
-
 
Interest income, net   1,033,362    715,893    2,934,035    2,165,468 
Pre-Tax (Loss) Income   (4,361,484)   75,246    (10,073,886)   (2,509,759)
Income tax benefit   332,862    
-
    332,862    
-
 
Net (Loss) Income   (4,028,622)   75,246    (9,741,024)   (2,509,759)
Less: net income (loss) attributable to non-controlling interest   (681)   
-
    (210,715)   
-
 
Net (Loss) Income Attributable to Common Stockholders  $(4,027,941)  $75,246   $(9,530,309)  $(2,509,759)
                     
Net Loss per Common Share                    
Basic  $(0.11)  $0.00   $(0.24)  $(0.07)
Diluted  $(0.11)  $0.00   $(0.24)  $(0.07)
                     
Weighted Average Number of Common Shares Outstanding:                    
Basic   37,219,904    36,942,149    39,753,952    37,351,735 
Diluted   37,219,904    37,134,457    39,753,952    37,351,735 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Net (Loss) Income  $(4,028,622)  $75,246   $(9,741,024)  $(2,509,759)
Other comprehensive (loss) income:                    
Foreign currency translation adjustments   619,228    
-
    178,258    1,880 
Total comprehensive loss   (3,409,394)   75,246    (9,562,766)   (2,507,879)
Less: net loss attributable to non-controlling interest   (681)   
-
    (210,715)   
-
 
Less: other comprehensive income attributable to non-controlling interest   371,536    
-
    106,909    
-
 
Comprehensive (Loss) Income Attributable to Common Stockholders  $(3,780,249)  $75,246   $(9,458,960)  $(2,507,879)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

 

   For The Three and Nine Months Ended September 30, 2024 
   Common Stock   Treasury Stock   Additional
Paid-in
   Subscription   Accumulated
Other
Comprehensive
   Accumulated   Allied
Gaming &
Entertainment
Inc.
Stockholders’
   Non-
Controlling
   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Receivable   Income   Deficit   Equity   Interest   Equity 
Balance - January 1, 2024   39,085,470   $3,909    2,279,784   $(2,693,653)  $198,677,132   $-   $433,565   $(113,671,029)  $82,749,924   $10,658,117   $93,408,041 
Stock-based compensation:                                                       
Restricted common stock   1,460,000    146    -    -    458,374    -    -    -    458,520    -    458,520 
Stock options   -    -    -    -    13,080    -    -    -    13,080    -    13,080 
Shares withheld for employee payroll tax   (80,373)   (8)   -    -    (84,176)   -    -    -    (84,184)   -    (84,184)
Issuance of common stock pursuant to a Share Purchase Agreement   7,330,000    733    -    -    6,596,267    (4,597,000)   -    -    2,000,000    -    2,000,000 
Net loss   -    -    -    -    -    -    -    (1,699,110)   (1,699,110)   (130,341)   (1,829,451)
Other comprehensive loss   -    -    -    -    -    -    (133,685)   -    (133,685)   (200,644)   (334,329)
Balance - March 31, 2024   47,795,097    4,780    2,279,784    (2,693,653)   205,660,677    (4,597,000)   299,880    (115,370,139)   83,304,545    10,327,132    93,631,677 
Stock-based compensation:                                                       
Restricted common stock   -    -    -    -    189,229    -    -    -    189,229    -    189,229 
Stock options   -    -    -    -    13,079    -    -    -    13,079    -    13,079 
Cancellation of common stock previously issued pursuant to a Share Purchase Agreement   (7,330,000)   (733)   -    -    (6,596,267)   4,597,000    -    -    (2,000,000)   -    (2,000,000)
Net loss   -    -    -    -    -    -    -    (3,803,258)   (3,803,258)   (79,693)   (3,882,951)
Other comprehensive loss   -    -    -    -    -    -    (42,658)   -    (42,658)   (63,983)   (106,641)
Balance - June 30, 2024   40,465,097    4,047    2,279,784    (2,693,653)   199,266,718    -    257,222    (119,173,397)   77,660,937    10,183,456    87,844,393 
Stock-based compensation:                                                       
Restricted common stock   -    -    -    -    211,017    -    -    -    211,017    -    211,017 
Stock options   -    -    -    -    18,714    -    -    -    18,714    -    18,714 
Shares withheld for employee payroll tax   (79,299)   (8)   -    -    (95,150)   -    -    -    (95,158)   -    (95,158)
Net loss   -    -    -    -    -    -    -    (4,027,941)   (4,027,941)   (681   (4,028,622)
Other comprehensive income   -    -    -    -    -    -    247,692    -    247,692    371,536    619,228 
Balance - September 30, 2024   40,385,798   $4,039    2,279,784   $(2,693,653)  $199,401,299   $-   $504,914   $(123,201,338)  $74,015,261   $10,554,311   $84,569,572 

 

   For The Three and Nine Months Ended September 30, 2023 
   Common Stock   Treasury Stock   Additional
Paid-in
   Subscription   Accumulated
Other
Comprehensive
   Accumulated   Allied
Gaming &
Entertainment
Inc.
Stockholders’
   Non-
Controlling
   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Receivable   Income   Deficit   Equity   Interest   Equity 
Balance - January 1, 2023   39,085,470   $3,909    581,746   $(610,562)  $198,526,614   $       -   $219,675   $(110,235,568)  $87,904,068   $       -   $87,904,068 
Stock-based compensation:                                                       
Stock options   -    -    -    -    5,126    -    -    -    5,126    -    5,126 
Repurchases of common stock   -    -    1,105,604    (1,459,078)   -    -    -    -    (1,459,078)   -    (1,459,078)
Net loss   -    -    -    -    -    -    -    (1,893,787)   (1,893,787)   -    (1,893,787)
Other comprehensive income   -    -    -    -    -    -    1,880    -    1,880    -    1,880 
Balance - March 31, 2023   39,085,470    3,909    1,687,350    (2,069,640)   198,531,740    -    221,555    (112,129,355)   84,558,209    -    84,558,209 
Stock-based compensation:                                                       
Stock options   -    -    -    -    66,856    -    -    -    66,856    -    66,856 
Repurchases of common stock   -    -    372,436    (415,313)   -    -    -    -    (415,313)   -    (415,313)
Net loss   -    -    -    -    -    -    -    (691,218)   (691,218)   -    (691,218)
Balance - June 30, 2023   39,085,470    3,909    2,059,786    (2,484,953)   198,598,596    -    221,555    (112,820,573)   83,518,534    -    83,518,534 
Stock-based compensation:                                                       
Stock options   -    -    -    -    64,623    -    -    -    64,623    -    64,623 
Repurchases of common stock   -    -    183,021    (176,746)   -    -    -    -    (176,746)   -    (176,746)
Net income   -    -    -    -    -    -    -    75,246    75,246    -    75,246 
Balance - September 30, 2023   39,085,470   $3,909    2,242,807   $(2,661,699)  $198,663,219   $-   $221,555   $(112,745,327)  $83,481,657   $-   $83,481,657 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   For the Nine Months Ended 
   September 30, 
   2024   2023 
Cash Flows From Operating Activities        
Net loss  $(9,741,024)  $(2,509,759)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   903,639    136,605 
Non-cash operating lease expense   836,296    723,594 
Net gains on sale of equipment   
-
    (8,388)
Expenses paid using digital assets   
-
    461 
Change in fair value of warrant liabilities   (100)   - 
Depreciation and amortization   1,183,692    1,030,191 
Changes in operating assets and liabilities:          
Accounts receivable   248,602    62,066 
Insurance recovery receivable   (3,700,000)   
-
 
