Allied Gaming & Entertainment Inc. - Quarter Report: 2023 September (Form 10-Q)

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, 2023

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

For the transition period from to _______

Commission file number: 001-38226

ALLIED GAMING & ENTERTAINMENT INC.

(Exact Name of Registrant as Specified in Its Charter)

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

745 Fifth Ave, Suite 500

New York, NY 10151

(Address of principal executive offices)

(646) 768-4240

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		AGAE		NASDAQ Capital Market

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of November 6, 2023, 36,842,663 shares of common stock, par value $0.0001 per share, were outstanding.

ALLIED GAMING & ENTERTAINMENT INC.

Index to Condensed Consolidated Financial Statements

PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022		1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022		2

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022		3

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022		4

Notes to Unaudited Condensed Consolidated Financial Statements		5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	21

ITEM 4.	Controls and Procedures.	21

PART II - OTHER INFORMATION		22

ITEM 1.	Legal Proceedings.	22

ITEM 1A.	Risk Factors.	22

ITEM 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.	22

ITEM 3.	Defaults Upon Senior Securities.	23

ITEM 4.	Mine Safety Disclosures.	23

ITEM 5.	Other Information.	23

ITEM 6.	Exhibits.	23

SIGNATURES		24

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2023			2022
	(unaudited)
Assets
Current Assets
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		10,673			72,739
Prepaid expenses and other current assets		470,390			459,274
Total Current Assets		76,425,629			82,376,852
Restricted cash		5,000,000			5,000,000
Property and equipment, net		3,794,373			4,005,622
Digital assets		49,300			49,761
Intangible assets, net		688,721			72,786
Deposits		380,703			379,105
Operating lease right-of-use asset		5,411,841			5,845,549
Total Assets	$	91,750,567		$	97,729,675
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	470,264		$	317,561
Accrued expenses and other current liabilities		306,270			1,645,379
Deferred revenue		357,677			108,428
Operating lease liability, current portion		1,390,533			1,227,164
Total Current Liabilities		2,524,744			3,298,532
Operating lease liability, non-current portion		5,744,166			6,527,075
Total Liabilities		8,268,910			9,825,607
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 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		198,663,219			198,526,614
Accumulated deficit		(112,745,327	)		(110,235,568	)
Accumulated other comprehensive income		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		83,481,657			87,904,068
Total Liabilities and Stockholders’ Equity	$	91,750,567		$	97,729,675

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

ALLIED 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,
	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.

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	For The Three and Nine Months Ended September 30, 2023
												Accumulated
	Common Stock				Treasury Stock					Additional Paid-in		Other Comprehensive		Accumulated			Total Stockholders’
	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:
Stock options		-		-		-		-			5,126		-		-			5,126
Repurchases of common stock		-		-		1,105,604		(1,459,078	)		-		-		-			(1,459,078	)
Net loss		-		-		-		-			-		-		(1,893,787	)		(1,893,787	)
Other comprehensive income		-		-		-		-			-		1,880		-			1,880
Balance - March 31, 2023		39,085,470	$	3,909		1,687,350	$	(2,069,640	)	$	198,531,740	$	221,555	$	(112,129,355	)	$	84,558,209
Stock-based compensation:
Stock options		-		-		-		-			66,856		-		-			66,856
Repurchases of common stock		-		-		372,436		(415,313	)		-		-		-			(415,313	)
Net loss		-		-		-		-			-		-		(691,218	)		(691,218	)
Balance - June 30, 2023		39,085,470	$	3,909		2,059,786	$	(2,484,953	)	$	198,598,596	$	221,555	$	(112,820,573	)	$	83,518,534
Stock-based compensation:
Stock options		-		-		-		-			64,623		-		-			64,623
Repurchases of common stock		-		-		183,021		(176,746	)		-		-		-			(176,746	)
Net loss		-		-		-		-			-		-		75,246			75,246
Balance - September 30, 2023		39,085,470	$	3,909		2,242,807	$	(2,661,699	)	$	198,663,219	$	221,555	$	(112,745,327	)	$	83,481,657

