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, 20222023

 

☐ 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 ESPORTSGAMING & 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 AESEAGAE 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 precedingpast 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 10, 2022, 39,085,4706, 2023, 36,842,663 shares of common stock, par value $0.0001 per share, were issued and outstanding.

 

 

 

 

 

 

ALLIED ESPORTSGAMING & ENTERTAINMENT INC AND SUBSIDIARIESINC.

Index to Condensed Consolidated Financial Statements

 

PART I FINANCIAL INFORMATION1
  
Item 1.Financial Statements1
  
Condensed Consolidated Balance Sheets as of September 30, 20222023 (unaudited) and December 31, 202120221
  
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months endedEnded September 30, 20222023 and 202120222
  
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months endedEnded September 30, 20222023 and 202120223
  
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months endedEnded September 30, 20222023 and 202120224
  
Notes to Unaudited Condensed Consolidated Financial Statements65
  
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.1516
  
ITEM 3.Quantitative and Qualitative Disclosures About Market RiskRisk.21
  
ITEM 4.Controls and ProceduresProcedures.21
  
PART II - OTHER INFORMATION22
  
ITEM 1.Legal ProceedingsProceedings.22
  
ITEM 1A.Risk FactorsFactors.22
  
ITEM 2.Unregistered Sales of Equity andSecurities, Use of Proceeds, and Issuer Purchases of Equity Securities.22
  
ITEM 3.Defaults Upon Senior SecuritiesSecurities.2223
  
ITEM 4.Mine Safety DisclosuresDisclosures.2223
  
ITEM 5.Other InformationInformation.2223
  
ITEM 6.ExhibitsExhibits.2223
  
SIGNATURES2324

  

i

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Allied Esports Entertainment, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 September 30, December 31,  September 30, December 31, 
 2022  2021  2023  2022 
 (unaudited)     (unaudited)    
Assets          
Current Assets          
Cash $84,225,000  $92,887,030 
Cash and cash equivalents $10,435,990  $11,167,442 
Short-term investments  59,950,000   70,000,000 
Interest receivable  2,058,576   677,397 
Due from affiliate  3,500,000   - 
Accounts receivable  121,394   389,040   10,673   72,739 
Prepaid expenses and other current assets  1,214,231   984,777   470,390   459,274 
Total Current Assets  85,560,625   94,260,847   76,425,629   82,376,852 
Restricted cash  5,000,000   5,000,000   5,000,000   5,000,000 
Property and equipment, net  4,831,180   6,136,893   3,794,373   4,005,622 
Digital assets  56,970   -   49,300   49,761 
Intangible assets, net  23,833   26,827   688,721   72,786 
Deposits  379,105   379,105   380,703   379,105 
Operating lease right-of-use asset  5,411,841   5,845,549 
Total Assets $95,851,713  $105,803,672  $91,750,567  $97,729,675 
Liabilities and Stockholders’ Equity                
Current Liabilities                
Accounts payable $745,584  $341,161  $470,264  $317,561 
Accrued expenses and other current liabilities  2,768,895   2,966,245   306,270   1,645,379 
Accrued expenses - related party  -   1,800,000 
Deferred revenue  411,510   141,825   357,677   108,428 
Operating lease liability, current portion  1,390,533   1,227,164 
Total Current Liabilities  3,925,989   5,249,231   2,524,744   3,298,532 
Deferred rent  1,708,115   1,907,634 
Operating lease liability, non-current portion  5,744,166   6,527,075 
Total Liabilities  5,634,104   7,156,865   8,268,910   9,825,607 
Commitments and Contingencies (Note 4)        
Commitments and Contingencies (Note 5)        
Stockholders’ Equity                
Preferred stock, $0.0001 par value, 1,000,000 shares authorized, none issued and outstanding  -   -   -   - 

Common stock, $0.0001 par value; 100,000,000 shares authorized, 39,085,470 shares issued and outstanding at September 30, 2022 39,116,907 shares issued and outstanding at December 31, 2021

  3,909   3,912 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 39,085,470 shares issued at September 30, 2023 and December 31, 2022, and 36,842,663 and 38,503,724 shares outstanding at September 30, 2023 and December 31, 2022, respectively  3,909   3,909 
Additional paid in capital  198,528,534   197,784,972   198,663,219   198,526,614 
Accumulated deficit  (108,494,062)  (99,411,683)  (112,745,327)  (110,235,568)
Accumulated other comprehensive income  179,228   269,606   221,555   219,675 
Treasury stock, at cost, 2,242,807 and 581,746 shares at September 30, 2023 and December 31, 2022, respectively  (2,661,699)  (610,562)
Total Stockholders’ Equity  90,217,609   98,646,807   83,481,657   87,904,068 
Total Liabilities and Stockholders’ Equity $95,851,713  $105,803,672  $91,750,567  $97,729,675 

 

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

 

1


 

 

Allied Esports Entertainment, Inc. and SubsidiariesALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
             
Revenues:            
In-person $1,551,963  $1,455,867  $4,884,400  $2,627,781 
Multiplatform content  13,679   229,961   251,130   383,684 
Total Revenues  1,565,642   1,685,828   5,135,530   3,011,465 
Costs and Expenses:                
In-person (exclusive of depreciation and amortization)  1,112,645   1,249,640   4,002,312   2,442,750 
Multiplatform content (exclusive of depreciation and amortization)  31,010   87,373   95,507   214,258 
Selling and marketing expenses  54,445   87,755   185,614   216,428 
General and administrative expenses  2,397,901   3,385,418   8,470,193   9,659,425 
Depreciation and amortization  (328,739)  806,137   1,288,106   2,495,939 
Impairment of digital assets  -   -   164,411   - 
Total Costs and Expenses  3,267,262   5,616,323   14,206,143   15,028,800 
Loss From Operations  (1,701,620)  (3,930,495)  (9,070,613)  (12,017,335)
Other Income (Expense):                
Gain on forgiveness of PPP loans and interest  -   912,475   -   912,475 
Other income (expense), net  34,073   54,434   (45,859)  69,413 
Interest income (expense), net  25,316   (11,809)  34,093   (269,411)
Total Other Expense  59,389   955,100   (11,766)  712,477 
Loss from continuing operations  (1,642,231)  (2,975,395)  (9,082,379)  (11,304,858)
(Loss) income from discontinued operations, net of tax provision:                
Loss from discontinued operations before the sale of WPT  -   (3,151,740)  -   (1,099,033)
Gain on sale of WPT  -   80,429,729   -   80,429,729 
Income from discontinued operations  -   77,277,989   -   79,330,696 
Net (loss) income $(1,642,231) $74,302,594  $(9,082,379) $68,025,838 
                 
Basic and Diluted Net (Loss) Income per Common Share                
Continuing operations $(0.04) $(0.08) $(0.23) $(0.29)
Discontinued operations, net of tax $-  $1.98  $-  $2.03 
                 
Weighted Average Number of Common Shares Outstanding:                
Basic and Diluted  39,094,696   39,056,403   39,092,133   38,989,671 
                 
Comprehensive Loss                
Net (Loss) Income $(1,642,231) $74,302,594  $(9,082,379) $68,025,838 
Other comprehensive (loss) income:                
Foreign currency translation adjustments  (31,747)  (22,031)  (90,378)  35,889 
Total Comprehensive Loss $(1,673,978) $74,280,563  $(9,172,757) $68,061,727 
  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
             
Revenues:            
In-person $1,119,865  $1,551,963  $3,580,968  $3,734,400 
Multiplatform content  94   13,679   2,000,518   1,401,130 
Total Revenues  1,119,959   1,565,642   5,581,486   5,135,530 
Costs and Expenses:                
In-person (exclusive of depreciation and amortization)  575,176   1,112,645   1,891,229   2,784,933 
Multiplatform content (exclusive of depreciation and amortization)  -   31,010   1,517,707   1,020,886 
Selling and marketing expenses  51,448   54,445   172,987   185,614 
General and administrative expenses  894,181   2,397,901   5,660,553   8,762,193 
Stock-based compensation  -   -   -   - 
Depreciation and amortization  239,413   (328,739)  1,030,191   1,288,106 
Impairment of digital assets  -   -   -   164,411 
Total Costs and Expenses  1,760,218   3,267,262   10,272,667   14,206,143 
Loss From Operations  (640,259)  (1,701,620)  (4,691,181)  (9,070,613)
Other Income (Expense):                
Other (expense) income, net  (388)  34,073   15,954   (45,859)
Interest income, net  715,893   25,316   2,165,468   34,093 
Total Other Income (Expense)  715,505   59,389   2,181,422   (11,766)
Net income (loss)  75,246   (1,642,231)  (2,509,759)  (9,082,379)
Other comprehensive income:                
Foreign currency translation adjustments  -   (31,747)  1,880   (90,378)
Total Comprehensive Income (Loss) $75,246  $(1,673,978) $(2,507,879) $(9,172,757)
                 

Earnings (Loss) per Common Share

                
Basic $0.00  $(0.04) $(0.07) $(0.23)
Diluted $0.00  $(0.04) $(0.07) $(0.23)
                 
Weighted Average Number of Common Shares Outstanding:                
Basic  36,942,149   39,094,696   37,351,735   39,092,133 
Diluted  37,134,457   39,094,696   37,351,735   39,092,133 

 

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

 

2


 

 

Allied Esports Entertainment, Inc. and SubsidiariesALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

 

 For The Nine Months Ended September 30, 2022  For The Three and Nine Months Ended September 30, 2023 
 Common Stock  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Accumulated  Total
Stockholders’		             Accumulated      
 Shares  Amount  Capital  Income  Deficit  Equity  Common Stock  Treasury Stock  Additional Paid-in  Other Comprehensive  Accumulated  Total
Stockholders’		 
Balance - January 1, 2022  39,116,907  $3,912  $197,784,972  $269,606  $(99,411,683) $98,646,807 
 Shares  Amount  Shares  Amount  Capital  Income  Deficit  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 
Stock-based compensation:                                                        
Common stock          -   -       - 
Restricted common stock  -   -   82,345   -   -   82,345 
Stock options  -   -   318,951   -   -   318,951   -   -   -   -   5,126   -   -   5,126 
Repurchases of common stock  -   -   1,105,604   (1,459,078)  -   -   -   (1,459,078)
Net loss  -   -   -   -   (3,751,197)  (3,751,197)  -   -   -   -   -   -   (1,893,787)  (1,893,787)
Other comprehensive income  -   -   -   12,964   -   12,964   -   -   -   -   -   1,880   -   1,880 
Balance - March 31, 2022  39,116,907   3,912   198,186,268   282,570   (103,162,880)  95,309,870 
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 
Stock-based compensation:                                                        
Stock options  -   -   153,093   -   -   153,093   -   -   -   -   66,856   -   -   66,856 
Repurchases of common stock  -   -   372,436   (415,313)  -   -   -   (415,313)
Net loss  -   -   -   -   (3,688,951)  (3,688,951)  -   -   -   -   -   -   (691,218)  (691,218)
Other comprehensive loss  -   -   -   (71,595)  -   (71,595)
Balance - June 30, 2022  39,116,907   3,912   198,339,361   210,975   (106,851,831)  91,702,417 
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 
Stock-based compensation:                                                        
Stock options  -   -   238,840   -   -   238,840   -   -   -   -   64,623   -   -   64,623 
Shares withheld for employee payroll tax  (31,437)  (3)  (49,667)  -   -   (49,670)
Repurchases of common stock  -   -   183,021   (176,746)  -   -   -   (176,746)
Net loss  -   -   -   -   (1,642,231)  (1,642,231)  -   -   -   -   -   -   75,246   75,246 
Other comprehensive loss  -   -   -   (31,747)  -   (31,747)
Balance - September 30, 2022  39,085,470  $3,909  $198,528,534  $179,228  $(108,494,062) $90,217,609 
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 