Interest receivable   (1,640,139)   (1,381,179)
Prepaid expenses and other current assets   (16,157)   (11,116)
Deposit returns   
-
    (1,598)
Accounts payable   (130,032)   152,701 
Accrued expenses and other current liabilities   (365,104)   (1,339,109)
Operating lease liability   (1,138,342)   (909,426)
Deferred revenue   309,491    (543,786)
Total Adjustments   (3,508,154)   (2,088,984)
Net Cash Used In Operating Activities   (13,249,178)   (4,598,743)
Cash Flows From Investing Activities          
Issuance of short-term loan   (1,340,149)   
-
 
Proceeds from repayment of short-term loan   1,340,149    
-
 
Proceeds from maturing of short-term investments   62,655,361    30,000,000 
Purchases of short-term investments   (72,894,683)   (19,950,000)
Loan to affiliate   
-
    (3,500,000)
Loans receivable   (14,429,317)   
-
 
Proceeds from sale of equipment   
-
    106,914 
Purchases of intangible assets   (49,950)   (618,930)
Purchases of property and equipment   (48,520)   (119,525)
Net Cash (Used In) Provided By Investing Activities   (24,767,109)   5,918,459 
Cash Flows From Financing Activities          
Repurchases of common stock   
-
    (2,051,137)
Proceeds from issuance of common stock in share purchase agreement   2,000,000    
-
 
Return of proceeds upon cancellation of common stock previously issued pursuant to a share purchase agreement   (2,000,000)   
-
 
Proceeds from short-term loans   28,026,663    
-
 
Net Cash Provided By (Used In) Financing Activities   28,026,663    (2,051,137)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, continued

(unaudited)

 

   For the Nine Months Ended 
   September 30, 
   2024   2023 
Effect of Exchange Rate Changes on Cash   (338,724)   (31)
Net Decrease In Cash, Cash Equivalents, And Restricted Cash   (10,328,348)   (731,452)
Cash, cash equivalents, and restricted cash - Beginning of Period   21,320,583    16,167,442 
Cash, cash equivalents, and restricted cash - End of Period  $10,992,235   $15,435,990 
           
Cash and cash equivalents and restricted cash consisted of the following:          
Cash and cash equivalents  $10,992,235   $10,435,990 
Restricted cash   
-
    5,000,000 
   $10,992,235   $15,435,990 
           
Non-Cash Investing and Financing Activities:          
ROU asset for lease liability  $85,095   $289,886 
Property and equipment received as deferred revenue  $
-
   $793,035 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1 – Business Organization and Nature of Operations

 

Allied Gaming & Entertainment Inc. (“AGAE” and together with its subsidiaries, the “Company”) operates a public esports and entertainment company through its wholly owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena Las Vegas, LLC (“ESALV”), Allied Mobile Entertainment Inc. (“AME”), Allied Mobile Entertainment (Hong Kong) Limited (“AME-HK”), Allied Experiential Entertainment Inc. (“AEE”), AGAE Investment Limited, formerly known as Skyline Music Entertainment (Hong Kong) Limited (“Skyline HK”), Beijing Lianhuan Technology Co., Ltd (“BLT”), and Allied Esports GmbH (“AEG”). AEII produces a variety of esports and gaming-related content, including world class tournaments, live and virtual events, and original programming to continuously foster an engaged gaming community. ESALV operates HyperX Arena Las Vegas, the world’s most recognized esports facility. AME-HK is a wholly owned subsidiary of AME and owns a 40% interest in Beijing Lianzhong Zhihe Technology Co. (“ZTech”). ZTech is engaged in the development and distribution of mobile casual games in China. AEE owns a 51% interest in Skyline Music Entertainment Limited, which is principally engaged in the organization of events, shows and concerts by top entertainment artists. BLT is currently inactive and AEG is in the final stage of liquidation.

 

Note 2 – Significant Accounting Policies

 

There have been no material changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024, as amended by the Form 10-K/A filed on April 29, 2024.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed consolidated financial statements have been derived from the Company’s accounting records and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 28, 2024, as amended by the Form 10-K/A filed on April 29, 2024.

 

Investments in Equity Linked and FX Linked Notes

 

The Company has elected the fair value option for recording its equity linked and FX linked notes (the “Notes”), pursuant to ASC 825-10, Financial Instruments (“ASC 825”), whereby the hybrid instrument is initially recorded in its entirety at fair value and changes in fair value are recorded in other income (expense) on the condensed consolidated statements of operations. The Company determines the appropriate classification of these investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company’s Notes are classified as current assets if the maturity date is less than one year from the balance sheet date.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”).

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 - quoted prices in active markets for identical assets or liabilities.

 

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable.

 

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

 

7

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The following table provides information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values:

 

As of September 30, 2024  Level 1   Level 2   Level 3   Total 
                 
Digital assets  $49,300   $
-
   $
-
   $49,300 
                     
Equity linked notes   
-
    10,439,321    
-
    10,439,321 
                     
Total  $49,300   $10,439,321   $
-
   $10,488,621 

 

As of December 31, 2023  Level 1   Level 2   Level 3   Total 
                 
Digital assets  $49,300   $
-
   $
-
   $49,300 
                     
Sponsor warrants   
-
    
-
    100    100 
                     
Total  $49,300   $
-
   $100   $49,400 

 

The carrying amounts of the Company’s financial instruments, such as cash equivalents, accounts receivable, short-term investments (excluding equity and FX linked notes), insurance recovery receivable, interest receivable, loans receivable, accounts payable, operating lease liabilities – current portion, accrued liabilities, and loans payable approximate fair value due to the short-term nature of these instruments.