	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

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

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Nine Months Ended
	September 30,
	2023			2022
Cash Flows From Operating Activities
Net loss	$	(2,509,759	)	$	(9,082,379	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		136,605			793,229
Non-cash rent expense		723,594			646,657
Digital currency received as revenue		-			(249,888	)
Impairment of digital assets		-			164,411
Net gains on sale of equipment		(8,388	)		-
Expenses paid using digital assets		461			69,533
Change in fair value of warrant liabilities		-			7,400
Depreciation and amortization		1,030,191			1,288,106
Changes in operating assets and liabilities:
Accounts receivable		62,066			266,889
Interest receivable		(1,381,179	)		-
Prepaid expenses and other current assets		(11,116	)		(243,058	)
Deposit returns		(1,598	)		-
Accounts payable		152,701			404,715
Accrued expenses and other current liabilities		(1,339,109	)		(2,079,071	)
Operating lease liability		(909,426	)		(808,148	)
Deferred revenue		(543,786	)		269,685
Total Adjustments		(2,088,984	)		530,460
Net Cash Used In Operating Activities		(4,598,743	)		(8,551,919	)
Cash Flows From Investing Activities
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	)
Proceeds from sale of equipment		106,914			-
Purchases of intangibles		(618,930	)		-
Purchases of property and equipment		(119,525	)		(6,697	)
Net Cash Provided By (Used In) Investing Activities		5,918,459			(47,723	)
Cash Flows From Financing Activities
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.

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Business Organization and Nature of Operations

Allied Gaming & Entertainment Inc. (“AGAE” and together with its subsidiaries, “the Company”) operates a public esports and entertainment company through its wholly owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena Las Vegas, LLC (“ESALV”), Allied Mobile Entertainment Inc. (“AME”), Allied Mobile Entertainment (Hong Kong) Limited (“AME-HK”), Allied Experiential Entertainment Inc. (“AEE”), and Allied Esports GmbH (“AEG” and together with AEII, AME and ESALV, “Allied Esports”). AEII produces a variety of esports and gaming-related content, including world class tournaments, live and virtual events, and original programming to continuously foster an engaged gaming community. ESALV operates HyperX Arena Las Vegas, the world’s most recognized esports facility. AME is engaged in the development and worldwide distribution of mobile casual games. AEE and 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, 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. GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full year ending December 31, 2023 or any other period. These unaudited condensed consolidated financial statements have been derived from the Company’s accounting records and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report.

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).

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(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.

The Sponsor Warrants are carried at fair value as of September 30, 2023 and December 31, 2022 and are included in accrued expenses on the accompanying condensed consolidated balance sheets. The Sponsor Warrants are valued using level 3 inputs. The fair value of the Sponsor Warrants is estimated using the Black-Scholes option pricing method. Significant level 3 inputs used to calculate the fair value of the Sponsor Warrants include the share price on the valuation date, expected volatility, expected term and the risk-free interest rate.

The following is a roll forward of the Company’s Level 3 instruments during the nine months ended September 30, 2023:

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

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Net Loss per Common Share

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

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

	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	)

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

	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 a 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 primarily from the following sources:

In-person revenue

In-person revenue was comprised of the following for the three and nine months ended September 30, 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 from the rental of the Allied Esports arena and gaming trucks are recognized over the term of the event based on the number of days completed relative to the total days of the event, as this method best depicts the transfer of control to the customer. In-person revenue also includes revenue from ticket sales, admission fees and food and beverage sales for events held at the Company’s esports properties. Ticket revenue is recognized at the completion of the applicable event. Point of sale revenues, such as food and beverage, gaming and merchandising revenues, are recognized when control of the related goods are transferred to the customer.

The Company generates sponsorship revenue from the naming rights of its esports arena which 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.

Multiplatform revenue

Multiplatform revenue was comprised of the following for the three and 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

NFT revenue	$	-	$	13,441	$	-	$	249,889
Sponsorship revenue		-		-		2,000,000		1,150,000
Distribution revenue		94		238		518		1,241
Total multiplatform revenue	$	94	$	13,679	$	2,000,518	$	1,401,130

The Company’s NFT revenue is 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 the 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 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.

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,
	2023		2022		2023		2022
Revenues Recognized at a Point in Time:
Ticket and gaming revenue	$	151,391	$	143,413	$	401,096	$	394,564
NFT revenue		-		13,441		-		249,889
Food and beverage revenue		47,535		110,139		173,326		342,253
Merchandising revenue		43,007		208,726		138,051		374,254
Distribution revenue		94		238		518		1,241
Total Revenues Recognized at a Point in Time		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		457,740		175,299		3,275,218		1,657,799
Total Revenues Recognized Over a Period of Time		877,932		1,089,685		4,868,495		3,773,329
Total Revenues	$	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, 2023 and December 31, 2022, the Company had contract liabilities of $357,677 and $108,428, respectively, which is included in deferred revenue on the condensed consolidated balance sheet.