  

For The Three and Nine Months Ended September 30, 2022

 
                 Accumulated         
  Common Stock  Treasury Stock  Additional Paid-in Other Comprehensive  Accumulated  Total
Stockholders’		 
  Shares  Amount  Shares  Amount  Capital  Income  Deficit  Equity 
Balance - January 1, 2022  39,116,907  $3,912   -  $-  $197,784,972  $269,606  $(99,411,683) $98,646,807 
Stock-based compensation:                                
Restricted common stock  -   -   -   -   82,345   -   -   82,345 
Stock options  -   -   -   -   318,951   -   -   318,951 
Net loss  -   -   -   -   -   -   (3,751,197)  (3,751,197)
Other comprehensive income  -   -   -   -   -   12,964   -   12,964 
Balance - March 31, 2022  39,116,907  $3,912   -  $-  $198,186,268  $282,570  $(103,162,880) $95,309,870 
Stock-based compensation:                                
Stock options  -   -   -   -   153,093   -   -   153,093 
Net loss  -   -   -   -   -   -   (3,688,951)  (3,688,951)
Other comprehensive loss  -   -   -   -   -   (71,595)  -   (71,595)
Balance - June 30, 2022  39,116,907  $3,912   -  $-  $198,339,361  $210,975  $(106,851,831) $91,702,417 
Stock-based compensation:                                
Stock options  -   -   -   -   238,840   -   -   238,840 
Shares withheld for employee payroll tax  (31,437)  (3)  -   -   (49,667)  -   -   (49,670)
Net loss  -   -   -   -   -   -   (1,642,231)  (1,642,231)
Other comprehensive loss  -   -   -   -   -   (31,747)  -   (31,747)
Balance - September 30, 2022  39,085,470  $3,909   -  $-  $198,528,534  $179,228  $(108,494,062) $90,217,609 

 

  For The Nine Months Ended September 30, 2021 
  Common Stock  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Accumulated  Total
Stockholders’		 
  Shares  Amount  Capital  Income  Deficit  Equity 
Balance - January 1, 2021  38,506,844  $3,851  $195,488,181  $190,966  $(162,277,414) $33,405,584 
Stock-based compensation:                        
Common stock  126,584   13   199,987   -   -   200,000 
Restricted common stock  -   -   80,006   -   -   80,006 
Stock options  -   -   282,999   -   -   282,999 
Shares issued for redemption of debt and accrued interest  529,383   53   821,814   -   -   821,867 
Net loss  -   -   -   -   (3,336,676)  (3,336,676)
Other comprehensive income  -   -   -   25,336   -   25,336 
Balance - March 31, 2021  39,162,811   3,917   196,872,987   216,302   (165,614,090)  31,479,116 
Stock-based compensation:                        
Stock options  -   -   226,698   -   -   226,698 
Restricted common stock  -   -   80,925   -   -   80,925 
Net loss  -   -   -   -   (2,940,080)  (2,940,080)
Other comprehensive income  -   -   -   32,584   -   32,584 
Balance - June 30, 2021  39,162,811  $3,917  $197,180,610  $248,886  $(168,554,170) $28,879,243 
Stock-based compensation:                        
Stock options  -   -   613,070   -   -   613,070 
Restricted common stock  80,000   8   58,915   -   -   58,923 
Shares withheld for employee payroll tax  (100,904)  (10)  (210,137)  -   -   (210,147)
Net income  -   -   -   -   74,302,594   74,302,594 
Other comprehensive loss  -   -   -   (22,031)  -   (22,031)
Balance - September 30, 2021  39,141,907  $3,915  $197,642,458  $226,855  $(94,251,576) $103,621,652 

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

3


 

Allied Esports Entertainment, Inc. and SubsidiariesALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 For the Nine Months Ended  For the Nine Months Ended 
 September 30,  September 30, 
 2022  2021  2023  2022 
Cash Flows From Operating Activities          
Net (loss) income $(9,082,379) $68,025,838 
Adjustments to reconcile net (loss) income to net cash used in operating activities:        
Income from discontinued operations, net of tax provision  -   (79,330,696)
Net loss $(2,509,759) $(9,082,379)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  793,229   1,081,362   136,605   793,229 
Gain on forgiveness of PPP loans and interest  -   (912,475)
Non-cash rent expense  723,594   646,657 
Digital currency received as revenue  (249,888)  -   -   (249,888)
Impairment of digital assets  164,411   -   -   164,411 
Net gains on sale of equipment  (8,388)  - 
Expenses paid using digital assets  69,533   -   461   69,533 
Change in fair value of warrant liabilities  7,400   1,100   -   7,400 
Amortization of debt discount  -   3,646 
Non-cash interest expense  -   46,110 
Depreciation and amortization  1,288,106   2,495,939   1,030,191   1,288,106 
Deferred rent  (199,519)  268,574 
Changes in operating assets and liabilities:                
Accounts receivable  266,889   (36,021)  62,066   266,889 
Interest receivable  (1,381,179)  - 
Prepaid expenses and other current assets  (243,058)  (108,257)  (11,116)  (243,058)
Deposit returns  (1,598)  - 
Accounts payable  404,715   (556,041)  152,701   404,715 
Accrued expenses and other current liabilities  (2,041,043)  326,862   (1,339,109)  (2,079,071)
Accrued interest  -   (146,894)
Due to affiliates  -   697,551 
Operating lease liability  (909,426)  (808,148)
Deferred revenue  269,685   297,086   (543,786)  269,685 
Total Adjustments  530,460   (75,872,154)  (2,088,984)  530,460 
Net Cash Used In Operating Activities  (8,551,919)  (7,846,316)  (4,598,743)  (8,551,919)
Cash Flows From Investing Activities                
Cash consideration for sale of WPT  -   106,155,004 
Purchases of short-term investments  (19,950,000)  - 
Proceeds from maturing of short-term investments  30,000,000   - 
Loan to affiliate  (3,500,000)  - 
Investment in digital assets  (41,026)  -   -   (41,026)
Proceeds from sale of equipment  106,914   - 
Purchases of intangibles  (618,930)  - 
Purchases of property and equipment  (6,697)  (141,923)  (119,525)  (6,697)
Net Cash (Used In) Provided By Investing Activities  (47,723)  106,013,081 
Net Cash Provided By (Used In) Investing Activities  5,918,459   (47,723)
Cash Flows From Financing Activities                
Repayments of bridge loans  -   (3,421,096)
Net Cash Used Financing Activities  -   (3,421,096)
Cash Flows From Discontinued Operations        
Operating activities  -   63,956 
Investing activities  -   (17,259)
Change in cash balance of discontinued operations  -   3,633,292 
Cash sold in connection with sale of WPT  -   (3,679,989)
Net Cash Provided By Discontinued Operations  -   - 
Repurchases of common stock  (2,051,137)  - 
Net Cash Used In Financing Activities  (2,051,137)  - 
Effect of Exchange Rate Changes on Cash  (31)  (62,388)
Net Decrease In Cash, Cash Equivalents, And Restricted Cash  (731,452)  (8,662,030)
Cash, cash equivalents, and restricted cash - Beginning of Period  16,167,442   97,887,030 
Cash, cash equivalents, and restricted cash - End of Period $15,435,990  $89,225,000 
Cash and restricted cash consisted of the following:        
Cash $10,435,990  $84,225,000 
Restricted cash  5,000,000   5,000,000 
 $15,435,990  $89,225,000 
        
Non-Cash Investing and Financing Activities:        
ROU asset for lease liability $289,886  $- 
Property and equipment received as deferred revenue $793,035  $- 

 

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

 

4

Allied Esports Entertainment, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows, continued

(unaudited)

  For the Nine Months Ended 
  September 30, 
  2022  2021 
Effect of Exchange Rate Changes on Cash  (62,388)  51,893 
Net (Decrease) Increase In Cash And Restricted Cash  (8,662,030)  94,797,562 
Cash and restricted cash - Beginning of period  97,887,030   5,424,223 
Cash and restricted cash - End of period $89,225,000  $100,221,785 
Cash and restricted cash consisted of the following:        
Cash $84,225,000  $95,221,785 
Restricted cash  5,000,000   5,000,000 
  $89,225,000  $100,221,785 
         
Supplemental Disclosures of Cash Flow Information        
Cash paid during the period for interest $-  $350,471 
         
Non-Cash Investing and Financing Activities:        
Shares issued for redemption of debt and accrued interest $-  $821,867 
Forgiveness of amounts due to affiliate $-  $9,370,261 

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

5


 

 

ALLIED ESPORTSGAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements.Statements

 

(unaudited)

Note 1 – Business Organization and Nature of Operations 

 

Allied EsportsGaming & Entertainment Inc. (“AESE”AGAE” and together with its subsidiaries, “the Company”) operates a public esports and entertainment company consisting of the Allied Esports business and, until the sale of WPT on July 12, 2021, the World Poker Tour business. Allied Esports operates 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”), and Allied Esports GmbH (“AEG” and together with AEII, AME and ESALV, “Allied Esports”). AEII operates global competitiveproduces a variety of esports properties designedand gaming-related content, including world class tournaments, live and virtual events, and original programming to connect players and fans via a network of connected arenas.continuously foster an engaged gaming community. ESALV operates a flagship gaming arena located at the Luxor Hotel inHyperX Arena Las Vegas, Nevada. AEG operates a mobilethe world’s most recognized esports truck that serves as both a battleground and content generation hub and also operates a studio for recording and streaming gaming events. 

AESE’s formerly wholly owned subsidiaries, Peerless Media Limited, Club Services, Inc. (“CSI”) and WPT Enterprises, Inc., operated the poker-related business of AESE and are collectively referred to herein as “World Poker Tour” or “WPT”. World Poker Tourfacility. AME is an internationally televised gaming and entertainment company that has been involvedengaged in the sportdevelopment and worldwide distribution of poker since 2002mobile casual games. AEE and created a television show based on a series of high-stakes poker tournaments. 

On January 19, 2021, the Company entered into a stock purchase agreement (as amended and restated, the “SPA”) for the sale of 100% of the capital stock of CSI. CSI owns 100% of each of the legal entities which comprise World Poker Tour. On July 12, 2021, the Company consummated the sale of the World Poker Tour business. As the result of the Company’s sale of WPT, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021, present the results and accounts of World Poker Tour as discontinued operations.AEG are currently inactive.