 

Equity linked notes and FX linked notes are categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity securities or foreign exchange rates. See Note 4 – Short-Term Investments for further details on short-term investments.

 

See Digital Assets below for further details on digital assets.

 

The sponsor warrants are carried at fair value as of September 30, 2024 and December 31, 2023 and are included in accrued expenses on the accompanying condensed consolidated balance sheets. The sponsor warrants are valued using Level 3 inputs. The fair value of the sponsor warrants is estimated using the Black-Scholes option pricing method. Significant Level 3 inputs used to calculate the fair value of the sponsor warrants include the share price on the valuation date, expected volatility, expected term and the risk-free interest rate. The sponsor warrants expired on August 9, 2024.

 

The following is a roll forward of the Company’s Level 3 instruments during the nine months ended September 30, 2024:

 

Balance, January 1, 2024  $100 
Expiration of sponsor warrants   (100)
Balance, September 30, 2024  $
-
 

 

The key inputs into the Black-Scholes model used to value sponsor warrants at the relevant measurement dates were as follows:

 

   September 30,  December 31, 
Input  2024  2023 
Risk-free rate 
n/a
   5.41%
Remaining term in years 
n/a
   0.61 
Expected volatility 
n/a
   68.0%
Exercise price 
n/a
  $11.50 
Fair value of common stock 
n/a
  $1.06 

 

8

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Net Loss per Common Share

 

Basic loss per common share is computed by dividing net loss attributable to the Company by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the potential exercise of outstanding stock options and warrants and vesting of restricted stock awards.

 

The following table presents the computation of basic and diluted net loss per common share:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Numerator:                
Net income (loss) attributable to common stockholders  $(4,027,941)  $75,246   $(9,530,309)  $(2,509,759)
                     
Denominator (weighted average quantities):                    
Common shares outstanding   38,151,697    36,942,149    40,582,346    37,351,735 
Less: Unvested restricted shares   (931,793)   
-
    (828,394)   
-
 
Denominator for basic net loss per share   37,219,904    36,942,149    39,753,952    37,351,735 
Add: Contingent consideration shares   
-
    192,308    
-
    
-
 
Denominator for fully diluted net loss per share   37,219,904    37,134,457    39,753,952    37,351,735 
                     
Income (Loss) per common shares                    
Basic  $(0.11)  $0.00   $(0.24)  $(0.07)
Diluted  $(0.11)  $0.00   $(0.24)  $(0.07)

  

The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

 

   As of September 30, 
   2024   2023 
Options   1,320,000    1,540,000 
Warrants   1,454,546    20,091,549 
Contingent consideration shares (1)   
-
    192,308 
    2,774,546    21,823,857 

  

(1)Holders who elected to convert their convertible debt into common stock were entitled to receive contingent consideration shares equal to the product of (i) 3,846,153 shares, multiplied by (ii) that holder’s investment amount, divided by (iii) $100,000,000, if at any time within five years after August 9, 2019, the last exchange reported sale price of common stock trades at or above $13.00 for thirty (30) consecutive calendar days.

 

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

 

In-person revenue was comprised of the following for the three and nine months ended September 30, 2024 and 2023:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Event revenue  $700,943   $420,192   $1,572,864   $1,593,277 
Sponsorship revenue   460,237    457,740    1,378,711    1,275,218 
Food and beverage revenue   44,615    47,535    115,746    173,326 
Ticket and gaming revenue   103,376    151,391    325,788    401,096 
Merchandising revenue   36,313    43,007    124,935    138,051 
   $1,345,484   $1,119,865   $3,518,044   $3,580,968 

 

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

 

Multiplatform revenue was comprised of the following for the three and nine months ended September 30, 2024 and 2023:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
                 
Sponsorship revenue  $
-
   $
-
   $
-
   $2,000,000 
Distribution revenue   71    94    182    518 
Total multiplatform revenue  $71   $94   $182   $2,000,518 

 

The Company’s distribution revenue is generated primarily through the distribution of content to online channels. Any advertising revenue earned by online channels is shared with the Company. The Company recognizes online advertising revenue at the point in time when the advertisements are placed in the video content.

 

The Company generates sponsorship revenue from the production and distribution of programming over interactive live-streaming services.

 

10

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Casual mobile gaming revenue

 

The Company’s casual mobile gaming revenue is generated through ZTech which was acquired on October 31, 2023. See Note 3 – Business Combination for additional details. Casual mobile gaming revenue amounted to approximately $0.8 million and $0 for the three months ended September 30, 2024 and 2023, respectively. Casual mobile gaming revenue amounted to approximately $3.6 million and $0 for the nine months ended September 30, 2024 and 2023, respectively. Casual mobile gaming revenue is generated through contractual relationships with various advertising service providers for advertisements within the Company’s casual mobile games. Advertisements can be in the form of an impression, click-throughs, videos, or banners. The Company has determined the advertising service provider to be its customer and displaying the advertisements within its games is identified as the single performance obligation. Revenue from advertisements is recognized when the ad is displayed or clicked and the advertising service provider receives the benefits provided from this service. The price can be determined by the applicable evidence of the arrangement, which may include a master contract or a third-party statement of activity.

  

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

 

The following table summarizes our revenue recognized under ASC 606 in our condensed consolidated statements of operations:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Revenues Recognized at a Point in Time:                
Food and beverage revenue  $44,615   $47,535   $115,746   $173,326 
Ticket and gaming revenue   103,376    151,391    325,788    401,096 
Merchandising revenue   36,313    43,007    124,935    138,051 
Casual mobile games   817,986    
-
    3,664,244    
-
 
Distribution revenue   71    94    182    518 
Total Revenues Recognized at a Point in Time   1,002,361    242,027    4,230,895    712,991 
                     
Revenues Recognized Over a Period of Time:                    
Event revenue   700,943    420,192    1,572,864    1,593,277 
Sponsorship revenue   460,237    457,740    1,378,711    3,275,218 
Total Revenues Recognized Over a Period of Time   1,161,180    877,932    2,951,575    4,868,495 
Total Revenues  $2,163,541   $1,119,959   $7,182,470   $5,581,486 

 

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. As of September 30, 2024 and December 31, 2023, the Company had contract liabilities of $413,238 and $103,748 respectively, which is included in deferred revenue on the condensed consolidated balance sheet.

