Mr. Frank Ng
Chief Executive Officer
17877 Von Karman Avenue, Suite 300
Irvine, California, 92614
Telephone: (949) 225-2600
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of Agent for Service)
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Bradley Pederson, Esq. Maslon LLP 3300 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Telephone: (612) 672-8200 Fax: (612) 672-8341 | Jonathan R. Zimmerman, Esq. Ben A. Stacke, Esq. Faegre Baker Daniels 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Telephone: (612) 766-8419 Fax: (612) 766-1600 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of thisthe registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.¨☐
If this Formform is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨☐
If this Formform is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨☐
If this Formform is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨☐
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer☐ | Accelerated filer☒ | |||
| Non-accelerated filer☐ | Smaller reporting 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 7(a)(2)(B) of the Securities Act.¨☐
CALCULATION OF REGISTRATION FEE
| Title of each Class of Security being registered | Amount being Registered | Proposed | Proposed | Amount of Registration Fee | ||||||||||
| Units, each consisting of one share of Common Stock, $.0001 par value, one Right and one Warrant(2) | 11,500,000 Units | $ | 10.00 | $ | 115,000,000 | $ | 13,328.50 | |||||||
| Shares of Common Stock included as part of the Units(2) | 11,500,000 Shares | — | — | — | (3) | |||||||||
| Rights included as part of the Units(2) | 11,500,000 Rights | — | — | — | (3) | |||||||||
| Warrants included as part of the Units(2) | 11,500,000 Warrants | — | — | — | (3) | |||||||||
| Shares of common stock underlying rights included as part of the Units | 1,150,000 | — | — | — | (3) | |||||||||
| Units underlying Representative’s Unit Purchase Option (“Representative’s Units”) | 500,000 Units | $ | 11.50 | $ | 5,750,000 | $ | 666.43 | |||||||
| Shares of Common Stock included as part of the Representative’s Units | 500,000 Shares | — | — | — | (3) | |||||||||
| Rights included as part of the Representative’s Units(2) | 500,000 Rights | — | — | — | (3) | |||||||||
| Warrants included as part of the Representative’s Units(2) | 500,000 Warrants | — | — | — | (3) | |||||||||
| Shares of common stock underlying rights included as part of the Representative’s Units | 50,000 | — | — | — | (3) | |||||||||
| Total | $ | 120,750,000 | $ | 13,994.93 | (4) | |||||||||
| Title of Each Class of Securities to be Registered | Amount of Securities to be Registered | Proposed Maximum Offering Price | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee(1) (4) | ||||||||||||
| Common stock, $0.0001 par value per share(2)(3) | – | – | $ | 15,000,000.00 | $ | 1,947.00 | ||||||||||
___________________
| (1) | Estimated solely for the purpose of calculating the amount of the registration | |
| (2) | Includes | |
| (3) |
| (4) | Previously paid. |
The registrantRegistrant hereby amends this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statementRegistration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. WeNeither we nor the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.prohibited.
SUBJECT TO COMPLETION DATED SEPTEMBER 27, 2017JANUARY 28, 2020
PRELIMINARY PROSPECTUS
$100,000,000ALLIED ESPORTS ENTERTAINMENT, INC.
Black Ridge Acquisition Corp.
Common Stock
10,000,000 Units
Black Ridge Acquisition Corp. is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities, which we refer to as a “target business.” Our efforts to identify a prospective target business will not be limited to a particular industry or geographic region although we intend to focus our search for target businesses in the energy or energy-related industries. We do not have any specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction. If we are unable to consummate an initial business combination within 21 months from the closing of this offering, we will redeem 100% of the public shares for a pro rata portion of the trust account, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us, divided by the number of then outstanding public shares, subject to applicable law and as further described herein.
This is an initial publicShares
We are offering shares of our securities. Each unit that wecommon stock and the selling stockholders named herein are offering has a pricean additional shares of $10.00 and consists of one share ofour common stock one right and one warrant. Each right entitlespursuant to this prospectus. We will not receive any of the holder thereof to receive one-tenth (1/10)proceeds from the sale of one share ofshares by the selling stockholders.
Our common stock upon the consummation of an initial business combination, as described in more detail in this prospectus. Each warrant entitles the holder to purchase one share of common stock at a price of $11.50. Each warrant will become exercisable on the later of 30 days after the completion of an initial business combination or 12 months from the closing of this offering and will expire on the fifth anniversary of our completion of an initial business combination, or earlier upon redemption or liquidation. We have granted the underwriters a 45-day option to purchase up to an additional 1,500,000 units to cover over-allotments, if any.
Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), which we refer to throughout this prospectus as our “sponsor,” has committed to purchase from us an aggregate of 350,000 units, or “private units,” at $10.00 per unit (for a total purchase price of $3,500,000) in a private placement that will occur simultaneously with the consummation of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us additional private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit in an amount that is necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The private units are identical to the units sold in this offering, subject to certain limited exceptions as described in this prospectus.
There is presently no public market for our units, shares of common stock or warrants. We have applied to have our unitscurrently listed on the Nasdaq Capital Market or Nasdaq, under the symbol “BRACU”“AESE.” On January 27, 2020 the last reported sale price of our common stock was $3.00 per share, as reported by the Nasdaq Capital Market.
Investing in our common stock involves a high degree of risk. Before making any investment in these securities, you should read and carefully consider the risks described in this prospectus under “Risk Factors” beginning on or promptly after the datepage 10 of this prospectus. The common stock, rights and warrants comprising the units will begin separate trading on the 90th day following the date of this prospectus unless EarlyBirdCapital, Inc. informs us of its decision to allow earlier separate trading, subject to our filing a Current Report on Form 8-K with the SEC containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. Once the securities comprising the units begin separate trading, the common stock, rights and warrants will be traded on Nasdaq under the symbols “BRAC,” “BRACR” and “BRACW,” respectively.
We are an “emerging growtha “smaller reporting company” as defined in the Jumpstart Our Business Startups Actunder applicable law and will therefore beare subject to reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Unit | Total | |||||||
| Public Offering Price | $ | 10.00 | $ | 100,000,000 | ||||
| Underwriting Discount(1) | $ | 0.20 | $ | 2,000,000 | ||||
| Proceeds to Black Ridge Acquisition Corp. (before expenses) | $ | 9.80 | $ | 98,000,000 | ||||
| Per Share | Total | |||||||
| Public offering price | $ | – | $ | – | ||||
| Underwriting discounts and commissions(1) | $ | – | $ | – | ||||
| Proceeds, before expenses, to us | $ | – | $ | – | ||||
| Proceeds, before expenses, to the selling stockholders | $ | – | $ | – |
___________________
| (1) |
Upon consummation of the offering, an aggregate of $100,500,000 (or $115,575,000 if the over-allotmentWe have granted a 30-day option is exercised in full) or $10.05 per unit sold to the public in this offering will be deposited into a U.S.-based trust account at Morgan Stanley maintained by Continental Stock Transfer & Trust Company, acting as trustee. Except as described in this prospectus, these funds will not be releasedunderwriters to us until the earlier of the completion of a business combination and our redemptionpurchase up to additional shares of our common stock at the public shares (which may not occur until ________, 2019).offering price, less underwriting discounts and commissions.
The underwriters are offering the units on a firm commitment basis. The underwriters expect to deliver the units to purchasersshares of our common stock on or about ________, 2017., 2020.
SoleJoint Book-Running ManagerManagers
EarlyBirdCapital, Inc.
| Northland Capital Markets | Roth Capital Partners |
Co-Manager
Dougherty & Company
The date of this prospectus is , 2020.
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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
BLACK RIDGE ACQUISITION CORP.
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ABOUT THIS PROSPECTUS
Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” “our,” “AESE” and the “Company” refer to Allied Esports Entertainment, Inc. and its subsidiaries.
Neither we nor the underwriters nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of any sale of the common stock. Our business, liquidity position, financial condition, prospects or results of operations may have changed since the date of this prospectus.
This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
For investors outside of the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.
Industry and Market Data
This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies and our own estimates based on our management’s knowledge of, and experience in, the industry and markets in which we compete. In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources, and on our knowledge of, and our experience to date in, the markets for our products. Market data is subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of market data. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. In addition, customer preferences are subject to change. Accordingly, you are cautioned not to place undue reliance on such market data. References herein to our being a leader in a market refer to our belief that we have a leading market share position in such specified market based on sales, unless the context otherwise requires.
Trademarks
This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by any other companies.
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This summary only highlightscontains basic information about us and the more detailed information appearingoffering contained elsewhere in this prospectus. As thisBecause it is a summary, it does not contain all of the information that you should consider before investing in our common stock. You should read and carefully consider the entire prospectus before making an investment decision. You should read this entire prospectus carefully, includingdecision, especially the information presented under the headings “Risk Factors”Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and our financial statementsAnalysis of Financial Condition and the related notesResults of Operations” and all other information included elsewhere in this prospectus in its entirety before investing. References inyou decide whether to purchase any securities offered by this prospectus to “we,” “us” or “our company” refer toprospectus.
Company Overview
Background
Allied Esports Entertainment Inc. (“AESE”), formerly known as Black Ridge Acquisition Corp. ReferencesCorp, or “BRAC”, was incorporated in this prospectus to our “public shares” are to shares of our common stock soldDelaware on May 9, 2017 as part of the units in this offering (whether they are purchased in this offering or thereafter in the open market) and references to “public stockholders” refer to the holders of our public shares, including our sponsor (as defined below), officers and directors to the extent they purchase public shares, provided that their status as “public stockholders” shall only exist with respect to such public shares. References in this prospectus to our “management” or our “management team” refer to our offıcers and directors and references to our “sponsor” refer to Black Ridge Oil & Gas, Inc., a company affiliated with our executive officers. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option.
General
We are a blank check company formed under the laws of the State of Delaware on May 9, 2017. We were formed for the purpose of entering intoeffecting a merger, share exchange, asset acquisition, stockshare purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities, which we referentities.
Allied Esports Media, Inc. (“AEM”), a Delaware corporation, was formed in November 2018 to act as a “target business.holding company for Allied Esports International Inc. (“Allied Esports”) and immediately prior to the closing of the Merger (see below) to also include Noble Link Global Limited (“Noble Link”). On December 19, 2018, BRAC, Noble Link and AEM executed an Agreement and Plan of Reorganization (as amended, the “Merger Agreement”).
On August 9, 2019 (the “Closing Date”), Noble Link merged with and into AEM, with AEM being the surviving entity. Further, on the Closing Date, a subsidiary of AESE merged with and into AEM pursuant to the Merger Agreement, with AEM being the surviving entity (the “Merger”). Allied Esports, together with its subsidiaries, owns and operates the esports-related businesses of AESE. Noble Link (prior to the Merger) and its wholly owned subsidiaries Peerless Media Limited, Club Services, Inc. and WPT Enterprises, Inc. operate the poker-related business of AESE and are collectively referred to herein as “World Poker Tour” or “WPT.” To date, our efforts have
References to the “Company” are to the combination of AEM and WPT during the period prior to the Merger and to AESE and its subsidiaries after the Merger.
The Company
AESE operates a premier public esports and entertainment company, consisting of the Allied Esports and World Poker Tour businesses. For the past 16 years of its 18-year history, WPT’s business model has successfully utilized the following three pillars for its business model in the sport of poker, which the Company believes can be utilized by Allied Esports:
| • | in-person experiences; | |
| • | developing multiplatform content; and | |
| • | providing interactive services. |
The Company plans to continue operating the WPT business and to utilize its business model to execute on its growth strategy in the multibillion-dollar esports industry. Allied Esports will do this by collaborating with its strategic investors, including certain affiliates of Simon Property Group, Inc. (“Simon”), a global leader in the ownership of premier shopping, dining, entertainment, and mixed-use destinations, Brookfield Property Partners, one of the world’s premier real estate companies, and TV Azteca, S.A.B. DE C.V. (“TV Azteca”), a premier television network in Mexico, to deliver best-in-class live events, content and online products. The Company has been limited to organizational activities as well as activities related to this offering. None of our officers, directors, promoters and other affiliates has engaged in any substantive discussions on our behalf with representatives of other companiesTV Azteca regarding the possibilitypotential establishment of a potential merger, capital stock exchange, asset acquisitionjoint venture or other similar business combination with us.alternative structure to facilitate their strategic partnership. As of the date of this prospectus, the parties have not agreed upon definitive terms for such an arrangement.
We intend to focus our search on businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America where our management team’s networks and experience are suited although our efforts to identify a prospective target business will not be limited to a particular industry or geographic region. Although we anticipate acquiring a target business that is an operating business, we are not obligated to do so and may determine to merge with or acquire a company with no operating history if the terms of the transaction are determined by us to be favorable to our public stockholders and the target business has a fair market value of at least 80% of the assets held in the trust account (excluding taxes payable on the income earned on the trust account) at the time of the agreement to enter into the initial business combination.
We intend to identify and acquire a business that could benefit from a hands-on owner with extensive experience in the upstream oil and gas industry in North America and that presents potential for an attractive risk-adjusted return profile under our stewardship. Even fundamentally sound companies can often under-perform their potential due to underinvestment, a temporary period of dislocation in the markets in which they operate, over-levered capital structures, excessive cost structures, incomplete management teams and/or inappropriate business strategies. Our management team has extensive experience in identifying and executing such full-potential acquisitions across the energy industries. In addition, our team has significant hands-on experience working with private companies in preparing for and executing an initial public offering and serving as active owners and directors by working closely with these companies to continue their transformations and help create value in the public markets.
We believe that our management team is well positioned to identify attractive risk-adjusted returns in the marketplace and that its contacts and transaction sources, ranging from industry executives, private owners, private equity funds, and investment bankers will enable us to pursue a broad range of opportunities. Our management believes that its ability to identify and implement value creation initiatives will remain central to its differentiated acquisition strategy.
We will seek to capitalize on the significant operating and investing experience and contacts of our officers and directors in consummating an initial business combination. Kenneth DeCubellis, our chairman of the board and chief executive officer, has over 30 years of experience, primarily in the oil and gas and other energy-related industries, including 10 years at Exxon Mobil Corp. Mr. DeCubellis has served as chief executive officer of our sponsor, Black Ridge Oil & Gas, Inc., since November 2011. Black Ridge Oil & Gas, Inc. is an oil and gas company that pursues distressed asset acquisitions in all unconventional, onshore U.S. oil and gas basins, including over $100 million previously invested in the Williston Basin in North Dakota and Montana. Our management team has significant access to both publicly available and proprietary business combination opportunities and have collectively bid on over $2.4 billion of opportunities since June 2015.
Notwithstanding the foregoing, the past performance of our sponsor, officers and directors is not a guarantee that we will be able to identify a suitable candidate for our initial business combination or of success with respect to any business combination we may consummate. You should not rely on the historical record of our management’s performance as indicative of our future performance. None of our officers or directors have had experience with blank check companies or special purpose acquisition companies in the past.
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Acquisition Criteria
The Allied Esports Business
We have identifiedGaming is one of the following general criterialargest and guidelines that we believe are important in evaluating prospective targets. We will use these criteria and guidelines in evaluating acquisition opportunities, but we may decide to enter into our initial business combination with a target that does not meet these criteria and guidelines. We intend to acquire target businesses that we believe:
We will seek to acquire the target on terms and in a manner that leverages our management team’s experience investing within the energy industry. Potential upside from growthcomputer technology advances in the target businesslast decade have also greatly accelerated the growth of esports. Esports has now become so popular that many schools offer scholarships in esports; the best-known esports teams are getting mainstream sponsorship and an improved capital structureare being bought or invested in by celebrities, athletes and professional sports teams. The highest-profile esports gamers have significant online audiences as they stream themselves playing against other players online, and potentially can generate millions of dollars in sponsorship money and subscription fees to their online streaming channels. It is projected that by 2022, 645 million people will be weighed against any identified downside risks.watching esports globally, and that global esports revenue will grow to approximately $1.8 billion.
These criteriaWPT successfully implemented a three-pillar strategy for over 16 years of its 18 year history. We believe this model can continue and also be applied to Allied Esports and the esports industry over time. Allied Esports intends that the same pillars—in-person experiences, multiplatform content, and interactive services—will be utilized by Allied Esports independently and in connection with its strategic partners.
In August 2019, Allied Esports entered into a series of strategic transactions with certain affiliates of Simon, including entering into an agreement with Simon Management Associates II, LLC, pursuant to which Allied Esports will organize and stage an esports event program called the Simon Cup at certain Simon centers in the U.S. and online. In August 2019, Allied Esports also launched a strategic partnership with TV Azteca, a premier television network in Mexico. In January 2020, Allied Esports entered into a strategic partnership with Brookfield Property Partners, one of the world’s premier real estate companies, pursuant to which Allied Esports will develop integrated esports experience venues at mutually agreed upon shopping malls owned and/or operated by BPR Cumulus LLC, an affiliate of Brookfield Property Partners, or its affiliates that will include a dedicated gaming space and production capabilities to attract and to activate esports and other emerging live events. In connection with each of the foregoing partnerships, Allied Esports’ partner made a $5 million equity investment into the Company.
The WPT Business
The Company owns the World Poker Tour® (WPT®) – a premier name in internationally televised gaming and entertainment with brand presence in land-based poker tournaments, television, online and mobile. Leading innovation in the sport of poker since 2002, WPT helped ignite the global poker boom with the creation of a unique television show based on a series of high-stakes poker tournaments. WPT’s Tour Events are not intendedheld on a weekly basis at locations throughout the world and have awarded more than one billion in prize dollars in its 18-year history. WPT has broadcast globally in more than 150 countries and territories, and is currently producing its 18th season, which airs on FOX Sports Regional Networks in the United States. Season 18 of WPT is currently sponsored by its online poker subscription-based platform, ClubWPT.com. WPT offers a suite of online poker services which it operates by itself and through its partners, offering consumers the ability to be exhaustive. Any evaluation relatingaccess gaming content on a year-round, 24/7 basis. ClubWPT.com is a unique online membership site that offers inside access to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelinesWPT, as well as other considerations, factorsa sweepstakes-based poker club available in four countries and criteria35 states across the United States and Washington D.C., with innovative features and state-of-the-art creative elements inspired by WPT’s 18 years of experience in gaming entertainment. In addition, WPT licenses its brand to social gaming sites through partners like Zynga, as well as to educational learning platforms such as LearnWPT. These online products are scalable and offer geographic access that our managementmight be limited if WPT relied on tour stop participation alone. Additionally, WPT benefits from managing its own distribution business, which currently has more than 1,000 hours of broadcast-ready content, and offers demographically similar programming to its poker content, such as esports, golf and MMA. WPT uses this large suite of programming as leverage to seek preferred airtimes on its various distribution channels, where it may deem relevant. Inpromote its online products or offer airtime to sponsors in territories they seek to enter. WPT also participates in strategic brand licensing, partnerships, sponsorship opportunities and music licensing. As described previously, WPT applies a three-pillar model of in-person experiences, developing multiplatform content and providing interactive services, to the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communications related to our initial business combination, which, as discussed in this prospectus, would be in the formsport of proxy solicitation or tender offer materials that we would file with the Securities and Exchange Commission, or SEC.poker.
Effecting a Business CombinationThe Selling Stockholders
We will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or againstOn the proposed business combination, into their pro rata shareClosing Date of the aggregate amount then on deposit inMerger, the trust account (net of taxes payable), or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subjectCompany issued to the limitations described herein. The decision as to whether we will seek stockholder approvalselling stockholders, which were certain management and service providers of our proposed business combination or allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion,WPT and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Unlike other blank check companies which require stockholder votes and conduct proxy solicitations in conjunction with their initial business combinations and related conversions of public shares for cash upon consummation of such initial business combinations even when a vote is not required by law, we will have the flexibility to avoid such stockholder vote and allow our stockholders to sell their shares pursuantAllied Esports prior to the tender offer rulesClosing Date, an aggregate of the SEC. In that case, we will file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, if we seek stockholder approval, a majority of the outstanding1,277,283 shares of common stock voted are voted in favorlieu of cash that was payable on the Closing Date of the business combination.Merger. The selling stockholders are registering the sale of shares of such common stock to the underwriters as part of this prospectus.
We will have until 21 months from the closing of this offering to consummate an initial business combination. If we are unable to consummate an initial business combination within such time period, we will redeem 100% of our outstanding public shares for a pro rata portion of the funds held in the trust account, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us, divided by the number of then outstanding public shares, subject to applicable law and as further described herein, and then seek to dissolve and liquidate. We expect the pro rata redemption price to be approximately $10.05 per share of common stock (regardless of whether or not the underwriters exercise their over-allotment option), without taking into account any interest earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors which may take priority over the claims of our public stockholders.
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Our initial business combination must occur with one or more target businesses that together have a fair market value of at least 80% of the assets heldRisk Factors
Investing in the trust account (excluding taxes payable on the income earned on the trust account) at the time of the agreement to enter into the initial business combination. The fair market value of the target or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). Even though our board of directors will rely on generally accepted standards, our board of directors will have discretion to select the standards employed. In addition, the application of the standards generallycommon stock involves a substantialhigh degree of judgment. Accordingly, investors will be relying onrisk. You should carefully consider the business judgment of the board of directors in evaluating the fair market value of the target or targets. The proxy solicitation materials or tender offer documents used by us in connection with any proposed transaction will provide public stockholders with our analysis of the fair market value of the target business,specific risks described under “Risk Factors”, as well as any other information included or incorporated by reference into this prospectus, including our financial statements and the basis for our determinations. If our board is not able independently to determine the fair market valuenotes thereto, before making an investment decision.
Implications of the target business or businesses, we will obtainBeing an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, with respect to the satisfaction of such criteria.Emerging Growth Company
We currently anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination where we merge directly with the target business or where we acquire less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to registerqualify as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we could acquire a 100% controlling interest in the target; however, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value test.
Potential Conflicts
Each of our officers and directors is an officer and/or director of our sponsor. As described above, our sponsor is an oil and gas company that pursues distressed asset acquisitions in the energy industry, the same industry within which we intend to focus our search for a target business. Our sponsor recently completed a rights offering in which it raised an aggregate of approximately $5,182,000. Of this amount, up to $3,875,000 (assuming the underwriters’ over-allotment option is exercised in full) would be used to purchase the private units with the balance being available to our sponsor for working capital purposes, including potential investments and acquisitions. However, our sponsor intends to acquire assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them, whereas we intend to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company. Accordingly, our management team does not believe that there will be a meaningful conflict between our sponsor and our company in relation to consummating a business combination. Nevertheless, we cannot assure you of this fact and it is possible that a suitable business opportunity will be presented to our sponsor prior to its presentation to our company.
Additionally, if any of our officers becomes aware of a business combination opportunity that falls within the line of business of any entity to which he has pre-existing fiduciary or contractual obligations, he may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. For more information on the relevant pre-existing fiduciary duties or contractual obligations of our management team, see the section titled “Management – Conflicts of Interest.”
JOBS Act
We are an emerging“emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (which(the “JOBS Act”). For so long as we referremain an emerging growth company, we are permitted and plan to hereinrely on exemptions from certain disclosure requirements that are applicable to other public companies. These provisions include, but are not limited to:
| · | being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; | |
| · | an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”); | |
| · | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
| · | reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements; and | |
| · | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We have elected to take advantage of certain reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in future filings. In addition, the JOBS Act) andAct permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As a result, the information that we provide to our stockholders may be different from what you might receive from other public reporting companies in which you hold equity interests.
We will remain such for up to five years. However, ifan emerging growth company until the earliest of (i) the last day of our 2022 fiscal year, (ii) the first fiscal year after our annual gross revenue isrevenues exceed $1.07 billion, or(iii) the date on which we have, during the immediately preceding three-year period, issued more if ourthan $1.00 billion in non-convertible debt issued within a threesecurities or (iv) the end of any fiscal year period exceeds $1 billion orin which the market value of our shares of common stock that are held by non-affiliates exceeds $700 million onas of the last dayend of the second fiscal quarter of any giventhat fiscal year, we would cease toyear.
Corporate Information
Our principal offices are located at 17877 Von Karman Avenue, Suite 300, Irvine, California, 92614, and our telephone number at that office is (949) 225-2600. Allied Esports Entertainment Inc. (“AESE”), formerly known as Black Ridge Acquisition Corp, or “BRAC,” was incorporated in Delaware on May 9, 2017 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. Our corporate website address is www.alliedesportsent.com. The information contained in or that can be accessed through our website is not part of this prospectus, and the inclusion of our website address in this prospectus is an emerging growth company as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.inactive textual reference only.
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Private Placements
Recent Developments
In May 2017,Revenue Projection. For the three-month period ended December 31, 2019, we forecast that our sponsor purchasedrevenues will be in the range of $6.2 to $6.5 million. The forecasted revenues have not been subject to an aggregateinternal audit or review. We have not prepared our internal financial statements for the month of 2,875,000December 2019 and, although our internal financial statements for the months of October and November 2019 have been prepared, they have not been subject to review or audit by our independent registered public accounting firm. The forecasted range of revenues set forth above reflects revenues recorded in the financial statements of our operations for the months of October and November 2019 and managements’ good faith estimate of December 2019 revenues based primarily on our internal sales reports. Our forecasted revenues are subject to adjustments based upon, among other things, the finalization of our financial results of operations for the quarter ended December 31, 2019 and the audit of our financial statements as of December 31, 2019 and for the year then ended. Therefore, our actual revenues for the three-month period ended December 31, 2019 may differ materially from the forecasts reflected above and we assume no obligation to update the disclosures in this prospectus based upon our actual financial results.
Brookfield Partnership. On January 14, 2020, we entered into a Share Purchase Agreement (the “Purchase Agreement”) with BPR Cumulus LLC (“Brookfield”), an affiliate of Brookfield Property Partners. Pursuant to the Purchase Agreement, the Company issued to Brookfield 758,725 shares of ourthe Company’s common stock which we referin exchange for $5,000,000 (the “Purchase Price”) on January 16, 2020. The Purchase Price is to throughout this prospectus asbe used by the “founders’ shares,” forCompany or its subsidiaries to develop integrated esports experience venues at mutually agreed upon shopping malls owned and/or operated by Brookfield or any of its affiliates (each, a “Brookfield Mall”) that will include a dedicated gaming space and production capabilities to attract and to activate esports and other emerging live events (each, an aggregate purchase price of $25,000, or approximately $0.01 per share. The founders’ shares held by our sponsor includes an aggregate of up to 375,000 shares subject to forfeiture to the extent“Esports Venue”). To that the underwriters’ over-allotment option is not exercised in full or in part, so that our sponsor will continue to own 20.0% of our issued and outstanding shares after this offering (not including ownershipend, half of the private unitsPurchase Price is held in escrow until the parties execute a written lease agreement for the first Esports Venue, and assuming it does not purchase unitsthe other half is held in this offering).escrow until the parties execute a written lease agreement for the second Esports Venue. Under the Purchase Agreement, the Company, or one of its subsidiaries, must create, produce, and execute three esports events per year during calendar years 2020, 2021 and 2022 that will include the Company’s HyperX Esports Truck at one or more Brookfield Malls at mutually agreed times.
In addition, our sponsor has committed to purchase an aggregate of 350,000 private units at a price of $10.00 per unit ($3.5 million in the aggregate) in a private placement that will occur simultaneously with the closing of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us at a price of $10.00 per private unit an additional number of private units (up to a maximum of 37,500 private units) in order to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The proceeds from the private placement of the private units will be added to the proceeds of this offering and placed in a U.S.-based trust account at Morgan Stanley with Continental Stock Transfer & Trust Company, as trustee. If we do not complete an initial business combination within 21 months from the closing of this offering, the proceeds from the sale of the private units will be included in the liquidating distribution to our public stockholders and the private units will be worthless.
Our executive offices are located at 110 North 5th Street, Suite 410, Minneapolis, Minnesota 55403, and our telephone number is (952) 426-1241.
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The Offering
The summary below describes some of the terms of the offering. For a more complete description of the common stock, see “Description of Equity Securities.”
| Securities offered by us | shares of our common stock. | |
| $ per share. | ||
Securities offered by selling stockholders | shares of our | |
| Over-allotment option | We | |
| Common stock outstanding immediately prior to this offering | 23,934,871 shares (1) | |
| shares (or shares if the underwriters’ option to purchase additional shares is exercised in full) (1)(2) | ||
| Use of proceeds | We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $ , (or $ if the underwriters’ option to purchase additional shares is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to fund general corporate activities and working capital requirements. We will not receive any proceeds from the sale of common stock For more information, see “Use of Proceeds” below. | |
| Market and trading symbol | Our common stock is currently traded on the Nasdaq Capital Market under the symbol “AESE.” | |
| Risk factors | You should read the “Risk Factors” section of this prospectus for a discussion of factors to be considered before deciding to invest in shares of our common stock. |
| (1) | The number of shares of our common stock outstanding both before and after this offering is based on the number of shares outstanding as of January 27, 2020, and excludes: |
| ● | 2,480,000 common shares issuable upon exercise of stock options granted under our 2019 Equity Incentive Plan and outstanding as of January 27, 2020, with a weighted-average exercise price of $4.38 per share; |
| ● | 902,912common shares available as of January 27, 2020 for future issuance under our 2019 Equity Incentive Plan; |
| ● | 18,637,003 common shares issuable upon exercise of warrants outstanding as of January 27, 2020, with a weighted-average exercise price of $11.50 per share; |
| ● | Units, comprised in the aggregate of 660,000 common shares and warrants | |
| ● |
| (2) | Except as otherwise indicated, the number of shares of common stock | |
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table shows selected historical combined financial information of AESE for the periods and as of the dates indicated. The selected historical interim condensed consolidated financial information of AESE as of September 30, 2019 and for the nine-months ended September 30, 2019 and 2018 was derived from the unaudited interim condensed consolidated financial statements of AESE included elsewhere in this prospectus.
AESE’s historical results are not necessarily indicative of future operating results. The selected consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the historical combined financial statements of AEII/WPT and accompanying notes included elsewhere in this prospectus.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Statement of Operations Data: | ||||||||||||||||
| Revenues | $ | 6,041,541 | $ | 5,480,241 | $ | 19,614,935 | $ | 15,199,296 | ||||||||
| Costs and expenses | ||||||||||||||||
| In-person (excluding depreciation and amortization) | 1,196,572 | 975,254 | 2,901,220 | 3,992,607 | ||||||||||||
| Multiplatform (excluding depreciation and amortization) | 786,706 | 860,332 | 2,907,827 | 2,033,834 | ||||||||||||
| Interactive (excluding depreciation and amortization) | 569,478 | 612,786 | 1,976,012 | 1,903,347 | ||||||||||||
| Online operating expenses | 172,879 | 129,770 | 489,269 | 1,541,789 | ||||||||||||
| Selling and marketing expenses | 705,714 | 302,508 | 2,644,645 | 3,143,563 | ||||||||||||
| General and administrative expenses | 4,711,692 | 3,871,179 | 13,378,166 | 12,364,722 | ||||||||||||
| Depreciation and amortization | 1,716,103 | 1,892,665 | 5,133,947 | 5,228,709 | ||||||||||||
| Impairment expense | – | 3,252,545 | 600,000 | 7,590,205 | ||||||||||||
| Loss from operations | (3,817,603 | ) | (6,416,798 | ) | (10,416,151 | ) | (22,599,480 | ) | ||||||||
| Interest expense, net | (451,553 | ) | (564,358 | ) | (518,443 | ) | (1,877,616 | ) | ||||||||
| Other income (expense) | 15,684 | 216,529 | 15,684 | 100,114 | ||||||||||||
| Net loss | (4,253,472 | ) | (6,764,627 | ) | (10,918,910 | ) | (24,376,982 | ) | ||||||||
| Net loss attributed to non-controlling interest | – | (76,525 | ) | – | (403,627 | ) | ||||||||||
| Net loss attributed to Parent | $ | (4,253,472 | ) | $ | (6,688,102 | ) | $ | (10,918,910 | ) | $ | (23,973,355 | ) | ||||
| Balance Sheet Data (at end of period): | ||||||||||||||||
| Cash and cash equivalents | $ | 9,355,496 | ||||||||||||||
| Restricted cash | 4,950,000 | |||||||||||||||
| Property and equipment, net | 19,918,061 | |||||||||||||||
| Intangible assets and goodwill | 19,542,701 | |||||||||||||||
| Deferred production costs | 11,204,843 | |||||||||||||||
| Total assets | 74,474,724 | |||||||||||||||
| Due to Former Parent | – | |||||||||||||||
| Convertible debt, net of discounts, including related party | 13,769,020 | |||||||||||||||
| Total liabilities | 24,703,399 | |||||||||||||||
| Total stockholders' equity | 49,771,325 | |||||||||||||||
| Cash Flow Data: | ||||||||||||||||
| Net cash used in operating activities | $ | (7,750,900 | ) | $ | (11,232,448 | ) | ||||||||||
| Net cash provided by (used in) investing activities | 7,930,030 | (22,725,016 | ) | |||||||||||||
| Net cash provided by financing activities | 3,653,196 | 30,444,286 | ||||||||||||||
| Other Financial Data: | ||||||||||||||||
| EBITDA(1) | $ | (2,085,816 | ) | $ | (4,282,642 | ) | $ | (5,261,966 | ) | $ | (17,192,567 | ) | ||||
| Adjusted EBITDA(1) | $ | (2,067,409 | ) | $ | (1,030,097 | ) | $ | (4,643,559 | ) | $ | (10,381,362 | ) | ||||
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| (1) | EBITDA and Adjusted EBITDA are non-GAAP financial measures. For a definition of EBITDA and Adjusted EBITDA and a reconciliation of EBITDA and Adjusted EBITDA to net income, see “Non-GAAP Financial Measures” below. |
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Non-GAAP Financial Measures EBITDA and Adjusted EBITDA are non-GAAP financial measures and should not be considered as a substitute for net income (loss), operating income (loss) or any other performance measure derived in accordance with United States generally accepted accounting principles (“GAAP”) or as an alternative to net cash provided by operating activities as a measure of AESE’s profitability or liquidity. AESE’s management believes EBITDA and Adjusted EBITDA are useful because they allow external users of its financial statements, such as industry analysts, investors, lenders and rating agencies, to more effectively evaluate its operating performance, compare the results of its operations from period to period and against AESE’s peers without regard to AESE’s financing methods, hedging positions or capital structure and because it highlights trends in AESE’s business that may not otherwise be apparent when relying solely on GAAP measures. AESE presents EBITDA and Adjusted EBITDA because it believes EBITDA and Adjusted EBITDA are important supplemental measures of its performance that are frequently used by others in evaluating companies in its industry. Because EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income (loss) and may vary among companies, the EBITDA and Adjusted EBITDA AESE presents may not be comparable to similarly titled measures of other companies. AESE defines EBITDA as earnings before interest, income taxes, depreciation and amortization of intangibles. AESE defines Adjusted EBITDA as EBITDA excluding stock-based compensation and impairment losses. The following table presents a reconciliation of EBITDA and Adjusted EBITDA from net loss, AESE’s most directly comparable financial measure calculated and presented in accordance with GAAP.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Information in this prospectus includes “forward-looking statements” under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this prospectus, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this prospectus, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this prospectus. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Nevertheless, and despite the fact that management’s expectations and estimates are based on assumptions management believes to be reasonable and data management believes to be reliable, our actual results, performance or achievements are subject to future risks and uncertainties, any of which could materially affect our actual performance. Risks and uncertainties that could affect such performance include, but are not limited to:
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| ● | the impact of the company’s financial condition upon customer and prospective vendor and strategic partner relationships; | |
| ● | potential litigation and regulatory actions directed toward our industry in general; | |
| ● | our reliance on certain key personnel in the management of our businesses; | |
| ● | employee and management turnover; | |
| ● | the existence of material weaknesses in internal controls over financial reporting; | |
| ● | the inability to successfully integrate the operations of acquired companies; and | |
| ● | the fact that our common stock is presently thinly traded in an illiquid market. |
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We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, the risks described under “Risk Factors” in this prospectus. Should one or more of the risks or uncertainties described in this prospectus occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. 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 in this section, to reflect events or circumstances after the date of this prospectus.
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Investing in our securities involves a high degree of risk. You should carefully consider the specific risks described below before making an investment decision. Any of the risks we describe below could cause our business, financial condition, results of operations or future prospects to be materially adversely affected.
The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, results of operations or future prospects. In addition, some of the statements in this section of the prospectus are forward-looking statements. For more information about forward-looking statements, please see the section of this prospectus entitled “Cautionary Note Regarding Forward-Looking Statements” above. Amounts within the “Risk Factors” section are stated in thousands with the exception of share information.
ALLIED ESPORTS RISK FACTORS
General Risks
Allied Esports is subject to risks associated with operating in a rapidly developing industry and a relatively new market.
Many elements of Allied Esports’ business are unique, evolving and relatively unproven. Its business and prospects depend on the continuing development of live streaming of competitive esports gaming. The market for esports gaming competition is relatively new and rapidly developing and is subject to significant challenges. Allied Esports’ business relies upon its ability to grow and garner an active gamer community, and successfully monetize this community through tournament fees, live event ticket sales, and advertising and sponsorships. In addition, Allied Esports’ continued growth depends, in part, on its ability to respond to constant changes in the esports gaming industry, including 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, and Allied Esports will try to adapt its business model as needed to accommodate change and remain on the forefront of its competitors, Allied Esports may be unsuccessful in doing so and does not provide any guarantees or assurances of success as the industry continues to evolve.
Allied Esports may not be able to generate sufficient revenue to achieve and sustain profitability.
Allied Esports expects its operating expenses to increase significantly as it continues to expand its marketing efforts and operations in existing and new geographies and vertical markets (including its online esports tournament and gaming subscription platform it intends to develop). In addition, Allied Esports expects to incur significant additional legal, accounting and other expenses related to being a public company. If its revenue declines or fails to grow at a rate faster than these increases in operating expenses, it will not be able to achieve and maintain profitability in future periods. As a result, Allied Esports may generate losses. Allied Esports cannot assure you that it will achieve or maintain profitability.
Allied Esports generates a portion of its revenues from advertising and sponsorship. If it fails to attract more advertisers and sponsors to its live events, tournaments or content, or if advertisers or sponsors are less willing to advertise with or sponsor Allied Esports, its revenues may be adversely affected.
Allied Esports generates revenue from advertising and sponsorship, and it expects to further develop and expand its focus on these revenues in the future. These revenues partly depend on the advertisers’ willingness to advertise in the esports gaming industry. If the esports gaming advertising and sponsorship market does not continue to grow, or if Allied Esports is unable to capture and retain a sufficient share of that market, Allied Esports’ profitability may be materially and adversely affected. Furthermore, with unfavorable economic external factors, sponsors and advertisers may not have enough budget allocations for spending in sponsorship and advertising in esports, which would also lead to an adverse impact on Allied Esports’ revenue stream.
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Allied Esports’ business model may not remain effective and it cannot guarantee that its future monetization strategies will be successfully implemented or generate sustainable revenues and profit.
Allied Esports generates revenues from advertising and sponsorship of its live events, its content, the sale of merchandising, and the operation of its esports arenas. Allied Esports has generated, and expects to continue to generate, a substantial portion of revenues using this revenue model in the near term. Although Allied Esports anticipates growth in Allied Esports’ business utilizing this revenue model, there is no guarantee that growth will continue in the future, and the demand for its offerings may change, decrease substantially or dissipate, or it may fail to anticipate and serve esports gamer demands effectively. Allied Esports may determine to enter into new opportunities to expand its business, including online gaming platforms, which may or may not be successful. Any such expansions involve additional risks and costs that could materially and adversely affect its business.
Allied Esports’ growth strategy depends on the availability of suitable locations for its proprietary and licensed esports arenas and its ability to open new locations and operate them profitably.
A key element of Allied Esports’ growth strategy is to extend its brand by opening additional flagship arenas throughout the world and licensing the Allied Esports brand to third party esports arena operators, which it believes will provide attractive returns on investment. However, desirable locations may not be available at an acceptable cost. Opening these additional locations will depend upon a number of factors, many of which are beyond Allied Esports’ control, including its ability or the ability of the selected licensee to:
| · | reach acceptable agreements regarding the lease of the locations; |
| · | comply with applicable zoning, licensing, land use and environmental regulations; |
| · | raise or have available an adequate amount of cash or currently available financing for construction and opening costs; |
| · | timely hire, train and retain the skilled management and other employees necessary to meet staffing needs; |
| · | negotiate acceptable terms with any unions representing employees; |
| · | obtain, for acceptable cost, required permits and approvals, including liquor licenses; and |
| · | efficiently manage the amount of time and money used to build and open each new location. |
If Allied Esports succeeds in opening new arenas on a timely and cost-effective basis, it may nonetheless be unable to attract enough gamers or spectators to the new location (or to existing locations of affiliated arenas) because its entertainment and menu options might not appeal to them. Failure to do so could have a significant adverse effect on Allied Esports’ overall operating results.
Allied Esports has not entered into definitive license agreements with all game publishers that it currently has relationships with, and it may never do so.
Although Allied Esports has relationships with many game publishers for tournament event and content experiences involving their respective intellectual properties and enters into definitive license agreements with such game publishers from time to time, Allied Esports does not have definitive license agreements in place with all of its game publishers. No assurances can be given as to when or if it will be able to come to agreeable terms with game publishers for any future license agreements. If Allied Esports is unable to come to mutually agreeable terms and enter into definitive license agreements with game publishers, game publishers may unilaterally choose to discontinue its relationship with Allied Esports, thereby preventing Allied Esports from offering tournament event and content experiences using their game intellectual property. Should game publishers choose not to allow Allied Esports to offer tournament event and content experiences involving their intellectual property to Allied Esports’ customers, the popularity of Allied Esports’ tournaments and content may decline, which could materially and adversely affect its results of operations and financial condition.
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Even if Allied Esports is able to license its brand to third party esports operators, there is a risk that those operators could damage its brand by operating esports arenas that are not at Allied Esports’ standards of operation.
As Allied Esports licenses the Allied Esports brand to third party esports arena operators around the world, it will depend on those operators to run those arenas at a quality level similar to Allied Esports’ owned and operated arenas. Allied Esports’ strategy depends on customers associating the third party esports arenas as part of Allied Esports’ network of affiliated arenas, which it believes will expand its brand recognition and increase customers, revenue, and growth. If Allied Esports’ affiliate arenas are poorly operated, or if those operators fail to use Allied Esports’ name and branding in a manner consistent with Allied Esports’ corporate messaging and branding, or if there are safety issues or other negative occurrences at affiliate arenas, Allied Esports’ name and brand could be significantly damaged, which would make its expansion difficult and materially adversely affect its results of operations and financial condition.
Allied Esports’ growth strategy includes deploying additional mobile arenas in the U.S and Europe to host its tournaments and events and it must operate them profitably.
A key element of Allied Esports’ growth strategy is to extend its brand by increasing and adding to its portfolio of mobile arenas in the U.S. and Europe, as we believe doing so will provide attractive returns on investment. Adding these mobile arenas will depend upon a number of factors, many of which are beyond Allied Esports’ control, including but not limited to our ability, or the ability of our licensees, to:
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| · | comply with applicable zoning, licensing, land use and environmental regulations and obtain required permits and approvals; |
| · | raise or have available an adequate amount of |
| · | timely hire, train and retain the skilled management and other employees necessary to operate the |
| · | efficiently manage the amount |
| · | manage the | |
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RisksThe nature of hosting esports events exposes Allied Esports to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at the arenas, and health and safety concerns.
In making your decision on whetherAllied Esports’ business of hosting esports events inherently exposes it to invest in our securities, you should take into account the special risks we facenegative publicity or customer complaints as a blank check company,result of accidents, injuries or, in extreme cases, deaths arising from incidents occurring at our arenas, including health, safety or security issues, and quality and service standards. Even isolated or sporadic incidents or accidents may have a negative impact on Allied Esports’ brand image and reputation, the arenas’ popularity with gamers and spectators or the ability to host esports events at all.
Allied Esports’ marketing and advertising efforts may fail to resonate with gamers.
Allied Esports’ live events, tournaments and competitions are marketed through a diverse spectrum of advertising and promotional programs such as well asonline and mobile advertising, marketing through websites, event sponsorship and direct communications with the factesports gaming community including via email, blogs and other electronic means. An increasing portion of Allied Esports’ marketing activity is taking place on social media platforms that this offeringare either outside, or not totally within, its direct control. Changes to gamer preferences, marketing regulations, privacy and data protection laws, technology changes or service disruptions may negatively impact its ability to reach target gamers. Allied Esports’ ability to market its tournaments and competitions is not being conducteddependent in compliance with Rule 419 promulgated underpart upon the Securities Act, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. For additional information concerning how Rule 419 blank check offerings differ from this offering, please see “Proposed Business — Comparison to offeringssuccess of blank check companies subject to Rule 419.” You should carefully consider these and the other risks set forth in the section entitled “Risk Factors” beginning on page 14 of this prospectus.programs.