 

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, 2021.2022 (the “Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023, as amended on April 27, 2023 and May 3, 2023, on Forms 10-K/A.

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAPGAAP”) 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 by the Company for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2022,2023, and for the three and nine months ended September 30, 20222023 and 2021.2022. The results of operations for the three and nine months ended September 30, 20222023 are not necessarily indicative of the operating results for the full year ending December 31, 20222023 or any other period. These unaudited condensed consolidated financial statements have been derived from the Company’s accounting records of the Company 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, 2021, filed with the Securities and Exchange Commission (“SEC”) on May 26, 2022.Report.

 

Correction of an Error

See Note 6 – Correction of an Error.

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).  

 

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

 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

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

 

Notes to Condensed Consolidated Financial Statements

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

 

(unaudited)

The following table provides information about the Company’s financial assets and liabilities 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, 2023 Level 1  Level 2  Level 3  Total 
             
Digital assets $49,300  $-  $-  $49,300 
                 
Sponsor warrants  -   -   100   100 
Total $49,300  $-  $100  $49,400 

As of December 31, 2022 Level 1  Level 2  Level 3  Total 
             
Digital assets $49,761  $-  $-  $49,761 
                 
Sponsor warrants  -   -   100   100 
Total $49,761  $-  $100  $49,861 

The carrying amounts of the Company’s financial instruments, such as cash equivalents, accounts receivable, short-term investments, interest receivable, due from affiliates, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments.

 

Short-term investments consist of certificates of deposit with original maturities of greater than three months but less than or equal to twelve months when purchased.

6

 

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements.

The Sponsor Warrants previously issued to the Company’s sponsor (the “Sponsor Warrants”) are classified as a liability measuredcarried at fair value. Asvalue as of September 30, 20222023 and December 31, 2021, the fair value of warrant liabilities related to our Sponsor Warrants totaled $10,6002022 and $3,200, respectively, which isare included in accrued expenses and other current liabilities inon the accompanying condensed consolidated balance sheet. See Note 3 – Accrued Expenses and Other Current Liabilities.sheets. The Sponsor Warrants are valued using Levellevel 3 inputs. The fair value of the Sponsor Warrants is estimated using the Black-Scholes option pricing method. Significant Levellevel 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 following is a roll forward of the Company’s Level 3 instruments during the nine months ended September 30, 2022:2023:  

 

Balance, January 1, 2022 $3,200 
Change in fair value of sponsor warrants  1,300 
Balance, March 31, 2022  4,500 
Change in fair value of sponsor warrants  65,500 
Balance, June 30, 2022 $70,000 
Change in fair value of sponsor warrants  (59,400)
Balance, September 30, 2022 $10,600 
Balance, January 1, 2023 $100 
Change in fair value of sponsor warrants  - 
Balance, March 31, 2023  100 
Change in fair value of sponsor warrants  - 
Balance, June 30, 2023  100 
Change in fair value of sponsor warrants  - 
Balance, September 30, 2023 $100 

 

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 2023  2022 
Risk-free rate  5.46%  4.57%
Remaining term in years  0.86   1.61 
Expected volatility  64.0%  56.0%
Exercise price $11.50  $11.50 
Fair value of common stock $0.91  $1.05 

  September 30,  December 31, 
Input 2022  2021 
Risk-free rate  4.22%  0.97%
Remaining term in years  1.86   2.61 
Expected volatility  78.3%  46.0%
Exercise price $11.50  $11.50 
Fair value of common stock $1.17  $1.81 


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 (a) exercise of outstanding stock options and warrants; (b) the conversion of convertible instruments;warrants and (c) vesting of restricted stock awards.

 

The following table presents the computation of basic and diluted netearnings (loss) income per common share:

 

  

For the Three Months

Ended

  

For the Nine Months

Ended

 
  September 30,  September 30, 
  2022  2021  2022  2021 
Numerator:            
Net loss - continuing operations $(1,642,231) $(2,975,395) $(9,082,379) $(11,304,858)
Net income - discontinued operations, net of tax $-  $77,277,989  $-  $79,330,696 
                 
Denominator:                
Weighted-average common shares outstanding  39,094,696   39,231,507   39,109,422   39,180,713 
Less: weighted-average unvested restricted shares  -   (175,104)  (17,289)  (191,042)
Denominator for basic and diluted net (loss) income per share 39,094,696  39,056,403  39,092,133  38,989,671 
                 
Basic and Diluted Net (Loss) Income per Common Share:                
Continuing operations $(0.04) $(0.08) $(0.23) $(0.29)
                 
Discontinued operations, net of tax $-  $1.98  $-  $2.03 
  For the Three Months Ended
September 30,		  For the Nine Months Ended
September 30,		 
  2023  2022  2023  2022 
Numerator:            
Net income (loss) $75,246  $(1,642,231) $(2,509,759) $(9,082,379)
                 
Denominator (weighted average quantities):                
Common shares outstanding  36,942,149   39,094,696   37,351,735   39,109,422 
Less: Unvested restricted shares  -   -   -   (17,289)
Denominator for basic net loss per share  36,942,149   39,094,696   37,351,735   39,092,133 
Add: Contingent consideration shares  192,308   -   -   - 
Denominator for fully diluted net loss per share  37,134,457   39,094,696   37,351,735   39,092,133 
                 
Income (Loss) per common shares                
Basic $0.00  $(0.04) $(0.07) $(0.23)
Diluted $0.00  $(0.04) $(0.07) $(0.23)

 

7

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements.

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, 
  2022  2021 
Restricted common shares  -   80,000 
Options  1,810,000   2,565,000 
Warrants  20,091,549   20,091,549 
Equity purchase options  600,000   600,000 
Contingent consideration shares (1)    192,308   192,308 
   22,693,857   23,528,857 

  For the Three Months Ended
September 30,		  For the Nine Months Ended
September 30,		 
  2023  2022  2023  2022 
Options  1,540,000   1,810,000   1,540,000   1,810,000 
Warrants  20,091,549   20,091,549   20,091,549   20,091,549 
Equity purchase options  -   600,000   -   600,000 
Contingent consideration shares(1)  -   192,308   192,308   192,308 
   21,631,549   22,693,857   21,823,857   22,693,857 

 

(1)Holders who elected to convert theira certain former Bridge Note from the Company into common stock are 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 the August 9, 2019 closing date, 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.

 


ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company recognizes revenue from continuing operations primarily from the following sources:

 

In-person revenue 

 

The Company’s in-personIn-person revenue iswas comprised of event revenue, sponsorship revenue, merchandising revenuethe following for the three and other revenue. Event revenue is generated through Allied Esports events held at the Company’s esports properties. nine months ended September 30, 2023 and 2022: 

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Event Revenue $420,192  $914,386  $1,593,277  $2,115,530 
Sponsorship revenue  457,740   175,299   1,275,218   507,799 
Food and beverage revenue  47,535   110,139   173,326   342,253 
Ticket and gaming revenue  151,391   143,413   401,096   394,564 
Merchandising revenue  43,007   208,726   138,051   374,254 
Total in-person revenue $1,119,865  $1,551,963  $3,580,968  $3,734,400 

Event revenues recognized from the rental of the Allied Esports arena and gaming trucks are recognized at a point in time whenover the term of the event occurs.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 also generates sponsorship revenuesrevenue from original content and from naming rights for, and rentals of the Company’s arena and gaming trucks. Sponsorship revenues from naming rights of the Company’sits esports arena and from sponsorship arrangementswhich are 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.

 

8

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

In-person revenue was comprised of the following for the three and nine months ended September 30, 2022 and 2021:

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Event revenue $914,386  $1,002,452  $2,115,530  $1,420,364 
Sponsorship revenue  175,299   161,825   1,657,799   535,355 
Food and beverage revenue  291,440   129,549   651,100   300,357 
Ticket and gaming revenue  143,413   159,533   394,564   357,488 
Merchandising revenue  27,425   2,508   65,407   14,117 
Other revenue  -   -   -   100 
Total in-person revenue $1,551,963  $1,455,867  $4,884,400  $2,627,781 

Multiplatform revenue

Multiplatform revenue was comprised of the following for the three and nine months ended September 30, 20222023 and 2021:2022:

 For the Three Months Ended For the Nine Months Ended 
 For the Three Months Ended For the Nine Months Ended  September 30,  September 30, 
 September 30, September 30,  2023  2022  2023  2022 
 2022 2021 2022 2021          
NFT revenue $13,441  $-  $249,889  $-  $-  $13,441  $-  $249,889 
Sponsorship revenue  -   -   2,000,000   1,150,000 
Distribution revenue  238   229,961   1,241   383,684   94   238   518   1,241 
Total multiplatform revenue $13,679  $229,961  $251,130  $383,684  $94  $13,679  $2,000,518  $1,401,130 

The Company’s NFT revenue wasis generated from the sale of non-fungible tokens (NFTs). The Company’s NFTs exist on the Ethereum Blockchain under the Company’s EPICBEAST brand, a digital art collection of 1,958 unique beasts inspired by past and present e-sport games. The Company uses the NFT exchange, OpenSea, to facilitate its salesthe sale of NFTs. The Company, through OpenSea, has custody and control of the NFT prior to the delivery to the customer and records revenue at a point in time when the NFT is delivered to the customer and the customer pays. The Company has no obligations for returns, refunds or warranty after the NFT sale.


ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company also earns a royalty of up to 10% of the sale price when an NFT is resold by its owner in a secondary market transaction. The Company recognizes this royalty as revenue when the sale is consummated.

The Company generates sponsorship revenue from the production and distribution of original content programming over live-streaming services. The Company recognizes sponsorship revenue pursuant to the terms of each individual contract when the Company satisfies the respective performance obligations, which could be recognized at a point in time or over the term of the contract.

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.

9

 

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Revenue recognition

The following table summarizes our revenue recognized under ASC 606 “Revenue form Contracts with Customers” in our condensed consolidated statements of operations:

 For the Three Months Ended For the Nine Months Ended 
 September 30, September 30,  For the Three Months Ended For the Nine Months Ended 
 2022 2021 2022 2021  September 30,  September 30, 
          2023  2022  2023  2022 
Revenues Recognized at a Point in Time:                  
Event revenue $914,386  $1,002,452  $2,115,530  $1,420,364 
Ticket and gaming revenue $151,391  $143,413  $401,096  $394,564 
NFT revenue  13,441   -   249,889   -   -   13,441   -   249,889 
Food and beverage revenue  291,440   129,549   651,100   300,357   47,535   110,139   173,326   342,253 
Ticket and gaming revenue  143,413   159,533   394,564   357,488 
Merchandising revenue  27,425   2,508   65,407   14,117   43,007   208,726   138,051   374,254 
Distribution revenue  238   229,961   1,241   383,684   94   238   518   1,241 
Other revenue  -   -   -   100 
Total Revenues Recognized at a Point in Time  1,390,343   1,524,003   3,477,731   2,476,110   242,027   475,957   712,991   1,362,201 
                                
Revenues Recognized Over a Period of Time:                                
Event revenue  420,192   914,386   1,593,277   2,115,530 
Sponsorship revenue  175,299   161,825   1,657,799   535,355   457,740   175,299   3,275,218   1,657,799 
Total Revenues Recognized Over a Period of Time  175,299   161,825   1,657,799   535,355   877,932   1,089,685   4,868,495   3,773,329 
Total Revenues $1,565,642  $1,685,828  $5,135,530  $3,011,465  $1,119,959  $1,565,642  $5,581,486  $5,135,530 

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, 20222023 and December 31, 2021,2022, the Company had contract liabilities of $411,510$357,677 and $141,825,$108,428, respectively, which is included in deferred revenue on the condensed consolidated balance sheet.