 

Through September 30, 2024, the Company has satisfied $89,251 of performance obligations in connection with contract liabilities included within deferred revenue on the December 31, 2023 consolidated balance sheet. The Company expects to satisfy the remaining performance obligations of $14,497 related to its December 31, 2023 deferred revenue balance within the next twelve months. During the nine months ended September 30, 2024 and 2023, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

 

11

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Digital Assets

 

The Company accounts for digital assets held as the result of the receipt of Ether, as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. The Company has ownership of and control over the digital assets and the Company may use third-party custodial services to secure them. The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since the date of acquisition. 

 

The Company determines the fair value of its digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that the Company has determined is the principal market for Ether (Level 1 inputs). The Company performs an analysis each quarter to identify whether events or changes in circumstances, or decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the Company’s digital assets are impaired. In determining if an impairment has occurred, the Company considers the lowest market price quoted on an active exchange since acquiring the respective digital asset. If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value of such assets.

 

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain or loss to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within operating expenses in our consolidated statements of operations and comprehensive loss. There were no impairment losses for the three and nine months ended September 30, 2024 and 2023 and no digital assets were sold during the same time periods.

 

There were no changes in the balance of the Company’s digital assets during the nine months ended September 30, 2024.

 

Concentration Risks

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, restricted cash, short-term investments, loans receivable, insurance recovery receivable, interest receivable, and accounts receivable. Concentrations of credit risk with respect to trade accounts receivable are generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across many different industries and geographies. The Company maintains cash deposits and short-term investments with major U.S. financial institutions that at various times may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of September, 30, 2024, three customers represented an aggregate of 96% of the Company’s accounts receivable balance. Historically, the Company has not experienced any losses due to such concentration of credit risk.

 

During the three months ended September 30, 2024 and 2023, 38% and less than 1%, respectively, of the Company’s revenues were from customers located outside the United States. During the nine months ended September 30, 2024 and 2023, 51% and less than 1%, respectively, of the Company’s revenues were from customers located outside the United States.

 

During the three months ended September 30, 2024, the Company’s three largest customers accounted for 15%, 21%, and 38% of the Company’s consolidated revenues. During the nine months ended September 30, 2024, the Company’s two largest customers accounted for 51% and 19% of the Company’s consolidated revenues. During the three months ended September 30, 2023, the Company’s two largest customers accounted 36%, and 18% of the Company’s consolidated revenues. During the nine months ended September 30, 2023, the Company’s two largest customers accounted for 36%, and 20% of the Company’s consolidated revenues.

 

Foreign Currency Translation

 

The Company’s reporting currency is the United States Dollar. The functional currencies of the Company’s operating subsidiaries are their local currencies (United States Dollar (“USD”), Euro (“EUR”), and Chinese Yuan (“RMB”)). Since the acquisition of ZTech on October 31, 2023, Yuan-denominated assets and liabilities are translated into the United States Dollar using the exchange rate at the balance sheet date (0.1426 and 0.1410 at September 30, 2024 and December 31, 2023, respectively) and revenue and expense accounts are translated using the weighted average exchange rate in effect for the period (0.1396 and 0.1382 for the three months ended September 30, 2024 and 2023, respectively, and 0.1391 and 0.1423 for the nine months ended September 30, 2024 and 2023, respectively). Resulting translation adjustments are made directly to accumulated other comprehensive income (loss).

 

12

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Euro-denominated assets and liabilities are translated into the United States Dollar using the exchange rate at the balance sheet date 1.1163 and 1.1036 at September 30, 2024 and December 31, 2023, respectively), and revenue and expense accounts are translated using the weighted average exchange rate in effect for the period (1.0989 and 1.0883 for the three months ended September 30, 2024 and 2023, respectively, and 1.0870 and 1.0078 for the nine months ended September 30, 2024 and 2023, respectively). Resulting translation adjustments are made directly to accumulated other comprehensive income (loss).

 

The Company engages in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies. Realized and unrealized losses of approximately $0.9 million and $0 arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency for the nine months ended September 30, 2024 and 2023, respectively, are recognized in other income (expense) in the accompanying condensed consolidated statements of operations.

 

Segment Reporting

 

Reportable segments are components of an enterprise about which separate financial information is available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The chief operating decision maker of Allied Esports is Allied Esports’s chief executive officer and the chief operating decision makers of ZTech and Skyline are senior executives of these subsidiaries. Separate discrete financial information for each of Allied Esports, ZTech and Skyline are reviewed separately by chief operating decision makers and the operations of Allied Esports, ZTech and Skyline are managed separately.  As such, the operations of Allied Esports (principally video game events and tournaments), ZTech (casual mobile games) and Skyline (live concert promotion) are reported as separate operating segments. See Note 11 – Segment Data.

 

Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed.

 

Recently Issued Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures (Topic 280), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The guidance becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.

 

In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350 – 06). This update requires an entity to subsequently measure certain assets at fair value with changes recognized in net income each reporting period. This update also requires that an entity present crypto assets measured at fair value separately from other intangible assets in the balance sheet and changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the consolidated statement of operations. Although early adoption is permitted, the new guidance becomes effective on January 1, 2025, and should be applied using a modified retrospective transition method with a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the beginning of the year of adoption. The Company does not believe the adoption of ASU 2023-06 will have a material impact on the Company’s financial position and expects the cumulative adjustment to increase retained earnings as of January 1, 2025 as a result of adopting this guidance in 2025.

 

Note 3 – Business Combination

 

On October 31, 2023, AME-HK completed its acquisition of a 40% equity interest in ZTech for $7 million in cash from Beijing Lianzhong Co., Ltd, an entity owned by Ourgame International Holdings Limited, the holder of approximately 32% of AGAE’s outstanding common stock as of the acquisition date. Founded in Beijing in April 2022, ZTech is a mobile games developer and operator, specializing in the innovation, research, development and operation of premium card and Mahjong casual games. The acquisition of ZTech will allow the Company to expand its operations into one of the most revenue generating segments of the global games industry.

 

13

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The following information represents the unaudited pro forma combined results of operations, giving effect to the acquisitions as if they occurred at the beginning of the year ended December 31, 2023.