As of September 30, 2023, $94,682 of performance obligations in connection with contract liabilities included within deferred revenue on the December 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 in accordance with ASC 820, “Fair Value Measurement”, based on quoted prices on the active exchange(s) that the Company has determined is the principal market for Ether (Level 1 inputs). The Company performs an analysis each quarter to identify whether events or changes in circumstances, or decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the Company’s digital assets are impaired. In determining if an impairment has occurred, the Company considers the lowest market price quoted on an active exchange since acquiring the respective digital asset. If the then-current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value of such assets.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain or loss to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within operating expenses in our condensed consolidated statements of operations and comprehensive loss. There were $0 and $164,411 of impairment charges during the three and nine months ended September 30, 2023, respectively. There were no digital assets sold during the same time periods.

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

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 amounts which often exceed Federal Deposit Insurance Corporation’s insurance limits. As 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 due to such concentration of credit risk.

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

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 1.0573 and 1.0699 at September 30, 2023 and December 31, 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 three months ended September 30, 2023 and 2022, respectively, and 1.0832 and 1.0078 for the nine months ended September 30, 2023 and 2022, respectively. Resulting translation adjustments are made directly to accumulated other comprehensive income.

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, other than those disclosed below.

Reclassifications

Certain prior period 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.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): 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 affect the collectability of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU on January 1, 2023, using the modified retrospective approach and it did not have a material impact on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to clarify the accounting for certain financial instruments with characteristics of liabilities 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 paid-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 December 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, 2020. 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 convertible 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 Condensed Consolidated Financial Statements

(unaudited)

On October 31, 2022, the Company entered into a system development agreement to develop an Allied Gaming membership management system and event organizer system. Pursuant to the terms of the agreement, the Company has committed to spend an aggregate amount of $199,800 in four equal payments of $49,950. The Company has made two payments of $49,950 for a total of $99,900 as of September 30, 2023 which was capitalized and included within other assets on the accompanying condensed consolidated 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 4 – Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

	September 30,		December 31,
	2023		2022
Compensation expense	$	151,121	$	1,546,805	^[1]
Event costs		2,696		8,411
Legal and professional fees		68,429		43,676
Property and franchise tax		31,000		22,000
Warrant liabilities		100		100
Other accrued expenses		52,924		24,387
Accrued expenses and other current liabilities	$	306,270	$	1,645,379

(1)	Accrued compensation expense includes a $1 million obligation to a former CEO under a Restricted Stock Unit Agreement dated January 19, 2021, as amended in a certain Release and Separation Agreement with the former CEO dated July 8, 2021. The obligation was settled in July 2023.

Note 5 – Commitments and Contingencies

Litigations, Claims, and Assessments

The Company may, from time to time, be involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, 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.

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company’s aggregate lease expense incurred 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, 2023 and 2022 amounted to $1,281,075 and $1,279,508, respectively, of which $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 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 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 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.

ALLIED GAMING & ENTERTAINMENT INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 7 – Stockholders’ Equity

Stock Options

A summary of the option activity during the nine months ended September 30, 2023 is presented below:

				Weighted		Weighted
				Average		Average
	Number of			Exercise		Remaining		Intrinsic
	Options			Price		Term (Yrs)		Value

Outstanding, January 1, 2023		1,675,000		$	3.66
Granted		-			-
Exercised		-			-
Expired		(85,000	)		4.09
Forfeited		(50,000	)		4.09
Outstanding, September 30, 2023		1,540,000		$	3.62		6.07	$	-

Exercisable, September 30, 2023		1,275,000		$	3.76		6.02	$	-

Options outstanding and exercisable as of September 30, 2023 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		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

For the three months ended September 30, 2023 and 2022, the Company recorded $64,623 and $238,840, respectively, of stock-based compensation expense related to stock options. During the nine months ended September 30, 2023 and 2022, the Company recorded $136,605 and $710,884, respectively, of stock-based compensation expense related to stock options. As of September 30, 2023, there was $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 1.74 years.

Restricted Common Stock

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. As of September 30, 2022, all restricted common stock was fully vested.