As of September 30, 2022, $129,2372023, $94,682 of performance obligations in connection with contract liabilities included within deferred revenue on the prior yearDecember 31, 2022 consolidated balance sheet have been satisfied. The Company expects to satisfy the remaining performance obligations of $13,746 related to its December 31, 2022 deferred revenue balance within the next twelve months. During the nine months ended September 30, 2023 and 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

Digital Assets

The Company accepts Ether as a form of payment for NFT sales. 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.


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“Fair Value Measurement,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 currentthen-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 condensed consolidated statements of operations and comprehensive loss. The Company recorded an impairment loss ofThere were $0 and $164,411 forof impairment charges during the three and nine months ended September 30, 2022.2023, respectively. There were no digital assets sold during the same time periods.

10

 

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

The following table sets forth changes in our digital assets for the nine months ended September 30, 2022:2023: 

Balance, December 31, 2021 $- 
Purchases  41,026 
Received from customers  249,888 
Expenses paid using digital assets  (69,533)
Impairment loss  (164,411)
Balance, September 30, 2022 $56,970 
Balance, December 31, 2022 $49,761 
Expenses paid using digital assets  (461)
Balance, September 30, 2023 $49,300 

Concentration Risks

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, short-term investments, due from affiliate and trade accounts receivable. The Company holds cash, cash equivalents and short-term investments at major financial institutions in a financial institutionamounts which at times, mayoften exceed Federal Deposit Insurance Corporation (“FDIC”) insuredCorporation’s insurance limits. TheAs of September 30, 2023, two customers represented 96% of the Company’s accounts receivable balance and one related party affiliate represented 100% of the Company’s due from affiliate balance. Historically, the Company has not experienced any losses indue to such accounts, periodically evaluates the creditworthinessconcentration of the financial institutions and has determined the credit exposure to be negligible. risk.

During the three months ended September 30, 2023 and 2022, 0.4% and 2021, 0.5% and 1.0%, respectively, of the Company’s revenues from continuing operations were from customers in foreign countries. During the nine months ended September 30, 2023 and 2022, 0.3% and 2021, 3%, respectively, of the Company’s revenues from continuing operations were from customers in foreign countries. 

During the three months ended September 30, 2023, the Company’s two largest customers accounted for 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. During the three months ended September 30, 2022, the Company’s five largest customers accounted for 22%, 21%, 18%, 10%, and 10% of the Company’s consolidated revenues from continuing operations.revenues. During the nine months ended September 30, 2022, the Company’s three largest customers accounted for 20%, 17%, and 11% of the Company’s consolidated revenues from continuing operations. During the three months ended September 30, 2021, the Company’s two largest customers accounted for 32% and 14% of the Company’s consolidated revenues from continuing operations. During the nine months ended September 30, 2021, the Company’s four largest customers accounted for 22%, 15%, 13% and 11% of the Company’s consolidated revenues from continuing operations.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 and Euro). Euro-denominated assets and liabilities are translated into the United States Dollar using the exchange rate at the balance sheet date (0.97971.0573 and 1.1342,1.0699 at September 30, 20222023 and December 31, 2021, respectively),2022, respectively, and revenue and expense accounts are translated using the weighted average exchange rate in effect for that period 1.0883 and 0.9797 for the period (1.0078three months ended September 30, 2023 and 1.17902022, respectively, and 1.0832 and 1.0078 for the nine months ended September 30, 2023 and 2022, and 2021, respectively).respectively. Resulting translation adjustments are made directly to accumulated other comprehensive income. Losses of $23,571 and $1,024 arising from exchange rate fluctuations on transactions denominated in a currency other than the reporting currency for the nine months ended September 30, 2022 and 2021, respectively, are recognized in operating results in the accompanying condensed consolidated statements of operations.


ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company engages in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies. Realized losses of $951 and $38,853 arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency for the nine months ended September 30, 2023 and 2022, respectively, are recognized in other income (expense) in the accompanying condensed consolidated statements of operations.

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. other than those disclosed below.

Discontinued OperationsReclassifications

 

The results of operations of WPT for the three and nine months ended September 30, 2021 are included in “Loss from discontinued operations before the sale of WPT” in the accompanying condensed consolidated statements of operations. 

Reclassifications

Certain prior yearperiod balances have been reclassified in order to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or loss per share.

11

 

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Recently AnnouncedAdopted Accounting Pronouncements

In FebruaryJune 2016, the FASB issued ASU 2016-02 “LeasesAccounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 842)” (“ASU 2016-02”). ASU 2016-02326): Measurement of Credit Losses on Financial Instruments. This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that a lessee recognizeaffect the assets and liabilities that arise from operating leases. A lessee should recognize incollectability of the statement of financial position a liabilityreported amount. Since June 2016, the FASB issued clarifying updates to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying assetnew standard including changing the effective date for smaller reporting companies. The guidance is effective for the lease term. ASU 2016-02, as amended, is now effectiveCompany for fiscal years beginning after December 15, 2021,2022, and interim periods within those fiscal years, beginning after December 15, 2022.with early adoption permitted. The Company plans to first present the impact of ASU 2016-02 in the consolidated financial statements at December 31, 2022. The Company expects that the adoption ofadopted this ASU on January 1, 2022 will2023, using the modified retrospective approach and it did not have a material impact primarily as a result of recording a right of use asseton its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and lease liability for its operating lease in the amounts of approximately $6.6 million and $8.7 million, respectively, with a corresponding adjustment to deferred rent of $2.1 million.

Recently Adopted Accounting Pronouncements

On May 3, 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and ExtinguishmentsOther Options (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarificationConvertible Instruments and reduces diversityContracts in an issuer’sEntity’s Own Equity, to clarify the accounting for modifications or exchangescertain financial instruments with characteristics of freestanding equity-classified written call options (suchliabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as warrants) that remain equity classifiedpaid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for our fiscal years beginning after modification or exchange. This standard is effectiveDecember 15, 2023, and interim periods within those fiscal years. Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply2020. The Company early adopted ASU 2020-06 effective January 1, 2023 which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new standard prospectivelyconvertible instruments.

Note 3 – Intangible Assets, net

  Intellectual Property  Licenses  Software Development Costs  Total Intangibles  Accumulated Amortization  Total 
Balance as of January 1, 2023 $37,165  $-  $49,950  $87,115  $(14,329) $72,786 
Purchases of intangibles  3,980   565,000   -   568,980   -   568,980 
Software development costs          49,950   49,950   -   49,950 
Amortization expense  -   -   -   -   (2,995)  (2,995)
Balance as of September 30, 2023 $41,145  $565,000  $99,900  $706,045  $(17,324) $688,721 


ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to modifications or exchanges occurring afterCondensed Consolidated Financial Statements

(unaudited)

On October 31, 2022, the effective dateCompany entered into a system development agreement to develop an Allied Gaming membership management system and event organizer system. Pursuant to the terms of the new standard. Early adoption is permitted, including adoptionagreement, the Company has committed to spend an aggregate amount of $199,800 in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be appliedfour equal payments of $49,950. The Company has made two payments of $49,950 for a total of $99,900 as of the beginning of the fiscal year that includes that interim period. This standardSeptember 30, 2023 which was adopted on January 1, 2022capitalized and did not have a material impactincluded within other assets on the Company’saccompanying condensed consolidated financial statements. balance sheet. As of September 30, 2023 the system has not yet been placed into service.

On February 27, 2023, the Company purchased a five-year exclusive worldwide software license to operate four mobile casual games for $565,000 which will be amortized over a useful life of 5 years. As of September 30, 2023 the software has not yet been placed into service.

Note 34 – Accrued Expenses and Other Current Liabilities 

Accrued expenses and other current liabilities consist of the following:

 September 30, December 31,  September 30, December 31, 
 2022 2021  2023  2022 
Compensation expense $2,383,035  $2,202,621  $151,121  $1,546,805[1]
Current portion of deferred rent  228,220   198,504 
Event costs  7,008   8,874   2,696   8,411 
Legal and professional fees  38,568   368,691   68,429   43,676 
Property and franchise tax  31,000   22,000 
Warrant liabilities  10,600   3,200   100   100 
Other accrued expenses  41,883   172,858   52,924   24,387 
Other current liabilities (1)  59,581   11,497 
 $2,768,895  $2,966,245 
Accrued expenses and other current liabilities $306,270  $1,645,379 

(1)

BalanceAccrued compensation expense includes a $50,000 deposit received in connection with$1 million obligation to a former CEO under a Restricted Stock Unit Purchase and License Agreement dated September 6, 2022 (the “Agreement) between eSports Arena, LLC (‘January 19, 2021, as amended in a certain Release and Separation Agreement with the Buyer”) and AEII, under which AEII agreed to sell its 25% non-voting membership interestformer CEO dated July 8, 2021. The obligation was settled in the Buyer for a purchase price of $1,375,000. The Agreement provides, among other things, for the sale, transfer, and assignment of the membership units upon the payment of the remaining portion of the purchase price (the “Closing Payment”) within 60 days of the initial payment. Since the Buyer failed to make the Closing Payment, the Buyer forfeited the initial payment and the Agreement was terminated automatically.

July 2023.

 

Note 45 – Commitments and Contingencies

Litigations, Claims, and Assessments 

The Company ismay, from time to time, be involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. WhileThe Company is not aware of any pending or threatened litigation that, if resolved against the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters willCompany, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Operating Leases

Allied Esports leases an arena in Las Vegas, Nevada, for the purpose of hosting Esports activities (the “Las Vegas Lease”). The arena opened to the public on March 23, 2018 (the “Commencement Date”). Initial lease terms were for minimum monthly payments of $125,000 for 60 months from the Commencement Date with an option to extend for an additional 60 months at $137,500 per month. Additional annual tenant obligations were estimated at $2 per square foot for Allied’s portion of real estate taxes and $5 per square foot for common area maintenance costs. The Las Vegas Lease expired on May 31, 2023 but was extended until July 31, 2023. Effective August 1, 2023, the Las Vegas Lease was extended until May 31, 2028 for minimum monthly payments of $137,500 for 58 months in addition to fixed monthly tenant obligations for real estate tax of $5,000.