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SUMMARY FINANCIAL DATAThe esports gaming industry is competitive, and gamers may prefer competitors’ arenas, leagues, competitions or tournaments over those offered by Allied Esports.
The esports gaming industry is competitive. Competitors range from established leagues and championships owned directly, as well as leagues franchised by well-known and capitalized game publishers and developers, interactive entertainment companies, diversified media companies and emerging start-ups. New competitors will likely continue to emerge. Many of these competitors may have greater financial resources than Allied Esports. If Allied Esports’ competitors develop and launch competing arenas, leagues, tournaments or competitions, Allied Esports’ revenue, margins, and profitability could decline.
Allied Esports may not provide events or tournaments with games or titles for which the esports gaming community is interested.
Allied Esports must attract and retain the popular esports gaming titles in order to maintain and increase the popularity of its live events, leagues, tournaments and competitions. Allied Esports must identify and license popular games that resonate with the esports gamer community on an ongoing basis. Allied Esports cannot assure you that it can attract and license popular esports games from their publishers, and failure to do so would have a material and adverse impact on Allied Esports’ results of operations and financial conditions.
If Allied Esports fails to keep its existing gamers engaged, acquire new gamers and expand interest in its live events, leagues, tournaments and competitions, its business, profitability and prospects may be adversely affected.
The following table summarizesAllied Esports’ success depends on its ability to maintain and grow the relevant financial data fornumber of gamers attending its live events, tournaments and competitions, and keep its gamers and attendees highly engaged. In order to attract, retain and engage gamers and remain competitive, Allied Esports must continue to develop and expand its live events, leagues, produce engaging tournaments and competitions, and implement new content formats, technologies and strategies to improve its product offerings. There is no assurance it will be able to do so.
A decline in the number of gamers may adversely affect the engagement level of gamers with Allied Esports’ tournament and entertainment platform under development may reduce our revenue opportunities and have a material and adverse effect on our business, financial condition and should be read with our financial statements, which are included in this prospectus. We have not had any significant operations to date, and accordingly only balance sheet data is presented.
| May 31, 2017 | ||||||||
| Actual | As Adjusted | |||||||
| Balance Sheet Data: | ||||||||
| Working capital deficiency (1) | (37,823 | ) | 101,024,777 | |||||
| Total assets (2) | 150,000 | 101,024,777 | ||||||
| Total liabilities | 125,323 | – | ||||||
| Value of common stock subject to possible conversion/tender (3) | – | 96,024,775 | ||||||
| Stockholders’ equity (4) | 24,677 | 5,000,002 | ||||||
(1) The “as adjusted” calculation includes $100,500,000 cash held in trust from the proceedsresults of this offering and the sale of the private units, plus $500,000 of cash held outside the trust account, plus $100 from the issuance of the unit purchase option, plus $62,500 of offering costs paid in advance, less the actual working capital deficit of $37,823 at May 31, 2017.operations.
(2) The “as adjusted” calculation equals $100,500,000 cash heldIt is vital to Allied Esports’ operations that its planned online esports tournament and gaming subscriptions platform be responsive to evolving gamer preferences and offer first-tier esports game content and other services that attracts gamers. Allied Esports must also keep providing gamers new features and functions to enable superior content viewing and interaction, or the number of gamers utilizing the platform will likely decline. Any decline in trust from the proceedsnumber of this offeringgamers will likely have a material and the sale of the private units, plus $500,000 in cash held outside the trust account, plus $100 from the issuance of the unit purchase option, plus $62,500 of offering costs paid in advance, less the actual working capital deficit of $37,823 at May 31, 2017.adverse effect on our operations.
(3) The “as adjusted” calculation equals the “as adjusted” total assets, less the “as adjusted” total liabilities, less the “as adjusted” stockholders’ equity, whichThere is setno guarantee that Allied Esports will be able to approximate the minimum net tangible assets threshold of at least $5,000,001.complete its planned online esports tournament and gaming subscription platform, or that such platform once completed will be or remain popular.
(4) Excludes 9,554,704 sharesAllied Esports cannot assure you that the online esports tournament and gaming subscription platform it intends to develop will be completed in a timely manner or, if completed, become popular with gamers to offset the costs incurred to operate and expand it. This will require substantial costs and expenses. If such increased costs and expenses do not effectively translate into improved gamer engagement, Allied Esports’ results of common stock purchased in the public market which are subject to conversion in connection with our initial business combination. The “as adjusted” calculation equals the “as adjusted” total assets, less the “as adjusted” total liabilities, less the value of shares of common stock thatoperations may be converted in connection with our initial business combination ($10.05 per share).materially and adversely affected.
The “as adjusted” information gives effectIf Allied Esports fails to the salemaintain and enhance its brands, its business, results of the units we are offering, including the application of the related gross proceedsoperations and the payment of the estimated remaining costs from such saleprospects may be materially and the repayment of the accrued and other liabilities required to be repaid.adversely affected.
The “as adjusted” working capitalAllied Esports believes that maintaining and total assets amounts includeenhancing its brands is important for its business to succeed by increasing the $100,500,000number of gamers and engagement by the esports community. Since Allied Esports operates in a highly competitive market, brand maintenance and enhancement directly affects its ability to be held in the trust account, which, except for limited situations described in this prospectus,maintain and enhance its market position. As Allied Esports expands, it may conduct various marketing and brand promotion activities using various methods to continue promoting its brands, but it cannot assure you that these activities will be available to us only upon the consummationsuccessful. In addition, negative publicity, regardless of aits veracity, could harm Allied Esports’ brands and reputation, which may materially and adversely affect Allied Esports’ business, combination within the time period described in this prospectus. If a business combination is not so consummated, the trust account, less amounts we are permitted to withdraw as described in this prospectus, will be distributed solely to our public stockholders (subject to our obligations under Delaware law to provide for claimsresults of creditors).operations and prospects.
We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, solely if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
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RISK FACTORSIf Allied Esports fails to anticipate and successfully implement new esports technologies or adopt new business strategies, technologies or methods, its business may suffer.
An investmentRapid technology changes in our securities involves a high degreethe esports gaming market requires Allied Esports to anticipate, sometimes years in advance, which technologies it must develop, implement and take advantage of risk. You should consider carefullyin order to be and remain competitive in the risks described below, which we believe representesports gaming market. Allied Esports has invested, and in the material risks related to the offering, together with the other information contained in this prospectus, before making a decision tofuture may invest, in our units. This prospectus also contains forward-looking statements thatnew business strategies including its to-be-developed online esports tournament and entertainment subscription platform, technologies, products, or games to engage a growing number of gamers and deliver the best gaming experiences possible. These endeavors involve significant risks and uncertainties. Our actualuncertainties, and no assurance can be given that the technology it adopts and the features it pursues will be successful. If Allied Esports does not successfully implement these new technologies, its reputation may be materially adversely affected and its financial condition and operating results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.
Risks Associated with Our Businessmay be impacted.
We areAllied Esports uses third-party services in connection with its business, and any disruption to these services could result in a newly formed company with no operating historydisruption to its business, negative publicity and accordingly, you will not have any basis on which to evaluate our ability to achieve oura slowdown in the growth of its users, materially and adversely affecting its business, objective.financial condition and results of operations.
We areAllied Esports’ business depends on services provided by, and relationships with, various third parties, including cloud hosting, server operators, broadband providers, and computing peripheral suppliers, among others. The failure of any of these parties to perform in compliance with our agreements may negatively impact Allied Esports’ business.
Additionally, if such third parties increase their prices, fail to provide their services effectively, terminate their service or agreements or discontinue their relationships with Allied Esports, Allied Esports could suffer service interruptions, reduced revenues or increased costs, any of which may have a newly formed company with no operatingmaterial adverse effect on its business, financial condition and results to date. Therefore, our ability to commence operations is dependent upon obtaining financing through the public offering of our securities. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business. We have not conducted any substantive discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues until, at the earliest, after the consummation of a business combination.operations.
Our independent registered public accounting firm’s report contains an explanatory paragraphAllied Esports may not be able to procure the necessary permits and licenses to operate its arenas.
Allied Esports must obtain certain permits and licenses, including liquor licenses, to operate its arenas. Often these processes can be expensive and time consuming. There is no guarantee that expresses substantial doubt about ourAllied Esports will be able to obtain such permits and licenses on a timely or cost-effective basis. Any delays could jeopardize the ability of Allied Esports to operate the arenas and host events. As a result, Allied Esports’ business could suffer.
Rules and regulations governing sweepstakes, promotions and giveaways vary by state and country and these rules and regulations could restrict or eliminate Allied Esports’ ability to continue as a “going concern.”generate revenues on its esports gaming platform it intends to develop, which could materially and adversely impact the viability of this business.
As part of May 31, 2017, we had $87,500 inits esports gaming platform to be developed, Allied Esports intends to offer subscribers the chance to win cash and a working capital deficiencyprizes when playing esports games and tournaments on the platform. Awarding cash and prizes would require compliance with the laws or regulations in various states or countries over sweepstakes, promotions and giveaways, which are complex and constantly changing. Any negative finding of $37,823. Further, we have incurredlaw regarding the characterization of the type of online activity carried out on the esports gaming platform could limit or prevent Allied Esports’ ability to obtain subscribers in those jurisdictions, which in turn could significantly impact Allied Esports’ ability to generate revenue. The ability or willingness to work with Allied Esports by payment processors and expectother service providers necessary to continueconduct the esports gaming platform business also may be limited due to incur significant costssuch changes in pursuitlaws or any perceived negative consequences of our financial and acquisition plans. Management’s plans to address this need for capital through this offering are discussedengaging in the sectionbusiness of this prospectus titled“Management’s Discussionsweepstakes, promotions and Analysis of Financial Condition and Results of Operations.”We cannot assure yougiveaways that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this prospectus do not include any adjustments that might result from our inability to consummate this offering or our inability to continue as a going concern.utilized by the esports gaming platform.
If we are unable to consummate a business combination, our public stockholders may be forced to wait more than 21 months before receiving distributions from the trust account.Negotiations with unionized employees could delay opening or operating Allied Esports’ arenas.
We have 21 months fromCertain of Allied Esports’ employees are represented by one or more unions. Allied Esports will need to engage such unions to seek to employ the closingservices of this offeringthe employees on mutually acceptable terms. However, Allied Esports cannot guarantee that such negotiations will be timely concluded to avoid interruption in whichits tournament schedule, or that such negotiations will ultimately result in an agreement. Any failure to completetimely conclude the negotiations could cause a business combination. We have no obligationdelay in Allied Esports’ ability to return funds to investors prior to such date unless we consummate a business combination prior thereto and only then in cases where investors have sought to converttimely open arenas or sell their shares to us. Only after the expirationhost events. Either of this full time period will public security holders be entitled to distributions from the trust account if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable to them until after such date and to liquidate your investment, public security holders may be forced to sell their public shares, rights or warrants, potentially at a loss.these events would adversely affect Allied Esports’ profitability.
Our public stockholders may not be afforded an opportunity to vote on our proposed business combination.
We will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which public stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), or (2) provide our public stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subject to the limitations described elsewhere in this prospectus. Accordingly, it is possible that we will consummate our initial business combination even if holders of a majority of our public shares do not approve of the business combination we consummate. The decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. For instance, Nasdaq rules currently allow us to engage in a tender offer in lieu of a stockholder meeting but would still require us to obtain stockholder approval if we were seeking to issue more than 20% of our outstanding shares to a target business as consideration in any business combination. Therefore, if we were structuring a business combination that required us to issue more than 20% of our outstanding shares, we would seek stockholder approval of such business combination instead of conducting a tender offer.
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You will not be entitledAllied Esports’ business is subject to protections normally afforded to investors of blank check companies.regulation, and changes in applicable regulations may negatively impact its business.
SinceAllied Esports is subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the net proceedsInternet. In addition, laws and regulations relating to user privacy, data collection, retention, electronic commerce, consumer protection, content, advertising, localization, and information security have been adopted or are being considered for adoption by many jurisdictions and countries throughout the world. These laws could harm Allied Esports’ business by limiting the products and services it can offer consumers or the manner in which it offers them. The compliance costs for these laws may increase in the future as a result of this offering are intendedchanges in interpretation. Furthermore, Allied Esports’ failure to comply with these laws or the application of these laws in an unanticipated manner may harm its business and result in penalties or significant legal liability.
Risks Related to Allied Esports’ Intellectual Property
Allied Esports licenses certain brand names under agreements that will expire and may also be usedsubject to completeclaims of infringement of third-party intellectual property rights.
Allied Esports has a business combinationthree-year license with a target businessthird party, ending in July 2021, to use the names “Esports Arena Las Vegas” and “Esports Arena Drive”, which are part of the branding for its Las Vegas flagship esports arena location and its US-based mobile arena, respectively. Once that license expires, there is no assurance that Allied Esports will be able to further license those names or purchase them on satisfactory terms. Although Allied Esports intends to market and promote its esports arenas using intellectual property it owns and controls, there are no assurances that those efforts will be fruitful and that it will be able to maintain brand awareness once the license expires.
Furthermore, third parties may claim that Allied Esports has infringed their intellectual property rights. Although Allied Esports takes steps to avoid violating the intellectual property rights of others, it is possible that third parties still may claim infringement. Infringement claims against us, whether valid or not, been identified, we may be deemedexpensive to defend and divert the attention of Allied Esports’ management and employees from business operations. Such claims or litigation could require Allied Esports to pay damages, royalties, legal fees and other costs. Allied Esports also could be required to stop offering, distributing or supporting esports games, its to-be-developed gaming platform or other features or services which incorporate the affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a “blank check” company underlicense, all of which could be costly and harm its business.
Allied Esports’ technology, content and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement.
Allied Esports regards its technology, content and brands as proprietary and takes measures to protect it from infringement. Piracy and other forms of unauthorized copying and use of technology, content and brands are persistent, and policing is difficult. Further, the laws of some countries do not protect intellectual property rights to the same extent as the laws of the United States, securities laws. However, since we will have net tangible assetsor are poorly enforced. Legal protection of Allied Esports’ rights may be ineffective in excess of $5,000,000 upon the successful consummation of this offering and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rulescountries, which would, for example, completely restrict the transferability of our securities, require us to complete a business combination within 18 months of the effective date of the initial registration statement and restrict the use of interest earned on the funds held in the trust account. Because we are not subject to Rule 419, our units will be immediately tradable, we will be entitled to withdraw amounts from the funds held in the trust account prior to the completion of a business combination and we willcould have a longer periodmaterial adverse effect on its business, financial condition and results of time to complete such a business combination than we would if we were subject to such rule.operations.
If we determineAllied Esports may not be able to changeprevent others from unauthorized use of its intellectual property, which could harm our acquisition criteria or guidelines, many of the disclosures contained in this prospectus would be rendered irrelevantbusiness and you would be investing in our company without any basiscompetitive position.
Allied Esports regards its registered trademark and pending trademarks, service marks, pending patents, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to its success. Allied Esports relies on whichtrademark and patent law, trade secret protection and confidentiality and license agreements with its employees and others to evaluate the potential target business we may acquire.protect its proprietary rights.
WeAllied Esports has invested significant resources to develop its own intellectual property and acquire licenses to use and distribute the intellectual property of others. Failure to maintain or protect these rights could seek to deviate from the acquisition criteria or guidelines disclosed in this prospectus although we have no current intention to do so. For instance, we currently anticipate acquiring a target business that is an operatingharm its business. However, we are not obligated to do so and may determine to merge with or acquire a company with no operating history if the terms of the transaction are determined by us to be favorable to our public stockholders. In such event, many of the acquisition criteria and guidelines set forth in this prospectus would be rendered irrelevant. Accordingly, investors may be making an investment in our company withoutaddition, any basis on which to evaluate the potential target business we may acquire.
We may issue sharesunauthorized use of our capital stock or debt securities to complete a business combination, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
As of the date of this prospectus, our amended and restated certificate of incorporation authorizes the issuance of up to 30,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. Immediately after this offering and the purchase of the private units (assuming no exercise of the underwriters’ over-allotment option), there will be 4,715,000 authorized but unissued shares of common stock available for issuance (after appropriate reservation for the issuance of the securities underlying the public and private units and the underwriters’ purchase option). Although we have no commitment as of the date of this offering, we may issue a substantial number of additional shares of common stock or shares of preferred stock, or a combination of common stock and preferred stock, to complete a business combination. The issuance of additional shares of common stock will not reduce the per-share conversion amount in the trust account. The issuance of additional shares of common stock or preferred stock:
Similarly, if we issue debt securities, it could result in:
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If we incur indebtedness, our lenders will not have a claim on the cash in the trust account and such indebtedness will not decrease the per-share conversion amount in the trust account.
If the net proceeds of this offering not being held in trust are insufficient to allow us to operate for at least the next 21 months, we may be unable to complete a business combination.
We believe that, upon consummation of this offering, the funds available to us outside of the trust account will be sufficient to allow us to operate for at least the next 21 months, assuming that a business combination is not consummated during that time. However, we cannot assure you that our estimates will be accurate. Accordingly, if we use all of the funds held outside of the trust account, we may not have sufficient funds available with which to structure, negotiate or close an initial business combination. In such event, we would need to borrow funds from our sponsor, officers or directors or their affiliates to operate or may be forced to liquidate. Our sponsor, officers, directors and their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount that they deem reasonable in their sole discretion for our working capital needs. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,500,000 of the notes may be converted into warrants at a price of $10.00 per private unit.
If third parties bring claims against us, the proceeds held in trust could be reduced and the per-share redemption price received by stockholders may be less than $10.05.
Our placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse against the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders. If we are unable to complete a business combination and distribute the proceeds held in trust to our public stockholders, our sponsor has agreed (subject to certain exceptions described elsewhere in this prospectus) that it will be liable to ensure that the proceeds in the trust account are not reduced below $10.05 per share by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. However, itAllied Esports may not be able to meetdevelop compelling intellectual property content or secure media content distributors to promote, sell, and distribute such obligation. Therefore, the per-share distributioncontent, which could harm its business and competitive position.
Allied Esports intends to produce licensable content from the trust accountvarious live events, tournaments, and its own initiatives and brands to sell to viewers worldwide. There is no guarantee that it will be able to develop content that is compelling to its targeted customers. Media and gaming company competitors, many of which are better funded, are also creating content from esports events, and it will be difficult to create content that stands out and attracts customers. Furthermore, to carry out Allied Esports’ worldwide distribution plans, film and media distribution partners will be needed and, in the event, Allied Esports is not able to secure content distributors on terms acceptable to Allied Esports, this will have a significant adverse impact on revenue streams from the sale or licensing of intellectual property.
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WPT RISK FACTORS
Risks Related to WPT’s Current Business
WPT’s broadcast agreement with Fox Sports Net (“FSN”) sets a minimum level of distribution that is significantly less than the current distribution level. If WPT’s current level of distribution is reduced, the reduction could materially and adversely affect WPT’s results of operations.
Currently, WPT broadcasts certain of its worldwide Main Tour events throughout the United States on FSN, and they are also available on ClubWPT.com on demand, and on various digital streaming platforms. WPT’s programming agreement to broadcast the television series does not provide for any license fees to be paid to WPT for the broadcast rights, and contains a minimum level of distribution. Currently, WPT’s programming is broadcast significantly more frequently that the minimum threshold under the programming agreement. With no license fee in place for the distribution, WPT benefits from the program’s distribution and promotion of WPT’s online products (ClubWPT) and generates fees from sponsors by integrating sponsor logos and other advertising materials into its programs and around the broadcast of the shows through music royalties and distribution of the shows in other markets. The Season 17 sponsors included Hublot S.A., a luxury watch maker, Rockstar, Inc., an energy drink company, Baccarat, Inc., a manufacturer and retailer of fine crystal, Faded Spade Poker, LLC, a playing card manufacturer, and Zynga Inc., a social gaming operator. If WPT’s level of distribution were reduced by FSN, the value of the foregoing would be significantly reduced and it may be less than $10.05,difficult for WPT to find sponsors on terms acceptable to WPT, or at all.
WPT’s production costs may increase.
In May 2016, WPT entered into a programming agreement for FSN to broadcast Seasons 15 through 18 of the WPT television series through calendar year 2021 on terms that are similar to the prior programming agreement discussed above. WPT may be required to pay the cost to produce these shows for FSN and depending on the amount of the related revenues it is able to generate, the lack of license fees could have a material adverse effect on WPT’s financial condition, results of operations and cash flows.
Sinclair’s acquisition of FSN could have negative consequences on World Poker Tour.
The Walt Disney Company (“Disney”) recently acquired 21st Century Fox (“FOX”). Under the terms of the acquisition, FOX’s non-regional news and sports assets, including FSN, were spun off into a new company, Fox Corporation (which is commonly referred to as “New Fox”), which remains owned by the prior FOX shareholders. The Department of Justice required Disney to sell all regional sports assets obtained as part of the acquisition (the “RSNs”) within ninety (90) days after the closing of the Disney/FOX acquisition. WPT’s programming agreement with FSN’s owner requires FSN to ensure WPT’s programming reaches a certain amount of households, which requires FSN’s owner to ensure we are broadcast on the RSNs. The FSN agreement also has other important broadcast requirements to ensure that WPT’s programming remains “appointment television” and airs at particular times on both the FSN networks and the RSNs. The RSNs (including FSN) were ultimately purchased by a joint venture company owned by Sinclair Broadcast Group and Entertainment Studios, Inc. (collectively, “Sinclair”). Although Sinclair purchased all or substantially all of FOX’s RSNs, it will be difficult to ensure WPT’s programming is carried on all of the RSNs, or at the times and dates WPT finds desirable. Even though WPT’s FSN programming agreement will remain an enforceable obligation against Sinclair, there is no assurance that Sinclair will continue to broadcast WPT’s programming on FSN on terms WPT finds reasonable, if at all. Furthermore, the sale of the RSN’s to Sinclair and the changes to the FOX and the FSN business could negatively affect WPT’s ability to find other traditional television network distribution of the WPT shows in the United States. Any reduction or change of WPT’s distribution footprint has the potential to negatively affect its brand and associated sponsorship, marketing and promotional efforts.
There is no assurance that FSN will broadcast future seasons of the World Poker Tour, which would materially and adversely affect WPT’s results of operations.
In May 2016, WPT entered into an agreement for FSN to broadcast Seasons 15 through 18 of the WPT television series through calendar year 2021. If FSN elects to discontinue airing either series and WPT cannot replace its programming agreement with an agreement with a comparable U.S. broadcaster, it may be difficult for WPT to obtain sponsorship funds, it will be detrimental to the viability of the WPT brand and, consequently, would have a material adverse effect on WPT’s financial condition, results of operations and cash flows.
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Consumers shifting to online video on-demand services like Hulu and Netflix and away from cable could have negative consequences on World Poker Tour.
Historically, WPT has relied on traditional television network distribution in order to build its brand and generate sponsorship revenue. As online video on-demand services such as Hulu and Netflix have become increasingly popular compared to traditional cable subscriptions, WPT has increased its digital distribution. If these “cable-cutting” trends intensify, however, there is no assurance that WPT can maintain or increase its total distribution and if it cannot, it may be difficult for WPT to obtain sponsorship funds, it will be detrimental to the viability of the WPT brand and, consequently, it would have a material adverse effect on WPT’s financial condition, results of operations and cash flows.
The ClubWPT.com business is currently heavily dependent upon television as a major source for the generation of new monthly subscribers and WPT continually seeks cost effective online and traditional marketing to generate new subscribers, which if not achieved could materially and adversely affect its results of operations.
ClubWPT is the official subscription online poker club of the World Poker Tour. VIP users pay a monthly subscription fee for exclusive access to full episodes from every past season of the WPT television show, plus interest,magazine access, coupons, and more. Each month, members can play poker to win a share of cash and prizes, including seats to WPT events. In addition, in January 2019, WPT added free-to-play (also known as “freemium”) social poker and casino gaming on the platform, whereby free chips are offered for play, but additional chips can be purchased (there are no cash prizes offered for freemium play). WPT has produced ClubWPT.com-branded television shows that aired on FSN (such as our “King of the Club” television shows), as well as incorporating significant branding and advertising of ClubWPT into the WPT television shows to build awareness and drive traffic to ClubWPT.com. In order for the ClubWPT business (including its freemium offering) to continue as a viable business, WPT needs to continuously identify cost efficient marketing tools to generate new subscribers for ClubWPT. Traditionally, WPT has marketed by using its large library of content online as a driver to the platform, or through its social media footprint. The number of paid subscribers at ClubWPT grew throughout 2019 as a result of a significant promotion by FSN, while daily active users of our freemium products has increased since we introduced them in January 2019. The number of paid subscribers could decrease in future quarters due to the lack of current spending on marketing for new players. WPT will need to increase its marketing and promotion of ClubWPT through alternative means, such as social media, in person at WPT live events, via cross-promotion with the Allied Esports business, and via other means to ensure ClubWPT remains viable.
WPT’s reliance on Pala Interactive LLC (“Pala”) as a third-party systems provider is subject to system security risks and business viability risks that could disrupt services provided to ClubWPT.com customers, and any such disruption could reduce WPT’s revenue, increase its expenses and harm its reputation.
Experienced computer programmers and hackers may be able to penetrate Pala’s network security and misappropriate confidential information, create system disruptions or cause shutdowns. In addition, computer programmers and hackers may be able to develop and deploy viruses, worms and other malicious software programs that attack their products or otherwise exploit security vulnerabilities in their products. As a result, WPT could lose its existing or potential customers. Pala is a third-party vendor whose business is dependent upon the real money gaming and social gaming business environment. Any business interruption or failure by Pala would directly affect WPT’s online business as WPT would need to find a suitable alternative platform provider.
Rules and regulations governing sweepstakes, promotions and giveaways vary by state and country and these rules and regulations could restrict or eliminate WPT’s ability to generate revenues at ClubWPT.com, which could materially and adversely impact the viability of this business.
Changes in laws or regulations in various states or countries over sweepstakes, promotions and giveaways or a negative finding of law regarding the characterization of the type of online activity carried out on ClubWPT.com could result in WPT’s inability to obtain subscribers in those jurisdictions, which in turn could significantly impact WPT’s ability to generate revenue. The ability or willingness to work with WPT by payment processors and other service providers necessary to conduct the ClubWPT.com business also may be limited due to such claims.changes in laws or any perceived negative consequences of engaging in the business of sweepstakes, promotions and giveaways that are utilized by ClubWPT.com.
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WPT’s success depends in part on our brands and any future brands it may develop, and if the value of its brands were to diminish, its business would be adversely affected. Licensees of WPT’s brands may diminish the value of its brands.
WPT’s success depends on its World Poker Tour and Alpha 8 brands, which consist of a portfolio of trademarks, service marks and copyrighted materials. WPT’s intellectual property portfolio includes, but is not limited to, existing and future episodes of the televised programming produced in connection with its existing and future brands and certain elements of these episodes, trade names and other intellectual property rights. In connection with WPT’s branding and licensing operations, WPT entered into agreements with certain licensors to utilize the WPT brand and intellectual property in connection with mobile, social media and casual games, horse racing, amateur poker leagues, governmental lottery games, and in-person and online education and training poker workshops. While specific contractual provisions require that the licensees maintain the quality of WPT’s licensed brands, WPT cannot be certain that its licensees or their manufacturers and distributors will honor their contractual obligations or that they will not take other actions that will diminish the value of WPT’s brands prior to its ability to detect and prevent any such actions.
WPT may not be able to protect the format of its episodes, its current and future brands and its other proprietary rights.
WPT is susceptible to others imitating its television show format and other products and infringing on its intellectual property rights. Litigation may be necessary to enforce WPT’s intellectual property rights and to determine the validity and scope of its proprietary rights. Any litigation could result in substantial expense, may reduce WPT’s profits and may not adequately protect its intellectual property rights upon which it is substantially dependent. In addition, the laws of certain foreign countries do not always protect intellectual property rights to the same extent as the laws of the U.S. Imitation of WPT’s television show formats and other products or infringement of its intellectual property rights could diminish the value of its brands or otherwise adversely affect its revenues.
Any litigation or claims against WPT based upon its intellectual property or other third-party rights, whether or not successful, could result in substantial costs and harm its reputation. In addition, such litigation or claims could force WPT to do one or more of the following: to cease exploitation of the WPT television series and related products or portions thereof that violate the potentially infringed third party rights or intellectual property, which would adversely affect WPT’s revenue; to negotiate a license from the holder of the intellectual property or other right alleged to have been infringed, which license may not be available on reasonable terms, if at all; or to modify the WPT television series and related products or portions thereof to avoid infringing the intellectual property or other rights of a third party, which may be costly and time-consuming or impossible to accomplish.
Early termination of WPT’s agreements with member casinos or violation by member casinos of the restrictive covenants contained in these agreements could negatively affect the size of telecast audiences and lead to declines in the performance of WPT’s other lines of business.
WPT entered into written agreements with all of the “member casinos” that host WPT tournament stops. However, any member casino may elect to withdraw its tournament from the WPT lineup and terminate the agreement by giving WPT notice by a specified date or, if earlier, a specified length of time before the date of the tournament, which is generally four to six months. While each agreement remains in effect and, in some cases, for varying periods of time thereafter, the member casino is prohibited from televising the tournament itself, permitting any third party to televise the tournament or licensing its name, trademarks or likeness to any other party in conjunction with the telecast of a poker tournament. If a significant number of these member casinos were to terminate their agreements and/or allow a competing company to telecast their tournaments after their expiration for the restricted time period, this could result in a decline in WPT’s future telecast audiences, which in turn would lead to declines in the performance and success of WPT’s other lines of business. If one or more member casinos were to breach the exclusivity provisions of their contracts with WPT by letting a competing company telecast their tournaments within the restricted time period, litigation may be necessary to enforce those rights. Any litigation could result in substantial expense.
Refusal of any gaming commission to register WPT as a non-gaming vendor for its branded casino tournaments could jeopardize the ability of WPT to continue holding its events at member casinos.
Some states require WPT to register with the state’s gaming commissions as a non-gaming vendor of the member casino that runs a WPT-branded tournament. If such gaming commissions refuse to provide the necessary vendor license, the member casino may not be able to hold WPT’s tournaments, and WPT’s business could suffer.
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Termination or impairment of WPT’s relationships with key licensing and strategic partners could adversely affect its revenues and results of operations.
WPT has developed relationships with key strategic partners in many areas of its business, including poker tournament event sponsorship, merchandise licensing, social poker and casino games, corporate sponsorship and international distribution. WPT hopes to derive significant income from its licensing arrangements and its agreements with its strategic partners are vital to finding these licensing arrangements. If WPT were to fail to manage its existing licensing relationships, this failure could have a material adverse effect on its financial condition and results of operations. WPT would also be materially adversely affected if it were to lose rights under any of its other key contracts or if the counterparty to any of these contracts were to breach its obligations to WPT. WPT relies on a limited number of contracts under which third parties provide it with services vital to WPT’s business.
These agreements include WPT’s agreements with:
| • | Rogers Network and Game TV, for broadcasting in key international territories such as Canada; | |
| • | TV Azteca, pursuant to which WPT is partnering with TV Azteca to create localized WPT-branded content, as well as jointly brand and market a social poker product for the territory of Mexico; |
If WPT’s relationship with any of these or certain other third parties were to be interrupted, or the services provided by any of these third parties were to be delayed or deteriorate for any reason without being adequately replaced, WPT’s business could be materially adversely affected. If WPT is forced to find a replacement for any of these strategic partners, this could create disruption in its business and may result in reduced revenues, increased costs or diversion of management’s attention and resources.
In addition, while WPT has significant control over its licensed products and advertising, WPT does not have operational and financial control over these third parties, and it has limited influence with respect to the manner in which they conduct their businesses. If any of these strategic partners experiences a significant downturn in its business or were otherwise unable to honor its obligations to WPT, WPT’s business could be materially disrupted.
The loss of the services of Adam Pliska or other key employees or on-air talent, or WPT’s failure to attract key individuals, could adversely affect its business.
WPT is highly dependent on the services of Adam Pliska, who currently serves as Chief Executive Officer and President of WPT, as well as President of the Company.
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WPT’s continued success is also dependent upon retention of other key management executives and upon its ability to attract and retain employees and on-air talent to implement its corporate development strategy and its branding and licensing efforts. The loss of some of its senior executives, or an inability to attract or retain other key individuals, could materially adversely affect WPT. Growth in WPT’s business is dependent, to a large degree, on its ability to retain and attract such employees. WPT seeks to compensate and provide incentives to its key executives, as well as other employees, through competitive salaries, stock ownership and bonus plans, but it can make no assurance that these programs will allow WPT to retain key employees or hire new employees. In addition, WPT’s future success may also be affected by the potential need to replace its key on-air talent.
Any disputes with the IATSE 700 Editors Union could delay finishing production of shows needing to be delivered to FSN or increase WPT’s costs to produce the shows.
Certain of WPT’s employees involved in producing the WPT series are members of IATSE 700 Editors Union, and WPT renewed its contract with such union in August 2019 for a three-year term. Although WPT has a current union agreement in place, there is no guarantee that future disagreements with WPT’s unionized employees will not lead to any interruption in services. Any failure to timely negotiate and/or settle any such disagreements could cause a delay in WPT’s ability to timely produce the WPT series for FSN, and the costs to do so could increase. Either of these events would adversely affect WPT’s profitability.
WPT’s quarterly results may fluctuate, which may negatively affect the value of the common stock.
Under sponsorship agreements for WPT, revenues are recognized as each episode is aired. Therefore, WPT’s quarterly revenue can fluctuate significantly depending on the number of episodes aired in any one quarter. In addition, the sales of consumer products that utilize WPT’s licensed intellectual property vary greatly, due to holiday seasons, school schedules and other outside factors. As a result, WPT’s financial results can be expected to fluctuate significantly from quarter to quarter, leading to volatility and a possible adverse effect on the market price of the common stock.
Risks Related to WPT’s Current Industry
WPT’s television programming may be unable to maintain a sufficient audience for a variety of reasons, many of which are beyond its control.
Television production is a speculative business because revenues and income derived from television depend primarily upon the continued acceptance of that programming by the public, which is difficult to predict. Public acceptance of particular programming is dependent upon, among other things, the quality of the programming, the strength of networks on which the programming is telecast, the promotion and scheduling of the programming and the quality and acceptance of competing television programming and other sources of entertainment and information. Popularity of programming can also be negatively impacted by excessive telecasting of the programming beyond viewers’ saturation thresholds.
WPT’s ability to create and sponsor its television programming profitably may be negatively affected by adverse trends that apply to the television production business generally.
Television revenues and income may be affected by a number of factors, many of which are not within WPT’s control. These factors include a general decline in television viewers, pricing pressure in the television advertising industry, strength of the stations on which its programming is telecast, general economic conditions, increases in production costs and availability of other forms of entertainment and leisure time activities. Furthermore, as the popularity of streaming content over the Internet increases and more consumers “cut the cord” and cease watching traditional broadcast television, the audience for WPT’s programming will be dispersed across multiple platforms and its programming could have less overall impact and watchability. All of these factors, as well as others, may quickly change and these changes cannot be predicted with certainty. WPT’s future sponsorship opportunities may also be adversely affected by these changes. Accordingly, if any of these changes were to occur, the revenues WPT generates from television programming could decline.
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A decline in general economic conditions or the popularity of WPT’s brand of televised poker tournaments could adversely impact its business.
Because WPT’s operations are affected by general economic conditions and consumer tastes, its future success is unpredictable. The demand for entertainment and leisure activities tends to be highly sensitive to consumers’ disposable incomes and thus a decline in general economic conditions could, in turn, have a material adverse effect on WPT’s business, operating results and financial condition and the price of the Company’s common stock. An economic decline could also adversely affect WPT’s corporate sponsorship business, sales of its branded merchandise and other aspects of its business.
The continued popularity of WPT’s type of poker entertainment is vital in maintaining the ability to leverage its brand and develop products or services that appeal to its target audiences, which, in turn, is important to WPT’s long-term results of operations. Public tastes are unpredictable and subject to change and may be affected by changes in the political and social climates of those countries and territories in which WPT operates. A change in public opinion could have a material adverse effect on WPT’s business, operating results and financial condition and, ultimately, the price of the Company’s common stock.
The political or social climate regarding gaming and poker could negatively impact WPT’s ability to negotiate future telecast license arrangements and could negatively impact its chances of renewal.
Although the popularity of poker, in particular, and gaming, in general, has continued to grow in the U.S. and abroad, gaming has historically experienced backlash from various constituencies and communities. Currently, the legal operational status of Internet-based casinos and card rooms remains unclear in some countries. The U.S. government has taken steps to curb activities that it believes constitutes unlawful online gaming through legislation such as the Unlawful Internet Gambling Enforcement Act of 2006 and through arrests of off-shore online gaming operators traveling in the U.S. Also, on November 2, 2018, the U.S. Department of Justice (the “DOJ”) issued an opinion that interprets the federal Wire Act as prohibiting any gambling that crosses state lines, including non-sports related gambling. This opinion expands the prior opinion issued by the DOJ in 2011 that interpreted the Wire Act as prohibiting interstate sports gambling only.
Based on the uncertain regulatory environment surrounding the marketing and promotion of Internet-based casinos and card rooms to viewers in the U.S., FSN has final edit rights to the shows that it broadcasts. FSN had indicated that it will only display the “dot com” names or logos of Internet-based casinos and card rooms in its telecasts that are explicitly legal in select territories in the United States. However, if FSN elects not to allow the display of “dot com” logos on the WPT show, whether because of the recent DOJ opinion or otherwise, WPT may not be able to attract other Internet-based casino sponsors or retain existing online card rooms sponsoring WPT’s tour. Additionally, increased regulatory scrutiny on Internet gambling sites may eliminate these sites as sources of advertising revenue for television networks that exhibit poker-related programming, thereby potentially impacting the value of such programming to these networks. Additionally, many participants in WPT’s tournament events are sponsored by Internet-based casino sponsors and existing online card rooms. If such sponsors’ revenues are reduced, they may not be able to sponsor WPT’s tournament participants at the same level or at all, which could cause WPT’s tournament participation to decline (in terms of numbers and professional players) and the quality and distribution of our WPT series could suffer.
The television entertainment market in which WPT operates is highly competitive and competitors with greater financial resources or marketplace presence may enter this market to WPT’s detriment.
WPT competes with other poker-related television programming, including ESPN’s coverage of the “World Series of Poker” and its “World Series of Poker” Circuit Events, among others. These and other producers of poker-related programming may be well established and may have significantly greater resources than WPT does. Based on the popularity of these poker-related televised programs, WPT believes that additional competing televised poker programs may currently be in development or may be developed in the future. WPT’s programming also competes for telecast audiences and advertising revenue with telecasts of mainstream professional and amateur sports, as well as other entertainment and leisure activities. These competing programs and activities, and the brands that they build may decrease the popularity of the WPT television series and dilute the WPT’s brand. This would adversely affect WPT’s operating results and financial condition and, ultimately, the price of the Company’s common stock.
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Risks Related to the completed Merger
Future resales of the common stock and warrants issued in the Merger may cause the market price of the Company’s securities to drop significantly, even if the business is doing well.
In connection with the Merger of an AESE subsidiary with and into AEM, with AEM as the surviving entity, the Company issued to the former owners of Allied Esports and WPT (i) an aggregate of 11,602,754 shares of common stock and (ii) five-year warrants to purchase an aggregate of 3,800,003 shares of common stock at a price per share of $11.50. Additionally, the former owners of Allied Esports and WPT were entitled to receive their pro rata portion of an aggregate of an additional 3,846,153 shares of common stock if the last sales price of the Company’s common stock reported on the Nasdaq Capital Market equals or exceeds $13.00 per share (as adjusted for stock splits, dividends, and the like) for 30 consecutive trading days at any time during the five-year period after the consummation of the Merger. At the closing of the Merger, the Company also issued the following shares of its common stock: (i) 744,422 shares to management of WPT in satisfaction of profit participation agreements; (ii) 144,158 shares for prior bonus amounts owed to Adam Pliska, the President of the Company post-closing and the CEO of WPT; (iii) 197,268 shares to finders (one of whom is Adam Pliska, who received 98,634 of such shares), and (iv) 1,842,831 shares to Primo Vital Limited in cancellation of $12,144,260 of debt owed by Allied Esports and WPT.
Pursuant to the Merger Agreement, the foregoing recipients entered into lock-up agreements, pursuant to which they agreed to not, subject to certain exceptions, transfer, sell, tender or otherwise dispose of the shares of Company common stock and warrants they received for a period from the closing of the Merger as follows: (i) with respect to 50% of their common stock and warrants, the earlier of one year after the closing of the Merger and the date on which the closing price of the Company’s common stock exceeds $12.50 per share for any 20 trading days within a 30-trading day period following the closing of the Merger and, (ii) with respect to the remaining 50% of their common stock and warrants, one year after closing of the Merger, or earlier in each case if, subsequent to the Merger, the Company consummates a subsequent liquidation, merger, stock exchange, or other similar transaction which results in all stockholders having the right to exchange their shares of common stock for cash, securities, or other property.
Upon expiration of the applicable lock-up periods and subject to applicable securities laws, these recipients may sell large amounts of the Company’s common stock and warrants in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility of, or putting significant downward pressure on, the trading price of our common stock and warrants.
Costs associated with the Merger are difficult to estimate, may be higher than expected, and may harm the financial results of the consolidated company.
All parties to the Merger incurred substantial direct transaction costs associated with the Merger, and the Company has incurred, and will continue to incur additional costs associated with consolidation and integration of operations. If the total costs of the Merger exceed estimates, or the benefits of the Merger do not exceed the total costs of the Merger, the Company’s consolidated financial results could be adversely affected.
Risks Related to the Businesses of both Allied Esports and WPT
Allied Esports and WPT have historically operated at a net loss on a consolidated basis, and there is no guarantee that that the consolidated company will be able to be profitable.
The combined historical operations of Allied Esports and the WPT have resulted in net losses of $31,019,725 and $18,087,231 for the years ended December 31, 2018 and 2017, respectively. We do not know with any degree of certainty whether or when the consolidated operations of Allied Esports and the WPT will become profitable. Even if we are forcedable to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds heldachieve profitability in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account,future periods, we may not be able to returnsustain or increase our profitability in successive periods.
We have formulated our business plans and strategies based on certain assumptions regarding the acceptance of our business model and the marketing of our products and services. Nevertheless, our assessments regarding market size, market share, market acceptance of our products and services and a variety of other factors may prove incorrect. Our future success will depend upon many factors, including factors beyond our control and those that cannot be predicted at this time.
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Forecasts of our market and market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.
Growth forecasts included in this prospectus relating to our public stockholdersmarket opportunities and the expected growth in those markets are subject to significant uncertainty and are based on assumptions and estimates which may prove to be inaccurate. We also plan to operate in a number of foreign markets, and a downturn in any of those markets could have a significant adverse effect on our businesses. Even if these markets meets our size estimate and experiences the forecasted growth, we may not grow our business at least $10.05.a similar rate, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
Any actual or perceived failure by us to comply with our privacy policies or legal or regulatory requirements in one or multiple jurisdictions could result in proceedings, actions or penalties against us.
Allied Esports and WPT have implemented various features intended to better comply with applicable privacy and security requirements in the collection and use of customer data, but these features do not ensure compliance and may not be effective against all potential privacy and data security concerns. A wide variety of domestic and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, disposal and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in regulatory and public scrutiny and escalating levels of enforcement and sanctions. Our stockholdersfailure to comply with applicable laws and regulations, or to protect any personal data, could result in enforcement actions against us, including fines, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could adversely affect our business, operating results, financial performance and prospects.
Evolving and changing definitions of personal data and personal information within the EU, the United States and elsewhere may limit or inhibit our ability to operate or expand our business. In jurisdictions outside of the United States, we may face data protection and privacy requirements that are more stringent than those in place in the United States. We are at risk of enforcement actions taken by certain EU data protection authorities until such point in time that we may be held liable forable to ensure that all transfers of personal data to us in the United States from the EU are conducted in compliance with all applicable regulatory obligations, the guidance of data protection authorities and evolving best practices. The European General Data Protection Regulation (“GDPR”) may impose additional obligations, costs and risks upon our business. The GDPR may increase substantially the penalties to which we could be subject in the event of any non-compliance. In addition, we may incur substantial expense in complying with the obligations imposed by the GDPR and we may be required to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall.