 

   For the Three Months Ended
September 30, 2023
   For the Nine Months Ended
September 30, 2023
 
   As   Pro-forma       As   Pro-forma     
   reported   Adjustments   Pro-forma   reported   Adjustments   Pro-forma 
                         
Revenues  $1,119,959   $3,952,118   $5,072,077   $5,581,486   $15,732,034   $21,313,520 
                               
Net income (loss)  $75,246   $(78,742)  $(3,496)  $(2,509,759)  $322,651   $(2,187,108)
                               
Basic and diluted income (loss) per common share                              
- Basic  $0.00        $(0.00)  $(0.07)       $(0.06)
- Diluted  $0.00        $(0.00)  $(0.07)       $(0.06)
                               
Weighted-average common shares outstanding                              
- Basic   36,942,149         36,942,149    37,351,735         37,351,735 
- Diluted   37,134,457         36,942,149    37,351,735         37,351,735 

 

Note 4 – Short-Term Investments

 

Short-term investments consist of the following:

 

   Certificates of
Deposit
   Fixed Rate
Deposits
   Equity Linked
Notes
   FX Linked
Notes
   Total
 Short-Term
Investments
 
Balance as of January 1, 2024  $56,500,000   $
-
   $
-
   $
-
   $56,500,000 
Maturing of short-term investments   (17,500,000)   
-
    
-
    
-
    (17,500,000)
Early withdrawal of short-term investments   (2,500,000)   
-
    
-
    
-
    (2,500,000)
Purchase of fixed rate and certificates of deposit   4,800,000    15,000,000    
-
    
-
    19,800,000 
Purchase of equity linked notes   
-
    
-
    24,182,317    
-
    24,182,317 
Purchase of FX linked notes   
-
    
-
    
-
    30,303,628    30,303,628 
Foreign currency transaction adjustment   
-
    
-
    1,109,077    
-
    1,109,078 
Maturity of equity linked notes   
-
    
-
    (14,852,073)   
-
    (14,852,073)
Maturity of FX linked notes   
-
    
-
    
-
    (30,303,628)   (30,303,628)
Balance as of September 30, 2024  $41,300,000   $15,000,000   $10,439,321   $
-
   $66,739,322 

 

Short-term investments include certificates of deposit and fixed rate deposits with original maturities of greater than three months but less than or equal to twelve months when purchased. Interest income on certificates of deposit and fixed rate deposits amounted to $1,965,314 for the nine months ended September 30, 2024.

 

Between March 5, 2024 and July 18, 2024, the Company entered into six one-month FX linked notes, an investment product which provides for a fixed interest payment between 3% and 6% per annum on the notional amount with the ultimate return or loss linked to the change in the Japanese Yen/United States Dollar exchange rate. As of September 30, 2024 all FX linked notes had matured with no gain or loss recognized on the investment. Interest income on these notes for the nine months ended September 30, 2024 amounted to $122,275.

 

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 6% and 8% per annum and an ultimate return (or loss) tied to the performance of the underlying equities.  The notes are callable by the issuer at the end of each month at which time no further coupon amounts shall be payable.  As of September 30, 2024, all three equity linked notes had matured with no gain or loss recognized on the investment. Interest income on these notes for the nine months ended September 30, 2024 amounted to $142,222.

 

On July 12, 2024, the Company entered into two three-month equity linked notes which are investment products that provide for a coupon between 6% and 8% per annum and an ultimate return (or loss) tied to the performance of the underlying equities. The notes are callable by the issuer at the end of each month at which time no further coupon amounts shall be payable. The maturity date of the equity linked notes was October 17, 2024. Interest income on these notes for the nine months ended September 30, 2024 amounted to $114,110.

 

14

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 5 – Loans Receivable 

 

On February 21, 2024, Skyline loaned an unrelated third-party vendor $1.34 million under a one-year loan contract. The loan was unsecured and bore interest at 5% per annum, payable at maturity. The loan, along with accrued interest thereon of $23,058, was repaid on June 27, 2024.

 

On July 2, 2024, AME-HK loaned an unrelated third party 1.324 billion JPY, or approximately $8.2 million (USD) under a six-month loan contract. The loan is fully guaranteed by an individual’s assets and bears interest at 5% per annum, payable at maturity.

 

On August 14, 2024, AME-HK loaned an unrelated third party 736.9 million JPY, or $5.0 million (USD) under a six-month loan contract. The loan is fully guaranteed by an individual’s assets and bears interest at 7.5% per annum, payable at maturity.

 

The following is a roll forward of the Company’s loans receivable balance during the nine months ended September 30, 2024:

 

Balance as of January 1, 2024  $
-
 
Loans issued   14,562,401 
Loan repayments   (1,340,000)
Foreign currency transaction adjustment   1,206,916 
Balance as of September 30, 2024  $14,429,317 

 

Note 6 – Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

   September 30,   December 31, 
   2024   2023 
Compensation expense  $276,628   $655,458 
Event costs   39,955    5,534 
Legal and professional fees   22,500    32,150 
Warrant liabilities   
-
    100 
Other accrued expenses   114,818    70,270 
Accrued expenses and other current liabilities  $453,901   $763,512 

 

Note 7 – Loans Payable

 

On December 13, 2023, AME-HK borrowed 1.3 billion Japanese Yen (“JPY”) 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 JPY 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 JPY, 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 JPY 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.

 

On July 23, 2024, AME-HK borrowed an additional 677.7 million JPY or approximately $4.3 million (USD). This 12-month term loan bears interest at a fixed rate of 0.45% per annum, payable at maturity on July 23, 2025.

 

The proceeds of these low and non-interest-bearing loans were used to acquire the equity and FX linked notes discussed in Note 4 – Short Term Investments and the loans discussed in Note 5 – Loans Receivable.

 

The following is a roll forward of the Company’s loans payable balance during the nine months ended September 30, 2024:

 

Balance as of January 1, 2024  $9,230,168 
Additional borrowings under credit facility   26,038,919 
Foreign currency transaction adjustment   1,987,744 
Balance as of September 30, 2024  $37,256,831 

 

For the three and nine months ended September 30, 2024, the Company recorded interest expense of $23,587 and $42,409, respectively, on these loans.

15

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 8 – Commitments and Contingencies

 

Litigations, Claims, and Assessments

 

The Company is periodically involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. Such litigation may have an adverse impact on the Company’s business and results of operations, may be costly to defend, or may cause disruptions to the Company’s operations.

 

On March 7, 2024, Knighted Pastures, LLC (“Knighted”), an AGAE stockholder, filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) against the Company (as a nominal defendant), the members of its Board of Directors, and certain additional defendants (the “Knighted Action”). The complaint alleged, among other things, that the members of the Company’s Board of Directors breached their fiduciary duty in connection with (1) the approval of a Share Purchase Agreement that AGAE entered into on or around December 28, 2023, (2) the approval and adoption of certain amendments to AGAE’s Bylaws on or around January 5, 2024, and (3) the approval and adoption of a rights agreement on or around February 9, 2024. The Knighted Action sought both injunctive reliefs and money damages.