On July 17, 2023, the Company leased 5,067 square feet of building space in Las Vegas, Nevada, through an operating lease for the purpose of storage of the mobile esports truck. The lease term is for 36 months and ends on July 31, 2026. The monthly base rent ranges from $4,560 to $5,028.

The Company also leased office and production space in Germany, pursuant to a lease dated August 1, 2020 which expired on July 31, 2023 (the “Germany Lease”). Rent expense under the lease was €4,000 (approximately $4,280 United States dollars) per month. The Company did not renew the lease after it expired.

12


 

ALLIED ESPORTSGAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Resignation of Chief Executive Officer 

(unaudited)

On February 18, 2022, Libing (Claire) Wu resigned as Chief Executive Officer and General Counsel of the Company. In connection with her resignation, the Company entered into a Separation Agreement and Release with Ms. Wu (the “Release”) pursuant to which, among other things, Ms. Wu released the Company from any and all claims she may have against the Company (subject to certain exclusions), and the Company agreed to provide Ms. Wu with certain separation benefits, including $750,000 in severance payable over an 18-month period which was expensed immediately, accelerated vesting of 200,000 unvested stock options previously granted to Ms. Wu pursuant to an Option Agreement dated effective July 13, 2021, extended exercise period to exercise such options through July 13, 2031, and accelerated vesting of 80,000 shares of restricted stock previously granted to Ms. Wu pursuant to an Executive Restricted Stock Agreement dated July 13, 2021. As no future substantive services will be performed by Ms. Wu, the Company recognized stock-based compensationThe Company’s aggregate lease expense of $0 and $258,979, respectively, related to the modification of these equity awardsincurred during the three months ended September 30, 2023 and 2022 amounted to $438,874 and $421,870, respectively, of which $321,522 and $320,994, respectively, is included within in-person costs and $117,352 and $100,876, respectively, is included in general and administrative expenses on the accompanying condensed consolidated statements of operations. 

The Company’s aggregate lease expense incurred during the nine months ended September 30, 2022. At September 30,2023 and 2022 $458,333amounted to $1,281,075 and $1,279,508, respectively, of accrued expenseswhich $964,038 and $962,982, respectively, is included within in-person costs and $317,037 and $316,526, respectively, is included in general and administrative expenses on the balance sheet,accompanying condensed consolidated statements of operations. 

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

  For the Nine Months Ended 
  September 30, 
  2023  2022 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows used in operating activities $909,426  $808,148 
         
Right-of-use assets obtained in exchange for lease obligations        
Operating leases $289,886  $- 
         
Weighted Average Remaining Lease Term (Years)        
Operating leases  4.63   5.67 
         
Weighted Average Discount Rate        
Operating leases  5.00% - 5.75%   5.00%

A summary of the Company’s remaining operating lease liabilities is as follows:

For the Year Ending December 31, Amount 
2023 $441,180 
2024  1,765,860 
2025  1,768,656 
2026  1,745,196 
2027  1,710,000 
Thereafter  712,500 
Total lease payments  8,143,392 
Less: amount representing imputed interest  (1,008,693)
Present value of lease liability  7,134,699 
Less: current portion  (1,390,533)
Lease liability, non-current portion $5,744,166 

Note 6 – Related Party Transactions

On September 24, 2023, AME-HK advanced Beijing Lianzhong Co., Ltd, a related party (and a subsidiary of AGAE’s largest investor), $3.5 million (the “Bridge Loan”) in connection with a certain Equity Interest Purchase Agreement dated August 16, 2023, under which AME-HK agreed to Ms. Wu’s severance benefit.acquire a 40% equity interest in Beijing Lianzhong Zhihe Technology Co., Ltd (“Z-Tech”), a company engaged in the development and distribution of casual mobile games.  The Release also contains a customary non-disparagement provision.acquisition closed on October 31, 2023 (See Note 10 – Subsequent Event).  The Bridge Loan is non-interest bearing and is repayable at the earlier of 90 days from the date of the advance or the closing of the Z-Tech acquisition, at which time the proceeds of the Bridge Loan will we applied to the purchase price of the equity interests. 


Board of Directors 

On February 18, 2022, Jerry Lewin resigned as a Class C Director of the Company. In appreciation of Mr. Lewin’s services to the Company as a director, Chair of the Compensation Committee and a member of the Audit Committee, the Company paid to Mr. Lewin $25,000, accelerated the vesting of 40,000 unvested stock options previously granted to Mr. Lewin pursuant to an option agreement dated effective May 6, 2021, and extended the exercise period of such options to May 6, 2031. The Company recognized stock-based compensation expense of $0 and $32,909 related to the modification of these awards for the three and nine months ended September 30, 2022, respectively.

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 57 – Stockholders’ Equity

Stock Options

A summary of the option activity during the nine months ended September 30, 20222023 is presented below:

    Weighted Weighted        Weighted Weighted    
    Average Average        Average Average    
 Number of Exercise Remaining Intrinsic  Number of Exercise Remaining Intrinsic 
 Options Price Term (Yrs) Value  Options  Price  Term (Yrs)  Value 
                  
Outstanding, January 1, 2022  2,415,000  $3.73         
Outstanding, January 1, 2023  1,675,000  $3.66                    
Granted  -   -           -   -         
Exercised  -   -           -   -         
Expired  (605,000)  4.01           (85,000)  4.09         
Forfeited  -   -           (50,000)  4.09         
Outstanding, September 30, 2022  1,810,000  $2.73   5.28  $        - 
Outstanding, September 30, 2023  1,540,000  $3.62   6.07  $- 
                                
Exercisable, September 30, 2022  1,170,000  $3.57   7.07  $- 
Exercisable, September 30, 2023  1,275,000  $3.76   6.02  $- 

Options outstanding and exercisable as of September 30, 20222023 are as follows:

Options Outstanding  Options Exercisable 
      Weighted    
   Outstanding  Average  Exercisable 
Exercise  Number of  Remaining Life  Number of 
Price  Options  In Years  Options 
$2.11   80,000   7.75   40,000 
$2.17   120,000   7.75   120,000 
$2.21   350,000   8.78   200,000 
$2.48   130,000   7.37   70,000 
$4.09   850,000   6.18   510,000 
$5.66   280,000   6.97   230,000 
     1,810,000   7.07   1,170,000 

13

 

Options Outstanding  Options Exercisable 
      Weighted    
   Outstanding  Average  Exercisable 
Exercise  Number of  Remaining Life  Number of 
Price  Options  In Years  Options 
$2.11   40,000   6.75   30,000 
$2.17   120,000   6.85   120,000 
$2.21   350,000   7.84   237,500 
$2.48   120,000   7.60   80,000 
$4.09   630,000   4.75   527,500 
$5.66   280,000   5.97   280,000 
     1,540,000   6.02   1,275,000 

ALLIED ESPORTS ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the three months ended September 30, 20222023 and 2021,2022, the Company recorded $238,840$64,623 and $613,070,$238,840, respectively, of stock-based compensation expense related to stock options issued as compensation, of which $0 and $633,197, respectively, was included in income of discontinued operations on the accompanying condensed consolidated statements of operations.options. During the nine months ended September 30, 20222023 and 2021,2022, the Company recorded $710,884$136,605 and $1,122,767,$710,884, respectively, of stock-based compensation expense related to stock options issued as compensation, of which $0 and $746,410, respectively, was included in income of discontinued operations on the accompanying condensed consolidated statement of operations.options. As of September 30, 2022,2023, there was $509,897$132,802 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 1.761.74 years.

Restricted Common Stock

 

A summary of the non-vested restricted common stock activity during the nine months ended September 30, 2022 is presented below:

     Weighted 
  Number of  Average 
  Restricted  Grant Date 
  Stock  Fair Value 
Non-vested balance, January 1, 2022  80,000  $2.00 
Vested  (80,000)  2.00 
Non-vested balance, September 30, 2022  -  $- 

For the three and nine months ended September 30, 2022, the Company recorded $0 and $82,345, respectively, of stock-based compensation expense related to restricted stock. For the three and nine months ended September 30, 2021, the Company recorded $58,923 and $219,853, respectively, of stock-based compensation expense related to restricted stock of which $(12,425) and $14,848, respectively, was included in income of discontinued operations on the accompanying condensed consolidated statements of operations. As of September 30, 2022, all restricted common stock was fully vested.

Note 6 – Correction of an Error

 

During the review of the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2022, the Company identified errors in the reporting of historical stock-based compensation (included in general and administrative expenses) and leasehold amortization expense (included in depreciation and amortization). The errors resulted in an understatement of general and administrative expenses and overstatement of depreciation and amortization for the year-ended December 31, 2021 and an overstatement of both general administrative expense and depreciation and amortization expense for the three months ended March 31, 2022, and the three and six months ended June 30, 2022. Based on management’s evaluation of the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded that the aforementioned errors were not material to the Company’s previously filed 2022 and 2021 consolidated financial statements. This is further supported by the fact that all errors are of a non-cash nature, do not impact Adjusted EBITDA (earnings before income tax, depreciation and amortization, and stock-based compensation), and would not likely have materially impacted a reasonable investor’s opinion of the Company’s financial condition and results of operations.

Because the correction of these errors was not deemed to be material to the results for the nine-months ended September 30, 2022, to correct these errors, the Company recorded the corrections as out-of-period adjustments in the three-month period ended September 30, 2022. See the table below for the details of the corrections:

  For The Three Months Ended  For The Nine Months Ended 
  September 30, 2022  September 30, 2022 
  Before Adjustment  Adjustment  As Reported  Before Adjustment  Adjustment  As Reported 
Condensed Consolidated Statements of Operations:                  
                   
Stock-based compensation expense $91,250  $147,590  $238,840  $593,155  $200,074  $793,229 
Depreciation and amortization expense $638,046  $(966,785) $(328,739) $1,932,630  $(644,524) $1,288,106 
Net loss $2,461,426  $(819,195) $1,642,231  $9,526,829  $(444,450) $9,082,379 

14


 

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 8 – Employee Retention Credit

The employee retention credit (“ERC”), as originally enacted through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020, is a refundable credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid to employees from March 17, 2020 to December 31, 2020. The Disaster Tax Relief Act, enacted on December 27, 2020, extended the ERC for qualified wages paid from January 1, 2021 to June 30, 2021, and the credit was increased to 70% of qualified wages an eligible employer paid to employees during the extended period. The American Rescue Plan Act of 2021, enacted on March 11, 2021, further extended the ERC through December 31, 2021.

During the three and nine months ended September 30, 2023 and 2022, the Company recognized employee retention credits of approximately $1.5 million and $0.0, respectively, within general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. As of September 30, 2023, the Company has a receivable balance of approximately $0.2 million for unsettled ERCs within prepaid expenses and other current assets on the condensed consolidated balance sheet. Commissions paid and payable to a professional advisor to process the ERC claims amounted to approximately $0.3 million and are included within general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

Note 9 – Subsequent Event

On October 31, 2023, AME - HK completed its acquisition of a 40% equity interest in Z-Tech for $7 million in cash.  The purchase consideration included the application of the $3.5 million loan receivable discussed in Note 6 – Related Party Transactions.


