All In FutureTech Alliance, Inc.: Form 10-Q for the period ended Sep 30, 2023
Filed with the SEC on Nov 9, 2023 and accepted by EDGAR at Nov 9, 2023, 22:25 ET.
Management's discussion and analysis
As filed, 22,631 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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
(in thousands)
| Revenues: | For the Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) |
|---|---|---|---|
| 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
(in thousands)
| Revenues: | For the Nine Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) |
|---|---|---|---|
| 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 |
18
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:
(in thousands)
| September 30, 2023 | December 31, 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:
(in thousands)
| Net cash (used in) provided by | Nine Months Ended September 30, 2023 | 2022 |
|---|---|---|
| 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.
Controls and procedures
As filed, 2,750 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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.
Risk factors
As filed, 546 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2023-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Operating income | 3 months2023-07-01 to 2023-09-30 | −$640.3k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2023-01-01 to 2023-09-30 | −$4.7m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months2023-07-01 to 2023-09-30 | $75.2k | us-gaap:NetIncomeLoss |
| Net income | 9 months2023-01-01 to 2023-09-30 | −$2.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2023-07-01 to 2023-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2023-01-01 to 2023-09-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2023-07-01 to 2023-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2023-01-01 to 2023-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2023-07-01 to 2023-09-30 | 37,134,457 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2023-01-01 to 2023-09-30 | 37,351,735 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2023-01-01 to 2023-09-30 | −$4.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2023-01-01 to 2023-09-30 | $119.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months2023-01-01 to 2023-09-30 | $2.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2023-09-30 | $10.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2023-09-30 | $76.4m | us-gaap:AssetsCurrent |
| Total assets | At period end2023-09-30 | $91.8m | us-gaap:Assets |
| Current liabilities | At period end2023-09-30 | $2.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2023-09-30 | $8.3m | us-gaap:Liabilities |
| Shareholders' equity | At period end2023-09-30 | $83.5m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001213900-23-085341. Last ingested by Listed: Oct 24, 2026, 15:07 ET. Listed shows no prices and gives no investment advice.