 

On June 20, 2024, following expedited discovery and entry of resolutions by the Board of Directors addressing issues raised by the Knighted Action, the Court entered an Order granting in part the Company and Board of Directors’ motion to dismiss the Knighted Action as moot.  The Court therefore cancelled the trial in the Knighted Action. The Court ordered the parties to submit further filings on Knighted’s claim for attorneys’ fees and costs and any other issues required to bring the Knighted Action to a final conclusion. On August 2, 2024, Knighted filed a motion for an attorney’s fee award based on the purported corporate benefit its case provided to the Company and its other shareholders.

 

On August 28, 2024, the Court granted Knighted an attorney’s fee award of $3.0 million which was paid on September 11, 2024. Subsequent to September 30, 2024, the Company received reimbursements of $3.7 million, in aggregate, from its directors’ and officers’ insurance carrier representing the attorney fee award and its defense costs in excess of the policy’s retention amount, which is presented as an insurance recovery receivable on the condensed consolidated balance sheet at September 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 50,000 RMB or approximately $6,900, payable quarterly. Effective April 1, 2024, the Beijing lease was amended to provide for a monthly base rent of 63,000 RMB or approximately $8,800 payable quarterly. There were no additional changes to the lease agreement. The increase in monthly base rent increased the right-of-use asset and lease liability by $85,095.

 

The Company’s aggregate operating lease expense incurred during the three months ended September 30, 2024 and 2023 amounted to $463,620 and $438,874, respectively, of which $349,605 and $321,522, respectively, is included within in-person costs and $114,015 and $117,352, respectively, is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

The Company’s aggregate operating lease expense incurred during the nine months ended September 30, 2024 and 2023 amounted to $1,368,725 and $1,281,075, respectively, of which $1,048,815 and $964,038, respectively, is included within in-person costs and $319,910 and $317,037, respectively, is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

16

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

A summary of the Company’s right-of-use assets and liabilities is as follows:

 

   For the Nine Months Ended 
   September 30, 
   2024   2023 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows used in operating activities  $1,138,342   $909,426 
           
Right-of-use assets obtained in exchange for lease obligations          
Operating leases  $85,095   $289,886 
           
Weighted Average Remaining Lease Term (Years)          
Operating leases   3.60    4.63 
           
Weighted Average Discount Rate          
Operating leases   5.00% - 5.75%   5.00% - 5.75%

 

A summary of the Company’s remaining operating lease liabilities as of September 30, 2024 is as follows:

 

For the Years Ending December 31,  Amount 
2024 (October 1, 2024 through December 31, 2024)  $468,803 
2025   1,876,411 
2026   1,852,951 
2027   1,736,939 
2028   712,500 
Total lease payments   6,647,604 
Less: amount representing imputed interest   (654,239)
Present value of lease liability   5,993,366 
Less: current portion   (1,550,004)
Lease liability, non-current portion  $4,443,362 

 

Investment Agreement

 

On January 14, 2020, the Company sold 758,725 shares of its common stock to BPR Cumulus LLC, an affiliate of Brookfield Property Partners (“Brookfield”) for $5,000,000 (the “Purchase Price”) pursuant to a Share Purchase Agreement (the “Brookfield Agreement”). Under the terms of the Brookfield Agreement, the Purchase Price was placed into escrow to be used by the Company or its subsidiaries to develop integrated esports experience venues at mutually agreed upon shopping malls owned and/or operated by Brookfield or any of its affiliates that will include a dedicated gaming space and production capabilities to attract esports and other emerging live events (each, an “Esports Venue”).

 

To that end, half of the Purchase Price would be released from escrow to the Company upon the execution of a written lease agreement between Brookfield and the Company for the first Esports Venue, and the other half would be released to the Company upon the execution of a written lease agreement between Brookfield and the Company for the second Esports Venue.

 

On September 16, 2024, the Company and Brookfield entered into a Settlement Agreement and Release (the “Settlement Agreement”) to resolve and terminate all obligations under the Brookfield Agreement. Pursuant to the Settlement Agreement, the entire Purchase Price was released from escrow of which $3,000,000 was paid to Brookfield and $2,000,000 was paid to the Company. The parties further agreed to release and discharge each other from any and all present and future obligations under the Brookfield Agreement. The $3,000,000 payment to Brookfield was included in other income (expense) on the condensed consolidated statements of operations.

 

17

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Employment Agreement

 

On March 6, 2024 (the “Effective Date”), the Company entered into an employment agreement with Ms. Yinghua Chen, the Chief Executive Officer of the Company (the “Employment Agreement”). Pursuant to the Employment Agreement, Ms. Chen will, among other things, (i) receive a base annual salary of $300,000, subject to adjustment as the Board deems appropriate; and (ii) be eligible to receive an annual incentive bonus of up to 60% of her annual salary, as determined annually at the discretion of the Board. If Ms. Chen is terminated without cause, she will be entitled to receive severance equal to sixty (60) months of her base salary payable in equal installments over a sixty-month period, as well as any accrued and unused vacation pay, and all equity compensation will be fully accelerated.

 

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.

 

Note 9 – Income Taxes

 

The Company recorded income tax benefit of $332 thousand and $0 during the three months ended September 30, 2024 and September 30, 2023, respectively. The Company recorded income tax benefit of $332 thousand and $0 during the nine months ended September 30, 2024 and September 30, 2023, respectively.

 

The Company’s effective tax rate for nine months ended September 30, 2024 is 2.9% and September 30, 2023 is 0 which vary from the statutory U.S. federal tax rate of 21.0% primarily due to the tax impact of foreign operating activities in China and Hong Kong both of which are taxed at rates different than the statutory U.S. federal tax rate.

 

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 7,330,000 shares of the Company’s common stock, par value $0.0001 per share, at a purchase price of $0.90 per share (the “Purchased Shares”) for a total purchase price of $6,597,000.

 

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 $2 million of the total purchase price for the Purchased Shares and 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 is collateralized by a pledge and first priority lien and security interest in 5,107,778 shares issued by the Company to the Purchaser.

 

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 $2,000,000 in cash and to forgive the Purchaser’s obligation to pay the remaining purchase price for the shares of $4,597,000, in exchange for the Purchaser transferring back to the Company all of the shares of common stock previously issued. All obligations under the termination agreement were satisfied as of July 3, 2024.