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 EsportsGaming & Entertainment Inc. (the “Company”) as of September 30, 20222023 and for the three and nine months ended September 30, 20222023 and 20212022 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 discussion10-Q and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2021 and for the year then ended,2022, which are included in the Company’sour Annual Report on Form 10-K (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023, as amended on April 27, 2023 and May 26, 2022.3, 2023. 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., and 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. Allied Esports International, Inc. (“Allied”) operates global competitive esports properties designed to connect players and fans via a network of connected arenas. Esports Arena Las Vegas, LLC operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. The Company operatesoffers a premier publicvariety of esports and gaming-related content, including world class tournaments, live and virtual entertainment company, consisting of theand gaming events, and original programming to continuously foster an engaged gaming community. Allied Esports business. AESE also operatedoperates solely through its wholly owned subsidiaries. In December 2022, the World Poker TourCompany completed a strategic review of its business until AESE soldoperations and announced plans to restructure the existing esports business and expand its focus to include a broader array of entertainment and gaming products and services. Under this plan, the Company intends to pursue multiple channels of opportunities instead of a single significant corporate transaction such businessas an acquisition of complementary assets or businesses, and it is currently exploring opportunities to leverage its location-based-entertainment expertise with a focus on July 12, 2021.gaming lifestyle and experiential entertainment, as well as growing its digital footprint and monetization capabilities through mobile gaming.

Allied EsportsAllied’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 include its partnerships with live streamers, post-produced episodic content, and short-form repackaged content. Allied’s interactive services include strategic partnerships with various content creators, broadcasters, and streaming technology partners to provide interactive streaming experiences with a wide range of influencers.

Gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 2.56 billion gamers playing esports globally, and esports is the major driver of this growth. Esports, short for “electronic sports,” is a general label that comprises a diverse offering of competitive electronic games that gamers play against each other. According to Newzoo (a global leader in providing market data and insights into gaming, esports and mobile device industries), it is projected that by 2026, 640.8 million people will be watching esports globally, and that global esports revenue will grow to approximately $1.8 billion.

The esports gaming industry is relatively new and is challenging. Competition is rapidly developing. Allied Esports’ business relies upon its ability to grow and garner an active gamer community, and successfully monetize this community through tournament fees, live event ticket sales, and advertising and sponsorships utilizing a three-pillar approach, which includes:

●in-person experiences;

●developing multiplatform content; and

●providing interactive services.

ItsOur growth also depends, in part, on itsour ability to respond to technological evolution, shifts in gamer trends and demands, introductions of new games, game publisher intellectual property right practices, and industry standards and practices. While change in this industry may be inevitable, Allied Esportswe will try to adapt itsour business model as needed to accommodate change and remain on the forefront of itsour 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, 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. 

Z-Tech Acquisition

On August 16, 2023, AME-HK entered into an Equity Interest Purchase Agreement (the “Purchase Agreement”) with, among others, Beijing Lianzhong Co., Ltd (“Z-Tech”) (the “Seller”) and Beijing Lianzhong Zhihe Technology Co., Ltd. (the “Target Company”), pursuant to which AME-HK agreed to acquire 40% equity interest in the Target Company held by the Seller for a total purchase price of $7,000,000 in cash (the “Acquisition”). Pursuant to the terms of the Purchase Agreement AME-HK has the right to appoint three out of five members of the Board of Directors of the Target Company, and AME-HK also will acquire certain rights held by the Seller as the major shareholder of the Target Company prior to the Acquisition. After the Acquisition, which was completed on October 31, 2023, the Company has become Z-Tech’s largest shareholder.

Z-Tech was founded in Beijing, China in April 2022 and has emerged as a mobile games developer and operator, specializing in the innovation, research, development and operation of premium card and Mahjong casual games. Leveraging advanced in-game advertising strategies, Z-Tech has generated substantial revenue streams and established a premier leisure entertainment platform and community, which further solidifies its connection with customers, enhancing engagement and fostering enduring relationships.

15


 

Results of Operations

Continuing Operations

Our continuing operations consist of our esports gaming operations, which take place at global competitive esports properties designed to connect players and fans via a network of connected arenas. WeThrough 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 with at our on-site production facilities and studios. At our flagship arena in Las Vegas, Nevada, we provide an attractive facility for hosting corporate events, tournaments, game launches andor other events. Our live events business is recovering gradually from the ease of COVID-19 pandemic related restrictions. Additionally, Allied Esports has twowe have a mobile esports arenas,arena, which areis an 18-wheel semi-trailerssemi-trailer that convertconverts into a first class esports arenasarena and competition stagesstage with full content production capabilities and an interactive talent studios.studio.

Discontinued Operations

The World Poker Tour (“WPT”) is an internationally televised gaming and entertainment business with brand presence in land-based poker tournaments, television, online and mobile. Leading innovation in the sport of poker since 2002, WPT helped ignite the global poker boom with the creation of a unique television show based on a series of high-stakes poker tournaments. On July 12, 2021, we consummated the sale of the WPT business for $106.0 million. As a result of the sale of WPT, the WPT business has been recast as discontinued operations.

Results of Operations for the Three Months Ended September 30, 20222023 and 20212022

 

  For the    
  Three Months Ended    
  September 30,  Favorable 
(in thousands) 2023  2022  (Unfavorable) 
Revenues:         
In-person $1,120  $1,552  $(432)
Multiplatform content  -   14   (14)
Total Revenues  1,120   1,566   (446)
Costs and Expenses:            
In-person (exclusive of depreciation and amortization)  576   1,113   537 
Multiplatform content (exclusive of depreciation and amortization)  -   31   31 
Selling and marketing expenses  51   54   3 
General and administrative expenses  894   2,398   1,504 
Depreciation and amortization  239   (329)  (568)
Loss From Operations  (640)  (1,701)  1,061 
Other Income (Expense)            
Other (expense) income, net  -   34   (34)
Interest income, net  715   25   690 
Net income (loss) $75  $(1,642) $1,717 

  For the    
  Three Months Ended    
  September 30,  Favorable 
(in thousands) 2022  2021  (Unfavorable) 
          
Revenues:         
In-person $1,552  $1,456  $96 
Multiplatform content  14   230   (216)
Total Revenues  1,566   1,686   (120)
Costs and Expenses:            
In-person (exclusive of depreciation and amortization)  1,113   1,250   137 
Multiplatform content (exclusive of depreciation and amortization)  31   87   56 
Selling and marketing expenses  54   88   34 
General and administrative expenses  2,398   3,385   987 
Depreciation and amortization  (329)  806   1,135 
Total Costs and Expenses  3,267   5,616   2,349 
Loss From Operations  (1,701)  (3,930)  2,229 
Gain on forgiveness of PPP loans and interest  -   912   (912)
Other income, net  34   55   (21)
Interest income (expense), net  25   (12)  37 
Loss from continuing operations  (1,642)  (2,975)  1,333 
Income from discontinued operations, net of tax provision            
Loss from discontinued operations before sale of WPT  -   (3,152)  3,152 
Gain on sale of WPT  -   80,430   (80,430)
Income from discontinued operations  -   77,278   (77,278)
Net (loss) income $(1,642) $74,303  $(75,945)

Revenues

16

Revenues

In-person revenues increased by approximately $0.1 million, or 7%, to approximately $1.6 million for the three months ended September 30, 2022, from approximately $1.5 million for the three months ended September 30, 2021. The increase of in-person revenues was driven by a $0.2 million increase in food and beverage revenue primarily attributable to larger events occurring in 2022 compared to 2021. This was slightly offset by a $0.1 million decrease in event revenue. The $0.1 million decrease in event revenue included a $0.5 million decrease in rental revenue that was driven by a new contract entered into in 2021 which did not renew in 2022, a $0.2 million increase in truck revenue from an agreement with NASCAR that included four additional stops in 2022 compared to 2021, and a $0.2 million increase in HyperX Esports Arena event revenue primarily attributable to larger events occurring in 2022 compared to 2021.

Multiplatform content revenue decreased by approximately $216 thousand to approximately $14 thousand for the three months ended September 30, 2022, from $230 thousand for the three months ended September 30, 2021. The decrease in multiplatform revenues was driven by a decrease in distribution revenue resulting from a new contract entered into in 2021 which did not renew in 2022.

Costs and expenses

In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.1$0.4 million, or 11%28%, to approximately $1.1 million for the three months ended September 30, 2022,2023 from approximately $1.2$1.6 million for the three months ended September 30, 2021.2022. The decrease of in-person costsexperience revenues was driven by a $0.4$0.5 million decrease in production costsevent revenue and a $0.2 million decrease in merchandising revenue. This was slightly offset by a $0.3 million increase in sponsorship revenue related to a new naming rights agreement for our HyperX Arena in Las Vegas.

Multiplatform revenue decreased by approximately $14 thousand for the new contract that was entered into in 2021 which did not renew inthree months ended September 30, 2023 from $14 thousand for the three months ended September 30, 2022 to $0 for the three months ended September 30, 2023.

Costs and expenses

In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.5 million, or 48%, to approximately $0.6 million for the three months ended September 30, 2023 from approximately $1.1 million for the three months ended September 30, 2022. This was offset by higher in-person costs relatedThe decrease corresponds to the larger events occurringdecrease in 2022.event revenue described above.

Multiplatform costs (exclusive of depreciation and amortization) decreased by approximately $56 thousand to $31 thousand, or 100%, to approximately $0 for the three months ended September 30, 2023 from $87approximately $31 thousand for the three months ended September 30, 2021. The decrease in multiplatform costs relates to the decrease in revenue as discussed above.2022.


Selling and marketing expenses decreased by approximately $34$3 thousand, or 39%6%, to approximately $51 thousand for the three months ended September 30, 2023 from approximately $54 thousand for the three months ended September 30, 2022, from approximately $88 thousand for the three months ended September 30, 2021. The decrease in selling and marketing expenses was driven by higher expenses in 2021 as the Company increased marketing efforts to increase awareness of the HyperX Esports Arena in Las Vegas returning to full capacity. 2022.

General and administrative expenses decreased by approximately $1.0$1.5 million, or 29%63%, to approximately $0.9 million for the three months ended September 30, 2023, from approximately $2.4 million for the three months ended September 30, 2022, from approximately $3.4 million for the three months ended September 30, 2021.2022. The overall decrease in general and administrative expenses wasis primarily attributable to $0.7(a) a $1.8 million reduction in non-recurring 2021 professional fees related to the sale of WPT, $0.4compensation costs which includes a $1.5 million in severance payouts to the Company’s former Chief Executive OfficerEmployee Retention Credit (“CEO’ERC”), and $0.1 million in operating expenses. These reductions were slightly offset by $0.1$0.3 million in higher payroll costsand payroll related to the hiring of new business development and other strategic positionscosts in 2022 and $0.1(b) a $0.2 million reduction in stock-based compensation due to higher stock based compensationcosts that occurred in the third quarter of 2022 to correct the vesting of options of a former employee. This was slightly offset by an increase in legal and professional fees of $0.5 million related to merger and acquisition activities in the third quarter of 2023.