Loss, retention or misuse of certain information and alleged violations of laws and regulations relating to privacy and data security, and any relevant claims, by third parties againstmay expose us to potential liability and may require us to expend significant resources on data security and in responding to and defending such allegations and claims. In addition, future laws, regulations, standards and other obligations, and changes in the extentinterpretation of distributions received by them.existing laws, regulations, standards and other obligations could impair our ability to collect, use or disclose data relating to individuals, which could increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.
Our amendedAllied Esports and restated certificate of incorporation provides that we will continue in existence only until 21 months from the closing of this offering. If we have not completed a business combination by such date, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100%WPT publicly post their privacy policies and practices concerning processing, use and disclosure of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest not previously released to us but net of franchise and income taxes payable, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of the date of distribution. Accordingly, we cannot assure you that third parties will not seek to recover from our stockholders amounts owedpersonally identifiable information provided to them by us.website visitors. Publication of such privacy policies and other statements published that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive or misrepresentative of actual policies and practices or if actual practices are found to be unfair. Evolving and changing definitions of what constitutes “Personal Information” and “Personal Data” within the EU, the United States and elsewhere, especially relating to classification of IP addresses, machine or device identification numbers, location data and other information, may limit or inhibit our ability to operate or expand our business, including limiting technology alliance relationships that may involve the sharing of data.
If we are forcedOur failure to file a bankruptcy caseraise additional capital or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seekgenerate cash flows necessary to recover all amounts received bypay debt, expand our stockholders. Furthermore, because we intend to distribute the proceeds heldoperations and invest in new business initiatives in the trust accountfuture could reduce our ability to compete successfully and harm our public stockholders promptly after expiration of the time we have to complete an initial business combination, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our directors may decide not to enforce our sponsor’s indemnification obligations, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.operating results.
In the event that the proceeds in the trust account are reduced below $10.05 per public sharefuture we need to raise additional funds, and our sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our sponsor to enforce such indemnification obligations. It is possible that our independent directors in exercising their business judgmentwe may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.05 per share.
If we do not file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants, holders will only be able to exercise such warrants on a “cashless basis.”
If we do not file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result, the number of shares of common stock that holders will receive upon exercise of the warrants will be fewer than it would have been had such holder exercised his warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exerciseobtain additional debt or equity financing on a cashless basis and would onlyfavorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we cannot raise capital on acceptable terms, or at all, we may not be able to, exercise their warrants for cash if a current and effective prospectus relatingamong other things:
| • | develop and enhance our products and services; | |
| • | continue to expand our network of arenas; | |
| • | hire, train and retain employees; | |
| • | respond to competitive pressures or unanticipated working capital requirements; or | |
| • | pursue acquisition opportunities. |
While management believes that due to the common stock issuable upon exercisecurrent maturity date of our debt, our current cash balance and our operational forecast for 2020, we can continue as a going concern through at least July 31, 2020, we can provide no assurance that our ongoing operational efforts will be successful.
Our business depends substantially on the warrantscontinuing efforts of our executive officers, key employees and qualified personnel, and our business operations may be severely disrupted if we lose the services of such personnel.
Our future success depends substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers or key employees are unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all. Since the esports gaming and poker industry is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditionscharacterized by high demand and to file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However,intense competition for talent, we cannot assure you that we will be able to do so.attract or retain qualified staff or other highly skilled employees. If we are unable to do so, the potential “upside”any of the holder’s investment in our companyexecutive officers or key employees terminate their services with us, our business may be reduced or the warrantsseverely disrupted, our financial condition and results of operations may expire worthless.
An investor will only be able to exercise a warrant if the issuance of shares of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
No warrants will be exercisablematerially and adversely affected and we will not be obligatedmay incur additional expenses to issue shares of common stock unless the shares of common stock issuable upon such exercise has been registered orrecruit, train and retain qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. If the shares of common stock issuable upon exercise of the warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of any value, the market for the warrants may be limited and they may expire worthless if they cannot be sold.
We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then outstanding warrants.
Our warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of at least 50% of the then outstanding warrants (including the private warrants) in order to make any change that adversely affects the interests of the registered holders.
We may amend the terms of the rights in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then outstanding rights.personnel.
Our rights will be issued in registered form under a right agreement between Continental Stock Transfer & Trust Company, as rights agent,We may experience security breaches and us. The right agreement providescyber threats.
We face cyber risks and threats that could damage, disrupt or allow third parties to gain improper access to our networks and platforms, supporting infrastructure, intellectual property and other assets. In addition, we rely on technological infrastructure, including third party cloud hosting and broadband, provided by third party business partners to support the termsfunctionality of the rightsour platforms and content distribution. These business partners are also subject to cyber risks and threats. Such cyber risks and threats may be amended withoutdifficult to detect. The techniques that may be used to obtain unauthorized access or disable, degrade, exploit or sabotage these networks and gaming platforms change frequently and often are not detected. Our systems and processes and those of our third-party business partners may not be adequate. Any failure to prevent or mitigate security breaches or cyber risks, or respond adequately to a security breach or cyber risk, could result in interruptions to our platforms, degrade the consent of any holdergamer/user experiences, cause gamers/users to cure any ambiguity or correct any defective provision. The right agreement requires the approval by the holders of at least 50% of the then outstanding rights (including the rights underlying the private units, or “private rights”)lose confidence in order to make any change that adversely affects the interests of the registered holders.our platforms and cease utilizing them, as well as significant legal and financial exposure. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.
Risks Related to Owning Our Series Common Stock and this Offering
Since we have not yet selected a particular industry or target business withThe market price of shares of our common stock may be volatile, which could cause the value of your investment to complete a business combination, we are unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.decline.
AlthoughThe market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we intend to focus our search for target businesses on companiesmay incur or securities we may issue in the energyfuture, changes in market valuations of similar companies or energy-related industries with an emphasis on opportunitiesspeculation in the upstream oilpress or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and, gas industry in North America whereresponse, the market price of shares of our management team’s networkscommon stock could decrease significantly. You may be unable to resell your shares of common stock at or above the public offering price.
In the past few years, stock markets have experienced extreme price and experiencevolume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Substantial blocks of our total outstanding shares may be sold into the market when “lock-up” or “market standoff” periods end. If there are suited, we may consummate a business combination with a company in any industry we choosesubstantial sales of shares of our common stock, the price of our common stock could decline.
The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, and are not limited to any particular industrysignificant stockholders, or type of business. Accordingly,if there is no current basisa large number of shares of our common stock available for you to evaluatesale. After this offering, we will have shares outstanding of our common stock based on the possible merits or risksnumber of shares outstanding as of , 2020. All of the particular industry in which we may ultimately operate or the target business which we may ultimately acquire. To the extent we complete a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the business operationsshares of those entities. If we complete a business combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our management will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investorscommon stock sold in this offering thanwill be available for sale in the public market. Substantially all of our outstanding shares of common stock (not including the common stock being sold in this offering) are currently restricted from resale as a direct investment, if an opportunity wereresult of market standoff and “lock-up” agreements, as more fully described in “Shares Eligible for Future Sale.” These shares will become available in a target business.
Our ability to successfully effect a business combination and to be successful thereaftersold 180 days after the date of this prospectus. Shares held by directors, executive officers and other affiliates will be totally dependent uponsubject to manner of sale and volume limitations under Rule 144 under the efforts of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our success depends on the continued service of our key personnel, at least until we have consummated our initial business combination. We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none of our officers are required to commit any specified amount of time to our affairsSecurities Act and accordingly, our officers will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us.
The role of our key personnel after a business combination, however, cannot presently be ascertained. Although some of our key personnel serve in senior management or advisory positions following a business combination, it is likely that most, if not all, of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business we may seek to acquire.vesting agreements.
We also intend to register shares of common stock that we have issued and may consummate a business combination with a target business in any geographic location or industryissue under our employee equity incentive plans. Once we choose. We cannot assure you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a business combination.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnelregister these shares, they will be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensationbe sold freely in the form of cash payments and/public market upon issuance, subject to existing market standoff or our securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.lock-up agreements.
Our officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This could have a negative impact on our ability to consummate a business combination.
Our officers and directors are officers and/or directors of our sponsor and will not commit their full time to our affairs. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees prior to the consummation of our initial business combination. The foregoing could have a negative impact on our ability to consummate our initial business combination.
Northland Capital Markets may, in its discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.
The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.
Our officers and directors
We have no current plans to pay cash dividends on our common stock; as a result, you may have a conflict of interest in determining whether a particular target business is appropriatenot receive any return on investment unless you sell your common stock for a business combination.
Each of our officers and directors is an officer and/or director of our sponsor. As described elsewhere in this prospectus, our sponsor is an oil and gas companyprice greater than that pursues distressed asset acquisitions in the energy industry, the same industry within which we intend to focus our searchyou paid for a target business. Our sponsor recently completed a rights offering in which it raised an aggregate of approximately $5,182,000. Of this amount, up to $3,875,000 (assuming the underwriters’ over-allotment option is exercised in full) would be used to purchase the private units with the balance being available to our sponsor for working capital purposes, including potential investments and acquisitions. However, our sponsor intends to acquire assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them, whereas we intend to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company. Accordingly, our management team does not believe that there will be a meaningful conflict between our sponsor and our company in relation to consummating a business combination. Nevertheless, we cannot assure you of this fact and it is possible that a suitable business opportunity will be presented to our sponsor prior to its presentation to our company.
Additionally, our sponsor has waived its right to convert its founders’ shares or any other shares purchased in this offering or thereafter, or to receive distributions from the trust account with respect to its founders’ shares upon our liquidation if we are unable to consummate a business combination. Accordingly, the shares acquired prior to this offering, as well as the private units and any warrants purchased by our officers or directors in the aftermarket, will be worthless if we do not consummate a business combination. The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest.
Nasdaq may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.it.
We anticipatehave no current plans to pay dividends on our common stock. Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, general business conditions and other factors that our securitiesboard of directors may deem relevant. In addition, our ability to pay cash dividends is restricted by the terms of our debt financing arrangements, and any future debt financing arrangement likely will contain terms restricting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, you may not receive any return on an investment in our common stock unless you sell your common stock for a price greater than that which you paid for it.
If our operating and financial performance in any given period does not meet the guidance that we provide to the public, the market price of our common stock may decline.
We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods. Any such guidance will be listed on Nasdaq,comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a national securities exchange, upon consummationparticular period do not meet any guidance we provide or the expectations of this offering. Although, after giving effect to this offering,investment analysts, or if we expect to meet on a pro forma basis Nasdaq’s minimum initial listing standards, which generally only requiresreduce our guidance for future periods, the market price of our common stock may decline as well. Even if we do issue public guidance, there can be no assurance that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares and distribution requirements, we cannot assure you that our securities will continue to be listed on Nasdaqdo so in the future priorfuture.
We may not be able to an initialgenerate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled interest payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, combination. Additionally, in connection withlegislative, regulatory and other factors, some of which are beyond our initial business combination, it is likely that Nasdaqcontrol. In some cases, we will require usalso be required to file a new initial listing application and meet its initial listing requirements as opposedobtain the consent our lenders to its more lenient continued listing requirements.refinance material portions of our indebtedness. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premiums, and interest, if any, on our indebtedness. Some of our indebtedness is maturing in the near term, and if we are unable to raise sufficient capital or generate cash through our operations, we will be ableunable to meet those initial listing requirementsour debt obligations at that time.maturity.
If Nasdaq delists our securities from tradingcash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, reduce or eliminate the payment of dividends, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on its exchange,the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face significantsubstantial liquidity problems and might be required to dispose of material adverse consequences, including:assets or operations to attempt to meet our debt service and other obligations. We may not be able to consummate those dispositions or consummate dispositions at prices that we believe are fair, and the proceeds that we do receive may not be adequate to meet any debt service obligations then due.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our units and eventually our common stock, rights and warrants will be listed on Nasdaq, our units, common stock, rights and warrants will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.
As a public company, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act, and related rules implemented by the Securities and Exchange Commission (the “SEC”) and the Nasdaq Capital Market. The expenses generally incurred by public companies for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock on the Nasdaq market, fines, sanctions and other regulatory action and potentially civil litigation.
We are an “emerging growth company”company,” and we cannot be certain if the reduced disclosurepublic company reporting requirements applicable to emerging growth companies willmay make our shares of common stock less attractive to investors.
We arequalify as an “emerging growth company,” as defined in the JOBS Act. We willFor so long as we remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three year period or revenues exceeds $1.07 billion, or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not requiredemerging growth companies. These provisions include, but are not limited to: being permitted to complyhave only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; an exemption from compliance with the auditor attestation requirementsrequirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, we haveAct; not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statementsstatements; and we are exemptexemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as anIn addition, the JOBS Act permits emerging growth company, we have electedcompanies to delay the adoptiontake advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We intend to take advantage of the exemptions discussed above. As a result, the information we provide will be different than the information that is available with respect to other public companies. In this prospectus, we have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not included all of the executive compensation-related information that would be comparable to companies that comply with public company effective dates.required if we were not an emerging growth company. We cannot predict ifwhether investors will find our shares of common stock less attractive becauseif we may rely on these provisions.exemptions. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for our sharescommon stock, and the market price of our share pricecommon stock may be more volatile.
We will remain an emerging growth company until the earliest of (i) the end of our 2022 fiscal year, (ii) the first fiscal year after our annual gross revenues exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.00 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.
We may only be ableOur failure to complete one business combination withachieve and maintain an effective system of disclosure controls and internal control over financial reporting could adversely affect our financial position and lower our stock price.
As a public company, we are subject to the proceedsreporting requirements of this offering, which will causethe Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports. Nevertheless, all internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be solely dependent on a single business which may have a limited number of products or services.
It is likely we will consummate a business combination with a single target business, although we have the ability to simultaneously acquire several target businesses. By consummating a business combination witheffective can provide only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively, if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costsreasonable assurance with respect to possible multiple negotiationsfinancial statement preparation and due diligence investigations (if there are multiple sellers)presentation. We have identified as of September 30, 2019 the following material weaknesses in internal controls to conclude that our disclosure controls and procedures and internal controls over financial reporting were not effective at the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.reasonable assurance level:
The ability of our stockholders to exercise their conversion rights or sell their shares to us in a tender offer may not allow us to effectuate the most desirable business combination or optimize our capital structure.
If our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many stockholders may exercise conversion rights or seek to sell their shares to us in a tender offer, we may either need to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing to help fund our business combination. In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.
In connection with any vote to approve a business combination, we will offer each public stockholder the option to vote in favor of a proposed business combination and still seek conversion of his, her or its shares.
In connection with any vote to approve a business combination, we will offer each public stockholder (but not our sponsor, officers or directors) the right to have his, her or its shares of common stock converted to cash (subject to the limitations described elsewhere in this prospectus) regardless of whether such stockholder votes for or against such proposed business combination. This ability to seek conversion while voting in favor of our proposed business combination may make it more likely that we will consummate a business combination.
In connection with any stockholder meeting called to approve a proposed initial business combination, we may require stockholders who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
| · | inadequate internal controls over the preparation of the consolidated financial statements being audited and untimely annual closings of the books resulting in delays in financial reporting, journal entries and reconciliations; and |
| · | inadequate controls and procedures as they relate to completeness of information reported by certain third parties that process transactions related to specific revenue streams. |
In connection with any stockholder meeting called to approve a proposed initial business combination, each public stockholder will have the right, regardless of whether he is voting for or against such proposed business combination, to demand that we convert his shares into a pro rata share of the trust accountaddition, as of two business days priorSeptember 30, 2019 we identified a significant deficiency in our internal controls over financial reporting exists as a result of a lack of segregation of duties as it relates to the consummationaccounting function and review process could result in a misappropriation of the initial business combination. We may require public stockholders who wish to convert their shares in connection with a proposed business combination to either (i) tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holders’ option, in each case prior to a date set forth in the tender offer documents or proxy materials sent in connection with the proposal to approve the business combination. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTCassets, and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than we anticipate for stockholders to deliver their shares, stockholders who wish to converterrors which may be unable to meet the deadline for exercising their conversion rightsmade and thus may be unable to convert their shares.
If, in connectionnot detected. As a company with any stockholder meeting called to approvelimited accounting resources, a proposed business combination, we require public stockholders who wish to convert their shares to comply with specific requirements for conversion, such converting stockholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not approved.
If we require public stockholders who wish to convert their shares to comply with specific requirements for conversionsignificant amount of management’s time and such proposed business combination is not consummated, we will promptly return such certificates to the tendering public stockholders. Accordingly, investors who attempted to convert their shares in such a circumstanceattention has been and will be unablediverted from our business to sell their securities after the failed acquisition until we have returned their securities to them. The market price for our sharesensure compliance with these regulatory requirements. This diversion of common stock may decline during thismanagement’s time and youattention may not be able to sell your securities when you wish to, even while other stockholders that did not seek conversion may be able to sell their securities.
Because of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business combination.
We expect to encounter intense competition from entities other than blank check companies having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Additionally, our sponsor is an oil and gas company that pursues distressed asset acquisitions in the energy industry, the same industry within which we intend to focus our search for a target business. While our sponsor intends to acquire assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them (as opposed to our intent to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company), it is not limited to this type of acquisition and we therefore could nevertheless be subject to competition for acquisitions with our sponsor. Furthermore, seeking stockholder approval or engaging in a tender offer in connection with any proposed business combination may delay the consummation of such a transaction. Additionally, our outstanding rights and warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage in successfully negotiating a business combination.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure or abandon a particular business combination.
Although we believe that the net proceeds of this offering will be sufficient to allow us to consummate a business combination, because we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of this offering prove to be insufficient, either because of the size of the business combination, the depletion of the available net proceeds in search of a target business, or the obligation to convert into cash a significant number of shares from dissenting stockholders, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growthour business, financial condition and results of the target business. None of our sponsor, officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination.
Our sponsor will control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.operations.
Upon consummation of our offering, our sponsor will own approximately 22.2% of our issuedThese material weaknesses and outstanding shares of common stock (assuming it does not purchase any units in this offering). None of our sponsor, officers, directors or their affiliates has indicated any intention to purchase units in this offering or any units or shares of common stock from persons in the open market or in private transactions. However, our sponsor, officers, directors or their affiliates could determine in the future to make such purchases in the open market or in private transactions, to the extent permitted by law, in order to influence the vote or magnitude of the number of shareholders seeking to tender their shares to us. In connection with any vote for a proposed business combination, our sponsor, as well as all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering as well as any shares of common stock acquired in this offering or in the aftermarket in favor of such proposed business combination.
Our board of directors is and will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. It is unlikely that there will be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office until at least the consummation of the business combination. Accordingly, you may not be able to exercise your voting rights under corporate law for up to 21 months. If there is an annual meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our sponsor, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our sponsor will continue to exert control at least until the consummation of a business combination.
Our sponsor paid an aggregate of $25,000, or approximately $0.01 per share, for the founders’ shares and, accordingly, you will experience immediate and substantial dilution from the purchase of our shares of common stock.
The difference between the public offering price per share (allocating all of the unit purchase price to the common stock, including the common stock underlying the rights included in the units, and none to the warrants included in the units) and the pro forma net tangible book value per share of common stock after this offering constitutes the dilution to the investors in this offering. Our sponsor acquired the founders’ shares at a nominal price, significantly contributing to this dilution. Upon consummation of this offering, you and the other new investors will incur an immediate and substantial dilution of approximately 87.3% or $7.94 per share (the difference between the pro forma net tangible book value per share $1.15, and the initial offering price of $9.09 per share). This is because investors in this offering will be contributing approximately 96.6% of the total amount paid to us for our outstanding securities after this offering but will only own approximately 79.2% of our outstanding securities and this becomes exacerbated to the extent that public stockholders seek to convert their shares into a pro rata share of the trust proceeds. Accordingly, the per-share purchase price you will be paying substantially exceeds our per share net tangible book value.
Our outstanding rights, warrants and unit purchase options may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination.
We will be issuing rights to receive 1,000,000 shares of common stock and warrants to purchase 10,000,000 shares of common stock as part of the units offered by this prospectus and the private rights to receive 35,000 shares of common stock and private warrants to purchase 350,000 shares of common stock. We will also issue unit purchase options to purchase 500,000 units to the representative of the underwriters which, if exercised, will result in the issuance of 500,000 shares of common stock, rights to receive 50,000 shares of common stock and warrants to purchase an additional 500,000 shares of common stock. We may also issue other units to our sponsor, officers or directors in payment of working capital loans made to us as described in this prospectus. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of a substantial number of additional shares upon exercise of these warrants could make us a less attractive acquisition vehicle in the eyes of a target business. Such securities, when exercised, will increase the number of issued and outstanding shares of common stock and reduce the value of the shares issued to complete the business combination. Accordingly, our rights, warrants and unit purchase options may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the rights, warrants or unit purchase options could have an adverse effect on the market price for our securities or on our ability to obtain future financing. If and to the extent these warrants and option are exercised, you may experience dilution to your holdings.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem outstanding warrants (excluding the private warrants and any warrants underlying additional units issued to our sponsor, officers or directors in payment of working capital loans made to us but including any outstanding warrants issued upon exercise of the unit purchase option issued to EarlyBirdCapital) at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within a 30 trading-day period ending on the third business day prior to proper notice of such redemption provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private warrants will be redeemable by us so long as they are held by our sponsor or its permitted transferees.
Our management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to exercise their warrants for cash.
If we call our public warrants for redemption after the redemption criteria described elsewhere in this prospectus have been satisfied, our management will have the option to require any holder that wishes to exercise his warrant (including any warrants held by our sponsor, officers or directors or their permitted transferees) to do so on a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in our company.
If our security holders exercise their registration rights, it may have an adverse effect on the market price of our shares of common stock and the existence of these rights may make it more difficult to effect a business combination.
Our sponsor is entitled to make a demand that we register the resale of the founders’ shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the holders of the private units and any units our sponsor, officers, directors, or their affiliates may be issued in payment of working capital loans made to us are entitled to demand that we register the resale of the private units and any other units we issue to them (and the underlying securities) commencing at any time after we consummate an initial business combination. The presence of these additional shares of common stock trading in the public market may have an adverse effect on the market price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities because of the potential effect the exercise of such rights may have on the trading market for our shares of common stock.
EarlyBirdCapital may have a conflict of interest in rendering services to us in connection with our initial business combination.
We have engaged EarlyBirdCapital to assist us in connection with our initial business combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the total gross proceeds raised in the offering. This financial interest may result in EarlyBirdCapital having a conflict of interest when providing the services to us in connection with an initial business combination.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.
A company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act, as amended, or the Investment Company Act. Since we will invest the proceeds held in the trust account, it is possible that we could be deemed an investment company. Notwithstanding the foregoing, we do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in trust may be invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act.
If we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it more difficult for us to complete a business combination, including:
In addition, we may have imposed upon us certain burdensome requirements, including:
Compliance with these additional regulatory burdens would require additional expense for which we have not allotted.
The determination for the offering price of our units is more arbitrary than the pricing of securities for an operating company in a particular industry.
Prior to this offering there has been no public market for any of our securities. The public offering price of the units and the terms of the rights and warrants were negotiated between us and EarlyBirdCapital, Inc. Factors considered in determining the prices and terms of the units, including the shares of common stock, rights and warrants underlying the units, include:
However, although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry since we have no historical operations or financial results to compare them to.
If we do not conduct an adequate due diligence investigation of a target business, we may be required to subsequently take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.
We must conduct a due diligence investigation of the target businesses we intend to acquire. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process. Even if we conduct extensive due diligence on a target business, this diligence may not reveal all material issues that may affect a particular target business, and factors outside the control of the target business and outside of our control may later arise. If our diligence fails to identify issues specific to a target business, industry or the environment in which the target business operates, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our common stock. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.
The requirement that we complete an initial business combination within 21 months from the closing of this offering may give potential target businesses leverage over us in negotiating a business combination.
We have 21 months from the closing of this offering to complete an initial business combination. Any potential target business with which we enter into negotiations concerning a business combination will be aware of this requirement. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular target business, we may be unable to complete a business combination with any other target business. This risk will increase as we get closer to the time limit referenced above.
We may not obtain a fairness opinion with respect to the target business that we seek to acquire and therefore you may be relying solely on the judgment of our board of directors in approving a proposed business combination.
We will only be required to obtain a fairness opinion with respect to the target business that we seek to acquire if it is an entity that is affiliated with any of our officers, directors or sponsor. In all other instances, we will have no obligation to obtain an opinion. Accordingly, investors will be relying solely on the judgment of our board of directors in approving a proposed business combination.
Resources could be spent researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
It is anticipated that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require that we have such system of internal controls audited beginning with our Annual Report on Form 10-K for the year ending December 31, 2018. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Section 404 of the Sarbanes-Oxley Act also requires that our independent registered public accounting firm report on management’s evaluation of our system of internal controls. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future,deficiencies could harm our operating results or cause us to fail to meet our reporting obligations. Inferiorobligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which couldwould likely have a negative effect on the trading price of our common stock.
If In addition, if we effect a business combination with a company located outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
We may effect a business combination with a company located outside of the United States. If we did, we would be subject to any special considerations or risks associated with companies operating in the target business’ home jurisdiction, including any of the following:
We cannot assure you that we would be able to adequately address these additional risks. If we wereare unable to do so, our operations might suffer.
If we effect a business combination with a company located outside of the United States, the laws applicablecontinue to such company will likely govern all of our material agreements andmeet these requirements, we may not be able to enforcemaintain our legal rights.common stock listed on Nasdaq.
Increases in interest rates may cause the market price of our common stock to decline.
If we effectWhile interest rates are falling and have in recent years been at record low levels, any return to increases in interest rates may cause a business combination with a company located outside of the United States, the laws of the countrycorresponding decline in whichdemand for equity investments. Any such company operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business will be able to enforce any of its material agreementsincrease in interest rates or that remedies will be availablereduction in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States, it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws.
Provisions in our amended and restated certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the futuredemand for our common stock resulting from other relatively more attractive investment opportunities may cause the market price of our common stock to decline.
If securities or industry analysts do not publish research or reports about our business or publish negative reports, the market price of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one of more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could entrench management.lose visibility in the financial markets, which in turn could cause the market price or trading volume of our common stock to decline. Moreover, if one or more of the analysts who cover us downgrades our common stock or if our reporting results do not meet their expectations, the market price of our common stock could decline.
We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our amendedmanagement currently intends to use the net proceeds from this offering in the manner described in “Use of Proceeds” and restated certificatewill have broad discretion in the application of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a result, at a given annual meeting only a minoritysignificant part of the board of directors may be considered for election. Sincenet proceeds from this offering. The failure by our “staggered board” may preventmanagement to apply these funds effectively could result in financial losses that could harm our stockholders from replacing a majoritybusiness, cause the market price of our boardcommon stock to decline and delay the development of directors at any given annual meeting, itour operations. Pending their use, we may entrench management and discourage unsolicited stockholder proposalsinvest the net proceeds from this offering in a manner that may be in the best interests of stockholders. Moreover, our board of directors has the ability to designate the terms of and issue new series of preferred stock.does not produce income or that loses value.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Because we must furnish our stockholders with target business financial statements preparedInvestors in accordance with U.S. generally accepted accounting principles or international financial reporting standards, wethis offering will not be able to complete a business combination with prospective target businesses unless their financial statements are prepared in accordance with U.S. generally accepted accounting principles.experience immediate and substantial dilution.
The federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/orinitial public offering price per share of common stock will be substantially higher than our pro forma financial statement disclosure in periodic reports. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted innet tangible book value per share immediately after this offering. As a result, you will pay a price per share of common stock that substantially exceeds the United Statesper share book value of America, or GAAP, or international financial reporting standards, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. We will include the same financial statement disclosure in connection with any tender offer documents we use, whether or not they are required under the tender offer rules. Additionally, to the extent we furnish our stockholders with financial statements prepared in accordance with IFRS, such financial statements will need to be audited in accordance with U.S. GAAP at the time of the consummation of the business combination. These financial statement requirements may limit the pool of potential target businesses we may acquire.tangible assets after subtracting our liabilities. See “Dilution.”
There is currently no market for our securities and a market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
There is currently no market for our securities. Stockholders therefore have no access to information about prior market history on which to base their investment decision. Following this offering, the price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.
ChangesYou will be diluted by the future issuance of common stock, preferred stock, or securities convertible into common or preferred stock, in lawsconnection with our incentive plans, acquisitions, capital raises or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.otherwise.
We are subject to laws and regulations enacted by national, regional and local governments. In particular,Immediately after this offering we will be required to comply with certain SEChave approximately shares of common stock authorized but unissued, including approximately shares of common stock issuable upon conversion or exercise of any rights under our outstanding warrants and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
There may be tax consequences to our business combinations that may adversely affect us.
While we expect to undertake any merger or acquisition so as to minimize taxes both to the acquired business and/or asset and us, such business combination might not meet the statutory requirements of a tax-free reorganization, or the parties might not obtain the intended tax-free treatment upon a transfer of shares or assets. A non-qualifying reorganization could result in the imposition of substantial taxes.
convertible promissory notes. Our amended and restated certificate of incorporation will provide,to become effective prior to the consummation of this offering authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise.
In the future, we expect to obtain financing or to further increase our capital resources by issuing additional shares of our capital stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. Issuing additional shares of our capital stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock or both. Debt securities convertible into equity could be subject to limitedadjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. As a result, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us. See “Description of Capital Stock.”
Additionally, we have reserved an aggregate of 3,463,305 shares of common stock for issuance under our 2019 Equity Incentive Plan (the “2019 Plan”). Any common stock that we issue, including under our 2019 Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase common stock in this offering. We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our 2019 Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market.
If we or the pre-Merger investors sell additional shares of our common stock after this offering, the market price of our common stock could decline.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Upon completion of this offering we will have a total of shares of our common stock outstanding (or shares if the underwriters exercise in full their option to purchase additional shares of common stock) and an additional shares of our common stock issuable upon conversion of our outstanding warrants and convertible promissory notes. Of the outstanding shares of common stock, shares sold in this offering (or shares if the underwriters exercise in full their option to purchase additional shares of common stock) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”
We, our officers, directors and certain pre-Merger investors that collectively will own shares of common stock following this offering (or shares of common stock if the underwriters exercise in full their option to purchase additional shares of common stock), will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock held by them for 180 days following the date of this prospectus. Northland Securities, Inc. may, in its sole discretion, release all or any portion of the shares of common stock subject to lock-up agreements. Upon the expiration of the lock-up agreements, all of such shares of common stock will be eligible for resale in a public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144.
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As restrictions on resale end, the market price of our shares of common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
The Company’s Certificate of Incorporation, as amended, provides that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could limit the Company’s stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or employees.
The Company’s Certificate of Incorporation, as amended, provides that unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for certainany stockholder litigation matters, which could limit our stockholders’ ability(including a beneficial owner) to obtainbring (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a favorable judicial forum for disputes with usclaim of breach of a fiduciary duty owed by any director, officer or our directors, officers, employees or stockholders.
Our amended and restated certificateother employee of incorporation requires,the Company to the fullest extent permittedCompany or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate of Incorporation, as amended, or the Company’s Bylaws, or (iv) any action asserting a claim governed by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions maythe internal affairs doctrine shall be brought only in the Court of Chancery inof the State of Delaware and,(or if brought outsidethe Court of Chancery does not have jurisdiction, another state court located within the State of Delaware, or if no state court located within the stockholder bringingState of Delaware has jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have consented to service of process on such stockholder’s counsel. waived our compliance with the federal securities laws and the rules and regulations thereunder.
Any person or entity purchasing or otherwise acquiring any interest in sharesany of our capital stocksecurities shall be deemed to have notice of and consented to the forumthese provisions. These exclusive-forum provisions in our amended and restated certificate of incorporation.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorableof its choosing for disputes with us or any of our directors, officers or other employees, or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, ifagainst us and our directors, officers and other employees.
If a court were to find the choice of forum provision contained in our amended and restated certificateCertificate of incorporationIncorporation, as amended, to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results of operations, and financial condition.
If we consummate a business combination with a target business in the energy industry, we would be subject to the risks attendant to such industry.
If Even if we are successful in consummatingdefending against these claims, litigation could result in substantial costs and be a business combination with a target business indistraction to the energy industry, we would be subjectCompany’s management.
Our Board of Directors’ ability to issue undesignated preferred stock and the existence of anti-takeover provisions may depress the value of our common stock.
The Company’s authorized capital includes 1,000,000 shares of undesignated preferred stock. Our Board has the power to issue any or all of the risks attendantshares of preferred stock, including the authority to establish one or more series and to fix the powers, preferences, rights and limitations of such industry, including, among others:class or series, without seeking stockholder approval, subject to certain limitations on this power under Nasdaq listing requirements. Further, as a Delaware corporation, we are subject to provisions of the Delaware General Corporation Law regarding “business combinations.” We may, in the future, consider adopting additional anti-takeover measures. The authority of our Board to issue undesignated stock and the anti-takeover provisions of Delaware law, as well as any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of our company that are not approved by our Board. As a result, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common stock may also be affected.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about our:
The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
The Company
We estimate that the net proceeds of this offering, in addition to the funds we will receive from theour issuance and sale of the private units (allshares of which will be deposited into the trust account), will be as set forth in the following table:
| Without Over- Allotment Option | Over-Allotment Option Exercised | |||||||
| Gross proceeds | ||||||||
| From offering | $ | 100,000,000 | $ | 115,000,000 | ||||
| From private placement | 3,500,000 | 3,875,000 | ||||||
| Total gross proceeds | 103,500,000 | 118,875,000 | ||||||
| Offering expenses(1) | ||||||||
| Underwriting discount (2.0% of gross proceeds from units offered to public) | 2,000,000 | (2) | 2,300,000 | (2) | ||||
| Legal fees and expenses | 250,000 | 250,000 | ||||||
| Nasdaq Listing Fees | 75,000 | 75,000 | ||||||
| Printing and engraving expenses | 40,000 | 40,000 | ||||||
| Accounting fees and expenses | 40,000 | 40,000 | ||||||
| FINRA filing fee | 18,625 | 18,625 | ||||||
| SEC registration fee | 14,000 | 14,000 | ||||||
| Miscellaneous expenses | 62,375 | 62,375 | ||||||
| Total expenses | 2,500,000 | 2,800,000 | ||||||
| Net proceeds | ||||||||
| Held in trust | 100,500,000 | 115,575,000 | ||||||
| Not held in trust | 500,000 | 500,000 | ||||||
| Total net proceeds | $ | 101,000,000 | $ | 116,075,000 | ||||
| Use of net proceeds not held in trust(3)(4) | ||||||||
| Legal, accounting and other third party expenses attendant to the search for target businesses and to the due diligence investigation, structuring and negotiation of a business combination | $ | 84,000 | (16.8 | )% | ||||
| Due diligence of prospective target businesses by officers, directors and sponsor | 50,000 | (10.0 | )% | |||||
| Legal and accounting fees relating to SEC reporting obligations | 100,000 | (20.0 | )% | |||||
| Payment of administrative fee to our sponsor ($10,000 per month for up to 21 months) | 210,000 | (42.0 | )% | |||||
| Working capital to cover miscellaneous expenses, D&O insurance, general corporate purposes and reserves | 56,000 | (11.2 | )% | |||||
| Total | $ | 500,000 | (100.0 | )% | ||||
Our sponsor has committed to purchase the private units (for an aggregate purchase price of $3,500,000) from us on a private placement basis simultaneously with the consummation of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us an additional number of private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The private units are identical to the units soldour common stock in this offering subject to certain limited exceptions as described elsewhere in this prospectus. All of the proceeds we receive from these purchases will be placed in the trust account described below.
approximately $100,500,000, or $115,575,000 (or $ if the over-allotmentunderwriters’ option to purchase additional shares is exercised in full, of net proceeds of thisfull) after deducting underwriting discounts and commissions and estimated offering and the sale of the private units, will be placed in a U.S.-based trust account at Morgan Stanley, maintainedexpenses payable by Continental Stock Transfer & Trust Company, New York, New York, as trustee. The funds held in trust will be invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, so that we are not deemed to be an investment company under the Investment Company Act. Except with respect to (i) interest earned on the funds held in the trust account that may be released to us to pay our income or other tax obligations and (ii) up to $50,000 of interest earned on the funds held in the trust account that may be released to us to pay our liquidation and dissolution expenses, the proceeds will not be released from the trust account until the earlier of the completion of a business combination or our redemption of 100% of the outstanding public shares if we have not completed a business combination in the required time period. The proceeds held in the trust account may be used as consideration to pay the sellers of a target business with which we complete a business combination. Any amounts not paid as consideration to the sellers of the target business may be used to finance operations of the target business.us.
The paymentWe intend to our sponsor of a monthly fee of $10,000 is for general and administrative services including office space, utilities and secretarial support. This arrangement is being agreed to by our sponsor for our benefit and is not intended to provide our sponsor or affiliated officers and directors with compensation in lieu of a salary. We believe, based on rents and fees for similar services in the Minneapolis, Minnesota area, that the fee charged by our sponsor is at least as favorable as we could have obtained from an unaffiliated person. This arrangement will terminate upon completion of our initial business combination or the distribution of the trust account to our public stockholders. Other than the $10,000 per month fee and the repayment of the $125,000 loan from our sponsor (none of which payments will be made from the proceeds of this offering held in the trust account prior to the completion of our initial business combination), no compensation of any kind will be paid to our sponsor, officers, directors or any of their respective affiliates, for services rendered to us prior to or in connection with the consummation of our initial business combination (regardless of the type of transaction that it is). However, such entity and individuals will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations. Our audit committee will review and approve all reimbursements and payments made to our sponsor, officers, directors or our or their respective affiliates, with any interested director abstaining from such review and approval. There is no limit on the amount of such expenses reimbursable by us; provided, however, that to the extent such expenses exceed the available proceeds not deposited in the trust account, such expenses would not be reimbursed by us unless we consummate an initial business combination. Since the role of present management after a business combination is uncertain, we have no ability to determine what remuneration, if any, will be paid to those persons after a business combination.
Regardless of whether the over-allotment option is exercised in full,use the net proceeds from this offering available to us out of trust for ourfund general corporate activities and working capital requirements in searching for a business combination will be approximately $500,000. requirements.
We intend to usebelieve that the net proceeds for miscellaneous expenses such as paying fees to consultants to assist usfrom this offering, together with our search for a target businessexisting cash and for directorcash equivalents, will enable us to fund our operating expenses and officer liability insurance premiums, withcapital expenditure requirements at least through the balance being held in reserve in the event due diligence, legal, accountingend of July, 2020. We have based this estimate on assumptions that may prove to be wrong, and other expenses of structuring and negotiating business combinations exceedwe could use our estimates, as well as for reimbursement of any out-of-pocket expenses incurred by our sponsor, officers and directors in connection with activities on our behalf as described below.available capital resources sooner than we currently expect.
The expected use of the net proceeds from this offering and our existing cash and cash equivalents represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including our ability to identify and consummate acquisitions and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds available to us outsidefrom this offering. We have no current agreements, commitments or understandings for any material acquisitions or licenses of the trust account represents our best estimate of the intended uses of these funds. In the event that our assumptions prove to be inaccurate, we may reallocate some of such proceeds within the above described categories. If our estimate of the costs of undertaking in-depth due diligence and negotiating a business combination is less than the actual amount necessary to do so, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. In this event, we could seek such additional capital through loansany products, businesses or additional investments from members of our management team, but such members of our management team are not under any obligation to advance funds to, or invest in, us.technologies.
We mayPending our use substantially all of the net proceeds of this offering, including the funds held in the trust account, to acquire a target business and to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital equal to 3.5% of the gross proceeds raised in this offering (exclusive of any applicable finders’ fees which might become payable) upon consummation of our initial business combination for assisting us in connection with our initial business combination, as described under the section titled “Underwriting — Business Combination Marketing Agreement.” To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust account which are not used to consummate a business combination will be disbursed to the combined company and will, along with any other net proceeds not expended, be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products.
To the extent we are unable to consummate a business combination, we will pay the costs of liquidation from the up to $50,000 of interest that may be released to us from the trust account to pay for our liquidation and dissolution expenses. If such interest is insufficient, our sponsor has agreed to advance us the funds necessary to complete such liquidation and has agreed not to seek repayment of such expenses.
As of the date of this prospectus, our sponsor has loaned us an aggregate of $125,000 which was used to pay a portion of the expenses of this offering referenced in the line items above for SEC registration fee, FINRA filing fee, the non-refundable portion of the Nasdaq listing fee and a portion of the legal and audit fees and expenses. The loan will be payable without interest on the consummation of this offering. The loan will be repaid out of the proceeds of this offering available to us for payment of offering expenses.
We believe that, upon consummation of this offering, we intend to invest the net proceeds in money market funds, government-insured bank deposit accounts or U.S. government securities.
The Selling Stockholders
We will have sufficient available funds (which includes amounts that may be released to usnot receive any proceeds from the trust account) to operate for the next 21 months, assuming that a business combination is not consummated during that time. However, if necessary, in order to meet our working capital needs following the consummationsale of this offering, our sponsor, officers and directors may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,500,000 of the notes may be converted into units at a price of $10.00 per unit. The units would be identical to the private units. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment.
A public stockholder will be entitled to receive funds from the trust account (including interest earned on his, her or its portion of the trust account to the extent not previously released to us) only in the event of (i) our redemption of 100% of the outstanding public shares if we have not completed a business combination in the required time period, (ii) if that public stockholder converts such shares, or sells such shares to us in a tender offer, in connection with a business combination which we consummate or (iii) we seek to amend any provisions of our amended and restated certificate of incorporation that would affect our public stockholders’ ability to convert or sell their shares to us in connection with a business combination as described herein or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business combination within 21 months from the closing of this offering. This redemption right shall apply in the event of the approval of any such amendment to our amended and restated certificate of incorporation, whether proposed by our sponsor, any executive officer, director or director nominee, or any other person. In no other circumstances will a public stockholder have any right or interest of any kind to or in the trust account.
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of an initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our board of directors at such time. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future, except if we increase the size of the offering pursuant to Rule 462(b) under the Securities Act, in which case we will effect a stock dividend immediately prior to the consummation of the offering in such amount as to maintain the ownership of our sponsor at 20.0% of our issued and outstanding shares of our common stock uponby the consummation of this offering (excluding ownershipselling stockholders identified herein, which are estimated to be approximately $ , after deducting underwriting discounts and commissions. The selling stockholders will receive all of the private units and underlying securities). Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.proceeds from the sale of those shares of the Company’s common stock.
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The difference between the public offering price per share, assuming no value is attributed to the warrants includedWe anticipate that we will retain all available funds and any future earnings, if any, for use in the units we are offering by this prospectusoperation of our business and do not anticipate paying cash dividends in the private warrants,foreseeable future. In addition, our credit facilities materially restrict, and the pro forma net tangible book value per share after this offering constitutes the dilutionfuture debt instruments may materially restrict, our ability to investors in this offering. Such calculation does not reflect any dilution associated with the sale and exercise of warrants, including the private warrants. Net tangible book value per share is determined by dividingpay dividends on our net tangible book value, which is our total tangible assets less total liabilities (including the value of shares of common stock which may be converted into cash or sold in a tender offer), by the number of outstanding shares of common stock. Payment of future cash dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of our current or then-existing debt instruments and other factors our Board of Directors deems relevant.
At May 31, 2017, our net tangible book deficit was $37,823, or approximately $(0.01) per share of common stock. For purposes of the dilution calculation, in order to present the maximum estimated dilution as a result of this offering, we have assumed (i) the issuance of 0.1 of a share for each right outstanding, as such issuance will occur upon a business combination without the payment of additional consideration and (ii) the number of shares included in the units offered hereby will be deemed to be 11,000,000 (consisting of 10,000,000 shares of common stock included in the units we are offering by this prospectus and 1,000,000 shares for the outstanding rights), and the price per share in this offering will be deemed to be $9.09. After giving effect to the sale of 10,000,000 shares of common stock included in the units we are offering by this prospectus, the sale of the private units and the deduction of underwriting commissions and estimated expenses of this offering, our pro forma net tangible book value at May 31, 2017 would have been $5,000,002 or $1.15 per share, representing an immediate increase in net tangible book value (as decreased by the value of the approximately 9,554,704 shares of common stock that may be converted to cash and assuming no exercise of the underwriters’ over-allotment option) of $1.16 per share to our sponsor and an immediate dilution of $7.94 per share or 87.3% to our public stockholders not exercising their conversion rights. The decrease attributable to public shares subject to conversion is included in the calculation below at $10.05 per share, as all public stockholders have the right to convert. The dilution to new investors if the underwriters exercise their over-allotment option in full would be an immediate dilution of $8.03 per share or 87.3%.