 

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 one preferred share purchase right (the “Right” or collectively the “Rights”) for each outstanding share of the Company’s common stock. The Rights were distributed to the stockholders of record at the start of business on that date (the “Record Date”). Each Right provides the registered holder, under certain circumstances and if the Rights become exercisable, the right to purchase from the Company one one-thousandth of a share of a newly designated Series A Junior Participating Preferred Stock, par value $0.0001 per share (the “Series A Preferred Shares”) at an exercise price of $7.00 per one one-thousandth of a Series A Preferred Share. On that date, the Board also authorized the issuance of one Right with respect to each additional Common Share that becomes outstanding after the Record Date, but before the Distribution Date (as defined in the Rights Agreement) and, in certain limited circumstances, after the Distribution Date. 

 

18

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The Rights are not exercisable until the Distribution Date. Until a Right is exercised, the holder has no right as a stockholder of the Company, including dividend, voting or liquidation rights.

 

At any time until the earlier of (a) a person becomes an Acquiring Person (as defined in the Rights Agreement) and (b) the final expiration date (as defined in the Rights Agreement), the Board may, at its option and in its sole discretion, direct the Company to redeem the Rights in whole but not in part, at a price of $0.0001 per Right (the “Redemption Price”).

 

Stock Options

 

A summary of the option activity during the nine months ended September 30, 2024 is presented below:

 

       Weighted   Weighted     
       Average   Average     
   Number of   Exercise   Remaining   Intrinsic 
   Options   Price   Term (Yrs)   Value 
Outstanding, January 1, 2024   1,490,000   $3.55           
Granted   
-
    
-
           
Exercised   
-
    
-
           
Expired   (170,000)   4.09           
Outstanding, September 30, 2024   1,320,000   $3.48    5.53   $
    -
 
                     
Exercisable, September 30, 2024   1,212,500   $3.59    5.42   $
-
 

 

Options outstanding and exercisable as of September 30, 2024 are as follows:

 

Options Outstanding   Options Exercisable 
    Outstanding   Weighted Average   Exercisable 
    Number of   Remaining Life   Number of 
Exercise Price   Options   In Years   Options 
$2.11    40,000    5.75    40,000 
$2.17    120,000    5.85    120,000 
$2.21    350,000    5.59    262,500 
$2.48    120,000    6.60    100,000 
$4.09    460,000    5.14    460,000 
$5.66    230,000    4.97    230,000 
      1,320,000    5.42    1,212,500 

 

For the three months ended September 30, 2024 and 2023, the Company recorded $18,714 and $64,623, respectively, of stock-based compensation expense related to stock options. For the nine months ended September 30, 2024 and 2023, the Company recorded $44,872 and $136,605, respectively, of stock-based compensation expense related to stock options. As of September 30, 2024, there was $33,126 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 0.94 years.

 

Restricted Common Stock

 

On February 22, 2024, the Company awarded, in aggregate, 1,460,000 shares of common stock (the “Restricted Shares”), with an aggregate grant date value of $1,518,000, to its directors and certain executive officers which are subject to certain transfer and other restrictions set forth in the grant agreement signed by each recipient under the Equity Incentive Plan.  The Restricted Shares vest in four equal installments as follows: twenty-five (25%) on the date of grant and 25% in three (3) successive installments upon the completion of each six (6) month period of service over an eighteen (18) month period measured from the date of grant.  The transfer restrictions include a lock-up agreement under which, among other things, each recipient agreed not to sell, pledge, or otherwise dispose of the shares for a three-year period commencing on the date of the grant.

 

For the three months ended September 30, 2024 and 2023, the Company recorded $211,017 and $0, respectively, of stock-based compensation expense related to restricted stock. For the nine months ended September 30, 2024 and 2023, the Company recorded $858,766 and $0, respectively, of stock-based compensation expense related to restricted stock. As of September 30, 2024, there was $659,234 of unrecognized stock-based compensation expense related to the restricted stock that will be recognized over the weighted average remaining vesting period of 0.8 years.

 

19

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Warrants 

 

In 2017, Black Ridge Acquisition Corp. (“BRAC”) issued 14,305,000 warrants (the “BRAC Warrants”) for the purchase of BRAC’s common stock at $11.50 per share in connection with BRAC’s initial public offering. The warrants expired on August 9, 2024.

 

As of result of the August 9, 2019 Merger, in which the Company and BRAC merged, the Company issued to the former owners of Allied Gaming and WPT five-year warrants to purchase an aggregate of 3,800,003 shares of common stock at a price of $11.50 per share and issued five-year warrants for the purchase of an aggregate of 532,000 shares of common stock to noteholders with an exercise price of $11.50 per share. The warrants expired on August 9, 2024.

 

A summary of warrants outstanding and exercisable as of September 30, 2024 is presented below:

 

Warrants Outstanding   Warrants Exercisable
Exercise Price   Exercisable Into  Outstanding
Number of
Warrants
   Weighted Average
Remaining Life
in Years
  Exercisable
Number of
Warrants
 
$4.13   Common Stock   1,454,546   0.7   1,454,546 
         1,454,546       1,454,546 

 

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 three reportable business segments:

 

  E-sports, provided through Allied Esports, including video game events and tournaments.

 

  Casual mobile gaming, provided through ZTech.

 

  Live concert promotion and events organizing, provided through Skyline.

 

The following tables present segment information for the three and nine months ended September 30, 2024 and 2023:

 

   For the Three Months Ended September 30, 2024   For the Three Months Ended September 30, 2023 
   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL 
Revenues  $1,345,555   $817,986   $-   $-   $2,163,541   $1,119,959   $     -   $    -   $-   $1,119,959 
                                                   
Revenues from foreign operations  $-   $817,986   $-   $-   $817,986   $-   $-   $-   $-   $- 
                                                   
Depreciation and amortization  $251,974   $151,550   $-   $-   $403,524   $239,413   $-   $-   $-   $239,413 
                                                   
Loss from operations  $(481,203)  $

(352,208

)  $

(16,813

)  $(330,349)  $

(1,180,573

)  $191,821   $-   $-   $(832,080)  $(640,259)
                                                   
Interest income  $-   $-   $-   $1,066,311   $1,066,311   $-   $-   $-   $715,893   $715,893 
                                                   
Interest expense  $-   $-   $-   $(32,949)  $(32,949)  $-   $-   $-   $-   $- 

 

20

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

   For the Nine Months Ended September 30, 2024   For the Nine Months Ended September 30, 2023 
   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL 
Revenues  $3,518,226   $3,664,244   $-   $-   $7,182,470   $5,581,486   $-   $-   $-   $5,581,486 
                                                   
Revenues from foreign operations  $-   $3,664,244   $-   $-   $3,664,244   $-   $-   $-   $-   $- 
                                                   
Depreciation and amortization  $689,509   $407,864   $-   $86,319   $1,183,692   $1,028,668   $-   $-   $1,523   $1,030,191 
                                                   
Loss from operations  $(1,733,922)  $(833,463)  $

(153,232

)  $(6,425,706)  $

(9,146,323

)  $(1,339,523)  $-   $-   $(3,351,658)  $(4,691,181)
                                                   
Interest income  $-   $-   $-   $2,977,266   $2,977,266   $-   $-   $-   $2,165,514   $2,165,514 
                                                   
Interest expense  $-   $-   $-   $(43,231)  $(43,231)  $-   $-   $-   $(46)  $(46)

 

(1)Represents unallocated corporate operating losses resulting from general corporate overhead expenses not directly attributable to any one of the business segments. Corporate operating expense are reported separate from the Company’s identified segments and are included in general and administrative expenses on the accompanying consolidated statements of operations.