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 Gaming & Entertainment Inc. (the “Company”) as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 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 and with the Company’s audited financial statements and related disclosures as of December 31, 2022, which are included in our 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 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 offers a variety of esports and gaming-related content, including world class tournaments, live and virtual entertainment and gaming events, and original programming to continuously foster an engaged gaming community. Allied Esports operates solely through its wholly owned subsidiaries. In December 2022, the Company completed a strategic review of its business operations 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 as an acquisition of complementary assets or businesses, and it is currently exploring opportunities to leverage its location-based-entertainment expertise with a focus on gaming lifestyle and experiential entertainment, as well as growing its digital footprint and monetization capabilities through mobile gaming.

Allied’s in-person experiences include live events hosted at its flagship arena, HyperX Arena Las Vegas, an affiliate arena with one of its global network of esports arena partners, and its mobile arenas. Allied’s multiplatform content 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.

Our growth depends, in part, on our 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, we will try to adapt our business model as needed to accommodate change and remain on the forefront of our competitors.

Our business plan requires significant capital expenditures, and we expect our operating expenses to increase as we continue to expand our marketing efforts and operations in existing and new geographies as well as new vertical markets (including live influencer events, 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.

Results of Operations

Our 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. Through our subsidiaries, we offer esports fans state-of-the-art facilities to compete against other players in esports competitions, host live events with esports superstars that potentially stream to millions of viewers worldwide, and produce and distribute esports content at our on-site production facilities and studios. At our flagship arena in Las Vegas, Nevada, we provide an attractive facility for hosting corporate events, tournaments, game launches or other events. Additionally, we have a mobile esports arena, which is an 18-wheel semi-trailer that converts into a first class esports arena and competition stage with full content production capabilities and an interactive talent studio.

Results of Operations for the Three Months Ended September 30, 2023 and 2022

	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

Revenues

In-person revenues decreased by approximately $0.4 million, or 28%, to approximately $1.1 million for the three months ended September 30, 2023 from approximately $1.6 million for the three months ended September 30, 2022. The decrease of in-person experience revenues was driven by a $0.5 million decrease in event 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 three 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. The decrease corresponds to the decrease in event revenue described above.

Multiplatform costs (exclusive of depreciation and amortization) decreased by approximately $31 thousand, or 100%, to approximately $0 for the three months ended September 30, 2023 from approximately $31 thousand for the three months ended September 30, 2022.

Selling and marketing expenses decreased by approximately $3 thousand, or 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.

General and administrative expenses decreased by approximately $1.5 million, or 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. The decrease in general and administrative expenses is primarily attributable to (a) a $1.8 million reduction in compensation costs which includes a $1.5 million Employee Retention Credit (“ERC”) and $0.3 million in higher payroll and payroll related costs in 2022 and (b) a $0.2 million reduction in stock-based compensation due to higher costs 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 increased by approximately $0.5 million, or 173%, to approximately $0.2 million for the three months ended September 30, 2023, from approximately ($0.3) million for the three months ended September 30, 2022. The increase was primarily due to a $1.0 million adjustment for 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.

Other income (expense)

We recognized other expense of approximately $0 during the three months ended September 30, 2023 compared to $34 thousand of other income recorded for the three months ended September 30, 2022.

Interest income

Interest income was approximately $716 thousand for the three months ended September 30, 2023 compared to approximately $25 thousand of interest income for the three months ended September 30, 2022. The increase is a result of the interest earned on short-term investments purchased at various times commencing in the fourth quarter of 2022.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

	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

Revenues

In-person revenues decreased by approximately $0.2 million, or 4%, to approximately $3.6 million for the nine months ended September 30, 2023 from approximately $3.7 million for the nine months ended September 30, 2022. The decrease of in-person experience revenues was driven by a $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 related to a new naming rights agreement for our HyperX Arena in Las Vegas.

Multiplatform revenue increased by approximately $0.6 million, or 43%, to approximately $2.0 million for the nine months ended September 30, 2023, from approximately $1.4 million for the nine months ended September 30, 2022. The increase in multiplatform revenues is the result of additional revenue generated from Season 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, 2023 from approximately $2.8 million for the nine months ended September 30, 2022. The decrease is a result of a decrease in HyperX Arena events in 2023.

Multiplatform costs (exclusive of depreciation and amortization) increased by approximately $0.5 million, or 49%, to approximately $1.5 million for the nine months ended September 30, 2023 from approximately $1.0 million for the nine months ended September 30, 2022. The increase in multiplatform costs corresponds to the production costs for 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 sale of NFTs which had minimal direct costs.