The following table illustrates the dilution to the new investors on a per-share basis, assuming no value is attributed to the warrants included in the units and the private warrants:
| Public offering price | $ | 9.09 | ||||||
| Net tangible book value before this offering | $ | (0.01 | ) | |||||
| Increase attributable to public stockholders and private sales | 1.16 | |||||||
| Pro forma net tangible book value after this offering | 1.15 | |||||||
| Dilution to public stockholders | $ | 7.94 | ||||||
| Percentage of dilution to public stockholders | 87.3 | % |
The following table sets forth information with respect to our existing stockholders and the public stockholders:
| Shares | Total Consideration | Average Price | ||||||||||||||||||
| Number | Purchased | Percentage | Amount | Percentage | per Share | |||||||||||||||
| Sponsor – founders’ shares | 2,500,000 | (1) | 18.0 | % | $ | 25,000 | 0.0 | % | $ | 0.01 | ||||||||||
| Sponsor – private units | 385,000 | (2) | 2.8 | % | $ | 3,500,000 | 3.4 | % | $ | 9.09 | ||||||||||
| Public stockholders | 11,000,000 | 79.2 | % | $ | 100,000,000 | 96.6 | % | $ | 9.09 | |||||||||||
| Total | 13,885,000 | 100.0 | % | $ | 103,525,000 | 100.0 | % | |||||||||||||
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The pro forma net tangible book value after the offering is calculated as follows:
| Numerator: | ||||
| Net tangible book value before the offering | (37,823 | ) | ||
| Net proceeds from this offering and private placement | 101,000,000 | |||
| Plus: Offering costs accrued for and paid in advance, excluded from tangible book value before this offering | 62,500 | |||
| Plus: Proceeds from sale of unit purchase option to underwriters | 100 | |||
| Less: Proceeds held in trust subject to conversion/tender | (96,024,775 | ) | ||
| $ | 5,000,002 | |||
| Denominator: | ||||
| Shares of common stock outstanding prior to this offering | 2,500,000 | (1) | ||
| Shares of common stock included in the units offered | 10,000,000 | |||
Shares of common stock underlying rights included in the units offered | 1,000,000 | |||
| Shares of common stock to be sold in private placement | 350,000 | |||
| Shares of common stock underlying rights to be sold in the private placement | 35,000 | |||
| Less: Shares subject to conversion/tender | (9,554,704 | ) | ||
| 4,330,296 |
The following table sets forth our capitalization, at May 31, 2017 and as adjustedof September 30, 2019:
| ● | on an actual basis; and |
| ● | on an as-adjustedbasis to give effect to (i) the sale and issuance by us of shares of common stock in this offering and our receipt of the estimated net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses payable by us as described in the section of this prospectus entitled “Use of Proceeds.” |
Investors should consider this table in conjunction with our financial statements and the notes to those financial statements included elsewhere in this prospectus.
| Actual | As-Adjusted | ||||||
| Cash and cash equivalents | $ | 9,355,496 | $ | – | |||
| Convertible promissory notes, net of discount | 12,785,519 | 12,785,519 | |||||
| Convertible debt, related party, net of discount | 983,501 | 983,501 | |||||
| Accrued interest on convertible debt | 1,462,173 | 1,462,173 | |||||
| Stockholders’ Equity: | |||||||
| Preferred stock, $0.0001 par value, 1,000,000 shares authorized, none issued and outstanding | – | – | |||||
| Common stock, $0.0001 par value; 65,000,000 shares authorized, actual; 23,176,146 shares outstanding, actual; 65,000,000 shares authorized, as-adjusted; shares outstanding, as-adjusted | 2,317 | – | |||||
| Additional paid-in capital | 161,042,278 | – | |||||
| Accumulated deficit | (111,398,765 | ) | – | ||||
| Accumulated other comprehensive income | 125,495 | – | |||||
| Total stockholders’ (deficit) equity | $ | 49,771,325 | $ | – | |||
| Total capitalization | $ | – | $ | – | |||
| The outstanding share information in the table above excludes: |
| ● | 480,393common shares issuable upon exercise of stock options granted under our 2019 Plan and outstanding as of September 30, 2019, with a weighted-average exercise price of $4.38 per share; | |
| ● | 2,902,519 common shares available as of September 30, 2019 for future issuance under our 2019 Plan; | |
| ● | 18,637,003 common shares issuable upon exercise of warrants outstanding as of September 30, 2019, with a weighted-average exercise price of $11.50 per share; | |
| ● | Units, comprised in the aggregate of660,000 common shares and warrants to purchase 600,000 common shares at a purchase price equal to $11.50 per share, issuable upon exercise of unit purchase options outstanding as of September 30, 2019, with a weighted-average exercise price of $11.50 per unit; and | |
| ● | 1,647,066 common shares issuable upon conversion of convertible promissory notes outstanding as of September 30, 2019. |
The number of shares of common stock outstanding after this offering also excludes (i) shares of our common stock issuable if the underwriters exercise their over-allotment option in full in connection with this offering, and (ii) up to shares of our common stock issuable upon exercise of warrants to be issued to the underwriters in connection with this offering at an exercise price of $ per share (115% of the public offering price).
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If you invest in our shares of common stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock in this offering and our pro forma net tangible book value per share immediately after this offering. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities, divided by the number of outstanding shares of our common stock.
Our net tangible book value as of September 30, 2019 was $54,932,023 or $2.37 per share of common stock. After giving effect to the sale of shares at the public offering price of $ per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, but without adjusting for any other change in our unitsnet tangible book value subsequent to September 30, 2019, our pro forma net tangible book value at September 30, 2019 would have been $ , or $ per share. This represents an immediate increase in net tangible book value of approximately $ per share to our existing stockholders, and an immediate dilution of $ per share to investors purchasing shares of our common stock in this offering. The following table illustrates the private units and the application of the estimated net proceeds derived from the sale of such securities:per share dilution:
| May 31, 2017 | ||||||||
| Actual | As Adjusted(1) | |||||||
| Note payable to related party(2) | $ | 125,000 | $ | – | ||||
| Common stock, $.0001 par value, -0- and 9,554,704 shares which are subject to possible conversion/tender(3) | – | 96,024,775 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $.0001 par value, 1,000,000 shares authorized; none issued or outstanding | – | – | ||||||
| Common stock, $.0001 par value, 30,000,000 shares authorized; 2,875,000 shares issued and outstanding, actual; 3,295,296 shares(4)issued and outstanding (excluding 9,554,704 shares subject to possible conversion/tender), as adjusted | 288 | 330 | ||||||
| Additional paid-in capital | 24,712 | 4,999,995 | ||||||
| Accumulated deficit | (323 | ) | (323 | ) | ||||
| Total stockholders’ equity: | 24,677 | 5,000,002 | ||||||
| Total capitalization | $ | 149,677 | $ | 101,024,777 | ||||
| Public offering price per share | $ | – | ||
| Historical net tangible book value per share as of September 30, 2019 | $ | 2.37 | ||
| Increase in net tangible book value per share attributable to new investors purchasing shares of our common stock in this offering | $ | – | ||
| Pro forma net tangible book value per share immediately after this offering | $ | – | ||
| Dilution per share to new investors purchasing shares of our common stock in this offering | $ | – |
The information above assumes that the underwriters do not exercise their over-allotment option. If the underwriters exercise their over-allotment option in full, our pro forma net tangible book value per share after this offering will increase to $ per share, representing an immediate increase to existing stockholders of $ per share and an immediate dilution of $ per share to new investors. If any shares are issued upon exercise of outstanding options or warrants, new investors will experience further dilution.
| 480,393 common shares issuable upon exercise of | ||
| ● | 2,902,519 common shares available as of September 30, 2019 for future issuance under our 2019 Plan; | |
| ● | 18,637,003 common shares issuable upon exercise of warrants outstanding as of September 30, 2019, with a | |
| ● | Units, comprised in the aggregate of 660,000 common shares and warrants to | |
| ● | 1,647,066 common shares issuable upon conversion of | |
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The selling stockholders identified in this prospectus were pre-Merger employees of or service providers to WPT and/or Allied Esports to whom AESE issued an aggregate of 1,277,283 shares of our common stock in lieu of cash payments to which they were entitled to receive upon the closing of the Merger. All such shares are subject to transfer and forfeiture restrictions. This prospectus relates, in part, to the sale of shares by the selling stockholders to the underwriters, the restrictions on which will lapse upon the effectiveness of the registration statement to which this prospectus is a part. Proceeds received by the selling stockholders are intended, in part, to cover the tax consequences to such stockholders resulting from the lapse of such restrictions.
The following tables set forth information as of the date of this prospectus regarding the beneficial ownership of each selling stockholder based on information provided to us by such selling stockholder.
We have determined beneficial ownership in accordance with the SEC rules. The information does not necessarily indicate beneficial ownership for any other purpose. Except as indicated in the footnotes to this table and pursuant to state community property laws, we believe, based upon the information furnished to us, that the persons named in this table have sole voting and investment power with respect to all shares reflected as beneficially owned by them. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock that could be issued upon the exercise of outstanding options or warrants held by that person that are currently exercisable or exercisable within the next 60 days are considered outstanding. These shares, however, are not considered outstanding when computing the percentage ownership of any other person.
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| Selling Stockholder Name and Address (1) | Shares of Common Stock Beneficially Owned Before Offering | Total Shares of Common Stock Offered by Selling Stockholder | Shares of Common Stock Beneficially Owned After Offering (1) | Percentage of Beneficial Ownership of Common Stock After Offering (1) | |||
| Hermance Blum | 42,152 | – | – | * | |||
| Deborah Frazzetta | 74,469 | – | – | * | |||
| David Lindsay Gitter | 63,228 | – | – | * | |||
| Angelica Hael-Yildiz | 63,228 | – | – | * | |||
| Allison Hushek | 79,769 | (2) | – | – | * | ||
| John James McMahon | 20,235 | – | – | * | |||
| Adam Pliska | 1,123,439 | (3) | – | – | – | ||
| David Polgreen | 98,211 | – | – | * | |||
| Christopher Dean Torina | 42,152 | – | – | * | |||
| Total | – |
___________________
| * | Less than 1% | |
| (1) | The shares beneficially owned are based on 23,934,871 outstanding shares as of January 27, 2020. | |
| (2) | Includes 5,300 shares of common stock that are subject to transfer and forfeiture restrictions. | |
| (3) | Registrable securities exclude (i) 21,447 shares issued in the Merger on August 9, 2019, (ii) 7,024 five-year warrants to purchase shares of Company common stock at a price per share of $11.50 issued in the Merger on August 9, 2019, (iii) 117,648 shares issuable upon conversion of the convertible promissory note of The Lipscomb/Viscoli Children’s Trust (the “Trust”), of which Mr. Pliska is trustee, (iv) 38,000 warrants issued to the Trust, which have the same terms and conditions as those set forth in item (i), (v) 95,000 five-year warrants to purchase shares of Company common stock at a price per share of $11.50 issued in the Merger to Trisara on August 9, 2019, (vi) 7,951 shares of restricted common stock issued to Mr. Pliska on account of his services as a director and officer of the Company, (vii) shares issued to Mr. Pliska on account of the services of Trisara, LLC, of which Mr. Pliska is the sole owner, in the Merger on August 9, 2019, (viii) shares for finder services issued on August 9, 2019, and (ix) shares for WPT services of Mr. Pliska. Mr. Pliska is the President of the Company and WPT Enterprises, Inc., serves as a director of the Company and disclaims any pecuniary interest in the shares and warrants set forth in items (iii) and (iv). Except for items (v)-(ix), the resale of each of the foregoing excluded securities were registered under the Company’s Registration Statement on Form S-3 declared effective by the SEC on October 3, 2019. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONSOPERATION
We were formedThe following discussion should be read in conjunction with the financial statements and related notes that appear elsewhere in this prospectus. This discussion contains forward-looking statements that involve significant uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Risk Factors” elsewhere in this prospectus. For further information, see “Cautionary Note Regarding Forward-Looking Statements” above.
Overview
Allied Esports Entertainment Inc. (“AESE”), formerly known as Black Ridge Acquisition Corp, or “BRAC,” was incorporated in Delaware on May 9, 2017 as a blank check company for the purpose of entering intoeffecting a merger, share exchange, asset acquisition, stockshare purchase, recapitalization, reorganization or other similar business combination with one or more targetbusinesses or entities.
Allied Esports Media, Inc. (“AEM”), a Delaware corporation, was formed in November 2018 to act as a holding company for Allied Esports International Inc. (“Allied Esports”) and immediately prior to the closing of the Merger (see below) to also include Noble Link Global Limited (“Noble Link”). On December 19, 2018, BRAC, Noble Link and AEM executed an Agreement and Plan of Reorganization (as amended, the “Merger Agreement”).
On August 9, 2019 (the “Closing Date”), Noble Link merged with and into AEM, with AEM being the surviving entity. Further, on the Closing Date, a subsidiary of AESE merged with and into AEM pursuant to the Merger Agreement, with AEM being the surviving entity (the “Merger”). Allied Esports, together with its subsidiaries, owns and operates the esports-related businesses of AESE. Noble Link (prior to the Merger) and its wholly owned subsidiaries Peerless Media Limited, Club Services, Inc. and WPT Enterprises, Inc. operate the poker-related business of AESE and are collectively referred to herein as “World Poker Tour” or “WPT.”
References to the “Company” are to the combination of AEM and WPT during the period prior to the Merger and to AESE and its subsidiaries after the Merger.
The Company
AESE operates a premier public esports and entertainment company, consisting of the Allied and World Poker Tour businesses. Our efforts
The World Poker Tour is a premier name in internationally televised gaming and entertainment with brand presence in land-based poker tournaments, television, online and mobile. Leading innovation in the sport of poker since 2002, WPT helped ignite the global poker boom with the creation of a unique television show based on a series of high-stakes poker tournaments. WPT’s Tour Events are held at locations throughout the world and have awarded more than one billion in prize dollars in its 18-year history. WPT has broadcast globally in more than 150 countries and territories, and is currently producing its 18th season, which airs on FOX Sports Regional Networks in the United States. Season 18 of WPT is currently sponsored by its online subscription-based poker service, ClubWPT.com. WPT offers a suite of online poker services which it operates by itself and through its partners offering consumers the ability to identifyaccess gaming content on a prospective target business will notyear-round 24/7 basis. ClubWPT.com is a unique online membership site that offers inside access to the WPT, as well as a sweepstakes-based poker club available in 35 states across the United States and Washington D.C., and four foreign countries with innovative features and state-of-the-art creative elements inspired by WPT’s 18 years of experience in gaming entertainment. In addition, WPT licenses its brand to social gaming sites through partners like Zynga as well as to educational learning platforms such as LearnWPT. These online products are scalable and offer geographic access that might be limited if WPT relied on tour stop participation alone. Additionally, WPT benefits from managing its own distribution business which currently has more than 1,000 hours of broadcast-ready content, and offers demographically similar programming to a particular industryits poker content, such as esports, golf and MMA. WPT uses this large suite of programming as leverage to seek preferred airtimes on its various distribution channels where it may promote its online products or geographic region although we intendoffer airtime to focus our searchsponsors in territories they seek to enter. WPT also participates in strategic brand license, partnership, sponsorship opportunities and music licensing. For the past 16 years of its 18-year history, WPT’s business model has successfully utilized the following three pillars for target businessesits business model in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America where our management team’s networks and experience are suited. We intend to utilize cash derived from the proceedssport of this offering, our securities, debt or a combination of cash, securities and debt, in effecting a business combination. The issuance of additional shares of common stock or preferred stock:poker:
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WPT utilizes its in-person experiences to expand its brand throughout the world and creates content from such experiences to monetize its brand as part of its multiplatform content. WPT’s live events all over the world and distribution of its content via broadcast, streaming and social media, allow WPT to generate significant marketing opportunities for both its sponsors and its own products. WPT has taken advantage of this marketing arm to promote several interactive products: ClubWPT, its subscription-based online poker club that WPT owns and operates, which also offers social poker; PlayWPT, a web and mobile social poker product that is operated by a third party utilizing software and branding that WPT licenses to such provider; Zynga Poker, who operates one of the world’s largest social poker products, to whom WPT has licensed its brand for certain WPT-branded poker tournaments on their platform; and HongKong Triple Sevens Interactive Co., Ltd, who licenses WPT’s Alpha8 brand to operate a social poker product they are in the process of developing. In addition to the three-pillar approach to monetizing the WPT brands as described above, WPT has also been able to combine these approaches in a regional manner to create localized versions of the WPT in other parts of the world. WPT believes that this increased reach will likelyhave long-term benefits to WPT’s brand image and profitability.
Gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 2.2 billion gamers playing esports globally, and esports is the major driver of this growth. Esports, short for “electronic sports,” is a general label that comprises a diverse offering of competitive electronic games that gamers play against each other. It is projected that by 2022, 645 million people will be watching esports globally, and that global esports revenue will grow to approximately $1.8 billion. The Company plans to continue operating the WPT business and to utilize its business model in the multibillion-dollar esports industry. Allied will do this by collaborating with its strategic investors, including certain affiliates of Brookfield Property Partners, one of the world’s premier real estate companies, certain affiliates of Simon Property Group, Inc., a global leader in the ownership of premier shopping, dining, entertainment, and mixed-use destinations (“Simon”), and TV Azteca, S.A.B. DE C.V., a Grupo Salinas company, a premier television network in Mexico (“TV Azteca”), to deliver best-in-class live events, content and online products.
The esports gaming industry is relatively new and is challenging. Competition is rapidly developing. Allied Esports’ business relies upon its ability to grow and garner an active gamer community, and successfully monetize this community through tournament fees, live event ticket sales, and advertising and sponsorships utilizing the three-pillar approach above. Its growth also depends, in part, on its ability to respond to technological evolution, shifts in gamer trends and demands, introductions of new games, game publisher intellectual property right practices, and industry standards and practices. While change in this industry may be inevitable, Allied Esports will try to adapt its business model as needed to accommodate change and remain on the forefront of its competitors. Allied Esports’ business plan requires significant capital expenditures, and it expects its operating expenses to increase significantly as it continues to expand its marketing efforts and operations in existing and new geographies and vertical markets (including its online esports tournament and gaming subscription platform it intends to develop). A key element of Allied Esports’ growth strategy is to extend its brand by opening additional flagship arenas throughout the world and licensing the Allied Esports brand to third party esports arena operators, which it believes will provide attractive returns on investment.
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Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and related notes included herein. In addition to historical combined financial information, the following discussion contains forward-looking statements that reflect the Company’s plans, estimates, or beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.” The Company assumes no obligation to update any of these forward-looking statements.
Results of Operations for the Three Months Ended September 30, 2019 and 2018
| For the | Percentage of Revenue | |||||||||||||||||||
| Three Months Ended | Increase | Three Months Ended | ||||||||||||||||||
| September 30 | (Decrease) | September 30, | ||||||||||||||||||
| In thousands, except for percentage of revenue data | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| In-person | $ | 2,587 | $ | 2,202 | $ | 385 | 42.8% | 40.2% | ||||||||||||
| Multiplatform content | 1,031 | 950 | 81 | 17.1% | 17.3% | |||||||||||||||
| Interactive | 2,423 | 2,328 | 95 | 40.1% | 42.5% | |||||||||||||||
| Total Revenues | 6,041 | 5,480 | 561 | 100.0% | 100.0% | |||||||||||||||
| Costs and expenses | ||||||||||||||||||||
| In-person (exclusive of depreciation and amortization) | 1,196 | 975 | 221 | 19.8% | 17.8% | |||||||||||||||
| Multiplatform content (exclusive of depreciation and amortization) | 787 | 860 | (73 | ) | 13.0% | 15.7% | ||||||||||||||
| Interactive (exclusive of depreciation and amortization) | 569 | 613 | (44 | ) | 9.4% | 11.2% | ||||||||||||||
| Online operating expenses | 173 | 130 | 43 | 2.9% | 2.4% | |||||||||||||||
| Selling and marketing expenses | 706 | 303 | 403 | 11.7% | 5.5% | |||||||||||||||
| General and administrative expenses | 4,712 | 3,871 | 841 | 78.0% | 70.6% | |||||||||||||||
| Depreciation and amortization | 1,716 | 1,893 | (177 | ) | 28.4% | 34.5% | ||||||||||||||
| Impairment expense | – | 3,253 | (3,253 | ) | 0.0% | 59.4% | ||||||||||||||
| Total Costs and Expenses | 9,859 | 11,898 | (2,039 | ) | ||||||||||||||||
| Loss From Operations | (3,818 | ) | (6,418 | ) | 2,600 | -63.2% | -117.1% | |||||||||||||
| Other income | 16 | 103 | (87 | ) | 0.3% | 1.9% | ||||||||||||||
| Interest expense | (451 | ) | (564 | ) | 113 | -7.5% | -10.3% | |||||||||||||
| Foreign currency exchange income (loss) | – | 114 | (114 | ) | 0.0% | 2.1% | ||||||||||||||
| Net Loss | (4,253 | ) | (6,765 | ) | 2,512 | -70.4% | -123.4% | |||||||||||||
| Net loss attributed to non-controlling interest | – | �� | (77 | ) | 77 | 0.0% | -1.4% | |||||||||||||
| Net Loss Attributable to Allied Esports Entertainment, Inc. | $ | (4,253 | ) | $ | (6,688 | ) | $ | 2,435 | -70.4% | -122.0% | ||||||||||
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Revenues
In-person revenues increased by approximately $385 thousand, or 17%, to approximately $2.6 million for the three months ended September 30, 2019 from approximately $2.2 million for the three months ended September 30, 2018. The increase in in-person revenues was driven by the Allied Esports business, particularly revenue generated from Allied Esports’ flagship HyperX Esports Arena Las Vegas, which opened its doors in March of 2018. Allied Esports’ revenues as a group increased by approximately $851 thousand for the three months ended September 30, 2019 compared to the same period in 2018. This was largely a result of an increase in revenues at Allied Esports’ Las Vegas arena, which had one more major event in the 2019 period as compared to the 2018 period, and gaming truck events. WPT casino revenue decreased approximately $467 thousand for the three months ended September 30, 2019 compared to the same period in 2018 as the timing of events was not consistent between periods.
Multiplatform content revenues increased by approximately $81 thousand, or 9%, to approximately $1.0 million for the three months ended September 30, 2019 from approximately $0.9 million for the three months ended September 30, 2018. The increase in multiplatform content revenues all relate to the WPT business with increased sponsorship revenue of $224 thousand being the greatest contributor. Offsetting the increase in sponsorship revenue, music royalty revenue decreased by $139 thousand.
Interactive revenues increased by approximately $95 thousand, or 4%, to approximately $2.4 million for the three months ended September 30, 2019 from approximately $2.3 million for the three months ended September 30, 2018. The increase in interactive revenues all related to the WPT business. Increases in product licensing revenue ($17 thousand), social gaming revenue ($152 thousand) and subscription revenue ($41 thousand) were the primary drivers for the increase. WPT managed PlayWPT in-house in 2018, but subsequently licensed out the product resulting in a $158 thousand decrease in the 2019 period as compared to the 2018 period.
Costs and expenses
In-person costs (exclusive of depreciation and amortization) increased by approximately $221 thousand, or 23%, to approximately $1.2 million for the three months ended September 30, 2019 from approximately $1.0 million for the three months ended September 30, 2018. The increase in in-person costs was due to an increase in cost of events during the period.
Multiplatform content costs (exclusive of depreciation and amortization) decreased by approximately $73 thousand, or 8%, to approximately $0.8 million for the three months ended September 30, 2019 from approximately $0.9 million for the three months ended September 30, 2018, primarily due to a decrease in commissions.
Interactive costs (exclusive of depreciation and amortization) decreased by approximately $44 thousand, or 7%, to approximately $0.6 million for the three months ended September 30, 2019 from approximately $0.6 million for the three months ended September 30, 2018. The decrease in interactive costs related to a decrease of $68 thousand in subscription costs when compared to the same period in 2018.
Online operating expenses increased by approximately $43 thousand, or 33%, to approximately $0.2 million for the three months ended September 30, 2019 from approximately $0.1 million for the three months ended September 30, 2018.
Selling and marketing expenses increased by approximately $0.4 million, or 133%, to approximately $0.7 million for the three months ended September 30, 2019 from approximately $0.3 million for the three months ended September 30, 2018. The increase in selling and marketing expenses was partially related to an increase in Allied Esports’ advertising and promotion expense of approximately $251 thousand primarily pertaining to the promotions for Allied Esports’ flagship arena in Las Vegas. WPT had increases in event costs of approximately $152 thousand primarily related to the new Party Poker Live events that were not held in the three months ended September 30, 2018.
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General and administrative expenses increased by approximately $0.8 million, or 22%, to approximately $4.7 million for the three months ended September 30, 2019 from approximately $3.9 million for the three months ended September 30, 2018. The increase in general and administrative costs primarily related to increased accounting, legal, and consulting fees with increased activity resulting from the costs of being a public company and preparing filings.
Depreciation and amortization decreased by approximately $177 thousand, or 9%, to approximately $1.7 million for the three months ended September 30, 2019 from approximately $1.9 million for the three months ended September 30, 2018. WPT depreciation and amortization decreased by $464 thousand for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to assets becoming fully depreciated and amortized. Offsetting the decrease in WPT depreciation and amortization, Allied Esports had increased depreciation of $288 thousand related to the Las Vegas arena and truck assets being depreciated for a full year in 2019.
Impairment of investment in Esports Arena LLC (“ESA”) was approximately $3.3 million for the three months ended September 30, 2018 while there was no impairment recorded for the three months ended September 30, 2019. The losses were the result of the derecognition and disposal of the assets, liabilities and equity of an investment made in 2018 by Allied Esports for which Allied Esports conveyed a portion of its membership interests to the former non-controlling interest members in order to reduce its ongoing contribution requirements, thus reducing its membership interest to non-voting 25% equity interest.
Interest expense
Interest expense was approximately $0.5 million and approximately $0.6 million for the three months ended September 30, 2019 and 2018, respectively. The 2019 interest related to $14 million of convertible debt, $10 million of which was assumed in the Merger on August 9, 2019 and $4 million of which was incurred in May 2019. All of the interest in the 2018 period was related to loans to Allied Esports from its parent company, Ourgame International Holdings, Limited (“Ourgame”), and/or affiliates to fund operating and capital costs. The loans from Ourgame were converted to equity in November 2018.
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Results of Operations for the Nine Months Ended September 30, 2019 and 2018
| For the | Percentage of Revenue | |||||||||||||||||||
| Nine Months Ended | Increase | Nine Months Ended | ||||||||||||||||||
| September 30 | (Decrease) | September 30, | ||||||||||||||||||
| In thousands, except for percentage of revenue data | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| In-person | $ | 8,888 | $ | 6,068 | $ | 2,820 | 45.3% | 39.9% | ||||||||||||
| Multiplatform content | 3,540 | 2,121 | 1,419 | 18.0% | 14.0% | |||||||||||||||
| Interactive | 7,187 | 7,010 | 177 | 36.7% | 46.1% | |||||||||||||||
| Total Revenues | 19,615 | 15,199 | 4,416 | 100.0% | 100.0% | |||||||||||||||
| Costs and expenses | ||||||||||||||||||||
| In-person (exclusive of depreciation and amortization) | 2,901 | 3,993 | (1,092 | ) | 14.8% | 26.3% | ||||||||||||||
| Multiplatform content (exclusive of depreciation and amortization) | 2,908 | 2,034 | 874 | 14.8% | 13.4% | |||||||||||||||
| Interactive (exclusive of depreciation and amortization) | 1,975 | 1,903 | 72 | 10.1% | 12.5% | |||||||||||||||
| Online operating expenses | 489 | 1,542 | (1,053 | ) | 2.5% | 10.1% | ||||||||||||||
| Selling and marketing expenses | 2,645 | 3,143 | (498 | ) | 13.5% | 20.7% | ||||||||||||||
| General and administrative expenses | 13,378 | 12,365 | 1,013 | 68.2% | 81.4% | |||||||||||||||
| Depreciation and amortization | 5,134 | 5,229 | (95 | ) | 26.2% | 34.4% | ||||||||||||||
| Impairment expense | 600 | 7,590 | (6,990 | ) | 3.1% | 49.9% | ||||||||||||||
| Total Costs and Expenses | 30,030 | 37,799 | (7,769 | ) | ||||||||||||||||
| Loss From Operations | (10,415 | ) | (22,600 | ) | 12,185 | -53.1% | -148.7% | |||||||||||||
| Other income | 16 | 115 | (99 | ) | 0.1% | 0.8% | ||||||||||||||
| Interest expense | (519 | ) | (1,878 | ) | 1,359 | -2.6% | -12.4% | |||||||||||||
| Foreign currency exchange income (loss) | – | (15 | ) | 15 | 0.0% | -0.1% | ||||||||||||||
| Net Loss | (10,918 | ) | (24,378 | ) | 13,460 | -55.7% | -160.4% | |||||||||||||
| Net loss attributed to non-controlling interest | – | (404 | ) | 404 | 0.0% | -2.7% | ||||||||||||||
| Net Loss Attributable to Allied Esports Entertainment, Inc. | $ | (10,918 | ) | $ | (23,974 | ) | $ | 13,056 | -55.7% | -157.7% | ||||||||||
Revenues
In-person revenues increased by approximately $2.8 million, or 46%, to approximately $8.9 million for the nine months ended September 30, 2019 from approximately $6.1 million for the nine months ended September 30, 2018. The increase in in-person revenues was driven by the Allied Esports’ business, particularly revenue generated from Allied Esports’ flagship HyperX Esports Arena Las Vegas, which opened its doors in March of 2018. Allied Esports’ revenues as a group increased by approximately $2.7 million for the nine months ended September 30, 2019 compared to the same period in 2018. This was largely a result of an increase in revenues at Allied Esports’ Las Vegas Arena, with 15 events held in 2019 and five events in 2018 and gaming truck events. WPT casino revenue increased approximately $79 thousand for the nine months ended September 30, 2019 compared to the same period in 2018.
Multiplatform content revenues increased by approximately $1.4 million, or 67%, to approximately $3.5 million for the nine months ended September 30, 2019 from approximately $2.1 million for the nine months ended September 30, 2018. The increase in multiplatform content revenues related to the WPT business with increases in distribution revenue ($552 thousand) due to an increase in distribution channels, sponsorship revenue ($476 thousand) due to the PartyPoker Live sponsorship deal and music revenue ($406 thousand) offset by a decrease in online advertising revenue of $15 thousand.
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Interactive revenues increased by approximately $177 thousand, or 3%, to approximately $7.2 million for the nine months ended September 30, 2019 from approximately $7.0 million for the nine months ended September 30, 2018. The increase in interactive revenues related to the WPT business and primarily pertained to increases in 3rd party virtual products revenue of approximately ($301 thousand) and product licensing revenue ($148 thousand). WPT managed PlayWPT in-house in 2018, but subsequently licensed out the product resulting in a $265 thousand decrease in the 2019 period as compared to the 2018 period.
Costs and expenses
In-person costs (exclusive of depreciation and amortization) decreased by approximately $1.1 million, or 27%, to approximately $2.9 million for the nine months ended September 30, 2019 from approximately $4.0 million for the nine months ended September 30, 2018. The decrease in in-person costs was due to the reduction in expenses related to the Esports Arenas Santa Ana and Oakland which are not consolidated in the nine months ended September 30, 2019 due to the reduction in ownership. In-person costs of approximately $1.3 million were recorded related to the Esports Arenas in Santa Ana and Oakland during the nine-months ended September 30, 2018. Due to the deconsolidation of ESA, there were no costs included for these arenas during the nine months ended September 30, 2019.
Multiplatform content costs (exclusive of depreciation and amortization) increased by approximately $0.9 million, or 43%, to approximately $2.9 million for the nine months ended September 30, 2019 from approximately $2.0 million for the nine months ended September 30, 2018. The increase in multiplatform content costs was primarily due to an increase in production costs.
Interactive costs (exclusive of depreciation and amortization) increased by approximately $72 thousand, or 4%, to approximately $2.0 million for the nine months ended September 30, 2019 from approximately $1.9 million for the nine months ended September 30, 2018. The increase in interactive costs related to an increase in revenue share cost of $133 thousand in 2019 as compared to 2018 for WPT. There was also an increase in revenue share costs of $96 thousand for the new social product. Offsetting the increases was a decrease of $40 thousand in prize pool over the same period in 2018, lower processing fees of $87 thousand and fewer chargebacks of $21 thousand.
Online operating expenses decreased by approximately $1.0 million, or 68%, to approximately $0.5 million for the nine months ended September 30, 2019 from approximately $1.5 million for the nine months ended September 30, 2018, primarily due to a decrease in development and hosting for the PlayWPT platform which is now operated by a third party.
Selling and marketing expenses decreased by approximately $0.5 million, or 16%, to approximately $2.6 million for the nine months ended September 30, 2019 from approximately $3.1 million for the nine months ended September 30, 2018. The decrease in selling and marketing expenses related to a decrease in Allied Esports’ advertising and promotion expense of approximately $242 thousand primarily pertaining to the grand opening of Allied Esports’ flagship arena in Las Vegas in early 2018. WPT had decreases in selling and marketing costs of totaling approximately $260 thousand including $81 thousand in decreased advertising, a $129 thousand decrease in agency and other promotional activities, a $212 thousand decrease in content related marketing, which was offset by a $159 thousand increase in the costs incurred at events.
General and administrative expenses increased by approximately $1.0 million, or 8%, to approximately $13.4 million for the nine months ended September 30, 2019 from approximately $12.4 million for the nine months ended September 30, 2018. The increase in general and administrative expenses related primarily to the WPT business increase in general and administrative costs of approximately $2.0 million largely due to a credit of $0.8 million in 2018 resulting from a change in control ifincentive structures. WPT also incurred an increase of $527 thousand in audit and legal and consulting costs primarily in preparation for the Merger. WPT also incurred $241 thousand of additional rent relating to the new Irvine lease. Allied Esports’ general and administrative expenses decreased by $1.6 million due to a substantial numberreduction in overall general corporate expenses that were related to the exclusion of our shares of common stock are issued, which may affect, among other things, our abilityEsports Arenas Santa Ana and Oakland expenses due to use our net operating loss carry forwards, if any, and most likely will also resultdeconsolidation in the resignationnine months ended September 30, 2019 and grand opening of the Las Vegas arena in 2018. Allied Esports also incurred an increase of $587 thousand in audit and legal and consulting costs primarily in preparation for the Merger. Additional increases of $474 thousand at the corporate level including management fees of $153 thousand paid to Black Ridge Oil & Gas, Inc. (“Black Ridge”), the Company’s prior sponsor per a management fee contract that runs through December of 2019 and legal fees of $165 thousand related to the Merger and subsequent filings.
Depreciation and amortization decreased by approximately $0.1 million, or removal2%, to approximately $5.1 million for the nine months ended September 30, 2019 from approximately $5.2 million for the nine months ended September 30, 2018. Decreases in depreciation of our present officersfixed assets and directors; and
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Similarly, if we issue debt securities, it could
Impairment of investment in ESA was approximately $0.6 million for the nine months ended September 30, 2019 and $7.6 million for the nine months ended September 30, 2018. The losses were the result in:of the derecognition and disposal of the assets, liabilities and equity of an investment made in 2018 by Allied Esports for which Allied Esports conveyed a portion of its membership interests to the former non-controlling interest members in order to reduce its ongoing contribution requirements, thus reducing its membership interest to a non-voting 25% equity interest.
Interest expense
Interest expense was approximately $0.5 million and foreclosureapproximately $1.9 million for the nine months ended September 30, 2019 and 2018, respectively. The 2019 interest relates to $14 million of convertible debt, $10 million of which was assumed in the Merger on our assets if ourAugust 9, 2019, and $4 million of which was incurred in May 2019 including amortized discount. All of the interest in the 2018 period was related to loans to Allied Esports from Ourgame and/or affiliates to fund operating revenues after a business combination are insufficientand capital costs. The loans from Ourgame were converted to pay our debt obligations;
Year Ended December 31, 2018 Compared to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of that covenant;
| Percentage of revenue | ||||||||||||||||||||
| Year Ended December 31, | Increase (Decrease) | Year Ended December 31, | ||||||||||||||||||
| In thousands except percentage of revenue data | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Multiplatform content | $ | 2,997 | $ | 1,441 | $ | 1,556 | 14.5% | 10.5% | ||||||||||||
| Interactive | 9,175 | 7,792 | 1,383 | 44.5% | 57.0% | |||||||||||||||
| In-person experiences | 8,431 | 4,440 | 3,991 | 40.9% | 32.5% | |||||||||||||||
| Total revenues | 20,603 | 13,673 | 6,930 | 100.0% | 100.0% | |||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Multiplatform (exclusive of depreciation and amortization) | 2,297 | 7,880 | (5,583 | ) | 11.1% | 57.6% | ||||||||||||||
| Interactive (exclusive of depreciation and amortization) | 2,474 | 2,689 | (215 | ) | 12.0% | 19.7% | ||||||||||||||
| In-person (exclusive of depreciation and amortization) | 2,554 | 969 | 1,585 | 12.4% | 7.1% | |||||||||||||||
| Online operating expenses | 2,245 | 1,744 | 501 | 10.9% | 12.8% | |||||||||||||||
| Selling and marketing expenses | 4,023 | 3,384 | 639 | 19.5% | 24.7% | |||||||||||||||
| General and administrative expenses | 18,442 | 10,341 | 8,101 | 89.5% | 75.6% | |||||||||||||||
| Depreciation and amortization | 6,711 | 4,207 | 2,504 | 32.6% | 30.8% | |||||||||||||||
| Impairment of investment in ESA | 9,683 | – | 9,683 | 47.0% | 0.0% | |||||||||||||||
| Impairment of deferred production costs and intangible assets | 1,005 | – | 1,005 | 4.9% | 0.0% | |||||||||||||||
| Loss from operations | (28,831 | ) | (17,541 | ) | (11,290 | ) | -139.9% | -128.3% | ||||||||||||
| Interest expense, net | (2,117 | ) | (540 | ) | (1,577 | ) | -10.3% | -3.9% | ||||||||||||
| Other income | (72 | ) | (6 | ) | (66 | ) | -0.3% | 0.0% | ||||||||||||
| Net loss | (31,020 | ) | (18,087 | ) | (12,933 | ) | -150.6% | -132.3% | ||||||||||||
| Net loss attributed to non-controlling interest | 404 | – | 404 | 2.0% | 0.0% | |||||||||||||||
| Net loss attributed to Parent | $ | (30,616 | ) | $ | (18,087 | ) | $ | (12,529 | ) | -148.6% | -132.3% | |||||||||
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We have neither engagedRevenues
Multiplatform content revenues increased by approximately $1.6 million, or 108%, to approximately $3.0 million for the year ended December 31, 2018 from approximately $1.4 million for the year ended December 31, 2017. The increase in any operations nor generated anymultiplatform content revenues related to date. Our entire activity since inception has been to prepare for our proposed fundraising through an offeringthe WPT business with increases in distribution revenue of our equity securities.approximately $0.7 million, sponsorship revenue of approximately $0.2 million, television sponsorship revenue of approximately $0.5 million and approximately $0.2 million of music revenue.
We areInteractive revenues increased by approximately $1.4 million, or 18%, to approximately $9.2 million for the year ended December 31, 2018 from approximately $7.8 million for the year ended December 31, 2017. The increase in interactive revenues related to the WPT business and an emerging growth companyincrease in licensing revenue for virtual products.
In-person experience revenues increased by approximately $4.0 million, or 90%, to approximately $8.4 million for the year ended December 31, 2018 from approximately $4.4 million for the year ended December 31, 2017. The increase in in-person experience revenues was driven by revenue from Allied Esports, particularly revenue generated from Allied Esports’ flagship Esports Arena Las Vegas, which opened its doors in March of 2018. Allied Esports’ revenues increased approximately $4.2 million when comparing the year ended December 31, 2018 to the same period in 2017, of which approximately $2.8 million was generated by Esports Arena Las Vegas, approximately $0.9 million was from the two Esports affiliates in Santa Ana and Oakland prior to their deconsolidation on August 1, 2018, approximately $0.4 million was generated by the U. S. mobile arena truck purchased in January of 2018 and approximately $0.4 million was generated from increased revenues for the European mobile arena truck.
Costs and expenses
Multiplatform costs (exclusive of depreciation and amortization) decreased by approximately $5.6 million, or 71%, to approximately $2.3 million for the year ended December 31, 2018 from approximately $7.9 million for the year ended December 31, 2017. The decrease in multiplatform costs was due to the write-off in 2017 of approximately $3.7 million of production costs as defineddeferred production costs were in excess of forecast revenues.
Interactive costs (exclusive of depreciation and amortization) decreased by approximately $0.2 million, or 8%, to approximately $2.5 million for the year ended December 31, 2018 from approximately $2.7 million for the year ended December 31, 2017. The decrease in interactive costs largely related to lower processing fees in 2018 as compared to 2017 due to the mix of vendors.
In-person costs (exclusive of depreciation and amortization) increased by approximately $1.6 million, or 164%, to approximately $2.5 million for the year ended December 31, 2018 from approximately $1.0 million in for the year ended December 31, 2017. The increase in in-person costs related to increased activity due to the opening of the Las Vegas flagship arena in March of 2018.
Online operating expenses increased by approximately $0.5 million, or 29%, to approximately $2.2 million for the year ended December 31, 2018 from approximately $1.7 for the year ended December 31, 2017. The increase in online expenses related to an increase in hosting fees for the WPT platform.
Selling and marketing expenses increased by approximately $0.6 million, or 19%, to approximately $4.0 million for the year ended December 31, 2018 from approximately $3.4 million for the year ended December 31, 2017. The increase in selling and marketing expenses related to an increase in Allied Esports’ advertising and promotion expense of approximately $1.0 million primarily pertaining to the grand opening of Allied Esports’ flagship arena in Las Vegas, offset in part by a decrease in advertising costs of approximately $0.2 million for the ClubWPT and PlayWPT products.
General and administrative expenses increased by approximately $8.1 million, or 78%, to approximately $18.4 million for the year ended December 31, 2018 from approximately $10.3 million for the year ended December 31, 2017. The increase in general and administrative expenses related primarily to increased general and administrative expenses of approximately $9.8 million at Allied Esports as it accelerated its activities with the opening of the Esports Arena Las Vegas and the U. S. mobile arena truck, and was comprised primarily of payroll and related costs, travel and professional services. Offsetting the increase at Allied Esports, the WPT business had decreased general and administrative expenses of approximately $1.7 million largely due to a $1.2 million decrease in stock-based payments as a change in incentive structures and $0.4 million in decreased legal costs and other associated costs due to a 2017 restructuring of WPT.
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Depreciation and amortization increased by approximately $2.5 million, or 60%, to approximately $6.7 million for the year ended December 31, 2018 from approximately $4.2 million for the year ended December 31, 2017. The increase in depreciation and amortization relates to increased depreciation for Allied Esports’ flagship arena in Las Vegas which was put into service in March of 2018, as well as the U. S. mobile arena truck purchased in January 2018.
Impairment of investment in ESA was approximately $9.7 million for the year ended December 31, 2018. There was no similar loss on deconsolidation in the JOBS Act. As2017 comparative period. The 2018 loss was the result of the impairment, derecognition and disposal of the assets, liabilities and equity of an emerging growth company, we have electedinvestment made earlier in 2018 by Allied Esports for which Allied Esports conveyed a portion of its membership interests to delay the adoptionformer non-controlling interest members in order to reduce its ongoing contribution requirements, thus reducing its membership interest to 25 percent.
Impairment of new or revised accounting standardsdeferred production costs and intangible assets was approximately $1.0 million in 2018. Management determined that have different effective dates for publicthe projected cash flows from certain deferred production costs and private companies until those standards apply to private companies. As such, our financial statements mayintellectual property would not be sufficient to recover the carrying value of those assets. There was no comparable to companies that comply with public company effective dates.loss in 2017.