Depreciation and amortization decreasedincreased by approximately $1.1$0.5 million, or 141%173%, to approximately ($329) thousand$0.2 million for the three months ended September 30, 2022,2023, from approximately $806 thousand($0.3) million for the three months ended September 30, 2021.2022. The decreaseincrease was primarily due to ana $1.0 million adjustment of $1.0 millionfor the three months ended September 30, 2022 to correct the amortization of leasehold improvements in prior periods. This was slightly offset by a decrease in depreciation related to production equipment that became fully depreciated on March 31, 2023.

 

Gain on forgiveness of PPP loans and interestOther income (expense)

We recognized a gain on the full forgiveness of the PPP loans and related interestother expense of approximately $912 thousand$0 during the three months ended September 30, 2021.

Other income, net

We recognized2023 compared to $34 thousand of other income of approximately $34 thousand during the three months ended September 30, 2022, compared to other income of $55 thousand recorded for the three months ended September 30, 2021. The decrease was due to an insurance payment received in 2021 for a claim submitted for damaged equipment.2022.

Interest income (expense), net

Interest income net, was approximately $25$716 thousand for the three months ended September 30, 20222023 compared to $12approximately $25 thousand of interest expense, net, for the three months ended September 30, 2021. The decrease in interest expense is a result of the elimination of the principal balance of notes payable and convertible notes outstanding during 2021 utilizing proceeds of the sale of WPT. Interest income for the three months ended September 30, 2022 was2022. The increase is a result of the interest earned on short-term investments purchased at various times commencing in the cash received from the salefourth quarter of WPT.2022.

17

Results of Discontinued Operations 

We recognized income from discontinued operations, net of tax, of $77.3 million during the three months ended September 30, 2021. The decrease is due to the sale of the WPT business on July 12, 2021.

Results of Operations for the Nine Months Ended September 30, 20222023 and 20212022

  For the    
  Nine Months Ended    
  September 30,  Favorable 
(in thousands) 2023  2022  (Unfavorable) 
Revenues:         
In-person $3,581  $3,735  $(154)
Multiplatform content  2,001   1,401   600 
Total Revenues  5,582   5,136   446 
Costs and Expenses:            
In-person (exclusive of depreciation and amortization)  1,891   2,785   894 
Multiplatform content (exclusive of depreciation and amortization)  1,518   1,021   (497)
Selling and marketing expenses  173   186   13 
General and administrative expenses  5,661   8,762   3,101 
Depreciation and amortization  1,030   1,288   258 
Impairment of digital assets  -   164   164 
Loss From Operations  (4,691)  (9,070)  4,379 
Other Income (Expense)            
Other income (expense), net  16   (46)  62 
Interest income, net  2,165   34   2,131 
Net Loss $(2,510) $(9,082) $6,572 

  For the    
  Nine Months Ended    
  September 30,  Favorable 
(in thousands) 2022  2021  (Unfavorable) 
          
Revenues:         
In-person $4,884  $2,628  $2,256 
Multiplatform content  251   384   (133)
Total Revenues  5,135   3,012   2,123 
Costs and Expenses:            
In-person (exclusive of depreciation and amortization)  4,002   2,443   (1,559)
Multiplatform content (exclusive of depreciation and amortization)  96   214   118 
Selling and marketing expenses  186   216   30 
General and administrative expenses  8,470   9,660   1,190 
Depreciation and amortization  1,288   2,496   1,208 
Impairment of digital assets  164   -   (164)
Total Costs and Expenses  14,206   15,029   823 
Loss From Operations  (9,071)  (12,017)  2,946 
Gain on forgiveness of PPP loans and interest  -   912   (912)
Other (expense) income, net  (45)  69   (114)
Interest income (expense)  34   (269)  303 
Loss from continuing operations  (9,082)  (11,305)  2,223 
Income from discontinued operations, net of tax provision            
Loss from discontinued operations before sale of WPT  -   (1,099)  1,099 
Gain on sale of WPT  -   80,430   (80,430)
Income from discontinued operations  -   79,331   (79,331)
Net (loss) income $(9,082) $68,026  $(77,108)

Revenues 

Revenues

In-person revenues increaseddecreased by approximately $2.3$0.2 million, or 86%4%, to approximately $4.9$3.6 million for the nine months ended September 30, 2022,2023 from approximately $2.6$3.7 million for the nine months ended September 30, 2021.2022. The increasedecrease of in-person experience revenues was driven by (a) a $1.1$0.5 million decrease in event revenue, $0.2 million decrease in food and beverage revenue and a $0.2 million decrease in merchandising revenue all due to a decrease in HyperX Arena events in 2023. This was slightly offset by a $0.7 million increase in sponsorship revenue fromrelated to a new contract entered into in the first quarter of 2022, (b) a $0.5 million increase in food and beverage, ticket and gaming and merchandising revenue primarily attributable to the removal of COVID-19 pandemic-related capacity restrictions at the Company’snaming rights agreement for our HyperX Esports Arena in Las Vegas on June 1, 2021, and (c) a $0.7 million increase in event revenue. The $0.7 million increase in event revenue included a $1.1 million increase in studio and truck rental revenue, $0.3 million increase in HyperX Esports Arena event revenue primarily attributable to larger events occurring in 2022 compared to 2021 and a $0.7 million decrease in rental revenue that was driven by a new contract entered into in 2021 that did not renew in 2022.Vegas.  

18

Multiplatform revenue decreasedincreased by approximately $133 thousand$0.6 million, or 43%, to approximately $2.0 million for the nine months ended September 30, 2022, to2023, from approximately $251 thousand$1.4 million for the nine months ended September 30, 2022,2022. The increase in multiplatform revenues is the result of additional revenue generated from $384 thousandSeason 2 of Elevated, a live streaming event which had 10 episodes in 2023 compared to 4 episodes in 2022. 

Costs and expenses

In-person costs (exclusive of depreciation and amortization) decreased by approximately $0.9 million, or 32%, to approximately $1.9 million for the nine months ended September 30, 2021.2023 from approximately $2.8 million for the nine months ended September 30, 2022. The decrease is a result of a decrease in multiplatform revenues is due to a $383 thousand declineHyperX Arena events in distribution revenue from a contract entered into in 2021 that did not renew in 2022, offset by $250 thousand of NFT sales, which were sold for the first time beginning in March of 2022.2023.

Costs and expenses

In-personMultiplatform costs (exclusive of depreciation and amortization) increased by approximately $1.6$0.5 million, or 64%49%, to approximately $4.0$1.5 million for the nine months ended September 30, 2022,2023 from approximately $2.4$1.0 million for the nine months ended September 30, 2021.2022. The increase of in-personin multiplatform costs was driven by (a) a $1.7 million increase in event costs resulting from larger events and additional tournaments with higher payouts primarily attributablecorresponds to the removal of COVID-19 pandemic-related capacity restrictions at the Company’s HyperX Esports Arena in Las Vegas on June 1, 2021, and (b) $0.5 million of higher truck costs resulting from the additional truck stops for our NASCAR events. This was offset by a decrease of $0.6 million in production costs driven byfor 10 episodes of Season Two of Elevated which aired in Q2 2023 versus only four episodes in Season One which aired in Q1 of 2022. In addition, in 2022 there was revenue related to the new contract entered into in 2021sale of NFTs which did not renew in 2022.had minimal direct costs. 

Multiplatform costs (exclusive of depreciationSelling and amortization)marketing expenses decreased by approximately $118$13 thousand, or 55%7%, to approximately $96$173 thousand for the nine months ended September 30, 2022,2023 from $214 thousand for the nine months ended September 30, 2021. The decrease in multiplatform costs corresponds to approximately $214 thousand higher costs in the second quarter of 2021 resulting from a new contract that did not renew in 2022. This was slightly offset by costs associated with the sale of NFTs in 2022.

Selling and marketing expenses decreased by approximately $30 thousand, or 14%, to approximately $186 thousand for the nine months ended September 30, 2022, from approximately $216 thousand for the nine months ended September 30, 2021. The decrease in selling and marketing expenses was driven by higher expenses in 2021 as the Company increased marketing efforts to increase awareness of the HyperX Esports Arena in Las Vegas reopening to full capacity2022.

General and administrative expenses decreased by approximately $1.2$3.1 million, or 12%35%, to approximately $8.5$5.7 million for the nine months ended September 30, 2022,2023, from approximately $9.7$8.8 million for the nine months ended September 30, 2021.2022. The decrease in general and administrative expenses resulted from (a) a $1.5 million ERC credit recognized in 2023, (b) a 2022 accrual of $0.7 million for severance costs paid out to the former Chief Executive Officer, (d) $1.0 million in higher expenses duringpayroll and payroll related costs in 2022, and (e) $0.7 million of higher stock-based compensation in 2022 related to the nine months ended September 30, 2021 as follows: (i) $0.9accelerated vesting of options previously granted to the former Chief Executive Officer. These decreases were slightly offset by a $0.8 million increase in legal and professional fees related to the sale of WPT; (ii) $0.3 millionvarious employment and service provider transition matters in stock-based compensation from the issuance of director grantsaddition to merger and restricted stock units issued to the Company’s former CEO during 2021; (iii) $0.3 million in corporate payroll and bonus; and (iv) $0.1 million in other general and administrative expenses. The decrease in corporate payroll expense from 2021 was offset by a $0.4 million increase in 2022 severance benefit expenses incurredacquisition related professional fees in connection with the terminationacquisition of our former CEO.a 40% equity interest in Z-Tech and other strategic investment opportunities.

Depreciation and amortization expense decreased by approximately $1.2$0.3 million, or 48%20%, to approximately $1.0 million for the nine months ended September 30, 2023, from approximately $1.3 million for the nine months ended September 30, 2022. The decrease was primarily due to production equipment of approximately $7.0 million that became fully depreciated on March 31, 2023. The decrease also includes the amortization of leasehold improvements that occurred in the second quarter of 2022 from approximately $2.5 millionthat was corrected as an out-of-period adjustment in the third quarter of 2022.

Impairment in digital assets decreased to $0 for the nine months ended September 30, 2021. The decrease was due2023, compared to an adjustment of $1.0 million to correct the amortization of leasehold improvements in prior periods.

We recognized an impairment of digital assets of approximately $164 thousand for the nine months ended September 30, 2022. The impairment loss is aduring 2022 was the result of the market price on active exchanges going below the carrying value of the digital assets. The Company didmarket price has not have any Ether or othergone below the carrying value of the digital assets on the books during the nine months ended September 30, 2021.2023.

Gain on forgiveness of PPP loans and interestOther income (expense)

We recognized a gain on the full forgiveness of the PPP loans and related interestother income of approximately $912$16 thousand during the nine months ended September 30, 2021.