Selling and marketing expenses decreased by approximately $13 thousand, or 7%, to approximately $173 thousand for the nine months ended September 30, 2023 from approximately $186 thousand for the nine months ended September 30, 2022.

General and administrative expenses decreased by approximately $3.1 million, or 35%, to approximately $5.7 million for the nine months ended September 30, 2023, from approximately $8.8 million for the nine months ended September 30, 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 payroll and payroll related costs in 2022, and (e) $0.7 million of higher stock-based compensation in 2022 related to the accelerated 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 various employment and service provider transition matters in addition to merger and acquisition related professional fees in connection with the acquisition of a 40% equity interest in Z-Tech and other strategic investment opportunities.

Depreciation and amortization decreased by approximately $0.3 million, or 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 that 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, 2023, compared to $164 thousand for the nine months ended September 30, 2022. The impairment loss during 2022 was the result of the market price on active exchanges going below the carrying value of the digital assets. The market price has not gone below the carrying value of the digital assets during the nine months ended September 30, 2023.

Other income (expense)

We recognized other income of approximately $16 thousand during the nine months ended September 30, 2023 compared to $46 thousand of other expense recorded for the nine months ended September 30, 2022.

Interest income

Interest income was approximately $2.2 million for the nine months ended September 30, 2023 compared to approximately $34 thousand of interest income for the nine months ended September 30, 2022. The increase is a result of the interest earned on short-term investments purchased at various times commencing in the fourth quarter of 2022.

Liquidity and Capital Resources

The following table summarizes our total current assets, current liabilities and working capital at September 30, 2023 and December 31, 2022, respectively:

	September 30,		December 31,
(in thousands)	2023		2022
Current Assets	$	76,426	$	82,377
Current Liabilities	$	2,525	$	3,298
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, 2023, we had cash of approximately $10.4 million (not including approximately $60.0 million of short-term investments and $5.0 million of restricted cash) and working capital of approximately $73.9 million. For the nine months ended September 30, 2023 and 2022, we incurred a net loss of approximately $2.5 million and $9.1 million, respectively, and used cash in operations of approximately $4.6 million and $8.6 million, respectively.

Cash requirements for our current liabilities include approximately $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, 2023, the Company had no material commitments for capital expenditures. As part of our previously announced plan to pursue strategic transactions to enhance our financial performance, we expect to use a portion of our cash reserve for the acquisition of or investment in complementary businesses and assets, to the extent such opportunities are available. Such cash reserves include $3.5 million to complete the acquisition of Beijing 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 for the nine months ended September 30, 2023 and 2022:

	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, 2023 and 2022 was approximately $4.6 million and $8.6 million, respectively, representing decreased usage of cash of $4.0 million. During the nine months ended September 30, 2023 and 2022, the net cash used in operating activities was primarily attributable to the net loss of approximately $2.5 million and $9.1 million, respectively, adjusted for approximately $1.9 million and $2.7 million, respectively, of net non-cash expenses, and approximately ($4.0) million and ($2.2) million, respectively, of cash used to fund changes in the levels of operating assets and liabilities.

Net Cash Used 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 for 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 Used in Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2023 was approximately $2.1 million compared to $0 for the nine months ended September 30, 2022 which is driven solely by the repurchase of treasury stock.

Off-Balance Sheet Arrangements

The Company does not engage in any off-balance sheet financing activities, nor does the Company have any interest in entities referred to as variable interest entities.

Critical Accounting Policies and Estimates

Refer to our Annual Report for the year ended December 31, 2022, filed with the SEC on March 24, 2023, as amended on April 27, 2023 and May 3, 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, 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, 2023 to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely 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, 2022, which persisted as of September 30, 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.

Our management, under the oversight 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 are remediated. These remediation measures include but are not limited to: (i) reorganizing roles and responsibilities to address segregation of 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.

We believe the above actions will be effective in remediating the material weakness 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 controls over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described 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 these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” in the Company’s Annual Report for the year ended December 31, 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 March 24, 2023, as amended.

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

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.

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

*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALLIED GAMING & ENTERTAINMENT INC.

Dated: November 9, 2023	By:	/s/ Yinghua Chen
		Yinghua Chen, Chief Executive Officer, (Principal Executive Officer)

Dated: November 9, 2023	By:	/s/ Roy Anderson
		Roy Anderson, Chief Financial Officer (Principal Financial Officer)