Interest expense, net
Interest expense, net, was approximately $2.1 million and approximately $0.5 million for the year ended December 31, 2018 and 2017, respectively. Of the interest expense, approximately $2.0 million in the 2018 period and all of the interest in the 2017 period was related to loans to Allied Esports from its parent company and/or affiliates to fund operating and capital costs. The increase in interest expense was due to the increases in the balance of the note payable to Parent as advances continued to be made throughout the last quarter of 2017 and the year ended December 31, 2018. The remaining interest expense in 2018 related to a $5.0 million line of credit entered into by Allied Esports in May 2018, which was repaid in October 2018.
Net loss attributable to non-controlling interest
Net loss attributable to non-controlling interest was approximately $0.4 million for the year ended December 31, 2018. This was due to attributing the non-controlling share of losses to minority shareholders from January through July 31, 2018 while Allied Esports was the majority shareholder in ESA. There were no similar attributions of losses or net income in the 2017 comparative period.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at September 30, 2019 and December 31, 2018, respectively.
| September 30, 2019 | December 31, 2018 | |||||||
| (In thousands) | ||||||||
| Current Assets | $ | 18,458 | $ | 12,716 | ||||
| Current Liabilities | $ | 23,144 | $ | 39,842 | ||||
| Working Capital Deficit | $ | (4,686 | ) | $ | (27,126 | ) | ||
The Company’s primary sources of liquidity and capital resources are cash on the balance sheet and funds raised through debt or equity financing.
As indicated in the accompanying financial statements, at May 31, 2017,of September 30, 2019, we had $87,500 in cash and a working capital deficiencydeficit of $37,823. Further,approximately $9.4 million (not including approximately $5.0 million of restricted cash) and $4.7 million, respectively. For the nine months ended September 30, 2019 and 2018, we have incurred net losses of approximately $10.9 million and expect to continue to incur significant costs$24.4 million, respectively, and used cash in pursuitoperations of our financingapproximately $7.8 million and acquisition plans. Management’s plans to address this uncertainty through this offering are discussed above. We cannot assure you that our plans to raise capital or to consummate an initial business combination will be successful. These$11.2 million, respectively. The aforementioned factors among others, raise substantial doubt about our ability to continue as a going concern.concern within one year after the issuance date of our condensed consolidated financial statements.
Our liquidity needs have been satisfied
The Company’s continuation is dependent upon attaining and maintaining profitable operations and the ability to date through receipt of $25,000generate positive cash flow from the salevarious revenue sources it is pursuing. Until that time, we will likely need to raise additional capital to fund operations at adequate levels to achieve our objectives. There can be no assurance that we will be able to close on sufficient financing to meet our needs. To date, in addition to our revenues, our operations have relied heavily on investment from Ourgame by means of operation support and through the issuance of debt.
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We continue to pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, debt financing or other means, including equity financing in the capital markets now available to us. We may also seek to leverage our strategic partnerships to alter capital requirements or expand our available financing network. However, we may not be successful in identifying suitable or reasonably priced funding and/or alternative funding options in a sufficient time period or at all. If we are unable to obtain the requisite amount of financing needed to fund its planned operations, it would have a material adverse effect on our business and ability to continue as a going concern, and we may have to curtail, divest, or even cease, certain operations.
Convertible Debt
On May 15, 2019, Noble Link issued a series of secured convertible promissory notes (the “Notes”) whereby investors provided Noble Link with $4 million to be used for the operations of the founders’Company. The Notes, which were amended as set forth below, accrue annual interest at 12%, provided that no interest is payable in the event the Notes are converted into common stock as described below. The Notes are due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) the date on which a demand for payment is made during the time period beginning on the Closing Date of the Merger and the date that is three (3) months after the Closing Date of the Merger (during which time the investors could also elect to convert their respective Notes into shares of common stock at $8.50 per share). If the Notes were paid by the Company, the investor would have received one year of interest. As security for purchasing the Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT, and a loan fromguarantee of Ourgame and the Company.
Pursuant to the Merger Agreement, on the Closing Date, in addition to the $4 million of Notes, the Company also assumed $10 million of the convertible debt obligations of Ourgame (together with the Notes, the “Bridge Notes”), such that the aggregate indebtedness of the Company pursuant to the Bridge Notes is $14 million. The Bridge Notes bear interest at 12% per annum. Pursuant to the Amendment and Acknowledgement Agreement discussed below, the Bridge Notes are secured by all property and assets owned by AESE and its subsidiaries.
On August 5, 2019, the Company entered into an Amendment and Acknowledgement Agreement (the “Acknowledgement Agreement”) pursuant to which the parties amended the terms of the Bridge Notes. Pursuant to the Acknowledgement Agreement, the Bridge Note holders (the “Holders”) have agreed to defer repayment of the Bridge Notes to August 23, 2020 (the “Maturity Date”). In consideration of agreeing to the deferred repayment, the Holders will be paid the higher of (i) 18 months of interest, or (ii) the amount the applicable Holder would have received in interest under their particular Bridge Note plus an additional six months of interest, solely to the extent any Holder elects not to convert their Bridge Note into our common stock. Black Ridge, the Company’s prior sponsor, has also agreed that it will not make any further transfer of its initial shares, subject to certain exceptions, until the Bridge Notes are repaid. The Bridge Notes are convertible at any time by any Holder until the Maturity Date, into common shares that are freely tradable without restriction, at $8.50 per share.
At the Closing, each Holder received a five-year warrant to purchase shares of common stock in an aggregate amount equal to the product of $125,000(i) 3,800,000 shares, multiplied by (ii) the Holder’s investment amount, divided by (iii) $100,000,000. The warrants became exercisable as of September 9, 2019 at an exercise price of $11.50 per share.
If any Holder elects to convert their Bridge Note into common stock, they would be entitled to receive additional shares of common stock equal to the product of (i) 3,846,153 shares, multiplied by (ii) that is more fully described below. We estimate thatHolder’s investment amount, divided by (iii) $100,000,000, if at any time within five years after the Closing Date, the last exchange-reported sale price of common stock trades at or above $13.00 for thirty (30) consecutive calendar days.
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Cash Flows from Operating, Investing and Financing Activities
The tables below summarize cash flows for the nine months ended September 30, 2019 and 2018, and the years ended December 31, 2018 and 2017.
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| In thousands | 2019 | 2018 | 2018 | 2017 | ||||||||||||
| Net cash provided by (used in): | ||||||||||||||||
| Operating activities | $ | (7,751 | ) | $ | (11,232 | ) | $ | (14,612 | ) | $ | (10,759 | ) | ||||
| Investing activities | 7,930 | (22,725 | ) | (23,072 | ) | (6,133 | ) | |||||||||
| Financing activities | 3,653 | 30,444 | 34,295 | 27,974 | ||||||||||||
Net Cash Used in Operating Activities
Net cash used in operating activities primarily represents the results of operations exclusive of non-cash expenses, including depreciation, amortization, losses on disposal of assets, stock-based compensation and the impact of changes in operating assets and liabilities.
Net cash used in operating activities for the nine months ended September 30, 2019 and 2018 was approximately $7.8 million and $11.2 million, representing a decrease of $3.4 million. During the nine months ended September 30, 2019 and 2018, the net proceedscash used in operating activities was primarily attributable to the net loss of approximately $10.9 million and $24.4 million, respectively, adjusted for approximately $6.1 million and $14.6 million, respectively, of net non-cash expenses, and approximately $2.9 million and $1.3 million, respectively, of cash used by changes in the levels of operating assets and liabilities. The reduction in net loss was driven by increased sales, primarily from (i) the sale of the unitsincreased in-person revenues generated from Allied Esports’ Las Vegas arena as well as an increase in this offering, after deducting offeringtruck revenue and events revenue and a reduction in impairment expenses of approximately $500,000$7.0 million.
Net cash used in operating activities for the year ended December 31, 2018 was approximately $14.6 million as compared to approximately $10.8 million for the year ended December 31, 2017, an increase of approximately $3.8 million. The primary driver for the increase in cash used in operating activities was the increase in general and underwriting discountsadministrative expenses and commissions of $2.0selling and marketing expenses which together represent an approximately $8.7 million (or $2.3 million ifincrease and resulted primarily from the over-allotment option is exercised in full) and (ii) the salegrowth of the private unitsoperations of Allied, which was formed in 2016 and experienced an increase in activity with the construction and completion of its Las Vegas arena in 2018.
Net Cash Provided By (Used in) Investing Activities
Net cash used in investing activities primarily relates to the purchase of property and equipment and other investment activity.
Net cash provided by investing activities for the nine months ended September 30, 2019 was approximately $7.9 million as compared to net cash used in investing activities of approximately $22.7 million for the nine months ended September 30, 2018, a purchase pricedifference of approximately $30.6 million. In the 2019 period, the Company acquired net cash of approximately $14.9 million as a result of the Merger. Aside from the cash acquired in the Merger, the Company used $7.0 million and $22.7 million in investing activities. The primary driver for the decrease in cash used for investing activities was purchases of property and equipment that decreased from $16.8 million in 2018 to $2.2 million in 2019 as the construction and completion of Allied Esports’ Las Vegas arena occurred in 2018. Additionally, the Company’s investment in ESA dropped from $5.9 million in 2018 to $1.2 million in 2019. In 2019, the Company invested $3.5 million (or $3.875 million if the over-allotment option is exercised in full)with TV Azteca as part of a Strategic Investment Agreement, which will be $101.0used for various strategic initiatives aimed to expand the Allied Esports brand into Mexico.
Net cash used in investing activities for the year ended December 31, 2018 was approximately $23.1 million (or $116.075as compared to approximately $6.1 million iffor the over-allotment option is exercisedyear ended December 31, 2017, an increase of approximately $17.0 million. The primary driver for the increase in full). Of this amount, $100.5 million (or $115.575 million ifcash used in investing activities was the over-allotment option is exercisedconstruction and completion of Allied Esports’ Las Vegas arena in full) will be held in the trust account. The remaining $500,000 will not be held in trust.2018.
We may use substantially allNet Cash Provided by Financing Activities
Net cash provided by financing activities primarily relates to the proceeds from cash infusions from Ourgame in the form of notes or intercompany payables and the issuance of Allied Esports’ line of credit in 2018 and the issuance of convertible notes in 2019.
Net cash provided by financing activities for the nine months ended September 30, 2019 was approximately $3.7 million as compared to approximately $30.4 million for the nine months ended September 30, 2018, a net decrease of approximately $26.7 million. The primary driver for the decrease was a net decrease in cash infusions from the Company’s former parent, Ourgame, from $25.4 million in cash received in 2018 as compared $0.3 million of cash repaid to Ourgame in 2019. In the 2019 period, the Company raised cash through the issuance of $4.0 million of convertible debt. The cash infusions in the nine months ended September 30, 2018 were primarily used for the construction and completion of Allied Esports’ Las Vegas arena.
Net cash provided by financing activities for the year ended December 31, 2018 was approximately $34.3 million as compared to approximately $28.0 million for the year ended December 31, 2017, an increase of approximately $6.3 million. The primary driver for the increase was cash infusions of approximately $34.3 million from Ourgame in the year ended December 31, 2018 as compared to approximately $28.0 million in the comparable 2017 period. Proceeds of approximately $5.0 million from the issuance of an Allied Esports’ line of credit were received in 2018 and subsequently repaid in the same year.
Capital Expenditures
The Company will require continual investment to facilitate its growth plans. As a result, we plan to pivot our business goals to focus on expanding and strengthening our strategic partnerships and developing other potential avenues of business, which we are in the process of finalizing.
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
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company regularly evaluates estimates and judgments based on historical experience and other relevant facts and circumstances.
The Company discusses its significant estimates used in the preparation of the net proceeds of this offering, including the funds heldfinancial statements in the trust account,notes accompanying the financial statements. Listed below are the accounting policies the Company believes are critical to acquire a target business andits financial statements due to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital equal to 3.5%the degree of uncertainty regarding the estimates or assumptions involved.
Impairment of Long-Lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company measures the carrying amount of the gross proceeds raised in this offering (exclusive of any applicable finders’ fees which might become payable) upon consummation of our initial business combination for assisting us in connectionasset against the estimated undiscounted future cash flows associated with our initial business combination, as described underit. Should the section titled “Underwriting — Business Combination Marketing Agreement.” To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operationssum of the target business. Such working capital funds couldexpected future net cash flows be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.
We believe that, upon consummation of this offering, the approximate $500,000 of net proceeds not held in the trust account, will be sufficient to allow us to operate for at least the next 21 months, assuming that a business combination is not consummated during that time. Over this time period, we will be using these funds for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. We anticipate that we will incur approximately:
If our estimates of the costs of undertaking in-depth due diligence and negotiating an initial business combination is less than the actual amount necessary to do so, or we earn less interest on the funds held in the trust account than anticipated, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. We do not have a maximum debt leverage ratio or a policy with respect to how much debt we may incur. The amount of debt we will be willing to incur will depend on the facts and circumstancescarrying value of the proposed business combination and market conditions atasset being evaluated, an impairment loss would be recognized for the timeamount by which the carrying value of the potential business combination. At this time, we are not partyasset exceeds its fair value. The evaluation of asset impairment requires the Company to any arrangement or understanding with any third party with respect to raising additional funds throughmake assumptions about future cash flows over the sale of our securities or the incurrence of debt. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Related Party Transactions
Aslife of the date of this prospectus, our sponsor has loanedasset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. During the year ended December 31, 2018, the Company recorded an aggregate of $125,000$1,005,292 for impairment charges related to us, on a non-interest bearing basis, for paymentdeferred production costs and intangible assets and recorded an impairment charge of offering expenses on our behalf. The loan will be payable without interest on$9,683,158 related to its investment in ESA. During the earliernine months ended September 30, 2019, the Company recorded an impairment charge of $600,000 related to occur of June 1, 2018, the consummation of this offering, or the abandonment of this offering. If the offering is consummated, the loan will be repaid out of the proceeds of this offering not being placedits investment in trust.ESA.
We are obligated, commencing on the date of this prospectus, to pay our sponsor a monthly fee of $10,000 for general and administrative services.
Our sponsor has committed that it will purchase an aggregate of 350,000 private units at $10.00 per private unit (for a total purchase price of $3,500,000) from us. This purchase will take place on a private placement basis simultaneously with the consummation of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us an additional number of private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option.
We do not believe we will needDeferred Production Costs
Capitalized production costs represent the costs incurred to raise additional funds following this offering in order to meetdevelop and produce the expenditures required for operating our business. However, in order to finance transactionCompany’s proprietary shows. These costs primarily consist of labor, equipment, production overhead costs and travel expenses. Capitalized production costs are stated at the lower of cost, less accumulated amortization and tax credits, if applicable, or fair value. Production costs in connectionan amount up to the amount of ultimate revenue expected to be earned from the related production are capitalized in accordance with an intended initial business combination, our sponsor, officers, directors FASB ASC Topic 926-20-50-2 “Other Assets – Film Costs” and are amortized over the expected revenue period using a ratio of revenue earned during the period to estimated ultimate revenues for the related production. Costs incurred in excess of expected ultimate revenue are expensed as incurred and included in multi-platform content costs in the accompanying consolidated statements of operations. Unamortized capitalized production costs are evaluated for impairment at each reporting period on a season-by-season basis. If estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that season, the unamortized capitalized production costs will be written down to fair value.
Due to the inherent uncertainties involved in making such estimates of revenues and expenses, these estimates are likely to differ to some extent from actual results. The Company’s management regularly reviews and revises when necessary its revenue and cost estimates, which may result in a change in the rate of amortization of film costs, participations and residuals and/or their affiliates may, but are not obligated to, loan us funds as may be required. If we consummate an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may usewrite-down of all or a portion of the working capital held outsideunamortized deferred production costs to its estimated fair value.
Revenue Recognition
We recognize revenue from the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private units.following sources:
Controls and Procedures
| • | Multiplatform content revenue is comprised of distribution revenue, sponsorship revenue, music royalty revenue and online advertising revenue. | |
| • | Interactive revenue is primarily comprised of subscription revenue, licensing, social gaming and virtual product revenue. | |
| • | In-person revenue is comprised of event revenue, merchandising revenue and other revenue. |
We are not currently requiredevaluate each of our contractual arrangements to maintain an effective system of internal controlsidentify the performance obligations existing in the contract and allocate the transaction price to each separate performance obligation. Revenue is recognized as defined by Section 404each performance obligation is fulfilled. Cash received in advance of the Sarbanes-Oxley Act. Wesale or rendering of services is recorded as deferred revenue and is recognized when the related performance obligation has been satisfied.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application is permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The Company will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2018. As of the date of this prospectus, we have not completed an assessment, nor have our auditors tested our systems, of internal controls. We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance withadopt the provisions of the Sarbanes-Oxley Act regarding the adequacy of internalTopic 326 on January 1, 2023, with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The Company is currently evaluating Topic 326, including its potential impact to its process and controls. Target businesses we may consider for a business combination may have internal controls that need improvement in areas such as:
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expense in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management’s report on internal controls is complete, we will retain our independent auditors to audit and render an opinion on such report when required by Section 404. The independent auditors may identify additional issues concerning a target business’s internal controls while performing their audit of internal control over financial reporting.
Quantitative and Qualitative Disclosures about Market Risk
The net proceeds of this offering, including amounts in the trust account, will be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As of the date of this prospectus, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No unaudited quarterly operating data is included in this prospectus as we have conducted no operations to date.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2019. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In March 2019, the FASB issued ASU 2019-02, which aligns the accounting for production costs of episodic television series with the accounting for production costs of films. In addition, ASU 2019-02 modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements in Accounting Standards Codification (“ASC”) 926-20 and the impairment, presentation and disclosure requirements in ASC 920-350. This ASU 2019-02 must be adopted on a prospective basis and is effective for annual periods beginning after December 15, 2020, including interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact that this pronouncement will have on its consolidated financial statements.
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IntroductionGeneral
The Company operates a premier public esports and entertainment company, consisting of the Allied Esports and World Poker Tour businesses. For the past 16 years of its 18-year history, WPT’s business model has successfully utilized the following three pillars for its business model in the sport of poker, which the Company believes can be utilized by Allied Esports:
| • | in-person experiences; | |
| • | developing multiplatform content; and | |
| • | providing interactive services. |
The Company plans to continue operating the WPT business and to utilize its business model to execute on its growth strategy in the multibillion-dollar esports industry. Allied Esports will do this by collaborating with its strategic investors, including Brookfield Property Partners, a world premier real estate company, Simon, a global leader in the ownership of premier shopping, dining, entertainment, and mixed-use destinations, and TV Azteca, a premier television network in Mexico, to deliver best-in-class live events, content and online products.
The Allied Esports Business
Gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 2.2 billion gamers playing esports globally, and esports is the major driver of this growth. Esports, short for “electronic sports,” is a general label that comprises a diverse offering of competitive electronic games that gamers play against each other. Some of the popular esports games currently being played include Fortnite, League of Legends, Dota 2, Counter-Strike, Call of Duty, Overwatch and FIFA. Although you can play games on your own against the computer or console, one of the ways esports is different than the video games of old is the community and spectator nature of esports, whereby competitive play against another person—either one-on-one or in teams—that is viewed by an online and in-person audience, is a central feature of esports. Since players play against each other online, a global network of players and viewers has developed as these players compete against each other worldwide. Additionally, game developers have greatly increased the watchability of games, which has made the spectator aspect of gaming much more prevalent and further drives expansion of the gaming market. The expanded reach of high-speed Internet service and the computer technology advances in the last decade have also greatly accelerated the growth of esports. Esports has now become so popular that many schools offer scholarships in esports and the best-known esports teams are receiving mainstream sponsorships and are being bought or invested in by celebrities, athletes and professional sports teams. The highest profile esports gamers have significant online audiences as they stream themselves playing against other players online and potentially can generate millions of dollars in sponsorship money and subscription fees from their online streaming channels. It is projected that by 2022, 645 million people will be watching esports globally, and that global esports revenue will grow to approximately $1.8 billion.
WPT successfully implemented a three-pillar strategy for over 16 years of its 18-year history. We believe this model can continue and also be applied to Allied Esports and the esports industry over time. Allied Esports intends to use those same pillars—in-person experiences, multiplatform content, and interactive services—independently and in connection with its strategic partners.
In June 2019, Allied Esports entered into a series of strategic transactions with certain affiliates of Simon, pursuant to which Allied Esports will organize and stage an esports event program called the Simon Cup at certain Simon shopping centers in the U.S. and online. In June 2019, the Company also launched a strategic partnership with TV Azteca, a premier television network in Mexico. In January 2020, Allied Esports entered into a strategic partnership with Brookfield Property Partners, one of the world’s premier real estate companies, in which Allied Esports will develop integrated esports experience venues at mutually agreed upon shopping malls owned and/or operated by Brookfield or its affiliates that will include a dedicated gaming space and production capabilities to attract and to activate esports and other emerging live events. In connection with each of the foregoing partnerships, the Company’s partner made a $5 million equity investment into the Company.
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In-person Experiences
Allied Esports will continue delivering first-in-class live experiences to customers at Allied Esports’ branded properties worldwide. Starting with the flagship esports arena, the HyperX Esports Arena Las Vegas, the HyperX Esports Studio in Germany and its affiliate arenas in Santa Ana and Oakland, California, China and Australia (planned opening in 2020), Allied Esports offers 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, produce and distribute incredible esports content with its on-site production facilities and studios and provide an attractive facility for hosting corporate events, tournaments, game launches or other events. Additionally, Allied Esports has two mobile esports arenas, which are 18-wheel semi-trailers that convert into first class esports arenas and competition stages with full content production capabilities and interactive talent studios. Through this worldwide network of arenas, Allied Esports believes it can offer customers an unmatched ability to participate in simultaneous global esports events and offer sponsors and partners a truly scalable global platform and audience to promote their businesses and products. Allied Esports’ flagship HyperX Esports Arena Las Vegas serves as a marquee destination for esports fans globally, which it hopes will become the Madison Square Garden or Yankee Stadium of esports.
Flagship Arenas. In March 2018, Allied Esports opened its first flagship arena, the HyperX Esports Arena Las Vegas, at the Luxor Casino on the Vegas strip, whose pyramid is one of the most visible landmarks in Las Vegas. This arena has 80 to 100 gaming stations, two bars, food service, private rooms, a production facility, and space for up to 1,000 people for events. The arena is custom-built for esports tournaments and has a broadcast-ready television studio to broadcast live events and produce content. Allied Esports monetizes the arena through renting the space for live events; merchandise sales; daily usage fees from day-to-day gamers using the gaming stations; food and beverage; and sponsorship (i.e., our HyperX naming rights relationship). Through the third quarter of 2019, the HyperX Esports Arena Las Vegas has held the following events:
Proprietary events by Allied Esports:
| • | Allied Esports CES Showdown | |
| • | Day One: The Division 2 | |
| • | PlayTime with KittyPlays 2 | |
| • | PlayTime with KittyPlays I | |
| • | Nation Vs. Nation: USA vs. Mexico – English Broadcast | |
| • | Allied Esports Rainbow Six Siege Vegas Minor | |
| • | World Poker Tour | |
| • | Glory Road: MKLeo vs. Samsora | |
| • | Tuesday Faceoffs (Weekly) | |
| • | Wednesday Whiffs | |
| • | Apex Legends Game Night (Weekly) | |
| • | Arena Showcase (Weekly) | |
| • | Friday Frags (Weekly) | |
| • | Saturday Night Speedway (Weekly) | |
| • | UNLV Night (Monthly) |
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Other events hosted by Allied Esports:
| • | Nintendo Super Smash Bros Ultimate North America Open – Online Broadcast | |
| • | Military Gaming League | |
| • | Drone Racing League | |
| • | World Poker Tour | |
| • | Sony NAB Keynote Address Remote Integration Demonstration | |
| • | BIG3 Draft for CBS Sports Network | |
| • | NBA 2K League “THE TURN” | |
| • | Dragon Ball Legends Showdown | |
| • | NHL Gaming World Championship | |
| • | Newegg Crown Royale | |
| • | Twitch Prime Crown Cup | |
| • | Red Bull Evo After Party | |
| • | Newegg FragFest | |
| • | HyperX Kickoff to WoW Classic | |
| • | Esports Business Summit Tempest Awards |
Affiliate Arenas. One of Allied Esports’ strategic advantages is its global network of esports arena partners, which enables it to host events and promote competitions around the world, with those competitions culminating in live events held at the flagship arena in Las Vegas. Allied Esports achieves this through its Affiliate Program, which consists of strategic partnerships with third-party esports operators around the globe. Allied Esports generally charges these affiliates an upfront fee and a minimal annual revenue share of gross revenue, starting in the second year of the operation of the venue. Allied Esports’ brand visibility and reputation have already resulted in affiliate arrangements with arenas in California, China and a multi-year agreement with Fortress Esports Pty Ltd, a new gaming, esports and entertainment venue enterprise in Australia, which plans to open its first affiliate arena in Melbourne in 2020. This network of affiliate arenas allows Allied Esports to scale its brand penetration worldwide on a rapid basis, driving more gamers into the Allied Esports ecosystem, with minimal costs to Allied Esports. Furthermore, the content that can be produced by these affiliate arenas can be on-sold by Allied Esports, with minimal production costs.
Mobile Arenas. The mobile arenas are 18-wheeler trucks that expand out into fully functional esports arenas with event hosting, broadcasting and production capabilities. The mobility of the trucks makes them ideal for sponsors to reach a large audience in multiple locations at an economical cost. The trucks serve as mobile billboards for potential third-party sponsorship, as well as the Allied Esports’ brand, providing highly visible brand presence wherever they appear. Allied Esports currently has two mobile arena trucks, with the first truck based in Germany and serving the European market, and a second truck based in Las Vegas and serving the U.S. market.
Strategic Investor Events. In addition to Allied Esports utilizing in-person experiences at its flagship, mobile and affiliate arenas, Allied Esports is leveraging its experience to develop events and content with its strategic investors, Brookfield Property Partners, Simon and TV Azteca. Moreover, Allied Esports is working with TV Azteca to create in-person experiences in Mexico. These events create content that will be used to populate the TV Azteca digital channel being developed by TV Azteca and Allied Esports.
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Simon and Allied Esports are collaborating to create a new product offering focused on delivering esports experiences through integrated gaming venues and production facilities in select Simon shopping centers around the U.S. The in-center venues will be designed for tournament play and daily use with the capability to be expanded into common areas for larger esports activations and live events. On September 30, 2019, the two companies launched The Simon Cup, a co-branded esports competition and gaming tournament series of on-mall regional festivals combining online and in-person play at select Simon centers in the New York and Los Angeles markets, with the winners of the regionals moving on to HyperX Esports Arena Las Vegas for the final. As a premier esports facility, Allied Esports believes utilizing the Las Vegas arena will drive participants to the Simon Cup qualifying events and increase revenue for the Company.
Allied Esports and Brookfield Property Partners are developing integrated esports experience venues at mutually agreed upon shopping malls owned and/or operated by Brookfield that will include a dedicated gaming space and production capabilities to attract and to activate esports and other emerging live events. Per the strategic partnership, Brookfield Property Partners, the global real estate operating arm of Brookfield Asset Management, will bring Allied Esports’ new on-mall esports venue concept to its existing retail destinations. The two companies will collaborate on the development of dedicated esports venues and gaming experiences that will be designed for tournament play of all levels, with PCs and consoles available for daily use, complete broadcast and streaming production capabilities, full food and beverage options, and experiential retail.
Multiplatform Content: Leveraging Branded Properties and Strategic Partnerships to Develop Content
Allied Esports’ worldwide network of esports branded properties provides Allied Esports with a platform to potentially develop a significant amount of content to distribute via digital live streams, broadcast and cable, and social media outlets. Allied Esports believes that its arenas will draw top-level esports talent (such as professional streamer Ninja, who was the featured talent at a successful event at Allied Esports’ Las Vegas arena in April 2018) for purposes of hosting events and developing content, which it can distribute live, post-produce into fully-produced episodic content, or repackage for social media distribution. Allied Esports intends to monetize the content in multiple ways, including direct sales of the content, sponsorship revenue, and subscription and/or advertising fees for viewers of the content.
We believe Allied Esports’ ecosystem of esports branded properties gives it the reach, reputation and experience to produce world-class live events, in partnership with some of the most prominent names in the esports industry. These live events provide Allied Esports with the material to produce exciting content that can be distributed via three different formats, each of which has its own revenue generation model: live streaming, post-produced episodic content, and short-form repackaged content.
Live Streaming. Live streaming is the most popular esports content delivery channel today, as it offers the best interactive experiences for the audience. Vast improvements in technology and Internet service and speed have made live streaming with large audiences widely available today. Well-known gamers live stream themselves playing their favorite games on any of the popular streaming services (Twitch, Mixer, YouTube Gaming, Facebook Gaming, etc.) to a worldwide audience. The streamers derive revenue from ad sales, sponsorship, subscription fees and gift payments from spectators. Through Allied Esports’ ecosystem of esports arenas, Allied Esports can offer streamers a large platform to put on live events that can be simultaneously streamed on both the streamer’s Twitch channel and on Allied Esports’ Twitch channel. An example is a streaming event Allied Esports held with one of the most prominent streamers in esports, Tyler Blevins, AKA Ninja, in April 2018. Famous for his streaming channel where he plays the popular esports game Fortnite, Ninja held a live event at the Las Vegas flagship arena that set records for Twitch live streams, with over 667,000 peak concurrent viewers and 2.4 million unique viewers. To put those audience numbers in perspective, those numbers are significantly higher than viewership of the average regular season NBA game in 2019. Allied Esports was able to sell multiple sponsorships for the event and earned significant revenue from the food and beverage, merchandise sales and usage fees from the gaming stations. Although large audiences can be garnered through these live event streams, there are limitations on the streams, as they have a Delaware blank checkone-and-done nature; repeat viewing is not popular for these events, which limits the sponsorship opportunities. Furthermore, due to the live nature of these events and streams, it is difficult to create a narrative or tell a story to compel viewership past an initial viewing. This leads to Allied Esports’ development of post-produced episodic content.
Post-Produced Content. Allied Esports intends to develop esports entertainment programming around its live experiences and, using its experienced editing and production teams, create serial, episodic content and segments that tell compelling storylines around its gaming talent, in person experiences, and gaming events around the world. Allied Esports developed this technique through the WPT, who took the slow-paced game of poker and dramatized it and created storylines that made for exciting and compelling viewing. This post-produced content can be valuable real estate for sponsors, as Allied Esports can integrate sponsors seamlessly into the show in a way that feels organic to the viewers. Allied Esports can focus on different storylines, create excitement via editing and music inclusion, and generally elevate the production quality from that achievable in a live stream. Allied Esports can then monetize this episodic content via sponsorship, advertising, selling the content itself to third party distributors, or even use it as a marketing tool to drive customers to come to Allied Esports’ branded properties, buy its merchandise or otherwise interact with Allied Esports.
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Repackaged Content. The library of content Allied Esports will develop from events can be cut into smaller clips that can be used as marketing and promotion of the Allied Esports brand on social media. Allied Esports can also edit content to create new content, such as “best of” shows, focusing on one particular game as played by multiple well-known streamers, regional shows focusing on talent from a particular country, and so on.
Allied Esports’ global esports branded properties ecosystem will create opportunities for live events which provide material to develop great content, all of which Allied Esports can monetize in multiple ways. The large customer base Allied Esports develops through these in-person experiences, live streams and content distribution will give it a customer base to launch interactive services.
Strategic Investor Content.Allied Esports will work with its strategic investors, Brookfield Property Partners (and its affiliates), Simon and TV Azteca, to create valuable in-person experiences and esports entertainment content to enhance our value proposition. Allied Esports and TV Azteca will work to develop content and programming formats to develop a digital esports entertainment channel (described below), and content produced from the Simon events will be developed and distributed on digital and non-digital media outlets to maximize the exposure and reach of our joint enterprises.
Interactive Services: Developing an Esports Entertainment Platform
Allied Esports intends to develop its own online platform where esports players and fans can watch, play and win with other members of the esports community and top esports personalities. The online platform will enable fans to compete against each other as well as participate in esports programs starring their favorite players. Subscriptions will provide members with exclusive access to numerous unique and proprietary experiences, products and services that are not available outside of Allied Esports’ ecosystem, such as exclusive online content, member-only tournaments, prizes and cash awards, exclusive live event and merchandise access, exclusive opportunities to be part of our entertainment programming, VIP treatment at Allied Esports’ arenas, and much more. Allied Esports intends to use the authenticity and reach driven by its in-person experiences and content viewership to drive platform adoption by esports fans. Allied Esports’ executive team has years of experience developing online platforms—its CEO, Frank Ng, has managed and run online platforms with approximately 700 million registered users in China for over 14 years, and its COO, David Moon, has produced, published and operated numerous game services for over 20 years, including helping build NHN Corporation’s global footprint to over 1 million concurrent users. Furthermore, WPT has developed and operated its subscription platform for poker fans, ClubWPT, since 2010, and developed and operated a social poker product, PlayWPT, starting in 2016. PlayWPT was licensed to a third party in May of 2018.
Allied Esports intends to sequentially roll out platform features to support core strategic initiatives with its strategic investors, Brookfield Property Partners (and its affiliates), Simon and TV Azteca. The initial release of the platform will focus on supporting regular programs of esports experiences at Simon’s premiere centers across the U.S. The platform will subsequently be released in Mexico in partnership with TV Azteca, to support the participation, viewing, and monetization of esports events and programs, as well as the provision of a 24-hour digital esports entertainment channel. Allied Esports believes focusing on these two projects initially is the most efficient way to build brand equity, aggregate audience and build the initial user base that will propel Allied Esports’ platform in the future.
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The WPT Business
The Company owns the World Poker Tour® (WPT®) – a premier name in internationally televised gaming and entertainment with brand presence in land-based poker tournaments, television, online and mobile. A leading innovator in the sport of poker since 2002, WPT helped ignite the global poker boom with the creation of a unique television show based on a series of high-stakes poker tournaments. WPT’s Tour Events are held at locations throughout the world and have awarded more than one billion in prize dollars in its 18-year history. WPT has broadcast globally in more than 150 countries and territories, and is currently producing its 18th season, which airs on FOX Sports Regional Networks in the United States. Season 18 of WPT is sponsored by its online subscription-based poker service, ClubWPT.com. WPT offers a suite of online poker services which it operates by itself and through its partners offering consumers the ability to access gaming content on a year-round 24/7 basis. ClubWPT.com is a unique online membership site that offers inside access to the WPT, as well as a sweepstakes-based poker club available in 35 states across the United States and Washington D.C., and four foreign countries with innovative features and state-of-the-art creative elements inspired by WPT’s 18 years of experience in gaming entertainment. In addition, WPT licenses its brand to social gaming sites through partners like Zynga as well as to educational learning platforms such as LearnWPT. These online products are scalable and offer geographic access that might be limited if WPT relied on tour stop participation alone. Additionally, WPT benefits from managing its own distribution business which currently has more than 1,000 hours of broadcast-ready content, and offers demographically similar programming to its poker content, such as esports, golf and MMA. WPT uses this large suite of programming as leverage to seek preferred airtimes on its various distribution channels where it may promote its online products or offer airtime to sponsors in territories they seek to enter. WPT also participates in strategic brand license, partnership, sponsorship opportunities and music licensing. As described below, WPT applies a three-pillar model of in-person experiences, developing multiplatform content and providing interactive services, to the sport of poker.
In-person Experiences: Worldwide Poker Tournaments
World Poker Tour Events. The WPT is a sports league of affiliated poker tournaments that are held at prestigious casinos and poker rooms around the world. WPT licenses the WPT brand to these casinos and card rooms so that they can brand their poker tournaments as WPT events, and these events are integrated into WPT’s tour. These events form the backbone of WPT’s brand identity and have turned the WPT into one of the most recognizable names in gaming. WPT has developed different types of tours, generally distinguishable by the size of the buy-in for competitors in the applicable tour’s events. The WPT Main Tour events generally have the biggest buy-ins (usually between $3,500 and $10,000), are held at the largest and most prestigious casinos and card rooms and are attended by many of the top professional poker players in the world. The WPT DeepStacks Tour and WPT500 events are smaller than Main Tour events, with buy-ins ranging from $300 to $1,000, and are meant to cater to the lower- to medium-stakes players. In addition, through a third-party licensing arrangement, WPT licenses its name to a third party operating the WPT League, which are small bar-league poker events held at bars and clubs on a social basis. These live events create touchpoints to a large community of poker players to whom WPT can market other WPT live events, advertise and market its sponsor’s products, and push towards its interactive products. Furthermore, the live events create the content WPT uses to monetize its brand, as set forth below.
Multiplatform Content: The World Poker Tour Television Shows
The Content. WPT films the final table of six participants from a select group of WPT’s Main Tour stops, where the players compete for some of the poker world’s largest tournament prize pools. We then edit the footage from these tour stops, resulting in a series of one-hour or two-hour episodes which are distributed for telecast to both domestic audiences via our broadcast agreement with FSN, and international television audiences via numerous international distribution agreements. WPT has an agreement with Poker Go, a prominent poker-centric online platform, pursuant to which WPT live streams many of its events to Poker Go’s customer base. Many of WPT’s live events that are not broadcast on FSN are live streamed on Poker Go, which ensures almost all of WPT’s events are broadcast on some format. In addition, WPT films and produces special episodes based on a variety of non-traditional poker tournaments and/or cash games, which it also distributes for telecast along with the episodes based on WPT’s regular tour stops. Furthermore, WPT produced specialized shows meant to promote and market its ClubWPT membership site, such as its “King of the Club” shows in which ClubWPT members won the right, by winning certain tournaments on the ClubWPT platform, to play against each other for cash and prizes in a single-table tournament that was filmed and broadcast on FSN. WPT also filmed and prepared for distribution another series of shows to promote ClubWPT called “Challenge the Champs”, in which ClubWPT members who qualified on the ClubWPT platform received the chance to play against former WPT Main Tour champions for cash and prizes. These episodes premiered on FSN in August and September 2019.
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WPT previously produced and broadcasted on FSN a series of shows called WPT Alpha8, based on a series of high-stakes poker tournaments with buy-ins of $100,000. In the Alpha8 events, some of the most elite high-stakes players in the world played in poker tournaments against one another in glamorous casinos and card rooms around the world, with the final eight players of each tournament filmed for production of the television episodes. The inaugural season of WPT Alpha8 began in 2013 and aired for three seasons, ending in 2016 and continues to be distributed internationally. WPT has continued to expand its global footprint by entering into an agreement with TV Azteca, pursuant to which WPT and TV Azteca are creating modified content using footage from WPT’s current library of content and translating the shows and integrating localized hosts for distribution in the territory of Mexico. This strategy of localizing WPT content has previously proven successful, namely in France, and we believe this localized content in the territory of Mexico will become a significant driver for a jointly owned social gaming platform. WPT and TV Azteca recently launched in beta this August 2019. Interest in the show so far is high, with viewership already exceeding 3 million viewers of a single episode. In addition to the strategic advantage of the “World Poker Tour” and WPT-related brands, WPT has created significant efficiencies in its content programming through its affiliation and use of Allied ESports’ HyperX Esports Arena Las Vegas venue to film some of its Main Tour final tables and other special events. This change, which just began for Season 17, has significantly reduced production costs by reducing transportation and set up fees and has allowed for more content to be produced at a significantly more efficient cost. Moreover, by reducing the physical location needs from its casino partners that would otherwise be featured in a WPT televised event, WPT has greatly expanded the number of potential casino customers that can meet the requirements for hosting a WPT televised final table. Finally, WPT creates, owns and publishes its own music for WPT shows. In addition to receiving royalties for the music integrated into these programs, WPT has created a database of over 4,000 musical pieces which may be licensed for itself or for other third-party producers.
WPT Distribution Footprint.All of WPT’s content airs on FSN in the U.S., including FSN’s regional channels (“RSNs”), and in 21 different territories worldwide pursuant to licensing and distribution arrangements with various networks. Virtually all of WPT’s 17-season poker library is fully available for distribution, providing hundreds of hours of top-tier broadcast grade poker sports content. WPT has greatly expanded the reach of its content by licensing it for broadcast on many digital platforms as well, such as PlutoTV, Unreel Entertainment, Samsung TV Plus, and many others. WPT does not receive fees from FSN for the domestic distribution of our content. Instead, WPT uses the WPT show to heavily promote its ClubWPT product and other online products and partnerships, such as Zynga’s WPT social poker game. WPT does provide FSN with a guaranteed revenue share from ClubWPT’s operations in exchange for significant promotion and distribution of the programs featuring ClubWPT marketing. This arrangement ensures that FSN has an incentive to keep WPT’s show on the air and to market and promote the show, as they share in the show’s success to the extent ClubWPT’s revenue increases. Since the ClubWPT customer base and broadcast television viewers are similar in demographics, the symbiotic relationship between FSN and WPT works well to keep WPT’s brand widely known and accessible to millions of people in the U.S. The FSN agreement also has other important broadcast requirements to ensure that WPT’s programming remains “appointment television” and airs at particular times on both the FSN networks and the RSNs. Internationally, some of WPT’s distribution partners pay WPT fees to broadcast content, but usually, WPT’s international revenues are based on distribution deals that pay via advertising time and sponsorship sales, as well as the intrinsic value of spreading WPT’s brand awareness worldwide. We expect the international reach of WPT-related shows to grow meaningfully starting in the third quarter of 2019, as a result of WPT’s strategic relationship agreement with TV Azteca. WPT receives additional fees from our digital distribution agreements, but again see these as brand-building exercises and as avenues to get more people exposure for WPT’s online products, sponsors and advertisers. In addition to its World Poker Tour content, WPT also distributes various sports and lifestyle programming through its distribution business. As a result, WPT now controls over 1000 hours of programming from which it may generate distribution fees, license fees, sponsorship revenue and music licensing revenue, as well as serving as a vehicle to promote its online gaming products worldwide. The ability to “bundle,” or offer large amounts of content, provides WPT distribution leverage in negotiating the amount of airings or preferred airing times of its content.
The Walt Disney Company (“Disney”) recently acquired 21st Century Fox (“FOX”). Under the terms of the acquisition, FOX’s non-regional news and sports assets, including FSN, were spun off into a new company, Fox Corporation (which is commonly referred to as “New Fox”), which remains owned by the prior FOX shareholders. The Department of Justice required Disney to sell all RSNs within ninety (90) days after the closing of the Disney/FOX acquisition. The RSNs (including FSN) were recently purchased by a joint venture company owned by Sinclair Broadcast Group and Entertainment Studios, Inc. (collectively, “Sinclair”). It is not clear at this time whether Sinclair’s acquisition of the RSNs (including FSN) will have any material effect on the airing of WPT’s content.
Sponsorship Revenue. Sponsorship revenue is the prime economic driver of the distribution of WPT content. WPT partners with prestigious brands, such as Dr. Pepper (soft drinks), Hublot (high-end timepieces), Rockstar (energy drinks), Baccarat (fine crystal), Party Poker (online gaming in Europe), and offers them the ability to become the “Official ________ of the World Poker Tour”. The Season 17 sponsors have included Hublot, Rockstar, Baccarat, Faded Spade Poker (a playing card manufacturer), and Zynga Inc. (social gaming operator). WPT is able to seamlessly integrate its sponsors into the WPT television show by displaying sponsors on poker tables, on television sets, and specialized segments that are brought to viewers by the applicable sponsor. By integrating WPT’s sponsors into the show, WPT provides a powerful marketing tool in that viewers are seeing the sponsor as part of the show they are watching, as opposed to an advertisement that they may mute or skip if possible. WPT’s live events also offer WPT sponsors a great advertising platform to market directly to WPT players via signage, product sampling suites, flyers, and similar marketing endeavors.
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Interactive Services: Poker Platforms
WPT’s live event global footprint and distribution of its content via broadcast, streaming and social media, allow WPT to generate significant marketing opportunities for both its sponsors and its own products. WPT has taken advantage of this marketing arm to promote several interactive products: ClubWPT, its subscription-based online poker club that WPT owns and operates, which also offers social poker; PlayWPT, a web and mobile social poker product that is operated by a third party utilizing software and branding that WPT licenses to such provider; Zynga Poker, who operates one of the world’s largest social poker products, to whom WPT has licensed its brand for certain WPT-branded poker tournaments on their platform; and HongKong Triple Sevens Interactive Co., Ltd, who licenses WPT’s Alpha8 brand to operate a social poker product they are in the process of developing.