Other (expense)income, net

We recognized2023 compared to $46 thousand of other expense net, of approximately $45 thousand during the nine months ended September 30, 2022, compared to other income, net, of $69 thousand recorded for the nine months ended September 30, 2021. The decrease was due to an insurance payment received in 2021 for a claim submitted in 2021 for damaged equipment in addition to changes in the fair value of the warrant liability in 2022.

Interest income (expense), net

Interest income net, was approximately $34 thousand$2.2 million for the nine months ended September 30, 2022,2023 compared to $269approximately $34 thousand of interest expense, net,income for the nine months ended September 30, 2021.2022. The decrease in interest expenseincrease is a result of the elimination of the principal balance of notes payable and convertible notes outstanding during the period utilizing the proceeds of the sale of WPT. Interest income for the three months ended September 30, 2022 was a result of interest earned on short-term investments purchased at various times commencing in the cash received from the salefourth quarter of WPT.2022.

19


 

Results of Discontinued Operations 

We recognized income from discontinued operations, net of tax, of $79.3 million during the nine months ended September 30, 2021. The decrease is due to the sale of the WPT business on July 12, 2021.

Liquidity and Capital Resources

The following table summarizes our total current assets, current liabilities and working capital at September 30, 20222023 and December 31, 2021,2022, respectively:

 September 30, December 31, 
(in thousands) September 30,
2022		 December 31,
2021		  2023  2022 
Current Assets $85,561  $94,261  $76,426  $82,377 
Current Liabilities $3,926  $5,249  $2,525  $3,298 
Working Capital Surplus $81,635  $89,012 
Working Capital $73,901  $79,079 

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.

As of September 30, 2022,2023, we had cash of approximately $84.2$10.4 million (not including $5approximately $60.0 million of short-term investments and $5.0 million of restricted cash) and working capital of approximately $81.6$73.9 million. For the nine months ended September 30, 20222023 and 2021,2022, we incurred a net loss from continuingof approximately $2.5 million and $9.1 million, respectively, and used cash in operations of approximately $9.1$4.6 million and $11.3 million, respectively, and had cash used in operating activities of approximately $8.6 million, and $7.8 million, respectively.

Cash requirements for our current liabilities include approximately $3.5$0.8 million for accounts payable and accrued expenses. Cash requirements for current and non-current lease obligations are approximately $8.1 million, including $1.0 million imputed interest. The Company intends to meet these cash requirements from its current cash balance. As of September 30, 2022,2023, the Company had no material commitments for capital expenditures. 

The global impactAs part of the Covid-19 pandemic and its variants (“COVID-19”) continuesour previously announced plan to evolve. While the HyperX Esports Arena in Las Vegas is currently running at full capacity for daily play and weekly tournaments, we continuepursue strategic transactions to monitor the outbreak of COVID-19 and the related business and travel restrictions, and changes to behavior intended to reduce its spread, and the related impact onenhance our operations, financial position and cash flows, as well as the impact on our employees. The magnitude and duration of the pandemic has had a significant adverse impact on our historical operations and liquidity. Given the positive effects of vaccines on the US and global populations along with relaxed restrictions on travel and social gatherings,performance, we expect thatto use a portion of our cash reserve for the acquisition of or investment in complementary businesses and assets, to the extent such impacts will be less significant on our future operations and liquidity. 

On July 12, 2021, we completedopportunities are available. Such cash reserves include $3.5 million to complete the saleacquisition of the WPT business for an aggregate purchase price of $106.0 million. With the sale of the WPT business, weBeijing Lianzhong Zhihe Technology Co., Ltd. We believe our current cash on hand is sufficient to meet our operating and capital requirements for at least the next twelve months from the date these financial statements are issued. Based on our current operating plan, we believe we will be able to fund future requirements from positive operating cash flows.

Cash Flows from Operating, Investing and Financing Activities

The table below summarizes cash flows from continuing operations for the nine months ended September 30, 20222023 and 2021: 2022:

  Nine Months Ended 
  September 30, 
(in thousands) 2022  2021 
Net cash provided by (used in)      
Operating activities $(8,552) $(7,846)
Investing activities $(48) $106,013 
Financing activities $-  $(3,421)

  Nine Months Ended 
  September 30, 
(in thousands) 2023  2022 
Net cash (used in) provided by      
Operating activities $(4,599) $(8,552)
Investing activities $5,918  $(48)
Financing activities $(2,051) $- 

Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 20222023 and 20212022 was approximately $8.6$4.6 million and $7.8$8.6 million, respectively, representing increaseddecreased usage of $0.8cash of $4.0 million. During the nine months ended September 30, 20222023 and 2021,2022, the net cash used in operating activities was primarily attributable to the net loss from continuing operations of approximately $9.1$2.5 million and $11.3$9.1 million, respectively, adjusted for approximately $1.9 million and $3.0$2.7 million, respectively, of net non-cash expenses, and approximately ($1.3)4.0) million and $0.5($2.2) million, respectively, of cash (used in) provided byused to fund changes in the levels of operating assets and liabilities.

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Net Cash (Used in) Provided byUsed in Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2023 was approximately $5.9 million, which consisted primarily of proceeds from the maturing of certificate of deposits of $30.0 million and $0.1 million in proceeds from the sale of equipment. This was slightly offset by $20.0 million of certificate of deposit purchases, $0.1 million of property and equipment purchases, $0.6 million related to the acquisition of a mobile games license, and $3.5 million in a loan to an affiliate.

Net cash used in investing activities duringfor the nine months ended September 30, 2022 was approximately $48 thousand, which consisted primarily of approximately $7 thousand of cash used for the purchases of property and equipment and approximately $41 thousand of cash used for the investment in digital assets.

Net cash provided by investing activities for the nine months ended September 30, 2021 consisted primarily of approximately $106.2 million cash consideration for the sale of WPT, partially offset by approximately $142 thousand of cash used for the purchase of property and equipment.


Net Cash Used in Financing Activities

Net cash used in financing activities for the nine months ended September 30, 20222023 was $0approximately $2.1 million compared to approximately $3.4 million$0 for the nine months ended September 30, 2021. Net cash used in financing activities during2022 which is driven solely by the nine months ended September 30, 2021 represented repaymentsrepurchase of bridge loans during the period.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 Policies and Estimates

Refer to our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 24, 2023, as amended on April 27, 2023 and May 26, 20223, 2023, on Forms 10-K/A, and Note 2 to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q, for a discussion of our critical accounting policies and use of estimates. 

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 September 30, 2022.2023. 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 not effective as of September 30, 20222023 to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis. basis, primarily due to the material weakness in internal control over financial reporting as discussed below.

Despite not conducting a formal assessment regarding internal control over financial reporting, management identified the following material weaknesses as of December 31, 2021,2022, which persistpersisted as of September 30, 2022: 2023:

●inadequate segregation of duties resulting from limited accounting staff and resources; and

●inadequate information technology general controls as it relates to user access and change management.

 

In addition,Our management, identifiedunder the followingoversight of our Audit Committee, and in consultation with outside advisors, continues to evaluate and implement measures designed to ensure that control deficiencies contributing to the material weakness asare remediated. These remediation measures include but are not limited to: (i) reorganizing roles and responsibilities to address segregation of September 30, 2022:duties issues, (ii) evaluating and implementing enhanced process controls around user access and change management; and (iii) monitoring and conducting regular assessment of the effectiveness of internal controls.

 

●inadequate review of schedules utilized to record depreciation/amortization and stock-based compensation schedules.

NotwithstandingWe believe the above actions will be effective in remediating the material weaknesses inweakness described above and we will continue to devote time and attention to these remedial efforts. However, as we continue to evaluate and take actions to improve our internal controlcontrols over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above,above. Our remediation efforts will not be considered complete until the applicable controls operate for a sufficient period and our management has concluded, through testing, that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Qthese controls are fairly stated in all material respects in accordance with accounting principles generally accepted in the United States of America.operating effectively.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2022,2023, there were no changes in our internal control over financial reporting that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

As a “smaller reporting company”, we are not requiredIn addition to providethe other information required by this Item. However, investors are encouraged to review our current risk factors set forth in ourthis report, you should carefully consider the factors discussed in the “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022 and our other public filings, which could materially affect our business, financial condition or future results. Except as provided below, there have been no material changes from risk factors previously disclosed in “Risk Factors” in such Annual Report for the year ended December 31, 2022, filed with the SEC on May 26, 2022.March 24, 2023, as amended.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS. PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES. 

None. Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On November 11, 2022, our Board of Directors (the “Board”) authorized a stock repurchase program under which we are authorized to repurchase up to $10 million of our outstanding shares of common stock through November 17, 2024. The manner, timing and amount of any purchase will be based on an evaluation of market conditions, stock price and other factors. Repurchases under the program will be made in open market transactions in compliance with the SEC Rule 10b-18 and federal securities laws. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be extended, suspended or discontinued at any time at the Company’s discretion. The stock repurchase will be funded using the Company’s working capital.

The following table provides information with respect to repurchases made under the stock repurchase program for the quarter ended September 30, 2023:

           Approximate 
        Total Number  Dollar 
        of Shares  Value of 
        Purchased as  Shares that 
        Part of  May be 
  Total Number     Publicly  Purchased 
  of Shares  Average Price  Announced  Under 
  (or Units)  Paid Per  Plans or  the Plans or 
Period Purchased  Share (Unit)  Program  Programs (1) 
             
July 1, 2023 to July 31, 2023  21,411  $1.01   21,411  $7,492,726 
                 
August 1, 2023 to August 31, 2023  150,110  $0.93   150,110  $7,350,152 
                 
September 1, 2023 to September 30, 2023  11,500  $1.00   11,500  $7,338,263 

(1)On November 11, 2022, the Board of Directors authorized a stock repurchase program under which the Company was authorized to repurchase up to $10 million of the Company’s common stock through November 17, 2024.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 

None. 

ITEM 4. MINE SAFETY DISCLOSURES. 

Not applicable.

ITEM 5. OTHER INFORMATION.

None.To the best of the Company’s knowledge during the fiscal quarter ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.

ITEM 6. EXHIBITS.

Exhibit

Description

10.1

Equity Interest Purchase Agreement, dated August 16, 2023, by and between Beijing Lianzhong Co., Ltd., Allied Mobile Entertainment (Hong Kong) Limited, Beijing Lianzhong Zhihe Technology Co., Ltd., Beijing Shuimu Zhijiang Technology Center (LLP), and Beijing Mizar JY Technology Co., Ltd.

31.1*Section 302 Certification of Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a)
31.2*Section 302 Certification of Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a)
32.1*Section 906 Certification of Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350
32.2*Section 906 Certification of Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350
101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith

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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 ESPORTSGAMING & ENTERTAINMENT INC.
Dated: November 16, 20229, 2023By:/s/ Yinghua Chen
Yinghua Chen, President and Chief Executive Officer,
(Principal Executive Officer)
Dated: November 16, 20229, 2023By:/s/ Roy Anderson
Roy Anderson, Chief Financial Officer
(Principal Financial Officer)

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