 

The following table presents segment information as of September 30, 2024 and December 31, 2023:

 

   As of September 30, 2024   As of December 31, 2023 
   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL   E-sports   Causal
Mobile
Gaming
   Concerts   Corporate(1)   TOTAL 
Goodwill and intangible assets, net  $15,846   $18,132,813   $-   $589,461   $18,738,120   $18,843   $18,340,383   $-   $624,561   $18,983,787 
                                                   
Property and equipment, net  $3,166,226   $23,124   $-   $-   $3,189,350   $3,808,985   $23,939   $-   $1,269   $3,834,193 
                                                   
Property and equipment, net - foreign operations  $-   $23,124   $-   $-   $23,124   $-   $23,939   $-   $-   $23,939 
                                                   
Total assets (2)  $8,707,254   $18,628,914   $7,492,819   $94,998,909   $129,827,256   $10,842,100   $18,793,420   $6,007,381   $76,373,786   $112,016,687 

 

(1) Represents unallocated corporate assets not directly attributable to any one of the business segments and unallocated corporate operating losses resulting from general corporate overhead expenses not directly attributable to any one of the business segments. Corporate operating expense are reported separate from the Company’s identified segments and are included in general and administrative expenses on the accompanying consolidated statements of operations.
   
(2) Reflects reclassification of AME’s short-term investments, interest receivable and cash and cash equivalents to Corporate

 

Note 12 – Subsequent Events

 

Securities Purchase Agreement

 

Blue Planet New Energy Technology Limited

 

On October 18, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Blue Planet New Energy Technology Limited (“Blue Planet”), pursuant to which the Company agreed to sell and issue and Blue Planet agreed to purchase (i) 6,000,000 shares of Common Stock of the Company at a purchase price of $1.10 per share (the “Purchased Shares”) for a total purchase price of $6,600,000 and (ii) a corresponding warrant (the “Warrant”) to purchase up to 6,000,000 shares of Common Stock, with an exercise price of $1.80 per share, which represents a 50% premium to the closing sales price of the Common Stock on October 17, 2024, issuable upon exercise of the Warrant (the “Warrant Shares” and together with the Purchased Shares and the Warrant, the “Registrable Securities”) (such transaction, the “Transaction”). The Warrant expires five years from the date of issuance. The Purchase Agreement is subject to customary representations, warranties, covenants and conditions. In addition, Blue Planet is subject to a 6-month lock-up period commencing from the date of closing.

 

The Purchase Agreement does not contain any voting commitment, and Blue Planet may vote its shares of Common Stock in its discretion for any matter requiring a vote of the Company’s stockholders. The Warrant may not be exercised if Blue Planet, together with its affiliates, would beneficially own more than 19.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such exercise, unless the Company obtains shareholder approval pursuant to applicable NASDAQ rules. Finally, the Company agreed to register the resale of Registrable Securities pursuant to a registration statement to be filed under the Securities Act of 1933, as amended.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Statements 

 

The following discussion and analysis of the results of operations and financial condition of Allied Gaming & Entertainment Inc. (the “Company”) as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2023, which are included in the Form 10-K (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024, as amended on Form 10-K/A which was filed on April 29, 2024. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company and its subsidiaries. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” in our Annual Report, and other factors that we may not know. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements above, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

 

The Company 

 

Allied Gaming and Entertainment Inc., along with its subsidiaries (“AGAE” or the “Company”) is a global experiential entertainment company focused on providing a growing audience of gamers with unique experiences through renowned assets, products, and services. Under the Allied Esports International subsidiary (“AEI”) we operate global competitive esports properties designed to connect players and fans via a network of connected arenas and creation of original esports content. Esports Arena Las Vegas, LLC subsidiary, operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. Meanwhile, Allied Mobile Entertainment subsidiary (“AME”), is dedicated to exploring opportunities in the massive and growing mobile games markets. AME’s ownership of a 40% equity interest in Beijing Lianzhong Zhihe Technology Co. Ltd (“ZTech”), a prominent mobile games developer and operator, is engaged in the development and distribution of casual mobile games in Mainland China, solidifies our presence in this lucrative sector. Moreover, our subsidiary Allied Experiential Entertainment (“AEE”), focuses on orchestrating live entertainment events and offers management and consultation service to experiential entertainment venue operation. The Company offers a variety of esports and gaming-related content, including world class tournaments, live and virtual entertainment and gaming events, and original programming to continuously nurture vibrant communities primarily comprising of Gen Y, Z, and Alpha consumers.

 

Allied’s in-person experiences include live events hosted at its flagship arena, HyperX Arena Las Vegas, an affiliate arena with one of its global network of esports arena partners, and its mobile arenas. Allied’s multiplatform content includes its partnerships with live streamers, post-produced episodic content, and short-form repackaged content. Allied’s casual mobile gaming includes contractual relationships with various advertising service providers for advertisements within the Company’s casual mobile games.

 

Our growth depends, in part, on our ability to adapt to technological advancements, shifts in gamer trends and demands, introductions of new games, evolving intellectual property practices among game publishers, the fusion of gaming and music and industry standards and practices. While change in this industry may be inevitable, we are committed to flexibly adjusting our business model as necessary to accommodate such shifts and maintain a leading position among our competitors.

 

Our business plan requires significant capital expenditures, and we expect our operating expenses to increase as we continue to expand our marketing efforts and operations in existing and new geographies as well as new vertical markets (including live influencer events, top artist events and concerts, experiential entertainment, casual mobile gaming, live streaming platforms and channels, interactive content monetization, and online esports tournament and gaming subscription platforms), which we believe will provide attractive returns on investment.   

 

Corporate Developments

 

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