ClubWPT. WPT’s subscription-based online club, ClubWPT.com, is operated in accordance with the principles of sweepstakes law and is available in 36 U.S. states and territories and four foreign countries. A free alternative means of entry is offered for participants who wish to play in the tournaments but do not wish to purchase the other membership benefits. VIP members can play poker to win a share of $100,000 in cash and prizes every month, including seats in live WPT poker tournaments. Other benefits include access to every season of the WPT television series and all related content, discounted tickets to live events through ScoreBig, everyday savings for everyday things via the ClubWPT Entertainment Savers Guide, and other member benefits. In January of 2019, WPT added freemium social poker and casino gaming on the platform. Since that time, daily active revenue has risen steadily, and we anticipate the freemium products on the platform will be a meaningful driver of ClubWPT revenue going forward. The subscription fee for ClubWPT remains the same each month and players are not allowed to wager actual money online. One must be eighteen or older to participate.
Zynga Poker. WPT entered into a 3-year licensing agreement with Zynga, Inc. in 2018 pursuant to which Zynga agreed to pay WPT $3 million per year in exchange for the right to license the WPT name and brand to its massive social gaming database for WPT-branded poker tournaments on the Zynga social poker platform. WPT supports Zynga’s efforts through extensive marketing of its brand through its marketing network which includes its television programs, advertisements, and social media channels. Zynga has further used the WPT tournaments as a vehicle to reward their players through qualifying players to play in real money poker tournaments at WPT affiliated casinos. The partnership means that the Zynga and WPT brands elevate each other’s profile in the poker community through millions of impressions annually.
PlayWPT and Alpha8 Social Poker. WPT’s 3-year license agreements for PlayWPT and the Alpha8 social poker product that each commenced in 2018 provide WPT with a share of all revenue generated on those respective platforms, with annual minimums of the greater of $500,000 or 20% of revenue generated for PlayWPT, and the greater of $200,000 or 20% of revenue generated for the Alpha8 social poker product. These arrangements offer WPT significant annual payments based on the value and prestige of WPT’s brands and WPT’s ability to market and promote the platforms.
In addition to the three-pillar approach to monetizing the WPT brands as described above, WPT has also been able to combine these approaches in a regional manner to create localized versions of the WPT in other parts of the world. For example, WPT has an agreement with Adda52, one of the largest online poker operators in India, pursuant to which Adda52 utilizes WPT brands to put on WPT-branded tournaments, create and sell WPT merchandise, sponsor and distribute WPT content, and otherwise market and promote their own products using the WPT name. WPT had a similar arrangement for the Asia-Pacific region with WPT’s former parent company, Ourgame, and is negotiating similar arrangements with parties in other parts of the world, such as Latin America. These brand licensing arrangements not only provide WPT with revenue derived from upfront payments and revenue share, but they broaden WPT’s brand reach in localized ways to parts of the world that WPT would be hard-pressed to effectively market to on its own. WPT believes that this increased reach will have long-term benefits to WPT’s brand image and profitability.
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Corporate Organization
Our principal offices are located at 17877 Von Karman Avenue, Suite 300, Irvine, California, 92614, and our telephone number at that office is (949) 225-2600.
Allied Esports Entertainment Inc., (“AESE”), formerly known as Black Ridge Acquisition Corp, or “BRAC”, was incorporated in Delaware on May 9, 2017 formedas a blank check company for the purpose of entering intoeffecting a merger, share exchange, asset acquisition, stockshare purchase, recapitalization, reorganization or other similar business combination with one or more target businesses.businesses or entities.
We intendAllied Esports Media, Inc. (“AEM”), a Delaware corporation, was formed in November 2018 to focusact as a holding company for Allied Esports International Inc. (“Allied Esports”) and immediately prior to close of the Merger (see below) to also include Noble Link Global Limited (“Noble Link”). Allied Esports, together with its subsidiaries described below owns and operates the esports-related businesses of AESE. Noble Link (prior to the AEM Merger) and its wholly owned subsidiaries Peerless Media Limited, Club Services, Inc. and WPT Enterprises, Inc. operate the poker-related business of AESE and are collectively referred to herein as “World Poker Tour” or “WPT”. Prior to the Merger, as described below, Noble Link and Allied Esports were subsidiaries of Ourgame International Holdings Limited (“Ourgame”).
On December 19, 2018, BRAC, Noble Link and AEM executed an Agreement and Plan of Reorganization (as amended from time to time, the “Merger Agreement”). On August 9, 2019 (the “Closing Date”), Noble Link was merged with and into AEM, with AEM being the surviving entity, which was accounted for as a common control merger (the “AEM Merger”). Further, on August 9, 2019, a subsidiary of AESE merged with AEM pursuant to the Merger Agreement, with AEM being the surviving entity (the “Merger”). The Merger was accounted for as a reverse recapitalization, and AEM is deemed to be the accounting acquirer. Consequently, the assets and liabilities and the historical operations that are reflected in these condensed combined financial statements prior to the Merger are those of Allied Esports and WPT. The preferred stock, common stock, additional paid in capital and earnings per share amount in these condensed combined financial statements for the period prior to the Merger have been restated to reflect the recapitalization in accordance with the shares issued to the Former Parent as a result of the Merger. References herein to the “Company” are to the combination of AEM and WPT during the period prior to the AEM Merger and are to AESE and subsidiaries after the Merger.
Allied Esports operates through its wholly owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena Las Vegas, LLC (“ESALV”) and ELC Gaming GMBH (“ELC Gaming”). AEII operates global competitive esports properties designed to connect players and fans via a network of connected arenas. ESALV operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. ELC Gaming operates a mobile esports truck that serves as both a battleground and content generation hub and also operates a studio for recording and streaming gaming events.
Our fiscal year ends December 31. Neither we nor any of our search on businessespredecessors have been in bankruptcy, receivership or any similar proceeding.
Business Strategy
For the past 16 years of its 18-year history, WPT’s business model has successfully utilized the following three pillars in the energy or energy-related industries with an emphasissport of poker for its business model, which the Company believes can be utilized by Allied Esports:
| • | in-person experiences; | |
| • | developing multiplatform content; and | |
| • | providing interactive services. |
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The Company plans to continue operating the WPT business and to utilize its business model to execute on opportunitiesits growth strategy in the upstream oilmultibillion-dollar esports industry. Allied Esports will do this by collaborating with its strategic investors, including certain affiliates of Brookfield Property Partners, a work premier real estate company, certain affiliates of Simon, a global leader in the ownership of premier shopping, dining, entertainment, and gas industrymixed-use destinations, and TV Azteca, a premier television network in North America where our management team’s networksMexico, to deliver best-in-class live events, content and experienceonline products.
Regulation
WPT tournaments are suited although our effortsconducted by the host casinos and card rooms, and we believe WPT is not subject to identify a prospective target businessgovernment gaming regulation in connection with its affiliation with and telecasts of these events. We continue to monitor the legality of Internet gaming in domestic and international jurisdictions, but cannot be certain that changes in existing regulations will be beneficial to the gaming market. WPT’s subscription-based online club, ClubWPT.com, is operated in accordance with the principles of sweepstakes law. A free alternative means of entry is offered for participants who wish to play in the tournaments but do not wish to purchase the other membership benefits. The subscription fee for ClubWPT remains the same each month and players are not allowed to wager actual money online. One must be limitedeighteen or older to participate. However, the awarding of cash and prizes will require compliance with the laws or regulations in various states or countries over sweepstakes, promotions and giveaways, are complicated and constantly changing.
Allied Esports intends to offer subscribers the chance to win cash and prizes when playing esports games and tournaments on the esports gaming platform it intends to develop. Similar to WPT, Allied Esports will be subject to the complicated laws and regulations in various states or countries over sweepstakes, promotions and giveaways. Any negative finding of law regarding the characterization of the type of online activity carried out on the esports gaming platform could limit or prevent Allied Esports’ ability to obtain subscribers in those jurisdictions. In addition, Allied Esports is subject to a particular industry or geographic region. Although we anticipate acquiring a targetnumber of foreign and domestic laws and regulations that affect companies conducting business that is an operating business, we are not obligated to do so and may determine to merge with or acquire a company with no operating history if the terms of the transaction are determined by us to be favorable to our public stockholders and the target business has a fair market value of at least 80% of the assets held in the trust account (excluding taxes payable on the income earned onInternet. In addition, laws and regulations relating to user privacy, data collection, retention, electronic commerce, consumer protection, content, advertising, localization, and information security have been adopted or are being considered for adoption by many jurisdictions and countries throughout the trust account) at the time of the agreement to enter into the initial business combination.world.
We intend to identify and acquire a business that could benefit from a hands-on owner with extensive experience in the upstream oil and gas industry in North America and that presents potential for an attractive risk-adjusted return profile under our stewardship. Even fundamentally sound companies can often under-perform their potential due to underinvestment, a temporary period of dislocation in the markets in which they operate, over-levered capital structures, excessive cost structures, incomplete management teams and/or inappropriate business strategies. Our management team has extensive experience in identifying and executing such full-potential acquisitions across the energy industries. In addition, our team has significant hands-on experience working with private companies in preparing for and executing an initial public offering and serving as active owners and directors by working closely with these companies to continue their transformations and help create value in the public markets.Intellectual Property
We believe that our management team is well positioned to identify attractive risk-adjusted returnsmaintain a competitive advantage in the marketplace, we must develop and that its contactsmaintain protection of the proprietary aspects of our technology. We rely on a combination of trademarks, patent, trade secret intellectual property rights and transaction sources, ranging from industry executives, private owners, private equity funds, and investment bankers will enable usother measures to pursue a broad range of opportunities. Our management believes that its ability to identify and implement value creation initiatives will remain central to its differentiated acquisition strategy.protect our intellectual property.
We will seek to capitalizeWPT has filed trademarks for the names of its shows, including the World Poker Tour name and logos. The trademark “World Poker Tour” has been registered with the U.S. Patent and Trademark Office (“USPTO”) on the significant investing experienceprincipal register in connection with entertainment services, clothing, playing cards and contactspoker chips, and housewares and glass; and on the supplemental register in connection with electronic and scientific apparatus. Other registered marks around the world include: “Alpha8” in the U.S., Canada, China, Europe, South Africa and Uruguay; “Battle of Champions” in the U.S.; “Card Design” in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Puerto Rico, and Venezuela; “Doyle Brunson North American Poker Championship” in the U.S.; “Hollywood Home Game” in the U.S.; “Ladies’ Night” in the U.S.; “Latin American Poker Tour” in Peru and Europe; “Poker Détente” in Europe; “Poker Walk of Fame” in the U.S.; “PPT” in the U.S., Canada and Europe; “PPT & Design” in the U.S. and Canada; “Professional Poker Tour” in the U.S.; “Professional Poker Tour PPT & Design” in the U.S.; “Royal Flush Girls” in the U.S.; “Time Slots” in Canada, Europe and the U.S.; “World Poker Tour” in Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, Europe, Mexico, Peru, Puerto Rico, South Africa and Venezuela; “World Poker Tour & Design” in the U.S., Canada and Europe; “WPT” in the U.S., Argentina, Australia, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Puerto Rico, South Africa, and Venezuela; “WPT8 Design” in U.S., Australia, Canada, China, Europe, South Africa and Uruguay; “WPT Academy” in Europe; “WPT Alpha8 Design” in Australia, Canada, China, Europe, South Africa and Uruguay; “WPT Boot Camp” in the U.S.; “WPT Poker Corner” in the U.S., Canada and Europe; “WPT Spade Card Design” in China; “WPT World Poker Tour & Design” in the U.S., Australia, Canada, Europe and Korea. We have registered approximately 2,100 Internet domain names in 70 regions around the world. We also have proprietary rights to our officersportfolio of registered and directors in consummating an initial business combination. Kenneth DeCubellis, our chairmanunregistered copyrighted materials, which includes the episodes of the boardtelevised programming and chief executive officer, has over 30 years of experience, primarily inmusic that we produce, subject to licenses related to these episodes provided under our agreements with our distributors and our international telecast license agreements, as well as the oilWPT Academy database and gas and other energy-related industries, including 10 years at Exxon Mobil Corp. Mr. DeCubellis has served as chief executive officer of our sponsor since November 2011. Our management team has significant access to both publicly available and proprietary business combination opportunities and have collectively bid on over $2.4 billion of opportunities since June 2015.online videos.
Acquisition Criteria
We have identified the following general criteria and guidelines that we believe are important in evaluating prospective targets. We will use these criteria and guidelines in evaluating acquisition opportunities, but we may decide to enter into our initial business combination with a target that does not meet these criteria and guidelines. We intend to acquire target businesses that we believe:
We will seek to acquire the target on terms and in a manner that leverages our management team’s experience investing within the energy industry. Potential upside from growth in the target business and an improved capital structure will be weighed against any identified downside risks.
These criteria are not intended to be exhaustive. Any evaluationWPT has filed five U.S. and international patent applications. One application, relating to a specially designed game table that uses integral lighting, was issued by the meritsUSPTO in 2007. WPT’s remaining applications relate to (1) systems and methods reducing fraud in electronic games having virtual currency; (2) systems and methods to reduce impact of a particular initial business combination may be based,network disruptions; (3) systems and methods to provide multiple commentary streams for the extent relevant, on these general guidelines as well as other considerations, factorssame broadcast content; and criteria that our management may deem relevant. In(4) systems and methods for securing virtual currencies and enhancing electronic products.
Allied Esports has filed for one patent application in the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communicationsU.S. related to our initial business combination, which,systems and methods for latency in networked competitive multiplayer gaming. It has also registered approximately 45 domain names. Allied Esports has filed for trademark protection for the following marks as discussed in this prospectus, would bewell: “Allied Esports” has been filed in the form of proxy solicitation or tender offer materials that we would file with the SEC.
Competitive Strengths
We believe weU.S., “Allied Esports” bold mark has been filed in China and Europe; The “Allied Esports” logos have the following competitive strengths:
Status as a public company
We believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stockbeen filed in the target business for shares of our stock or for a combination of shares of our stockU.S. and cash, allowing us to tailorEurope; the consideration to“Allied Esports Member Property Network” logo has been filed in China and Europe; the specific needs of“Big Betty” logos have been registered in Europe; “E-sports Arena” have been registered in China, “Esports Superstars” logo has been filed in the sellers. We believe target businesses might find this method a more certainU.S.; “Legend Series” logo has been filed in the U.S. and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions, that could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests than it would have as a privately-held company. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While we believe that our status as a public company will make us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination with a more established entity or with a private company. These inherent limitations include limitations on our available financial resources, which may be inferior to those of other entities pursuing the acquisition of similar target businesses; the requirement that we seek shareholder approval of a business combination, which may delay the consummation of a transaction;Europe; and the existence of our outstanding rights“Allied Exports” emblem has been filed in China and warrants, which may represent a source of future dilution.Europe.
Financial position
With funds in the trust account of $100.5 million (or $115.575 million if the over-allotment option is exercised in full) available to use for a business combination, we offer a target business a variety of options such as providing the owners of a target business with shares in a public company and a public means to sell such shares, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, since we have no specific business combination under consideration, we have not taken any steps to secure third party financing and there can be no assurance that it will be available to us.
Effecting a Business Combination
General
We are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time following this offering. We intend to utilize cash derived from the proceeds of this offering and the private placement of private units, our capital stock, debt or a combination of these in effecting a business combination which has not yet been identified. Accordingly, investors in this offering are investing without first having an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense, loss of voting control and compliance with various federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination.
We Have Not Identified a Target Business
To date, we have not selected any target business on which to concentrate our search for a business combination. None of our sponsor, officers, directors, promoters and other affiliates has engaged in any substantive discussions on our behalf with representatives of other companies regarding the possibility of a potential merger, capital stock exchange, asset acquisition or other similar business combination with us. Additionally, we have not engaged or retained any agent or other representative to identify or locate such companies. As a result, we cannot assure you that we will be able to locate a target business or that we will be able to engage in a business combination with a target business on favorable terms or at all.
We will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. We have not established any other specific attributes or criteria (financial or otherwise) for prospective target businesses. Accordingly, there is no basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete a business combination. To the extent we effect a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Sources of Target Businesses
While we have not yet identified any acquisition candidates, we believe based on our management’s business knowledge and past experience that there are numerous acquisition candidates. We expect that our principal means of identifying potential target businesses will be through the extensive contacts and relationships of our sponsor, officers and directors. While our officers and directors are not required to commit any specific amount of time in identifying or performing due diligence on potential target businesses, our officers and directors believe that the relationships they have developed over their careers and their access to our sponsor’s contacts and resources will generate a number of potential business combination opportunities that will warrant further investigation. We also anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses they think we may be interested in on an unsolicited basis, since many of these sources will have read this prospectus and know what types of businesses we are targeting. Our sponsor, officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. They must present to us all target business opportunities that have a fair market value of at least 80% of the assets held in the trust account (excluding deferred underwriting commissions and taxes payable on the income accrued in the trust account) at the time of the agreement to enter into the initial business combination, subject to any pre-existing fiduciary or contractual obligations. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis (other than EarlyBirdCapital as described elsewhere in this prospectus), we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. In no event, however, will our sponsor, officers, directors or their respective affiliates be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of an initial business combination (regardless of the type of transaction that it is) other than the $10,000 administrative services fee, the repayment of the $125,000 loan from sponsor and reimbursement of any out-of-pocket expenses. Our audit committee will review and approve all reimbursements and payments made to our sponsor, officers, directors or our or their respective affiliates, with any interested director abstaining from such review and approval. We have no present intention to enter into a business combination with a target business that is affiliated with any of our officers, directors or sponsor. However, we are not restricted from entering into any such transactions and may do so if (i) such transaction is approved by a majority of our disinterested independent directors and (ii) we obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, that the business combination is fair to our unaffiliated stockholders from a financial point of view.
Selection of a Target Business and Structuring of a Business Combination
Subject to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account (excluding taxes payable on the income earned on the trust account) at the time of the execution of a definitive agreement for our initial business combination, as described below in more detail, and that we must acquire a controlling interest in the target business, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. Except for the general criteria and guidelines set forth above under the caption “Acquisition Criteria,” we have not established any specific attributes or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective target business, our management may consider a variety of factors, including one or more of the following:
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business objective. In evaluating a prospective target business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management and inspection of facilities, as well as review of financial and other information which is made available to us. This due diligence review will be conducted either by our management or by unaffiliated third parties we may engage, although we have no current intention to engage any such third parties.
The time and costs required to select and evaluate a target business and to structure and complete the business combination cannot presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital available to otherwise complete a business combination.
Fair Market Value of Target Business
The target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account (excluding taxes payable on the income earned on the trust account) at the time of the execution of a definitive agreement for our initial business combination, although we may acquire a target business whose fair market value significantly exceeds 80% of the trust account balance.
We currently anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination where we merge directly with the target business or where we acquire less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we could acquire a 100% controlling interest in the target; however, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of trust account balance test. In order to consummate such an acquisition, we may issue a significant amount of our debt or equity securities to the sellers of such businesses and/or seek to raise additional funds through a private offering of debt or equity securities. Since we have no specific business combination under consideration, we have not entered into any such fund raising arrangement and have no current intention of doing so. The fair market value of the target will be determined by our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). The proxy solicitation materials or tender offer documents used by us in connection with any proposed transaction will provide public stockholders with our analysis of the fair market value of the target business, as well as the basis for our determinations. If our board is not able to independently determine that the target business has a sufficient fair market value, we will obtain an opinion from an unaffiliated, independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, with respect to the satisfaction of such criteria.
We will not be required to obtain an opinion from an investment banking firm as to the fair market value if our board of directors independently determines that the target business complies with the 80% threshold.
Lack of Business Diversification
We may seek to effect a business combination with more than one target business, and there is no required minimum valuation standard for any single target at the time of such acquisition. We expect to complete only a single business combination, although this process may entail the simultaneous acquisitions of several operating businesses. Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business operation. Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business combination with only a single entity, our lack of diversification may:
If we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other acquisitions, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple acquisitions, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business.
Limited Ability to Evaluate the Target Business’ Management
Although we intend to scrutinize the management of a prospective target business when evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of the target business’ management will prove to be correct. In addition, we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business following a business combination cannot presently be stated with any certainty. While it is possible that some of our key personnel will remain associated in senior management or advisory positions with us following a business combination, it is unlikely that they will devote their full time efforts to our affairs subsequent to a business combination. Moreover, they would only be able to remain with the company after the consummation of a business combination if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for them to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. While the personal and financial interests of our key personnel may influence their motivation in identifying and selecting a target business, their ability to remain with the company after the consummation of a business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. Additionally, we cannot assure you that our officers and directors will have significant experience or knowledge relating to the operations of the particular target business.
Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholders May Not Have the Ability to Approve an Initial Business Combination
In connection with any proposed business combination, we will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subject to the limitations described herein. If we determine to engage in a tender offer, such tender offer will be structured so that each stockholder may tender all of his, her or its shares rather than some pro rata portion of his, her or its shares. The decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Unlike other blank check companies which require stockholder votes and conduct proxy solicitations in conjunction with their initial business combinations and related conversions of public shares for cash upon consummation of such initial business combination even when a vote is not required by law, we will have the flexibility to avoid such stockholder vote and allow our stockholders to sell their shares pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
We chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the Securities Act of 1933, as amended. However, if we seek to consummate an initial business combination with a target business that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such initial business combination, we may need to have more than $5,000,001 in net tangible assets upon consummation and this may force us to seek third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public stockholders may therefore have to wait 21 months from the closing of this offering in order to be able to receive a pro rata share of the trust account.
Our sponsor and our officers and directors have agreed (1) to vote any shares of common stock owned by them in favor of any proposed business combination, (2) not to convert any shares of common stock in connection with a stockholder vote to approve a proposed initial business combination and (3) not sell any shares of common stock in any tender in connection with a proposed initial business combination.
None of our officers, directors, sponsor or their affiliates has indicated any intention to purchase units or shares of common stock in this offering or from persons in the open market or in private transactions. However, if we hold a meeting to approve a proposed business combination and a significant number of stockholders vote, or indicate an intention to vote, against such proposed business combination, our officers, directors, sponsor or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Notwithstanding the foregoing, our officers, directors, sponsor and their affiliates will not make purchases of shares of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock.
Conversion Rights
At any meeting called to approve an initial business combination, public stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the initial business combination, less any taxes then due but not yet paid. Alternatively, we may provide our public stockholders with the opportunity to sell their shares of our common stock to us through a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid.
Our sponsor and our officers and directors will not have conversion rights with respect to any shares of common stock owned by them, directly or indirectly, whether acquired prior to this offering or purchased by them in this offering or in the aftermarket.
We may require public stockholders, whether they are a record holder or hold their shares in “street name,” to either (i) tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option, in each case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the business combination.
There is a nominal cost associated with the above-referenced delivery process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether or not to pass this cost on to the holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless of the timing of when such delivery must be effectuated. However, in the event we require stockholders seeking to exercise conversion rights prior to the consummation of the proposed business combination and the proposed business combination is not consummated this may result in an increased cost to stockholders.
Any proxy solicitation materials we furnish to stockholders in connection with a vote for any proposed business combination will indicate whether we are requiring stockholders to satisfy such certification and delivery requirements. Accordingly, a stockholder would have from the time the stockholder received our proxy statement up until the vote on the proposal to approve the business combination to deliver his shares if he wishes to seek to exercise his conversion rights. This time period varies depending on the specific facts of each transaction. However, as the delivery process can be accomplished by the stockholder, whether or not he is a record holder or his shares are held in “street name,” in a matter of hours by simply contacting the transfer agent or his broker and requesting delivery of his shares through the DWAC System, we believe this time period is sufficient for an average investor. However, we cannot assure you of this fact. Please see the risk factor titled “In connection with any stockholder meeting called to approve a proposed initial business combination, we may require stockholders who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights” for further information on the risks of failing to comply with these requirements.
The foregoing is different from the procedures historically used by some blank check companies. Traditionally, in order to perfect conversion rights in connection with a blank check company’s business combination, the company would distribute proxy materials for the stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his conversion rights. After the business combination was approved, the company would contact such stockholder to arrange for him to deliver his certificate to verify ownership. As a result, the stockholder then had an “option window” after the consummation of the business combination during which he could monitor the price of the company’s stock in the market. If the price rose above the conversion price, he could sell his shares in the open market before actually delivering his shares to the company for cancellation. As a result, the conversion rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become a “continuing” right surviving past the consummation of the business combination until the holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a holder’s election to convert his shares is irrevocable once the business combination is approved.
Any request to convert such shares once made, may be withdrawn at any time up to the vote on the proposed business combination or the expiration of the tender offer. Furthermore, if a holder of a public share of common stock delivered his certificate in connection with an election of their conversion and subsequently decides prior to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate (physically or electronically).
If the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their conversion rights would not be entitled to convert their shares for the applicable pro rata share of the trust account as of two business days prior to the consummation of the initial business combination. In such case, we will promptly return any shares delivered by public holders.
Liquidation if No Business Combination
Our amended and restated certificate of incorporation provides that we will have only 21 months from the closing of this offering to complete an initial business combination. If we have not completed an initial business combination by such date, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest not previously released to us but net of taxes payable, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Our sponsor, officers and directors have agreed that they will not propose any amendment to our amended and restated certificate of incorporation that would affect our public stockholders’ ability to convert or sell their shares to us in connection with a business combination as described herein or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business combination within 21 months from the closing of this offering unless we provide our public stockholders with the opportunity to convert their shares of common stock upon such approval at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest not previously released to us but net of franchise and income taxes payable, divided by the number of then outstanding public shares. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by our sponsor, any executive officer, director or director nominee, or any other person.
Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the Delaware General Corporation Law, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution. If we are unable to complete a business combination within the prescribed time frame, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest but net of franchise and income taxes payable, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following our 21st month, and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent ten years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses.
We are required to have all third parties (including any vendors or other entities we engage after this offering) and any prospective target businesses enter into agreements with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account. As a result, the claims that could be made against us will be limited, thereby lessening the likelihood that any claim would result in any liability extending to the trust. We therefore believe that any necessary provision for creditors will be reduced and should not have a significant impact on our ability to distribute the funds in the trust account to our public stockholders. Nevertheless, we cannot assure you of this fact as there is no guarantee that vendors, service providers and prospective target businesses will execute such agreements. Nor is there any guarantee that, even if they execute such agreements with us, they will not seek recourse against the trust account. Our sponsor has agreed that it will be liable to ensure that the proceeds in the trust account are not reduced below $10.05 per share by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us, but we cannot assure you that it will be able to satisfy its indemnification obligations if it is required to do so. Additionally, the agreement our sponsor entered into specifically provides for two exceptions to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, or (2) as to any claims for indemnification by the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. As a result, if we liquidate, the per-share distribution from the trust account could be less than $10.05 due to claims or potential claims of creditors. We will distribute to all of our public stockholders, in proportion to their respective equity interests, an aggregate sum equal to the amount in the trust account, inclusive of any interest, plus any remaining net assets (subject to our obligations under Delaware law to provide for claims of creditors as described below).
We anticipate notifying the trustee of the trust account to begin liquidating such assets promptly after such date and anticipate it will take no more than 10 business days to effectuate such distribution. The holders of the founders’ shares have waived their rights to participate in any liquidation distribution with respect to such founders’ shares. There will be no distribution from the trust account with respect to our rights or warrants, which will expire worthless. We will pay the costs of any subsequent liquidation from the up to $50,000 of interest that may be released to us from the trust account to pay for our liquidation and dissolution expenses. If such interest is insufficient, our sponsor has contractually agreed to advance us the funds necessary to complete such liquidation and has contractually agreed not to seek repayment for such expenses.
If we are unable to complete an initial business combination and expend all of the net proceeds of this offering, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the initial per-share redemption price would be $10.05. The proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the claims of public stockholders.
Our public stockholders shall be entitled to receive funds from the trust account only in the event of our failure to complete a business combination within the required time period, if the stockholders seek to have us convert or purchase their respective shares upon a business combination which is actually completed by us or upon certain amendments to our amended and restated certificate of incorporation prior to consummating an initial business combination. In no other circumstances shall a stockholder have any right or interest of any kind to or in the trust account.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.05 per share.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after twenty-four months from the date of this prospectus, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of incorporation contains certain requirements and restrictions relating to this offering that will apply to us until the consummation of our initial business combination. These provisions cannot be amended without the approval of a majority of our stockholders. If we seek to amend any provisions of our amended and restated certificate of incorporation that would affect our public stockholders’ ability to convert or sell their shares to us in connection with a business combination as described herein or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business combination within 21 months from the closing of this offering, we will provide dissenting public stockholders with the opportunity to convert their public shares in connection with any such vote. This conversion right shall apply in the event of the approval of any such amendment, whether proposed by our sponsor, any executive officer, director or director nominee, or any other person. Our sponsor, officers and directors have agreed to waive any conversion rights with respect to any founders’ shares, private shares and any public shares they may hold in connection with any vote to amend our amended and restated certificate of incorporation. Specifically, our amended and restated certificate of incorporation provides, among other things, that:
Competition
In identifying, evaluatingWPT competes with other poker-related television programming, including ESPN’s coverage of the “World Series of Poker” and selecting a target business, we may encounter intense competition fromits “World Series of Poker” Circuit Events, among others. These and other entities having a business objective similar to ours. Manyproducers of these entitiespoker-related programming are well established and may have extensive experience identifyingsignificantly greater resources than WPT does. Based on the popularity of these poker-related televised programs, WPT believes that additional competing televised poker programs may currently be in development or may be developed in the future. WPT’s programming also competes for telecast audiences and effecting business combinationsadvertising revenue with telecasts of mainstream professional and amateur sports, as well as other entertainment and leisure activities.
The esports gaming industry is also competitive. Competitors range from established leagues and championships owned directly, or through affiliates. Manyas well as leagues franchised by well-known and capitalized game publishers and developers, interactive entertainment companies, diversified media companies and emerging start-ups. New competitors will likely continue to emerge, and many of these competitors possesswill have greater technical, human and otherfinancial resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there may be numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources.Allied Esports.
The following also may not be viewed favorably by certain target businesses:
Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete effectively.
FacilitiesTerritories
We currently maintain our principal executive offices at 110 North 5th Street, Suite 410, Minneapolis, Minnesota 55403. The cost for this space is included insell products and services throughout the $10,000 per-month fee our sponsor will charge us for general and administrative services commencing on the date of this prospectus pursuant to a letter agreement between us and our sponsor. We believe, based on rents and fees for similar services in Minneapolis, Minnesota area, that the fee charged by our sponsor is at least as favorable as we could have obtained from an unaffiliated person. We consider our current office space, combined with the other office space otherwise available to our executive officers, adequate for our current operations.world.
Employees
We have three executive officers. These individuals are not obligated to devote any specific number
As of hours to our matters and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based on whether a target business has been selected for the business combination and the stage of the business combination process the company is in. Accordingly, once a suitable target business to acquire has been located, management will spend more time investigating such target business and negotiating and processing the business combination (and consequently spend more time on our affairs) thanDecember 31, 2019, we had been spent prior to locating a suitable target business. We presently expect our executive officers to devote such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full timeapproximately 146 employees, prior to the consummation of a business combination.including 20 employees that operated under collective-bargaining agreements.
Periodic Reporting and Audited Financial Statements
We have registered our units, common stock, rights and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual report will contain financial statements audited and reported on by our independent registered public accountants.
We will provide stockholders with audited financial statements of the prospective target business as part of any proxy solicitation materials or tender offer documents sent to stockholders to assist them in assessing the target business. These financial statements will need to be prepared in accordance with or reconciled to United States generally accepted accounting principles or international financial reporting standards. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have the necessary financial statements. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business.
We may be required to have our internal control procedures audited for the fiscal year ending December 31, 2018 as required by the Sarbanes-Oxley Act. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
Legal Proceedings
ThereThe Company is noinvolved in various disputes, claims, liens and litigation matters arising out of the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters, either individually or collectively, will have a material litigation, arbitrationadverse effect on the Company’s consolidated financial position, results of operations or governmental proceeding currently pending against us or any members of our management teamcash flows.
Properties
The Company’s main offices are leased and are located at 17877 Von Karman Avenue, Suite 300, Irvine, California, 92614. The Company considers this office space adequate for its current operations. The initial lease term will expire in their capacity as such, and weapproximately 2033, and the members of our management team have not been subjectCompany has two five-year options to any such proceeding in the 12 months preceding the date of this prospectus.renew.
Comparison to Offerings of Blank Check Companies Subject to Rule 419
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The following table comparessets forth the name and contrasts the termsage as of date of this prospectus and position of each of our offeringexecutive officers and the terms of an offering of blank check companies under Rule 419 promulgated by the SEC assuming that the gross proceeds, underwriting discounts and underwriting expenses for the Rule 419 offering are the same as this offering and that the underwriters will not exercise their over-allotment option. None of the terms of a Rule 419 offering will apply to this offering because we will have net tangible assets in excess of $5,000,000 upon the successful consummation of this offering and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this factdirectors.
| Name | ||||
| Age | Position | |||
| 77 | Chairman | |||
Directors and Executive Officers
Our current directors and executive officers are as follows:
| 50 | Director, Chief Executive Officer | ||||
| Chief Operating Officer | |||||
| Chief Financial Officer | |||||
| Bradley Berman | Director | ||||
| Benjamin | Director | ||||
| Joseph Lahti | Director | ||||
| Vice Chairman of the Board | |||||
| Adam Pliska | 46 | Director, President, and President and CEO of WPT | |||
| Maya Rogers | 40 | Director | |||
| Dr. Kan Hee Anthony Tyen | 63 | Director | |||
| Ho min Kim | 48 | Director |
Kenneth DeCubellis Lyle Bermanhas served as a director of the Company since May 2017 (when the Company at the time of such election was Black Ridge Acquisition Corp.). Mr. Berman has been oura director of Black Ridge Oil & Gas, Inc. since October 2016. Since June 1990, Mr. Berman has been the chairman and chief executive officer of Berman Consulting Corporation, a private consulting firm he founded. Mr. Berman began his career with Berman Buckskin, his family’s leather business, which he helped grow into a major specialty retailer with 27 outlets. After selling Berman Buckskin to W.R. Grace in 1979, Mr. Berman continued as president and chief executive officer and led the company to become one the country’s largest retail leather chains, with over 200 stores nationwide. In 1990, Mr. Berman participated in the founding of Grand Casinos, Inc. Mr. Berman is credited as one of the early visionaries in the development of casinos outside of the traditional gaming markets of Las Vegas and Atlantic City. In less than five years, the company opened eight casino resorts in four states. In 1994, Mr. Berman financed the initial development of Rainforest Cafe. He served as the chairman and chief executive officer from 1994 unti1 2000. In October 1995, Mr. Berman was honored with the B’nai B’rith “Great American Traditions Award.” In April 1996, he received the Gaming Executive of the Year Award; in 2004, Mr. Berman was inducted into the Poker Hall of Fame; and in 2009, he received the Casino Lifetime Achievement Award from Raving Consulting & Casino Journal. In 1998, Lakes Entertainment, Inc. was formed. In 2002, as chairman of the board and chief executive officer since our inception. Since November 2011,of Lakes Entertainment, Inc., Mr. DeCubellis hasBerman was instrumental in creating the World Poker Tour. Mr. Berman served as chiefthe executive officerchairman of our sponsor, Black Ridgethe board of WPT Enterprises, Inc. (later known as Voyager Oil & Gas, Inc. Black Ridgeand Emerald Oil, & Gas,Inc.) from its inception in February 2002 until July 2013. Mr. Berman also served as a director of PokerTek, Inc. from January 2005 until October 2014, including serving as chairman of the board from January 2005 until October 2011. Mr. Berman has a degree in business administration from the University of Minnesota. Mr. Berman is an oilthe father of Bradley Berman, one of our directors.
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Kwok Leung Frank Nghas served as a director and gas company that pursues distressed asset acquisitionsour Chief Executive Officer since August 2019. Mr. Ng has served as co-CEO of Ourgame International Holdings Limited (“Ourgame”), a leading casual game operator in all unconventional, onshore U.S. oilChina and gas basins, including over $100 million previously invested inowner of the Williston Basin in North DakotaWorld Poker Tour and Montana.Allied Esports, since 2006. Prior to joining Black Ridge Oil & Gas,that, he served as CFO of Ourgame beginning in 2004, when he assisted NHN China, a global internet search engine and online game company, where he served as co-CEO from 2000 to 2004, in acquiring Ourgame. Mr. DeCubellis was the presidentNg led a management buyout of Ourgame in 2010 and chief executive officer of Altra Inc., a venture capital backed biofuels company based in Los Angeles, California. He joined Altra in June 2006 as vice president, business development and was promoted to president in November of 2007 and chief executive officer in February 2008. When Mr. DeCubellis became chief executive officer of Altra Inc in 2008,led the company wasthrough its listing on the Hong Kong Stock Exchange in deep financial distress. Mr. DeCubellis implemented a comprehensive corporate wide restructuring effort that was completed in 2009. This included restructuring2014. With its public listing and eliminating allsubsequent acquisition of the debt at Altra Inc, raising capital at Altra IncWorld Poker Tour (in 2015) and refocusing the strategyfounding of the company onAllied Esports (in 2016), Ourgame has grown to be a technology license. As partleading global operator and creator of this restructuring, certain wholly-owned subsidiaries of Altra, Inc. surrendered assets to lenders or entered in receivership. From 1996 to 2006,gaming and esports content and experiences. Mr. DeCubellis was an executive with Exxon Mobil Corp. in Houston, Texas. Mr. DeCubellis also previouslyNg served as the chairman of KD Global Energy Belize Ltd., a company that provides technicalChief Commercial Officer at PCCW Skyhorse, which produces content and business services for petroleum lease holders in Belize.online gaming applications, from 2000 until 2003. Mr. DeCubellis holdsNg has a B.S. in Mechanical EngineeringBusiness Administration and Management degree from Rensselaer Polytechnic Institute, an MBA from Northwestern University’s JL Kellogg Graduate Schoolthe University of Management, and a Masters of Engineering Management from Northwestern University’s McCormick School of Engineering.California, Berkeley.
We believeDavid Moon has served as our Chief Operating Officer since August 2019. Since December 2018, Mr. DeCubellis is well-qualifiedMoon has provided consulting services to Allied Esports. Since June 2018, Mr. Moon has also served as Global President of Ourgame. From December 2014 to December 2016, Mr. Moon was COO and co-founder of Zig Zag Zoom, a publisher of cause-driven mobile games. Before that, from November 2012 to November 2014, he was VP of Global Production and Operations in Disney Interactive’s Asia Games Group. He was a co-founder of StudioEx, a mobile and PC game studio in 2009, which Disney acquired in 2012. He continues to serve as a director of StudioEx. Mr. Moon was a founding member of our boardHangame, a popular South Korean online game portal, and NHN Entertainment Corporation, a developer, publisher and distributor of directors duemobile and PC games, where he led corporate development and global expansion efforts from 2000 to his executive leadership2006. He is also the founder of Metamedia Entertainment, a digital media venture that develops and industry experience.produces interactive digital experiences, including TV-everywhere content and platforms that drive virality, engagement, retention, and monetization.
Michael EiseleAnthony Hung has been our chief operating officer since May 2017. Mr. Eisele has been the chief operating officer of our sponsor since August 2013, and prior to that had served as our sponsor’s vice president of landChief Financial Officer since September 2019. Before joining the Company, from August 2012 to August 2013, overseeing its acreage portfolio2019, he served as the CEO and managing acquisitions and divestitures.CFO of Audio Design Experts, a privately held provider of premier audio solutions for leading consumer brands around the world. Prior to joining our sponsor, Mr. Eisele was the co-owner and landman of High West Resources, Ltd.his role at Audio Design Experts, from 2011 to July 2012, the owner of Eisele Resources LLC from 20092010 to 2012 Mr. Hung was Senior Vice President, Business Development and Sales for Cooking.com where he oversaw the e-commerce services business as well as advertising sales operations. He also served as the Chief Financial Officer of Golden Eye Dealership Solutions, a self-employed landmansoftware-as-a-service start-up focused on automotive dealerships, from 2008 to 2010 and was Vice President, Business Development & Acquisitions for ESPN from 2007 to 2009. Mr. Eisele is a graduate of Luther College (B.A.).
James Moe has been our chief financial officer, secretary and treasurer since May 2017. Mr. Moe has been the chief financial officer of our sponsor since March 2011. Mr. Moe had previously been the chief financial officer of Northern Contours Inc., a multi-state manufacturing company located in Mendota Heights, Minnesota specializing in cabinet doors and work surfaces,2008. Prior to this, from August 2005 until March 2011. From January 20041997 to August 2005,2007, he was the chief financial officer of Trimodal Inc.,General Partner at DynaFund Ventures, a trucking and container handling company located in Bloomington, Minnesota, which operated in seven cities in the Midwest and East Coast. From April 2000 to December 2003, Mr. Moe was the corporate controller of Simondelivers.com, a$220 million venture capital backed start-up company locatedfund. He also held positions of increasing responsibility in Golden Valley, Minnesota providing home deliveryfinance and strategy at The Walt Disney Company (NYSE: DIS). He began his career as an investment banker at Donaldson, Lufkin & Jenrette Securities in 1989. Mr. Hung holds a Master of groceries ordered over the internet. From October 1994 to April 2000, he was the corporate controller of Recovery Engineering Inc., a publicly traded manufacturer and distributor of small-scale water filters located in Brooklyn Park, Minnesota. From November 1989 to October 1994, Mr. Moe was the controller of Standard Iron and Wire Works, a privately held multi-division metal fabricator operating three plants in Minnesota. Upon graduatingBusiness Administration degree from the University of Minnesota withAnderson School at UCLA and a Bachelor of ScienceArts degree in accounting in 1985, Mr. Moe worked as a senior accountant until November 1989 for Boulay, Heutmaker, Zibell & Company.Economics from Harvard College.
Bradley Berman has beenserved as a director of the Company since May 2017.2017 (when the Company at the time of such election was Black Ridge Acquisition Corp.). He has been the chairman of our sponsorBlack Ridge Oil & Gas, Inc. since November 2010 and has served as a director of our sponsorBlack Ridge Oil & Gas, Inc. since its inception in April 2010. He was our sponsor’sthe chief executive officer of Black Ridge Oil & Gas, Inc. from November 2010 to November 2011, its chief financial officer between November 12,��2010 and November 15, 2010, and its corporate secretary from November 2010 to February 2011. Mr. Berman is the president of King Show Games, Inc., a company he founded in 1998. Mr. Berman has worked in various capacities in casino gaming from 1992 to 2004 for Grand Casinos, Inc. and then Lakes Entertainment, Inc., achieving the position of Vice President of Gaming, after which he assumed a lesser role in that company. Mr. Berman was a director of Voyager Oil and Gas, Inc. (formerly Ante4 and WPT) from August 2004 to November 2010. Mr. Berman is the son of Lyle Berman, one of our directors.
We believe Mr. Berman is well-qualified to serve as a member of our board of directors due to his executive leadership and industry and financing experience.
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Benjamin S. Oehler has beenserved as a director of oursthe Company since May 2017.2017 (when the Company at the time of such election was Black Ridge Acquisition Corp.). Mr. Oehler has been a director of our sponsorBlack Ridge Oil & Gas, Inc. since November 2010, and chairman of its audit committee and compensation committee since February 2011. Mr. Oehler is a Founding Partner of Windward Mark, LLC which advises business owners with regard to strategic planning, owner governance and education, business continuity, legacy, philanthropy and liquidity. Windward Mark LLC is a continuation of Mr. Oehler’s consulting practice at Bashaw Group. Inc. (2007-2017)(2007 to 2017) and Linea Capital, LLC (2009 -to 2017). From 1999 to 2007, Mr. Oehler was the president and chief executive officer of Waycrosse, Inc., a financial advisory firm for the family owners of Cargill Incorporated. While at Waycrosse, Mr. Oehler was the primary advisor to the five family members who were serving on the Cargill Incorporated board of directors from 1999 to 2006. Mr. Oehler played a key role in two major growth initiatives for Cargill: the merger of Cargill’s fertilizer business into a public company which is now Mosaic, Inc., and the transformation of Cargill’s proprietary financial markets trading group into two major investment management companies: Black River Asset Management, LLC and CarVal Investors, LLC. An investment banker for 20 years, Mr. Oehler’s transaction experience includes public offerings and private placements of debt and equity securities, mergers and acquisitions, fairness opinions and valuations of private companies. Prior to joining Waycrosse, Mr. Oehler was an investment banker for Piper Jaffray. By the time he left Piper Jaffray in 1999, he was group head for Piper’sPiper Jaffray’s Industrial Growth Team. He has also played a leadership role in a number of corporate buy-outs and venture stage companies, served on corporate and non-profit boards of directors, and has been involved in the creation and oversight of foundations and charitable organizations, as well as U.S. trusts and off-shore entities.
Mr. Oehler has been a board member and/or founder of many non-profit organizations including the Minnesota Zoological Society, Minnesota Landscape Arboretum, The Lake Country Land School, Greencastle Tropical Study Center, Park Nicollet Institute, Afton Historical Society Press, United Theological Seminary and University of Minnesota Investment Advisor, Inc. He has been a director of Waycrosse, Inc., WayTrust Inc., Dain Equity Partners, Inc., Time Management, Inc., BioNIR, Inc. and Agricultural Solutions, Inc. In September 2007, Mr. Oehler completed the Stanford University Law School Directors Forum, a three-day update on key issues facing corporate directors presented by the Stanford Business School and Stanford Law School. From 1984 through 1999, Mr. Oehler was registered with the National Association of Securities Dealers (“NASD”) as a financial principal. Mr. Oehler is a graduate of the University of Minnesota College of Liberal Arts and has completed all course work at the University of Minnesota Business School with a concentration in finance.
We believe Mr. Oehler is well-qualified to serve as a member of our board of directors due to his executive leadership and industry and financing experience.
Joseph Lahti has beenserved as a director of oursthe Company since May 2017.2017 (when the Company at the time of such election was Black Ridge Acquisition Corp.). Mr. Lahti has been a director of our sponsorBlack Ridge Oil & Gas, Inc. since August 2012. Mr. Lahti is a Minneapolis native and leader in numerous Minnesota business and community organizations. As principal of JL Holdings since 1989, Mr. Lahti has provided funding and management leadership to several early-stage or distressed companies. From 1993 to 2002, he held the positions of chief operating officer, president, chief executive officer and chairman at Shuffle Master, Inc., a company that provided innovative products to the gaming industry. Mr. Lahti served as a director of PokerTek, Inc., a publicly traded company, from 2008 until it was sold in October 2014 (including serving as Chairmanchairman of the Boardboard from 2012 to 2014), and he is also an independent director and Chairmanchairman of the Boardboard of AFAMInnealta Capital, an investment manager. Within the pastMore than five years ago, Mr. Lahti served on the board of directors of Voyager Oil & Gas, Inc. and Zomax, Inc., and more than five years ago Mr. Lahti served as the Chairmanchairman of the Boardboard of directors of Shuffle Master, Inc. and served on the board of directors of Zomax, Inc. Through his public company Boardboard experience, he has participated on, and chaired, both Audit and Compensation Committees. Mr. Lahti has a Bachelor of Arts degree in Economics from Harvard College.
We believe Mr. Lahti is well-qualified to serveHo min Kimhas served as a memberdirector of our boardthe Company since August 2019. He is a co-Founder and Partner at SparkLabs Global Ventures. He is also a co-Founder and Partner at SparkLabs, a startup accelerator in Korea. He was also co-Founder and President of directors dueN3N, an IoT platform company and Cisco’s first Korean venture capital investment. Previously, he was Chief Executive Officer of Nexonova, a game development studio of Nexon Corp (Japan Tokyo Stock Exchange: 3659) that specialized in Social Network Games. Prior to Nexonova, he served as Executive Vice President of Nexon Corp, and Head of Nexon’s Portal and Web Services. He received his executive leadershipB.S. in Bio-medical Engineering from Northwestern University, and industryalso a M.S. in Bio-medical Engineering from Korea Advanced Institute of Science and financing experience.Technology (KAIST). He also completed the Stanford University’s Graduate School of Business’s Executive Management Program.
Lyle BermanEric Qing Yanghas been a director of ours since May 2017. Mr. Berman has been a director of our sponsor since October 2016. Since June 1990, Mr. Berman has been the chairman and chief executive officer of Berman Consulting Corporation, a private consulting firm he founded. Mr. Berman began his career with Berman Buckskin, his family’s leather business, which he helped grow into a major specialty retailer with 27 outlets. After selling Berman Buckskin to W.R. Grace in 1979, Mr. Berman continued as president and chief executive officer and led the company to become one the country’s largest retail leather chains, with over 200 stores nationwide. In 1990, Mr. Berman participated in the founding of Grand Casinos, Inc. Mr. Berman is credited as one of the early visionaries in the development of casinos outside of the traditional gaming markets of Las Vegas and Atlantic City. In less than five years, the company opened eight casino resorts in four states. In 1994, Mr. Berman financed the initial development of Rainforest Cafe. He served as the chairman and chief executive officer from 1994 unti1 2000. In October 1995, Mr. Berman was honored with the B’nai B’rith “Great American Traditions Award.” In April 1996, he received the Gaming Executive of the Year Award; in 2004, Mr. Berman was inducted into the Poker Hall of Fame; and in 2009, he received the Casino Lifetime Achievement Award from Raving Consulting & Casino Journal. In 1998, Lakes Entertainment, Inc. was formed. In 2002, as chairman of the board and chief executive officer of Lakes Entertainment, Inc., Mr. Berman was instrumental in creating the World Poker Tour. Mr. Berman served as the executive chairman of the board of WPT Enterprises, Inc. (later known as Voyager Oil & Gas, Inc. and Emerald Oil, Inc.) from its inception in February 2002 until July 2013. Mr. Berman also served as a director of PokerTek, Inc.the Company since August 2019. He has also served as Chairman of the Board and co-Chief Executive Officer of Ourgame since January 2011. Since joining Ourgame, Mr. Yang spearheaded the effort to refocus the company to its core competency of online card and board games and helped restore the company and its brand to its preeminence as one of the leading online card and board game platforms in China with more than 200 games titles and approximately 700 million registered users. Ourgame was listed in the Hong Kong Stock Exchange main board in June 2014. After Ourgame’s listing, Mr. Yang lead the effort to expand Ourgame’s business globally with the acquisition of the World Poker Tour in June 2015 and the launch of the company’s effort on eSports in China, the US and Europe and in the process transforming Ourgame into a global sports and entertainment company. Prior to Ourgame, Mr. Yang was a partner in IBM’s Global Services division from January 2005 until October 2014,1995 to December 2010 and served in a number of senior management positions that provided consulting and outsourcing services to clients across a number of industries in China, Asia and globally that included director for Business Process Services for the Industrial and Distribution sectors for global emerging markets, director for managed business process services for small and medium business for Asia Pacific and partner for Distribution sector for Greater China. Mr. Yang holds a Bachelor of Science degree from the University of California at Berkeley and an EMBA from the Cheung Kong Graduate School of Business.
Adam Pliskahas served as a director and as the Company’s President since August 2019. He has been with the World Poker Tour since 2003. As President and CEO of WPT, Mr. Pliska has overseen the entire WPT business portfolio, including serving as chairmanbut not limited to live events, online services, televised broadcasts, and WPT office personnel in Los Angeles, London and Beijing. He is one of the boardlongest serving executives in the poker industry and was named the American Poker Awards Industry Person of the Year for 2014. Under his watch, the WPT has witnessed massive global growth from January 2005 until October 2011.14 events to over 60 worldwide on 6 continents, has maintained historic ratings of one of the longest running television shows in US history and has awarded more than a billion dollars over its 18 years. In addition to his position as CEO, Mr. BermanPliska serves as Executive Producer of the World Poker Tour television show and is the fatherco-writer of Brad Berman, one of our directors.the WPT Theme song Rise Above.
We believeFrom November 2000 to June 2002, Mr. BermanPliska served as the Vice-President of Legal and Business Affairs and eventually General Counsel for Anticipa, LLC, a multi-media company headed by the futurist, Alvin Toffler, a Telmex Corporation. In addition, Mr. Pliska served as an associate at the law firm of Sonnenschein, Nath & Rosenthal in Los Angeles from July 1999 to November 2000, where he worked on various litigation and intellectual property matters. Before his legal career, Mr. Pliska worked as a television producer in connection with noted industry veteran Al Burton, including work at Universal Television and Castle Rock Entertainment where he produced and developed numerous television properties. Mr. Pliska contributed and worked on various programs including The New Lassie, Baywatch, Out of the Blue, and shares an Emmy Award for his contributions to television creative development. While at Berkeley Law, he worked as a research assistant to Professor John Yoo and was an external to the 9th Circuit Court of Appeals for the Judge Alex Kozinski and at the Governor’s Office of Legal Affairs in the state of California for then Governor Pete Wilson.
He has served as a mentor of the Tiger Wood’s Foundation Earl Woods Scholar program, is well-qualified to serve as a member of ourthe Pacific Council, a director of the WPT Foundation and on the board of directors due to his executive leadershipthe GOCAT (Greater Orange County Community Arts Theater). Mr. Pliska holds a B.A. from the University of Southern California’s School of Cinematic Arts and industry and financing experience.a J.D. from University of California Berkeley’s Law School, Boalt Hall.
Our board of directors is divided into three classes with only one class of directors being elected in each year and each class servingMaya Rogershas served as a three-year term. The term of officedirector of the first classCompany since August 2019. She has served as President and Chief Executive Officer of directors, consisting of Bradley Berman, will expire at our first annual meeting of stockholders. The term of officeBlue Planet Software, the sole agent of the second class of directors, consisting of Joseph Lahti and Benjamin Oehler, will expire at the second annual meeting. The term of office of the third class of directors, consisting of Ken DeCubellis and Lyle Berman, will expire at the third annual meeting.Tetris brand, since 2011.
Executive Compensation
No executive officer has received any cash compensation for services rendered to us. Commencing on the date of this prospectus through the acquisition of a target business, we will pay our sponsor an aggregate fee of $10,000 per month for providing us with office space and certain office and secretarial services. However, this arrangement is solely for our benefit and is not intended to provide our executive officers or directors compensation in lieu of a salary.
Other than the $10,000 per month administrative fee and the repayment of the $125,000 loan made by our sponsor to us, no compensation or fees of any kind, including finder’s, consulting fees and other similar fees, will be paid to our sponsor, members of our management team or their respective affiliates, for services rendered prior to or in connection with the consummation of our initial business combination (regardless of the type of transaction that it is). However, they will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations. There is no limit on the amount of out-of-pocket expenses reimbursable by us.
After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider an initial business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its determination in a Current Report on Form 8-K, as required by the SEC.
Director Independence
Currently Messrs. Berman, Oehler, Lahti and Berman would each be considered an “independent director” under the Nasdaq listing rules, which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Any affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Our board of directors will review and approve all affiliated transactions with any interested director abstaining from such review and approval.
Audit Committee
Ms. Rogers is also Founding Partner of Blue Startups, Hawaii’s first venture accelerator, which helps early stage startups accelerate their businesses with investments and mentoring. From 2007 to 2009, Ms. Rogers worked as a Director of Business Development at Tetris Online China on the go-to-market strategy assessment on mid to long-term feasibility for Tetris to enter the Chinese online PC market. There she pursued and negotiated with potential Chinese gaming companies for joint venture opportunities in Shanghai, Beijing and Taiwan. Prior to heading Tetris, Ms. Rogers steered cross-culturalization and development efforts for Sony Interactive Entertainment where she executed and oversaw the localization strategies across Sony PlayStation games, including Sony’s top titles Gran Turismo and Hotshots Golf franchises. Ms. Rogers currently serves on the boards of the Smithsonian Asian Pacific American Center, American Red Cross - Hawaii Chapter, Women’s Fund of Hawaii, Chamber of Commerce Hawaii, and the Daniel K. Inouye Asia-Pacific Center for Security Studies. Ms. Rogers holds a BS in Business Administration from Pepperdine University and an Executive MBA from Pepperdine Graziadio School of Business and Management.
Effective upon
Dr. Kan Hee Anthony Tyen has served as a director of the dateCompany since August 2019. He has been an independent non-executive Director of this prospectus, weOurgame since March 2018. He is also the chairman of Audit Committee, a member of the Remuneration Committee, the Risk Management Committee and the Nomination and Corporate Governance Committee of Ourgame’s board of directors. Dr. Tyen currently serves as served as an independent non-executive director of China Baofeng (International) Limited (formerly known as Mastercraft International Holdings Limited) (since February 2016), and previously served as an independent non-executive director of Melco International Development Limited from June 2010 through June 2019. Both companies are listed on the Hong Kong Stock Exchange. He is also the chairman of the audit committees of both companies. Dr. Tyen was previously an independent non-executive director of four Hong Kong listed companies, namely, Value Convergence Holdings Limited, Recruit Holdings Limited, ASR Logistics Holdings Limited, and Summit Ascent Holdings Limited. He was also an independent director of Entertainment Gaming Asia Inc., a company listed at the time on the Nasdaq Capital Market in the United States, as well as Alpha Peak Leisure Inc., a company listed on the TSX Venture Exchange in Canada. He started his career with Price Waterhouse in 1977 and later joined KMG and Morgan Guaranty Trust Company before incepting his own practice in 1985. His practice later merged with Grant Thornton and Dr. Tyen became a partner with the firm between 1990 and 1998. After a short spell with a local bank in 2001, Dr. Tyen resumed his own practice in 2003. Dr. Tyen holds a Doctoral degree in Philosophy (School of Accountancy, 1998) and a Master’s degree in Business Administration (1986), both from The Chinese University of Hong Kong. He is an associate member of the Hong Kong Institute of Certified Public Accountants (since 1981) and the Taxation Institute of Hong Kong (since 1985). Dr. Tyen is also a fellow member of The Association of Chartered Certified Accountants (fellow since 1985), the Institute of Chartered Secretaries and Administrators (fellow since 2002) and The Hong Kong Institute of Directors (fellow since 2012). He is currently a practicing certified public accountant in Hong Kong and has over 42 years’ experience in auditing, accounting, management and company secretarial practice.
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Family Relationships
Mr. Bradley Berman, one of our directors, is the son of Mr. Lyle Berman, one of our directors. There are no other family relationships between any of the other executive officers and directors.
Board Leadership Structure and Role in Risk Oversight
Upon consummation of the Merger in August 2019, Lyle Berman was appointed as Chairman of the Board and Eric Yang was appointed as Vice Chairman. Frank Ng also became our Chief Executive Officer. We believe that separating the positions of Chairman of the Board and Chief Executive Officer separate will establishpermit our Chief Executive Officer to concentrate his efforts primarily on managing business operations and development. This will also allow us to maintain an audit committeeindependent Chairman of the Board who oversees, among other things, communications and relations between our Board of Directors and senior management, consideration by our Board of Directors of the company’s strategies and policies, and the evaluation of our principal executive officers by our Board of Directors.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2019, the Company’s board of directors held six meetings. We expect our directors to attend all board meetings and any meetings of committees of which they are members and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Each of our current directors attended all of the meetings of the board and meetings of committees of which he or she was a member in fiscal year 2019. Although we do not have any formal policy regarding director attendance at stockholder meetings, we attempt to schedule meetings so that all directors can attend.
We have a separately standing audit committee, compensation committee and nominating committee, each of which will consistis comprised of three independent directors. Each of the Company’s committees have a separately adopted charter which is available on the Company’s website at ir.alliedesportsent.com.
Independence of Directors
Nasdaq listing standards require that a majority of our Board of Directors be “independent directors” as defined by The Nasdaq Marketplace Rules. We currently have eight “independent directors”, Messrs. Bradley Berman, Benjamin Oehler, Joseph Lahti, Lyle Berman, Eric Qing Yang, Dr. Kan Hee Anthony Tyen and Ho min Kim, and Ms. Maya Rogers.
Audit Committee Information
Our audit committee consists of Benjamin Oehler (chairman), Joseph Lahti, and Lyle Berman, each of whom is an independent director under Nasdaq’s listing standards. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:Anthony Tyen.
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Each member of the audit committee is financially literate and our Board of Directors has determined that Mr. Oehler qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
Pursuant to our audit committee charter, responsibilities of the audit committee include:
| · | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K; | |
| · | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; | |
| · | discussing with management major risk assessment and risk management policies; | |
| · | monitoring the independence of our independent auditor; | |
| · | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; | |
| · | reviewing and approving all related-party transactions; | |
| · | inquiring and discussing with management our compliance with applicable laws and regulations; | |
| · | pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; | |
| · | appointing or replacing the independent auditor; | |
| · | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; | |
| · | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and | |
| · | approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
During the fiscal year ended December 31, 2019, the Company’s audit committee held two meetings. Each of our audit committee members attended all of the meetings of the audit committee in fiscal year 2019.
Financial Experts on Audit Committee
The audit committee will, at all times, be composed exclusively of “independent directors”directors,” as defined for audit committee members under the Nasdaq listing standards and the rules and regulations of the SEC, who are “financially literate”literate,” as defined under Nasdaq’s listing standards. Nasdaq’s listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, we must certify to Nasdaq that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The boardBoard of directorsDirectors has determined that Mr.each member of the audit committee satisfies Nasdaq’s definition of financial sophistication and that Benjamin Oehler qualifies as an “audit committee financial expert,”expert” as defined under rules and regulations of the SEC.
Nominating Committee
Effective upon the date of this prospectus, we will establish a nominating committee of the board of directors, which will consist of Bradley Berman
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Nominating Committee Information
Messrs. Eric Yang (chairman), Benjamin OehlerHo Min Kim and Lyle Berman eachserve as members of whomour nominating committee. Each member of the nominating committee is an independent director under Nasdaq’sthe applicable Nasdaq listing standards. The nominating committee has a written charter. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our boardBoard of directors. TheDirectors. During the fiscal year ended December 31, 2019, the nominating committee considers persons identified bydid not meet, as there was no need since the Company has not held an annual meeting of its members, management, stockholders investment bankers and others.since the closing of the Merger.
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in the Nominating Committee Charter,nominating committee charter, generally provide that persons to be nominated:
| should have demonstrated notable or significant achievements in business, education or public service; | ||
| · | should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and | |
| · | should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders. |
The Nominating Committeenominating committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by stockholders and other persons.
Compensation Committee Information
Effective upon the date of this prospectus, we will establish aOur compensation committee consists of Maya Rogers (chairman), Ho Min Kim and Bradley Berman.
Each of the boardmembers of directors, which will consist of Lyle Berman (chairman), Joseph Lahti and Benjamin Oehler, each of whomthe compensation committee is an independent director under Nasdaq’sthe applicable Nasdaq listing standards. The compensation committee has a written charter. The compensation committee’s duties, which are specified in our Compensation Committee Charter,the compensation committee charter, include, but are not limited to:
| · | reviewing and approving on an annual basis the corporate goals and objectives relevant to the Company’s Chief Executive Officer’s compensation, evaluating the Company’s Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of the Company’s Chief Executive Officer’s based on such evaluation; | |
| · | reviewing and approving the compensation of all of our other executive officers; | |
| · | reviewing our executive compensation policies and plans; | |
| · | implementing and administering our incentive compensation equity-based remuneration plans; |
Code of Ethics
Effective upon consummation of this offering, we will adopt a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.
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| · | assisting management in complying with our proxy statement and annual report disclosure requirements; | |
| · | approving all special perquisites, special cash payments, and other special compensation and benefit arrangements for our executive officers and employees; | |
| · | if required, producing a report on executive compensation to be included in our annual proxy statement; and | |
| · | reviewing, evaluating, and recommending changes, if appropriate, to the remuneration for directors. |
Conflicts of Interest
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
Each of our officers and directors is an officer and/or director of our sponsor. As described elsewhere in this prospectus, our sponsor is an oil and gas company that pursues distressed asset acquisitions in the energy industry, the same industry within which we intend to focus our search for a target business. As a result, it is possible that a potential opportunity could be suitable for us as well as our sponsor. Our sponsor recently completed a rights offering in which it raised an aggregate of approximately $5,182,000. Of this amount, up to $3,875,000 (assuming the underwriters’ over-allotment option is exercised in full) would be used to purchase the private units with the balance being available to our sponsor for working capital purposes, including potential investments and acquisitions. However, our sponsor intends to acquire assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them, whereas we intend to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company. Accordingly, our management team does not believe that there will be a meaningful conflict between our sponsor and our company in relation to consummating a business combination. Nevertheless, we cannot assure you of this fact and it is possible that a suitable business opportunity will be presented to our sponsor prior to its presentation to our company.
In relationEXECUTIVE AND DIRECTOR COMPENSATION
The following tables set forth information regarding compensation awarded to or earned by our “named executive officers,” which under SEC rules and regulations include (i) all individuals serving as our principal executive officer during fiscal 2019, (ii) our two most highly compensated other individuals who were serving as executive officers at the foregoing,end of fiscal 2019 and who received total compensation in excess of $100,000, and (iii) up to two additional individuals for whom disclosure would have been required under (ii) but for the fact that they were not serving as executive officers at the end of fiscal 2019. For 2019, our amendednamed executive officers were:
___________
| (1) | Mr. DeCubellis’s employment with the Company terminated upon closing of the Merger on August 9, 2019. |
Summary Compensation Table
| Summary Compensation Table | |||||||||||||||||||
| Name and principal position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Nonequity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | |||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||
| Kwok Leung Frank Ng, Chief Executive Officer | 2017 2018 2019 | – – 122,308 | – – – | – – 120,000(1) | – – 553,632 | – – – | – – – | – – – | – – 795,940 | ||||||||||
| Judson Hannigan, CEO of Allied Esports | 2017 2018 2019 |
218,580(3) 179,250 | – – – | – 50,000(5) | – 264,588 | – – | – – | – – – | 218,580 493,838 | ||||||||||
| Adam Pliska, President and Director, CEO of the World Poker Tour | 2017 2018 2019 |
409,407(6) |
113,440 1,706,086(7) | – 7,078(8) 45,000(9) |
�� | – – | – – | – – |
529,925 | ||||||||||
| Ken DeCubellis, former CEO of BRAC | 2017 2018 2019 | – – – | – – | – – – | – – – | – – – | – – – | – – – | – – – | ||||||||||
___________________
| (1) | Pursuant to a Restricted Stock Agreement dated effective September 20, 2019, Mr. Ng was issued 17,668 shares of restricted common stock of the Company, which vests on the earliest of termination of Mr. Ng’s employment without “Cause” (as defined in the agreement), resignation of Mr. Ng for “Good Reason” (as defined in the agreement) or September 20, 2020 so long as Mr. Ng remains an employee or service provider at such time. Additionally, Mr. Ng was awarded an additional 3,534 shares of restricted common stock of the Company pursuant to a Restricted Stock Agreement dated effective September 20, 2019 for director services, which vest on September 20, 2020 so long as Mr. Ng remains a director at such time. | |
| (2) | Consulting services fee was paid to Big Turn International Limited, a company to which Mr. Hannigan has an ownership interest in, totaling $170,580. Mr. Hannigan’s services as a full-time employee began in September 2017 with a total earned salary of $48,000 in 2017. | |
| (3) | Consulting services fee was paid to Big Turn International Limited, a company to which Mr. Hannigan has an ownership interest in, totaling $74,580. Mr. Hannigan’s services as a full-time employee earned a total salary of $143,420 in 2018. | |
| (4) | Pursuant to a Stock Purchase Agreement dated November 5, 2018, and as amended on December 17, 2018 and April 16, 2019, Mr. Hannigan purchased 275,871 restricted shares of common stock of Allied Esports Media, Inc. (f/ka/ Allied Esports Entertainment, Inc.) at a price per share of $0.001. The shares are subject to the following forfeiture provisions: (i) if the Merger was not consummated on or prior to July 1, 2019, upon request of Allied Esports Media, Inc. Mr. Hannigan would exchange such shares for options to purchase an equal amount of shares of common stock of Allied Esports International, Inc.; (ii) effective upon the Merger and continuing until the one-year anniversary of the Closing Date (the “Forfeiture Period”), Mr. Hannigan will forfeit the shares unless he provides substantial services to AEM or its affiliates; and (iii) such risk of forfeiture will lapse upon the first to occur of (A) the end of the Forfeiture Period, as described above; (B) the termination of Mr. Hannigan’s services for any |
| (5) | Pursuant to a Restricted Stock Agreement dated effective September 20, 2019, Mr. Hannigan was issued 8,834 shares of restricted common stock of the Company, which vests on the earliest of termination of Mr. Hannigan’s employment without “Cause” (as defined in the agreement), resignation of Mr. Hannigan for “Good Reason” (as defined in the agreement) or September 20, 2020 so long as Mr. Hannigan remains an employee or service provider at such time. | |
| (6) | $85,000 of such compensation was paid to Mr. Pliska (via Trisara, a consulting company he is a member of) for his services as a director to Ourgame and | |
| (7) | $1,556,250 paid to Mr. Pliska on account of Mr. Pliska’s Employment Agreement as a profitability payment after it was determined that the WPT business reduced its losses or became profitable, and $149,836 paid for Mr. Pliska’s services in 2019. | |
| (8) | Pursuant to a Stock Purchase Agreement dated November 5, 2018, and as amended on December 17, 2018 and April 16, 2019, Mr. Pliska purchased 21,447 restricted shares of common stock of Allied Esports Media, Inc. (f/k/a Allied Esports Entertainment, Inc.) at a price per share of $0.001. The shares are subject to the following forfeiture provisions: (i) if the Merger was not consummated on or prior to July 1, 2019, upon request of Allied Esports Media, Inc. Mr. Pliska would exchange such shares for options to purchase an equal amount of shares of common stock of Allied Esports International, Inc.; (ii) during the Forfeiture Period, Mr. Pliska will | |
| (9) | Pursuant to a Restricted Stock Agreement dated effective September 20, 2019, Mr. Pliska was issued 4,417 shares of restricted common stock of the |
In general, Allied Esports and WPT compensated its executive officers through a combination of salary and bonuses. Bonuses have generally been tied to performance metrics agreed to by the applicable board of directors and if earned, are typically between 10% and 20% of the applicable employee’s annual salary (although in the case of Mr. Pliska, that bonus percentage could be as high as 60% of his annual salary). Both companies offer 401(k) benefits (including, in the case of WPT, a matching contribution of up to 4% of the employee’s annual salary), medical, dental, life insurance and disability coverage, flexible benefit accounts, and an employee assistance program. Both companies also provide vacation and other paid holidays to employees. Other than certain senior-level executives, both companies typically do not enter into employment agreements with their employees.
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Adam Pliska Employment Agreement
Adam Pliska, who served as President and CEO of the WPT Entities and as an executive for Ourgame prior to the Merger, and who now serves as President of the Company and CEO of the WPT Entities, has an Executive Engagement Agreement with Ourgame, dated as of January 24, 2018 and as amended in June 2018 (the “Pliska Employment Agreement”). Ourgame’s obligations under the Pliska Employment Agreement were assumed by the Company in connection with the Merger.
In addition to our sponsor, our officersthe standard 401(k), healthcare, paid vacation and directors are, and may insimilar benefits provided to all employees, the future become, affiliated with other companies. In order to minimize potential conflicts of interest which may arise from such other corporate affiliations, each of our officers and directors has contractually agreed, pursuant to a written agreement with us, untilPliska Employment Agreement contains the earliest of our execution of a definitive agreement for a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity which may reasonably be required to be presented to us, subject to any pre-existing fiduciary or contractual obligations he might have.
The following table summarizes the relevant pre-existing fiduciary or contractual obligations of our officers and directors besides our sponsor:general terms:
| · | Four-year term, expiring on January 24, 2022 (the “Term”), subject to renewal upon mutual agreement. |
| Annual salary (subject to annual review) of |
| If Mr. Pliska’s employment is terminated for any reason during the Term, he will be entitled to |
| · | In the event of the termination of Mr. Pliska’s employment of the sale of WPT from Ourgame, Ourgame’s obligations to Trisara will continue; provided, however, the current maximum yearly payment shall increase from $85,000 to $150,000 (adjusted yearly to higher of inflation or the deemed inflation rate of Ourgame) |
| · | Upon any termination of Mr. Pliska’s employment, in light of his 15 years of experience with WPT, Trisara will continue to receive a consulting fee of $100,000 per year (subject to increase for inflation) for as long as is legally permissible, up to a maximum of forty (40) years; provided that Mr. Pliska will not take full time employment with the World Series of Poker without the written consent of WPT for so long as such payments are made. |
| · | Annual performance bonuses upon reaching certain EBITDA performance objectives of up to 40% of Mr. Pliska’s annual salary, as well as bonuses of up to 60% of Mr. Pliska’s base salary if he exceeds such performance objectives. |
| · | Grant of equity incentives in any annual grant program at a level commensurate for his title and subject to established performance standards. |
| · | A bonus payable to Trisara upon the sale of WPT equal to 2% of the total gross proceedsup to $45 million from the sale of the WPT business, and an additional 1% of any proceeds over $45 million. Because the WPT business was valued at $50 million for purposes of the Merger, Trisara was entitled to a payment of $950,000 in connection with the above provisions upon the closing of the Merger. This bonus was paid at the closing of the Merger by the issuance of 144,158 restricted shares of AESE common stock, which are subject to transfer and forfeiture restrictions. |
| · | The right to receive a profitability payment of up to $1.5 million in the event the WPT business reduced its losses or became profitable during the term of the Pliska Employment Agreement. Pursuant to Ourgame’s and WPT’s standard employee bonus policies, in early 2019, Ourgame and WPT determined that Mr. Pliska is entitled to receive the full $1.5 million payment. This bonus was paid at the closing of the Merger. | |||
| · | ||||
| Unless terminated for Cause, any termination of Mr. | ||||
Investors should also be aware of the following potential conflicts of interest:
| Mr. Pliska is prohibited during the Term from (i) becoming employed in any activity similar to or competitive with the business or activities of AESE, provided that legal services, investment services and non-poker related television shall not be deemed competitive if not engaged on a full time basis (ii) seeking to persuade any director, officer, employee, agent or independent contractor of AESE to discontinue that individual’s status or employment with AESE; (iii) hiring or retaining any such person who is at such time or was associated with AESE within one year prior to the cessation of the employment of Mr. Pliska; or (iv) soliciting (or causing or authorizing), directly or indirectly, to be solicited, for or on behalf of himself or any third party, any business from others who are then or were at any time within one (1) year prior to the cessation of Mr. Pliska’s employment, except for Mr. Pliska’s long-time assistant if he so chooses. |
| · | Mr. Pliska further agrees in the Pliska Employment Agreement to keep all confidential information of AESE confidential. |
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To further minimize conflictsProfit Participation Agreements
In January 2018, members of interest, we havethe senior management of WPT entered into Profit Participation Agreements with Ourgame, pursuant to which Ourgame agreed not to consummate an initial business combination with an entitypay such employees (i) a designated percentage (varying between .5% and 4.5%) of any profit earned by WPT during each fiscal year (terminating upon the sale, merger or other disposition of WPT), and (ii) a payment equal to that is affiliated withdesignated percentage of the proceeds from any sale, merger or other disposition of our officers, directors or sponsor including (i) an entity that is eitherWPT in which Ourgame was paid at least $45 million. The closing of the Merger triggered such a portfolio companypayment to WPT senior management, at a deemed value of or has otherwiseWPT of $50 million, and such agreements were terminated as a result of the Merger. Mr. Pliska received a material financial investment from, any private equity fund or investment company (or an affiliate thereof)payment of $2,000,120 and Deborah Frazzetta, WPT’s VP of Finance, received a payment of $490,753 in exchange for their 4.0% and 1.5% shares of such proceeds, respectively. Such payments were made in shares of restricted AESE common stock, valued at $6.59 per share, that is affiliated with anywould have otherwise been issued to Ourgame in the Merger. Mr. Pliska received 303,508 shares and Ms. Frazzetta received 74,469 shares, all of which are subject to transfer and forfeiture restrictions. Mr. Pliska’s payment was in addition to the foregoing, (ii) an entity in which any of$1.5 million payment owed to Mr. Pliska under the foregoing or their affiliates are currently passive investors, (iii) an entity in which any of the foregoing or their affiliates are currently officers or directors, or (iv) an entity in which any of the foregoing or their affiliates are currently invested through an investment vehicle controlled by them, unless we have obtained an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, and the approval of a majority of our disinterested independent directors that the business combination is fair to our unaffiliated stockholders from a financial point of view. Furthermore, in no event will any of our sponsor, members of our management team or their respective affiliates be paid any finder’s fee, consulting fee or other similar compensation prior to, or for any services they render in order to effectuate, the consummation of an initial business combination (regardless of the type of transaction that it is) other than the $10,000 administrative services fee, repayment of the $125,000 loan from our sponsor and reimbursement of any out-of-pocket expenses.Pliska Employment Agreement, discussed above.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2019, the Company’s named executive officers had outstanding the following option and/or stock awards:
| Option Awards | Stock Awards | ||||||||||||||||||||
| Name | Number of securities underlying unexercised options | Number of securities underlying unexercised options | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | ||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||
| Kwok Leung Frank Ng | – | – | 40,000 | 5.66 | 9/20/2029 | 21,202 | – | – | 55,125 | ||||||||||||
| – | – | 300,000 | 4.09 | 11/21/2029 | – | – | – | – | |||||||||||||
| Judson Hannigan | – | – | 170,000 | 4.09 | 11/21/2029 | 8,834 | – | – | 22,968 | ||||||||||||
| Adam Pliska | – | – | 40,000 | 5.66 | 9/20/2029 | 7,951 | – | – | 20,673 | ||||||||||||
| – | – | 170,000 | 4.09 | 11/21/2029 | – | – | – | – | |||||||||||||
| Ken DeCubellis | – | – | – | – | – | – | – | – | – | ||||||||||||
PRINCIPAL STOCKHOLDERSFrank Ng Employment Agreement
On November 5, 2019, the Company entered into a three-year written employment agreement (effective September 20, 2019) with Frank Ng, the Company’s Chief Executive Officer. Under the employment agreement, Mr. Ng will serve as the Company’s Chief Executive Officer and on its Board of Directors (the “Board”). Mr. Ng is entitled to receive an annual base salary of $300,000 and is eligible for annual bonus compensation determined by the Board (the “Bonus Payments”). Mr. Ng may participate in the Company’s benefit plans that are currently and hereafter maintained by the Company and for which he is eligible, including, without limitation, group medical, 401(k), life insurance and other benefit plans.
The following table sets forth information regardingUnder the beneficial ownership of our shares of common stockemployment agreement, if Mr. Ng’s employment is terminated by the Company for any reason other than Cause (as defined in the employment agreement), or Mr. Ng resigns as an employee of the date of this prospectus and as adjusted to reflect the sale of our shares of common stock includedCompany for Good Reason (as defined in the units offered by this prospectus (assuming noneemployment agreement), so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of one-year of his base salary, plus a prorated Bonus Payment to the individuals listed purchase units in this offering), by:extent not already paid.
| Director Compensation | |||||||||||||||||||||
| Name | Fees earned or paid in cash ($) | Stock awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | ||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | ||||||||||||||
| Bradley Berman | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Lyle Berman | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Ken DeCubellis | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Ho Min Kim | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Joseph Lahti | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Benjamin Oehler | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Maya Rogers | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Dr. Kan Hee Anthony Tyen | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
| Eric Yang | – | 20,000 | (1) | 86,712 | (2) | – | – | – | 106,712 | ||||||||||||
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record of beneficial ownership of the rights or warrants included in the units offered by this prospectus or the private units as these rights and warrants are not convertible or exercisable within 60 days of the date of this prospectus.___________________
| Prior to Offering | After Offering(2) | |||||||||||||||
Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership | Approximate Percentage of Outstanding Shares of Common Stock | Amount and Nature of Beneficial Ownership | Approximate Percentage of Outstanding Shares of Common Stock | ||||||||||||
| Ken DeCubellis(3) | 2,875,000 | 100.0 | % | 2,850,000 | 22.2 | % | ||||||||||
| Michael Eisele(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| James Moe(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| Bradley Berman(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| Benjamin Oehler(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| Joseph Lahti(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| Lyle Berman(4) | 0 | 0 | % | 0 | 0 | % | ||||||||||
| Black Ridge Oil & Gas, Inc. | 2,875,000 | 100.0 | % | 2,850,000 | 22.2 | % | ||||||||||
| All directors and executive officers as a group (seven individuals) | 2,875,000 | 100.0 | % | 2,850,000 | 22.2 | % | ||||||||||
| (1) | ||
| (2) | ||
Immediately after this offering, our sponsor will beneficially own approximately 22.2%
Executive Officer and Director Compensation of the then issuedBRAC pre-Merger
Commencing on October 4, 2017 and outstanding shares of common stock (assuming they do not purchase any units offered by this prospectus). None of our sponsor, officers and directors has indicated to us that it or they intend to purchase our securities in the offering. Because of the ownership block held by our sponsor, officers and directors, such individuals may be able to effectively exercise influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions other than approval of our initial business combination.
If the underwriters do not exercise all or a portion of the over-allotment option, an aggregate of 375,000 founders’ shares will be forfeited. Only a number of shares necessary to maintain the 20% ownership interest in our shares of common stock after giving effect to the offering and the exercise, if any, of the underwriters’ over-allotment option (and excluding the private units and assuming our sponsor does not purchase any units in this offering) will be necessary.
All of the founders’ shares outstanding prior to the date of this prospectus will be placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until (1) with respect to 50% of the founders’ shares, the earlier of one year after the date of the consummation of our initial business combination and the date on which the closing price of our common stock equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination and (2) with respect to the remaining 50% of the founders’ shares, one year after the date of the consummation of our initial business combination, or earlier, in either case, if, subsequent to our initial business combination, we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property. Up to 375,000 of the founders’ shares may also be released from escrow earlier than this date for cancellation if the over-allotment option is not exercised in full as described above.
During the escrow period, the holders of these shares will not be able to sell or transfer their securities except for transfers, assignments or sales (i) to our or our sponsor’s officers, directors, consultants or their affiliates, (ii) to an entity’s members upon its liquidation, (iii) to relatives and trusts for estate planning purposes, (iv) by virtue of the laws of descent and distribution upon death, (v) pursuant to a qualified domestic relations order, (vi) to us for no value for cancellation in connection with the consummation of our initial business combination, or (vii) in connection with the consummation of a business combination at prices no greater than the price at which the shares were originally purchased, in each case (except for clause (vi) or with our prior consent) where the transferee agrees to the terms of the escrow agreement and to be bound by these transfer restrictions, but will retain all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, there will be no liquidation distribution with respect to the founders’ shares.
Our sponsor has committed to purchase the private units (for a total purchase price of $3,500,000) from us. These purchases will take place on a private placement basis simultaneously with the consummation of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us an additional number of private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The private units are identical to the units sold in this offering except that the private warrants: (i) will not be redeemable by us and (ii) may be exercised for cash or on a cashless basis, as described in this prospectus, so long as they are held by the initial purchasers or any of their permitted transferees. If the private warrants are held by holders other than the initial purchasers or any of their permitted transferees, the private warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants included in the units being sold in this offering. Our sponsor has agreed not to transfer, assign or sell any of the private units and underlying securities (except in connection with the same limited exceptions that the founders’ shares may be transferred as described above) until after the completion of our initial business combination.
In order to meet our working capital needs following the consummation of this offering, our sponsor, officers and directors may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,500,000 of the notes may be converted into units at a price of $10.00 per unit. The units would be identical to the private units. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment.
Ken DeCubellis and Black Ridge Oil & Gas, Inc. are our “promoters,” as that term is defined under the federal securities laws.
In May 2017, we issued 2,875,000 shares of common stock to our sponsor, Black Ridge Oil & Gas, Inc., for $25,000 in cash, at a purchase price of approximately $0.01 per share, in connection with our organization.
If the underwriters do not exercise all or a portion of their over-allotment option, our sponsor will forfeit up to an aggregate of 375,000 shares of common stock in proportion to the portion of the over-allotment option that was not exercised.
If the underwriters determine the size of the offering should be increased (including pursuant to Rule 462(b) under the Securities Act) or decreased, a share dividend or a contribution back to capital, as applicable, would be effectuated in order to maintain our sponsor’s ownership at a percentage of the number of shares to be sold in this offering.
Our sponsor has committed to purchase, pursuant to a written subscription agreement with us and Graubard Miller, as escrow agent, the 350,000 private units (for a total purchase price of $3,500,000) from us. This purchase will take place on a private placement basis simultaneously with the consummation of this offering. Our sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us at a price of $10.00 per private unit an additional number of private units (up to a maximum of 37,500 private units) necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The purchase price for the private units will be delivered to Graubard Miller, our counsel in connection with this offering, who will also be acting solely as escrow agent in connection with the private sale of private units, at least 24 hours prior to the closing of this offering. Graubard Miller will deposit the purchase price into the trust account simultaneously withcontinuing through the consummation of the offering. The private units are identical to the units sold in this offering except that the private warrants: (i) will not be redeemable by us and (ii) may be exercised for cash or on a cashless basis, as described in this prospectus, so long as they are held ourMerger, BRAC paid Black Ridge, its sponsor, or any of its permitted transferees, the private warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants included in the units being sold in this offering. Our sponsor has agreed not to transfer, assign or sell any of the private units and underlying securities (except to certain permitted transferees) until after the completion of our initial business combination.
In order to meet our working capital needs following the consummation of this offering, our sponsor, officers and directors may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,500,000 of the notes may be converted into units at a price of $10.00 per private unit. The units would be identical to the private units. Accordingly, if $1,500,000 of notes were converted, it would result in the holders being issued 165,000 shares of common stock (as the rights included in such units would result in the issuance of an additional 15,000 shares), as well as 150,000 warrants to purchase an additional 150,000 shares. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment.
The holders of our founders’ shares issued and outstanding on the date of this prospectus, as well as the holders of the private units and any units our sponsor, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units and units issued in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
As of the date of this prospectus, our sponsor has loaned us an aggregate fee of $125,000 to cover expenses related to this offering. The loan will be payable without interest on the consummation of this offering. We intend to repay this loan from the proceeds of this offering not being placed in trust.
Our sponsor has agreed that, commencing on the effective date of this prospectus through the earlier of our consummation of our initial business combination or our liquidation, it will make available to us certain general and administrative services, including office space, utilities and administrative support, as we may require from time to time. We have agreed to pay our sponsor $10,000 per month for these services.We believe, based on rentsproviding us with office space and feescertain office and secretarial services. This arrangement was solely for similar services in the Minneapolis, Minnesota metropolitan area, that the fee charged by our sponsor is at least as favorable as we could have obtained from an unaffiliated person.
benefit and was not intended to provide compensation to our executive officers or directors. Other than the $10,000 per month administrative fee, no compensation or fees of any kind, including finder’s, consulting fees and other similar fees, will bewas paid to our sponsor, members of our management teamBRAC’s officers or directors or their respective affiliates, for services rendered prior to or in connection with the consummation of our initial business combination (regardless of the type of transaction that it is).Merger. However, such individuals will receivethey received reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations. There iswas no limit on the amount of out-of-pocket expenses reimbursable by us.
After
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TRANSACTIONS WITH RELATED PERSONS
Since January 1, 2017, we have engaged in the following transactions with our initial business combination, membersdirectors, executive officers and holders of 5% or more of our management team who remain with us may be paid consulting, management or other fees from the combined company with anyvoting securities, and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider an initial business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its determination in a Current Report on Form 8-K, as required by the SEC.
All ongoing and future transactions between us and anyaffiliates of our directors, executive officers and directorsholders of 5% or their respective affiliates will bemore of our voting securities. We believe that all of these transactions were on terms believed by us to be no lessas favorable to us than are availableas could have been obtained from unaffiliated third parties. Such transactions will require prior approval by a majority of our uninterested “independent” directors or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested “independent” directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliatedunrelated third parties.
Related Party PolicyNotes Payable to Ourgame
Our CodeDuring the nine months ended September 30, 2018, Allied Esports and WPT received proceeds of Ethics requires us$11,174,913 from the issuance of notes payable to avoid, wherever possible,Ourgame. During November and December 2018, as part of a corporate restructuring, all outstanding principal under the notes payable to Ourgame were converted into equity issued to Ourgame, and all accrued interest related party transactions that could resultto the notes payable to the Former Parent was forgiven and recorded as a contribution to capital.
Due to Ourgame
As of December 31, 2018, amounts due to Ourgame of $33,019,510 consisted of payments of certain operating expenses, investing activities and financing activities made on behalf of the Company by Ourgame. There was no stated interest rate or definitive repayment terms related to this liability. The weighted average balance of advances owed to Ourgame was $20,143,485 during the nine months ended September 30, 2018 and was $32,788,017 for the period from January 1, 2019 through August 9, 2019. On August 9, 2019, all obligations to Ourgame in actual or potential conflicts of interests, except under guidelines approved by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expectedof $32,672,622 were satisfied in connection with the Merger.
Noble Link Notes
Prior to exceed $120,000 in any calendar year, (2) we or any of ourthe Merger, Noble Link and its wholly owned subsidiaries is a participant,Peerless Media Limited, Club Services, Inc. and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member,WPT Enterprises, Inc. operated the poker-related business of the persons referredCompany. On May 15, 2019, Noble Link issued a series of secured convertible promissory notes (the “Noble Link Notes”) whereby investors provided Noble Link with $4 million to be used for the operations of Allied Esports and WPT, of which one Noble Link Note in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a resultthe amount of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our audit committee, pursuant to its written charter, will be responsible for reviewing and approving related-party transactions$1 million was issued to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approvewife of a related party transaction, including whetherwho formerly served as co-CEO of the related party transaction isFormer Parent and a Director of Noble Link. Pursuant to the original terms of the Noble Link Notes, the Noble Link Notes accrued annual interest at 12%; provided that no interest would payable in the event the Noble Link Notes were converted into the Company’s common stock. The Noble Link Notes were due and payable on terms no less favorablethe first to us than terms generally available fromoccur of (i) the one-year anniversary of the issuance date, or (ii) the date on which a demand for payment was made during the time period beginning on the closing date of the Merger (the “Closing Date”) and ending on the date that was three (3) months after the Closing Date. As security for purchasing the Noble Link Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT, and a guarantee of the Ourgame and BRAC. Upon the closing of the Merger, the Noble Link Notes were convertible, at the option of the holder, into shares of the Company’s common stock at $8.50 per share.
Pursuant to an unaffiliated third-party underAmendment and Acknowledgement Agreement dated August 5, 2019 (the “Amendment and Acknowledgement Agreement”), the same or similar circumstancesNoble Link Notes were amended to extend their maturity dates to August 23, 2020 (the “Maturity Date”). The Noble Link Notes are convertible into shares of the Company’s common stock at the election of the holders at any time between the Closing Date and the extentMaturity Date at a conversion price of $8.50 per share. Further, the minimum interest to be paid under each Noble Link Note shall be the greater of (a) 18 months of accrued interest at 12% per annum; or (b) the sum of the actual interest accrued plus six months of additional interest at 12% per annum. The Company recorded interest expense of $411,433 and $469,296, respectively, related party’s interestto the Noble Link Notes during the three and nine months ended September 30, 2019.
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Pursuant to the note purchase agreements entered into by the purchasers of the Noble Link Notes (the “Noteholders” and such agreements, the “Note Purchase Agreements”), upon the consummation of the Merger, each Noteholder received a five-year warrant to purchase their proportionate share of 532,000 shares of the Company’s common stock. In addition, pursuant to the Note Purchase Agreements, each Noteholder is entitled to its proportionate share of 3,846,153 shares of the Company’s common stock if such Noteholder’s Noble Link Note is converted into the Company’s common stock and, at any time within five years after the date of the closing of the Merger, the last exchange-reported sale price of the Company’s common stock equals or exceeds $13.00 for thirty (30) consecutive calendar days.
Consulting Agreement
On August 9, 2019 the Company entered into a consulting services agreement Black Ridge, the Company’s prior sponsor, pursuant to which Black Ridge provided administration and accounting services to the Company through December 31, 2019, in exchange for consulting fees in the transaction. No director may participate in the approvalaggregate amount of any transaction in which he is a related party, but that director is required to provide the audit committee with all material information concerning the transaction. We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.$348,853.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
To further minimize conflicts of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with any of our sponsor, officers or directors including (i) an entity that is either a portfolio company of, or has otherwise received a material financial investment from, any private equity fund or investment company (or an affiliate thereof) that is affiliated with any of the foregoing, (ii) an entity in which any of the foregoing or their affiliates are currently passive investors, (iii) an entity in which any of the foregoing or their affiliates are currently officers or directors, or (iv) an entity in which any of the foregoing or their affiliates are currently invested through an investment vehicle controlled by them, unless we have obtained an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, and the approval of a majority of our disinterested independent directors that the business combination is fair to our unaffiliated stockholders from a financial point of view.
DESCRIPTIONSECURITY OWNERSHIP OF SECURITIESCERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GeneralThe following table sets forth information with respect to the beneficial ownership of our common stock as of January 27, 2020 by:
| Name and Address of Beneficial Owners(1) | Number of Shares Before Offering(2) | Percentage Before Offering(2) | Number of Offering(2) | Percentage After Offering(2) | |||||||||
| Five Percent Stockholders: | |||||||||||||
| Black Ridge Oil & Gas, Inc.(3) | 3,190,500 | 13.1% | 3,190,500 | % | |||||||||
| Primo Vital Limited(4) | 15,112,163 | 55.8% | 15,112,163 | % | |||||||||
| Directors and Named Executive Officers: | |||||||||||||
| Lyle Berman(5) | 459,222 | 1.9% | 459,222 | % | |||||||||
| Bradley Berman(6) | 3,534 | * | 3,534 | * | |||||||||
| Benjamin S. Oehler(6) | 3,534 | * | 3,534 | * | |||||||||
| Joseph Lahti(6) | 3,534 | * | 3,534 | * | |||||||||
| Frank Ng(7) | 453,422 | 1.9% | 453,422 | % | |||||||||
| Eric Yang(8) | 17,447,673 | 64.3% | 17,447,673 | % | |||||||||
| Adam Pliska(9) | 1,123,439 | 4.6% | – | % | |||||||||
| Maya Rogers(10) | 3,534 | * | 3,534 | * | |||||||||
| Dr. Kan Hee Anthony Tyen(10) | 3,534 | * | 3,534 | * | |||||||||
| Ho min Kim(10) | 3,534 | * | 3,534 | * | |||||||||
| Anthony Hung | – | * | – | * | |||||||||
| Jud Hannigan(11) | 375,055 | 1.6% | 375,055 | % | |||||||||
| Kenneth DeCubellis(3)(12) | 3,190,500 | 13.1% | 3,190,500 | % | |||||||||
| All directors and executive officers, as a group (13 individuals)(13) | 19,880,015 | 71.8% | – | % | |||||||||
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| * | Less than 1% | |
| (1) | Unless otherwise noted, the business address of each of the following entities or individuals is 17877 Von Karman Avenue, Suite 300, Irvine, California, 92614. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. | |
| (2) | The percentage of beneficial ownershipbefore the offering is based on 23,934,871 outstanding shares of common stock as of January 27, 2020. The percentage of beneficial ownership after the offering also includes the shares of our common stock that we are selling in this offering, assuming no exercise of the underwriters’ option to purchase additional shares. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock that could be issued upon the exercise of outstanding options or warrants held by that person that are currently exercisable or exercisable within the next 60 days are considered outstanding. These shares, however, are not considered outstanding when computing the percentage ownership of any other person. | |
| (3) | Based on a joint Schedule 13D filed on September 19, 2019. Includes 2,685,500 outstanding shares held by Black Ridge and 505,000 shares issuable upon the exercise of certain warrants held by Black Ridge that are exercisable or will become exercisable within 60 days after January 27, 2020. Kenneth DeCubellis is a director and chief executive officer of Black Ridge and shares voting and dispositive power over the shares held by Black Ridge.The address of Black Ridge is 110 North 5th Street, Suite 410, Minneapolis, Minnesota 55403. | |
| (4) | Based on a joint Schedule 13D filed on September 18, 2019. Includes warrants to purchase 3,193,851 shares of common stock that are currently exercisable or will become exercisable within 60 days after January 27, 2020, of which 324,665 warrants are currently being held in escrow and are subject to forfeiture until August 9, 2020 as security for indemnification claims against AEM that may arise under the Merger Agreement. |
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| (5) | Includes 3,534 shares of common stock that are subject to transfer and forfeiture restrictions. Excludes shares for which Mr. Lyle Berman has a pecuniary interest in through his ownership of common stock in Black Ridge. | |
| (6) | Includes 3,534 shares of common stock that are subject to transfer and forfeiture restrictions. Excludes shares for which the stockholder has a pecuniary interest in through his beneficial ownership in Black Ridge. | |
| (7) | Includes (i) warrants to purchase 106,233 shares of common stock that are currently exercisable or will become exercisable within 60 days after January 27, 2020, of which 6,823 warrants are currently being held in escrowand are subject to forfeiture until August 9, 2020 as security for indemnification claims against AEM that may arise under the Merger Agreement;(ii) 117,648 shares issuable to Mr. Ng’s spouse upon conversion of a convertible promissory note issued to her by the Company; and (iii) 21,202 shares of common stock that are subject to transfer and forfeiture restrictions. | |
| (8) | Includes (i) warrants to purchase 68,211 shares of common stock that are currently exercisable or will become exercisable within 60 days after January 27, 2020, (ii) 3,534 shares of common stock that are subject to transfer and forfeiture restrictions; (iii) 11,986,523 shares held by Primo Vital Limited ("Primo"), a 100% owned subsidiary of Ourgame, of which Mr. Yang, as director and chief executive officer, exercises voting and dispositive power, (iv) warrants held by Primo to purchase 3,125,640 shares of common stock that are currently exercisable or will become exercisable within 60 days after January 27, 2020, and (v) 2,055,493 shares held by former owners of AEM over which Ourgame has been granted voting power through June 1, 2020 pursuant to proxies. Mr. Yang disclaims any pecuniary interest in the shares and warrants of Primo. Mr. Yang is a director of the Company. | |
| (9) | Includes (i) warrants to purchase 7,024 of common stock that are currently exercisable or will become exercisable within 60 days after January 27, 2020, (ii) 117,648 shares issuable upon conversion of the convertible promissory note of The Lipscomb/Viscoli Children’s Trust (the “Trust”), of which Mr. Pliska is trustee, (iii) warrants to purchase 38,000 shares of common stock held by the Trust, (iv) warrants to purchase 95,000 shares of common stock held by Trisara, LLC, a limited liability company wholly-owned by Mr. Pliska, and (v) 7,951 shares of common stock that are subject to transfer and forfeiture restrictions. Mr. Pliska is the President of the Company and WPT Enterprises, Inc., serves as a director of the Company and disclaims any pecuniary interest in the shares and warrants set forth in items (ii) and (iii). | |
| (10) | Includes 3,534 shares that are subject to transfer and forfeiture restrictions. | |
| (11) | Includes 90,350 five-year warrants to purchase shares of Company common stock at a price per share of $11.50 issued in the Merger on August 9, 2019, and 8,834 shares that are subject to transfer and forfeiture restrictions. | |
| (12) | Mr. DeCubellis previously served as Chief Executive Officer of BRAC. He resigned as a director and Chief Financial Officer of the Company on September 24, 2019. | |
| (13) | Consists of shares beneficially owned by our current directors and current executive officers, which does not include shares beneficially owned by Mr. DeCubellis. |
Shareholders
As of the dateJanuary 27, 2020 there were approximately 57 holders of this prospectus, we will be authorized to issue 30,000,000 sharesrecord of our common stock.
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DESCRIPTION OF EQUITY SECURITIES
The following is a description of the common stock par value $0.0001,we are registering, and 1,000,000 sharescertain material provisions of preferred stock, par value $0.0001. AsDelaware law, our Certificate of the date of this prospectus, 2,875,000 shares of common stock are outstanding. No shares of preferred stock are currently outstanding.Incorporation, as amended, and our Bylaws. The following description summarizes the material terms of our securities. Because it is only a summary it may not contain all the information thatand is important to you. For a complete description you should refer toqualified by applicable law, our Certificate of Incorporation, as amended, and restated certificateour Bylaws. Copies of incorporation, bylawsour Certificate of Incorporation, as amended, and the form of warrant agreement, whichour Bylaws are filedincluded as exhibits to the registration statement of which this prospectus is a part and to the applicable provisions of Delaware law.are available as set forth under “Where You Can Find More Information.”
UnitsGeneral
Each unit consistsAs of one share of common stock, one right and one warrant. Each right entitles the holder thereof to receive one-tenth (1/10) of one share of common stock upon the consummation of an initial business combination. Each warrant entitles the holder to purchase one share of common stock. The shares of common stock, rights and warrants will begin to trade separately on the 90th day after the date of this prospectus, unless EarlyBirdCapital, Inc. informs us of its decision to allow earlier separate trading, provided that in no event may thethere were 23,176,146 shares of our common stock rightsissued and warrants be traded separately until we have filed with the SEC a Current Report on Form 8-K which includes an audited balance sheet reflecting our receiptoutstanding, held of the gross proceedsrecord by approximately 56 holders. Our authorized capital consists of this offering. Once the66,000,000 shares of capital stock, of which 65,000,000 shares are available for issuance as common stock, rights$0.0001 par value per share, and warrants commence separate trading, holders will have the option to continue to hold units or separate their units into the component pieces.
We will file a Current Report on Form 8-K which includes an audited balance sheet promptly upon the consummation10,000,000 shares are available for issuance as preferred stock, $0.0001 par value per share. As of this offering. The audited balance sheet will reflect proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised on the date of this prospectus. If the over-allotment option is exercised after the date of this prospectus, we will file an amendment to the Form 8-K to provide updated financial information to reflect the exercise of the over-allotment option. We will also include in this Form 8-K, an amendment thereto, or in a subsequent Form 8-K information indicating if EarlyBirdCapital, Inc. has allowed separate trading of thethere were no shares of commonpreferred stock rights and warrants prior to the 90th day after the date of this prospectus.issued or outstanding.
Common Stock
Our stockholdersVoting. The holders of recordour common stock are entitled to one vote for each outstanding share held on all matters to be voted on by stockholders. In connection with any vote held to approve our initial business combination, our sponsor, as well as all of our officers and directors, have agreed to vote their respective shares of common stock owned by them immediately prior to this offering and any shares purchased in this offering or following this offering in the open market in favor of the proposed business combination.
We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, solely if a vote is held to approve a business combination, a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respectthat shareholder on every matter properly submitted to the election of directors, with the result that the holders of more than 50% of the shares eligibleshareholders for their vote. Shareholders are not entitled to vote cumulatively for the election of directors can elect all of the directors.
PursuantDividend Rights. Subject to the dividend rights of the holders of any outstanding series of preferred stock, holders of our amendedcommon stock are entitled to receive ratably such dividends and restated certificateother distributions of incorporation, if we do not consummate an initial business combinationcash or any other right or property as may be declared by 21 months fromour Board of Directors out of our assets or funds legally available for such dividends or distributions.
Liquidation Rights. In the closingevent of this offering, our corporate existence will cease except for the purposes ofany voluntary or involuntary liquidation, dissolution or winding up of our affairs, and liquidating. If we are forced to liquidate prior to an initial business combination,holders of our public stockholders arecommon stock would be entitled to share ratably in the trust account, based on the amount then held in the trust account, and anyour assets remainingthat are legally available for distribution to them. Our sponsor, officersshareholders after payment of liabilities and directors have agreed to waive their rights to participate inafter the satisfaction of any liquidation distribution occurring uponpreference owed to the holders of any preferred stock.
Conversion, Redemption and Preemptive Rights. Holders of our failurecommon stock have no conversion, redemption, preemptive, subscription or similar rights.
Anti-Takeover Provisions
We are subject to consummateSection 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly held Delaware corporation from engaging in a “business combination” with any “interested stockholder” for three years following the date that the person became an initialinterested stockholder, unless either the interested stockholder attained such status with the approval of our Board of Directors, the business combination with respect tois approved by our Board of Directors and stockholders in a prescribed manner or the founder’s commoninterested stockholder acquired at least 85% of our outstanding voting stock in the transaction in which it became an interested stockholder. A “business combination” includes, among other things, a merger or consolidation involving us and the “interested stockholder” and the sale of more than 10% of our assets. In general, an “interested stockholder” is any entity or person beneficially owning 15% or more of our outstanding voting stock and private shares. Our sponsor, officers and directors will thereforeany entity or person affiliated with or controlling or controlled by such entity or person. The restrictions contained in Section 203 are not participate in any liquidation distribution with respect to such shares. They will, however, participate in any liquidation distribution with respectapplicable to any shares of commonour existing stockholders that will own 15% or more of our outstanding voting stock acquired in, or following,upon the closing of this offering.
Our stockholdersBylaws
Certain provisions of our corporate bylaws could have no conversion, preemptiveanti-takeover effects. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our corporate policies formulated by our Board of Directors. In addition, these provisions also are intended to ensure that our Board of Directors will have sufficient time to act in what our Board of Directors believes to be in the best interests of our Company and our shareholders. Nevertheless, these provisions could delay or other subscription rights and there are no sinking fundfrustrate the removal of incumbent directors or redemption provisions applicable to the sharesassumption of control of us by the holder of a large block of common stock, except that public stockholders have the right to sell their shares to us inand could also discourage or make more difficult a merger, tender offer, or have their sharesproxy contest, even if such event would be favorable to the interest of common stock converted to cash equal to their pro rata share of the trust account if they vote on the proposed business combination in connection with such business combination and the business combination is completed. Public stockholders who sell or convert their stock into their share of the trust account still have the right to exercise the warrants that they received as part of the units.our shareholders. These provisions are summarized below.
Preferred StockAdvance Notice Provisions for Raising Business or Nominating Directors. Sections 2.2 and 3.3 of our Bylaws contain advance-notice provisions relating to the ability of shareholders to raise business at a shareholder meeting and make nominations for directors to serve on our Board of Directors. These advance-notice provisions generally require shareholders to raise business within a specified period of time prior to a meeting in order for the business to be properly brought before the meeting. Similarly, our Bylaws prescribe the timing of submissions for nominations to our Board of Directors and the certain of factual and background information respecting the nominee and the shareholder making the nomination.
There are no sharesNumber of preferred stock outstanding.Directors and Vacancies. Our amended and restated certificateBylaws provide that the number of incorporation authorizesdirectors shall not be less than one nor more than eleven, with the issuanceprecise number of 1,000,000 shares of preferred stock with such designation, rights and preferences as maydirectors comprising the board shall be determined from time to time by the board itself within the foregoing limit. The bylaws also provide that our Board has the right, except as may be provided in the terms of any series of preferred stock created by resolutions of the board, to fill vacancies, including vacancies created by any decision of directors. Noour Board to increase the number of directors comprising the board.
Certificate of Incorporation – Blank-Check Preferred Stock Power
Under our Certificate of Incorporation, as amended, our Board has the authority to fix by resolution the terms and conditions of one or more series of preferred stock and provide by resolution for the issuance of shares of such series.
We believe that the availability of our preferred stock, in each case issuable in series, and additional shares of common stock could facilitate certain financings and acquisitions and provide a means for meeting other corporate needs which might arise. The authorized shares of our preferred stock, as well as authorized but unissued shares of common stock, will be available for issuance without further action by our shareholders, unless shareholder action is required by applicable law or the rules of any stock exchange on which any series of our stock may then be listed, or except as may be provided in the terms of any preferred stock created by resolution of our Board.
These provisions give our Board the power to approve the issuance of a series of preferred stock, or additional shares of common stock, that could, depending on its terms, either impede or facilitate the completion of a merger, tender offer or other takeover attempt. For example, the issuance of new shares of preferred stock are being issued or registered in this offering. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of common stock. However, the underwriting agreement prohibits us, prior tomight impede a business combination from issuing preferred stock which participates in any manner in the proceeds of the trust account, or which votes as a class with the common stock on a business combination. We may issue some or all of the preferred stock to effect a business combination. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Rights
Each holder of a right will receive one-tenth (1/10) of one share of common stock upon consummation of our initial business combination, even if the holderterms of such right redeemed allthose shares of common stock held by it in connection with the initial business combination. No additional consideration will be required to be paid byinclude voting rights which would enable a holder of rights in order to receive its additional shares upon consummation of an initialblock business combination, as the consideration related thereto has been included in the unit purchase price paid for by investors in this offering. If we enter into a definitive agreement forcombinations or, alternatively, might facilitate a business combination in which we will notif those shares have general voting rights sufficient to cause an applicable percentage vote requirement to be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the common stock will receive in the transaction on an as-converted into common stock basis, and each holder of a right will be required to affirmatively convert its rights in order to receive the 1/10 share underlying each right (without paying any additional consideration) upon consummation of the business combination. More specifically, the right holder will be required to indicate its election to convert the rights into underlying shares as well as to return the original rights certificates to us.satisfied.
If we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the trust account, holders of rights will not receive any such funds with respect to their rights, nor will they receive any distribution from our assets held outside of the trust account with respect to such rights, and the rights will expire worthless.
As soon as practicable upon the consummation of our initial business combination, we will direct registered holders of the rights to return their rights to our rights agent. Upon receipt of the rights, the rights agent will issue to the registered holder of such rights the number of full shares of common stock to which it is entitled. We will notify registered holders of the rights to deliver their rights to the rights agent promptly upon consummation of such business combination and have been informed by the rights agent that the process of exchanging their rights for shares of common stock should take no more than a matter of days. The foregoing exchange of rights is solely ministerial in nature and is not intended to provide us with any means of avoiding our obligation to issue the shares underlying the rights upon consummation of our initial business combination. Other than confirming that the rights delivered by a registered holder are valid, we will have no ability to avoid delivery of the shares underlying the rights. Nevertheless, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of an initial business combination. Additionally, in no event will we be required to net cash settle the rights.
The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of ours). We will not issue fractional shares upon exchange of the rights. If, upon exchange of the rights, a holder would be entitled to receive a fractional interest in a share, we will, upon exchange, either round up to the nearest whole number the number of shares to be issued to the right holder or otherwise comply with Section 155 of the Delaware General Corporation Law (which provides that Delaware companies shall either (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined or (3) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or in bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share). We will make the determination of how we are treating fractional shares at the time of our initial business combination and will include such determination in the proxy materials we will send to stockholders for their consideration of such initial business combination.
Warrants
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
No warrants are currently outstanding. Each warrant entitles
The following discussion describes certain U.S. federal income tax consequences of the registered holder to purchase one shareacquisition, ownership and disposition of our common stock atacquired in this offering by a priceNon-U.S. Holder (as defined below). This discussion does not address all aspects of $11.50 per share,U.S. federal income taxes, does not discuss the potential application of the 3.8% Medicare tax on net investment income, and does not deal with non-U.S., federal estate and gift taxes, state and local consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address U.S. federal tax consequences other than income taxes. Rules different from those described below may apply to certain Non-U.S. Holders that are subject to adjustmentspecial treatment under the Internal Revenue Code of 1986, as discussed below, at any time commencing onamended (the “Code”), including, without limitation, banks, thrifts and other financial institutions, insurance companies, tax-exempt organizations, broker-dealers and traders in securities, U.S. expatriates, regulated investment companies, real estate investment trusts, “controlled foreign corporations,” “passive foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, persons that hold our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” integrated investment or other risk reduction strategy, partnerships and other pass-through entities, and investors in such pass-through entities, persons subject to the later of 30 days after the completion of an initial business combinationalternative minimum tax, persons that hold or 12 months from the closing of this offering. However, no warrants will be exercisable for cash unless we have an effective and current registration statement covering thereceive shares of our common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the public warrants is not effective within a specified period following the consummation of our initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9)exercise of any employee stock option or otherwise as compensation, persons that own, or are deemed to own, more than 5% of our outstanding common stock (except to the extent specifically set forth below), and persons deemed to sell shares of our common stock under the constructive sale provisions of the Securities Act, providedCode. Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
The discussion below is based upon the provisions of the Code, and Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such exemption is available. Ifauthorities may be repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the United States Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in the following discussion, and there can be no assurance that exemption, or another exemption, is not available, holdersthe IRS will not be able to exercise their warrants ontake a cashless basis. In such event, each holder would paycontrary position regarding the exercise price by surrenderingtax consequences of the warrants for that numberacquisition, ownership or disposition of shares of our common stock, equalor that any such contrary position would not be sustained by a court. This discussion is limited to the quotient obtained by dividing (x) the product of the number of shares ofNon-U.S. Holders who hold our common stock underlyingas a capital asset within the warrants, multiplied by the difference between the exercise pricemeaning of the warrants and the “fair market value”(defined below) by (y) the fair market value. The “fair market value”Code Section 1221 (generally, property held for this purpose will mean the average reported last sale price of the shares of common stock for the 5 trading days ending on the trading day prior to the date of exercise. The warrants will expire on the fifth anniversary of our completion of an initial business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.investment).
The private warrants,following discussion is for general information only and is not tax advice for any Non-U.S. Holders under their particular circumstances.Persons considering the purchase of our common stock should consult their own tax advisors concerning the U.S. federal income tax consequences of acquiring, owning and disposing of our common stock in light of their particular situations as well as any warrants underlying additional units we issueconsequences arising under the laws of any other taxing jurisdiction, including any state, local or non-U.S. tax consequences and the possible application of tax treaties that might change the application of the general provisions discussed below.
Generally, a “Non-U.S. Holder” is a beneficial owner of our common stock that is not a U.S. Holder. A “U.S. Holder” means a beneficial owner of our common stock that is for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity treated as a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to our sponsor, officers, directorsU.S. federal income taxation regardless of its source or their affiliates in payment of working capital loans made to us, will be identical(iv) a trust if it (x) is subject to the warrants underlyingprimary supervision of a court within the units being offeredUnited States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (y) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) acquires our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Persons who are partners of partnerships holding our common stock are urged to consult their tax advisors. Entities treated as partnerships or disregarded entities for U.S. federal income tax purposes are not addressed by this prospectus except that such warrants willdiscussion and are, therefore, not considered to be exercisable for cash or on a cashless basis, at the holder’s option, and will not be redeemable by us, in each case so long as they are still held by our sponsor or its permitted transferees.Non-U.S. Holders.
We may call the warrants for redemption (excluding the private warrants and any warrants underlying additional units issued to our sponsor, officers or directors in payment of working capital loans made to us but including any outstanding warrants issued upon exercise of the unit purchase option issued to EarlyBirdCapital), in whole and not in part, at a price of $0.01 per warrant,
The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.
The redemption criteria for our warrants have been established at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential between the then-prevailing share price and the warrant exercise price so that if the share price declines as a result of our redemption call, the redemption will not cause the share price to drop below the exercise price of the warrants.
Distributions
As discussed above, we do not currently anticipate paying cash dividends to our common stockholders. Subject to the discussion below, distributions, if any, of cash or property made on our common stock to a Non-U.S. Holder, to the extent made out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), generally will constitute dividends for U.S. federal income tax purposes and generally will be subject to a withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us or our paying agent with a properly-executed IRS Form W-8BEN or W-8BEN-E, or other appropriate replacement or successor form, certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. Such certificate must be provided prior to the payment of dividends and must be updated periodically. Treasury regulations provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated as paid to the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries, of the Non-U.S. Holder’s entitlement to treaty benefits. If you are eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty but do not timely provide us or our paying agent with the required certification, you should consult with your tax advisor to determine whether you may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States) if a properly-executed IRS Form W-8ECI, or other appropriate replacement or successor form, stating that the dividends are so connected, is furnished to us or our paying agent (or, if stock is held through a financial institution or other agent, to such agent) prior to receiving any distributions. In general, such effectively connected dividends will be subject to U.S. federal income tax, on a net income basis at regular rates, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax”, which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments.
To the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce your adjusted basis in our common stock as a non-taxable return of capital, but not below zero, and then any excess will be treated as gain from the deemed sale of stock and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next section.
A Non-U.S. Holder who provides us with an IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI or other appropriate replacement or successor form will be required to periodically update such form.
Gain on disposition of our common stock
Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless (i) the gain is effectively connected with a trade or business of such holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States), (ii) in the case of Non-U.S. Holders who are nonresident alien individuals, such individuals are present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (iii) we are or have been a “United States real property holding corporation” within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period.
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If you are a Non-U.S. Holder described in (i) above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, unless a specific treaty exemption applies, and corporate Non-U.S. Holders described in (i) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in (ii) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses if you have timely filed tax returns with respect to such losses (even though you are not considered a resident of the United States). With respect to (iii) above, in general, we callwould be a United States real property holding corporation if interests in U.S. real estate comprised (by fair market value) at least half of our business assets. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation; however, there can be no assurance that we will not become a U.S. real property holding corporation in the warrants for redemptionfuture. Even if we are treated as described above, our management will have the option to require all holders that wish to exercise warrants to do soa U.S. real property holding corporation, gain realized by a Non-U.S. Holder on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that numberdisposition of shares ofour common stock equalwill not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned directly, indirectly and constructively, no more than 5% of our common stock at all times within the shorter of (a) the five-year period preceding the disposition or (b) the holder’s holding period of our common stock disposed of and (2) our common stock is regularly traded on an established securities market. There can be no assurance that our common stock will continue to qualify as regularly traded on an established securities market. If gain realized by you on the sale of our common stock is taxable because we are a U.S. real property holding corporation and your ownership of our common stock exceeded the 5% threshold in the period noted above, you will be taxed on such disposition generally in the same manner applicable to U.S. persons.
Information reporting requirements and backup withholding
Generally, we must report information to the quotient obtained by dividing (x)IRS with respect to any dividends we pay on our stock including the productamount of any such dividends, the name and address of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrantsrecipient, and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale priceamount, if any, of the shares of common stock for the 5 trading days ending on the third trading day prior to the date on which the notice of redemptiontax withheld. A similar report is sent to the holders of warrants.holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the country in which the Non-U.S. Holder resides or is established.
Proceeds from a disposition of our stock and dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to United States backup withholding. United States backup withholding generally will not apply to a Non-U.S. Holder who provides a properly-executed IRS Form W-8BEN or W-8BEN-E, or W-8ECI or otherwise establishes an exemption. The warrantscurrent backup withholding rate is 24%. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder of our common stock is a U.S. person that is not an exempt recipient.
Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be issuedreduced by the amount of tax withheld. If withholding results in registered form underan overpayment of taxes, a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement providesrefund or credit may generally be obtained with respect to such backup withholding, provided that the termsrequired information is timely furnished to the IRS.
Legislation relating to foreign accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the warrantsCode (such sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. A U.S. federal withholding tax of 30% may apply to dividends in respect of our common stock paid to a foreign financial institution (as specifically defined by applicable rules), including when the foreign financial institution holds our common stock on behalf of a Non-U.S. Holder, unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners), or otherwise qualifies for an exemption from these rules. This U.S. federal withholding tax of 30% will also apply to dividends in respect of our common stock paid to a non-financial foreign entity (as specifically defined by applicable rules), unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity, or otherwise qualifies for an exemption from these rules. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be amended without the consentsubject to different rules. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. We will not pay any amounts to holders in respect of any holderamounts withheld. Holders are encouraged to cure any ambiguity or correct any defective provision, but requiresconsult with their own tax advisors regarding the approval, by written consent or vote,possible implications of the holders of at least 50% of the then outstanding warrants (including the private warrants)these rules on their investment in order to make any change that adversely affects the interests of the registered holders.
The exercise price and number of shares ofour common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of shares of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares of common stock and any voting rights until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Under existing Regulations, FATCA withholding on gross proceeds from the termssale or other disposition of the warrant agreement, we have agreed to use our best efforts to have declared effective a prospectus relating to the shares of common stock issuablewas to take effect on January 1, 2019; however, recently proposed Regulations, which may currently be relied upon, exercisewould eliminate FATCA withholding on such types of payments. Further, withholding on “foreign passthru payments” is not required before the warrants and keep such prospectus current untildate that is two years after the expirationdate of publication of final regulations defining the warrants. However, we cannot assure you that we will be able to do so and, if we do not maintain a current prospectus relating to the shares of common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants for cash and we will not be required to net cash settle or cash settle the warrant exercise.term “foreign passthru payment”.
Warrant holders may elect to be subject to a restriction on the exercise of their warrants such that an electing warrant holder would not be able to exercise their warrants to the extent that, after giving effect to such exercise, such holder would beneficially own in excess of 9.8% of the shares of common stock outstanding.THE PRECEDING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW.
No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the warrant holder.
Purchase Option
We have agreed to sell to EarlyBirdCapital (and/or its designees) an option to purchase up to 500,000 units at $11.50 per unit. The units issuable upon exercise of this option are identical to those offered by this prospectus. See “Underwriting.”
Dividends
We have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Our Transfer Agent, Rights Agent and Warrant Agent
The transfer agent for our securities and rights agent for our rights and warrant agent for our warrants is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
Listing of our Securities
We expect our units, common stock, rights and warrants quoted on Nasdaq under the symbols “BRACU,” “BRAC,” “BRACR” and “BRACW,” respectively. We anticipate that our units will be listed on Nasdaq on or promptly after the effective date of the registration statement. Following the date the shares of our common stock, rights and warrants are eligible to trade separately, we anticipate that the shares of our common stock, rights and warrants will be listed separately and as a unit on Nasdaq.
Certain Anti-Takeover Provisions of Delaware Law and our Amended and Restated Certificate of Incorporation and By-Laws
Staggered board of directors
Our amended and restated certificate of incorporation provides that our board of directors will be classified into three classes of directors of approximately equal size. As a result, in most circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings.
Special meeting of stockholders
Our bylaws provide that special meetings of our stockholders may be called only by a majority vote of our board of directors, by our president or by our chairman or by our secretary at the request in writing of stockholders owning a majority of our issued and outstanding capital stock entitled to vote.
Advance notice requirements for stockholder proposals and director nominations
Our bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be delivered to our principal executive offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the scheduled date of the annual meeting of stockholders. In the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting of stockholders is given, a stockholder’s notice shall be timely if delivered to our principal executive offices not later than the 10th day following the day on which public announcement of the date of our annual meeting of stockholders is first made or sent by us. Our bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Authorized but unissued shares
Our authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Exclusive Forum Selection
Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits our company by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
Limitation on Liability and Indemnification of Directors and Officers
Our amended and restated certificate of incorporation provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended. In addition, our amended and restated certificate of incorporation provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.
Our bylaws also will permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit indemnification. We will purchase a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify the directors and officers.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after
Prior to this offering, there has been a limited public market for our common stock with minimal trading volume. No prediction is made as to the effect, if any, future sales of shares, or the availability for future sales of shares, will have on the market price of our common stock prevailing from time to time. The sale of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of our common stock.
Upon consummation of this offering and after giving effect to the use of proceeds therefrom, we will have 12,850,000outstanding shares of common stock outstanding, or 14,762,500(or shares of common stock if the over-allotmentunderwriters’ option to purchase additional shares of common stock is exercised in full (in each case, excludingfull). The shares underlying rights to beof common stock sold in this offering). Of these shares, the 10,000,000 shares sold in this offering or 11,500,000 shares if the over-allotment option is exercised in full, will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchasedcommon stock held by oneour “affiliates,” as defined in Rule 144, which would be subject to the limitations and restrictions described below.
Registration Statement on Form S-8
In addition, 3,463,305 shares of our affiliates within the meaning of Rule 144common stock may be granted under our 2019 Plan, which amount may be subject to annual adjustment. See “Executive and Director Compensation.” We intend to file one or more registration statements on Form S-8 under the Securities Act. AllAct to register common stock issued or reserved for issuance under our 2019 Plan. Any such registration statement on Form S-8 will automatically become effective upon filing. Accordingly, shares of common stock registered under such registration statement will be available for sale in the open market, subject to any vesting restrictions or the lock-up restrictions and Rule 144 limitations applicable to affiliates described below.
Lock-Up of Our Common Stock
We, all of our directors and officers, and substantially all of the remainingpre-Merger investors that collectively own shares are restrictedof common stock following this offering (or shares of common stock if the underwriters exercise in full their option to purchase additional shares of common stock), have agreed with the underwriters, subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock (including any shares acquired pursuant to our directed share program) or any securities under Rule 144,convertible into or exercisable or exchangeable for shares of common stock; (ii) file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or (iii) enter into any swap or other arrangement that transfers to another, in that they were issuedwhole or in private transactions not involvingpart, any of the economic consequences of ownership of the common stock, whether owned directly by such member (including holding as a public offering. Allcustodian) or with respect to which such member has beneficial ownership within the rules and regulations of those sharesthe SEC, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Northland Securities, Inc. Currently, the underwriters have been placed in escrow and will not be transferable until they are released except in limited circumstancesno current intention to release the aforementioned holders of our common stock from the lock-up restrictions described elsewhere in this prospectus.above. See “Underwriting.”
Rule 144
A person who has beneficially owned restrictedThe shares of common stock rights or warrants for at least six months wouldnot sold in this offering will be, entitled to sell theirwhen issued, “restricted” securities under the meaning of Rule 144, and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption provided that (i) suchby Rule 144.
In general, under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been onean “affiliate” of our affiliates at the time of, orours at any time during the three months preceding a sale, and (ii) we are subject towho has held restricted securities (within the Exchange Act periodic reporting requirements for at least three months before the sale. Persons who have beneficially owned restricted sharesmeaning of common stockRule 144) for at least six months but who are our affiliates at the time(including any period of or any time during the three monthsconsecutive ownership of preceding a sale,non-affiliated holders) would be entitled to sell those securities, subject only to additional restrictions, by which suchthe availability of current public information about us. As defined in Rule 144, an “affiliate” of an issuer is a person that directly, or indirectly, through one or more intermediaries, controls, or is under common control with the issuer. A non-affiliated person who has held restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those securities without regard to the provisions of Rule 144.
A person (or persons whose securities are aggregated) who is deemed to be an affiliate of ours and who has held restricted securities (within the meaning of Rule 144) for at least six months would be entitled to sell within any three-month period a number of sharessecurities that does not exceed the greater of eitherone percent of the following:
Sales under Rule 144 Such sales are also limited bysubject to certain manner of sale provisions, and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Historically, the SEC staff had taken the positionus (which requires that Rule 144 is not available for the resale of securities initially issued by companies thatwe are or previously were, blank check companies, like us. The SEC has codified and expanded this positioncurrent in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
As a result, it is likely that pursuant to Rule 144, our sponsor will be able to sell its founders’ shares freely without registration one year after we have completed our initial business combination assuming it is not an affiliate of ours at that time.
Registration Rights
The holders of our founders’ shares issued and outstanding on the date of this prospectus, as well as the holders of the private units and any units our sponsor, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units and units issued to our sponsor, officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following are the material U.S. federal income and estate tax considerations with respect to your ownership and disposition of our units or components thereof, which we refer to collectively as our securities, assuming you purchase the securities in this offering and will hold them as capital assets within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”)Act).
This discussion does not address all of the U.S. federal income and estate tax considerations that may be relevant to you in light of your particular circumstances, and it does not describe all of the tax consequences that may be relevant to persons subject to special rules, such as:
The following does not discuss any aspect of state, local or non-U.S. taxation. This discussion is based on current provisions of the Code, Treasury regulations, judicial opinions, published positions of the U.S. Internal Revenue Service (“IRS”) and all other applicable authorities, all of which are subject to change, possibly with retroactive effect.
If an entity that is treated as a partnership for U.S. federal income tax purposes holds our securities, the tax treatment of a partner will generally depend on the status of the partner and the activities of the entity. If you are a partner in such an entity, you should consult your tax advisor.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS WITH RESPECT TO ACQUIRING, HOLDING AND DISPOSING OF OUR SECURITIES.
Each unit will be treated for U.S. federal income tax purposes as an investment unit consisting of one share of our common stock and one half of a warrant to acquire one share of our common stock, subject to adjustment. In determining your basis for the common stock and one half warrant composing a unit, you should allocate your purchase price for the unit between the components on the basis of their relative fair market values at the time of issuance.
Personal Holding Company Status
We could be subject to United States federal income tax at rates in excess of those generally applicable to corporations on a portion of our income if we are determined to be a personal holding company, or PHC, for United States federal income tax purposes. A U.S. corporation will generally be classified as a PHC for United States federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations, pension funds, and charitable trusts) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value and (ii) at least 60% of the corporation’s adjusted ordinary gross income, as determined for United States federal income tax purposes, for such taxable year consists of PHC income (which includes, among other things, dividends, interest, certain royalties, annuities and, under certain circumstances, rents).
Depending on the date and size of our initial business combination, it is possible that at least 60% of our adjusted ordinary gross income may consist of PHC income as discussed above. In addition, depending on the concentration of our stock in the hands of individuals, including the members of our sponsor and certain tax-exempt organizations, pension funds, and charitable trusts, it is possible that more than 50% of our stock will be owned or deemed owned (pursuant to the constructive ownership rules) by such persons during the last half of a taxable year. Thus, no assurance can be given that we will not become a PHC following this offering or in the future. If we are or were to become a PHC in a given taxable year, we would be subject to an additional PHC tax, currently 20%, on our undistributed taxable income, subject to certain adjustments.
U.S. Holders
This section is addressed to U.S. holders of our securities. For purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of a security that is:
Dividends and Distributions
As discussed under “Dividend Policy” above, we do not anticipate that any dividends will be paid in the foreseeable future. In the event that we do make distributions on our common stock, such distributions generally will be treated as dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits. Distributions in excess of our current or accumulated earnings and profits generally will first reduce your basis in the common stock (but not below zero) and then will be treated as gain realized on the sale or other disposition of the common stock (as described in the first paragraph under “— Sale or Other Disposition or Conversion of Common Stock” below).
The conversion feature of the common stock described under “Proposed Business — Effecting a Business Combination — Conversion Rights” may be viewed as a position with respect to substantially similar or related property which diminishes your risk of loss and thereby affects your ability to satisfy the holding period requirements for the dividends received deduction or the preferential tax rate on qualified dividend income with respect to the time period prior to the approval of an initial business combination.
Sale or Other Disposition or Conversion of Common Stock
Gain or loss you realize on the sale or other disposition of our common stock (other than conversion into cash but including a liquidation in the event we do not consummate a business combination within the required time) will be capital gain or loss. The amount of your gain or loss will be equal to the difference between your tax basis in the common stock disposed of and the amount realized on the disposition. The deductibility of capital losses is subject to limitations. Any capital gain or loss you realize on a sale or other disposition of our common stock will generally be long-term capital gain or loss if your holding period for the common stock is more than one year. However, the conversion feature of the common stock described under “Proposed Business — Effecting a Business Combination — Conversion Rights” could affect your ability to satisfy the holding period requirements for the long-term capital gain tax rate with respect to the time period prior to the approval of an initial business combination.
If you convert your common stock into a right to receive cash as described in “Proposed Business — Effecting a Business Combination — Conversion Rights,” the conversion generally will be treated as a sale of common stock described in the preceding paragraph (rather than as a dividend or distribution). The conversion will, however, be treated as a dividend or distribution and taxed as described in “— Dividends and Distributions” above if your percentage ownership in us (including shares that you are deemed to own under certain attribution rules, such as the shares into which the warrants are exercisable) after the conversion is not meaningfully reduced from what your percentage ownership was prior to the conversion. If you have a relatively minimal stock interest and, taking into account the effect of conversion by other stockholders, your percentage ownership in us is reduced as a result of the conversion, you may be regarded as having suffered a meaningful reduction in interest. For example, the IRS has ruled that any reduction in the stockholder’s proportionate interest will constitute a “meaningful reduction” in a transaction in which a holder held less than 1% of the shares of a corporation and did not have management control over the corporation. You should consult your own tax advisor as to whether conversion of your common stock will be treated as a sale or as a dividend under the Code and, if you actually or constructively own 5% (or, if our stock is not then publicly traded, 1%) or more of our common stock before conversion, whether you are subject to special reporting requirements with respect to such conversion.
Sale or Other Disposition, Exercise or Expiration of Warrants or Rights
Upon the sale or other disposition of a warrant (other than by exercise) or our rights, you will generally recognize capital gain or loss equal to the difference between the amount realized on the sale or other disposition and your tax basis in the warrant or right (as the case may be). This capital gain or loss will be long-term capital gain or loss if, at the time of the sale or other disposition, the warrant or right has been held by you for more than one year. The deductibility of capital losses is subject to limitations.
With respect to the warrants, in general, you will not be required to recognize income, gain or loss upon exercise of a warrant for its exercise price. Your basis in a share of common stock received upon exercise will be equal to the sum of (1) your basis in the warrant and (2) the exercise price of the warrant. Your holding period in the shares received upon exercise will commence on the day after you exercise the warrants. Although there is no direct legal authority as to the U.S. federal income tax treatment of an exercise of a warrant on a cashless basis, we intend to take the position that such exercise will not be taxable, either because the exercise is not a gain realization event or because it qualifies as a tax-free recapitalization. In the former case, the holding period of the common stock should commence on the day after the warrant is exercised. In the latter case, the holding period of the common stock would include the holding period of the exercised warrants. However, our position is not binding on the IRS and the IRS may treat a cashless exercise of a warrant as a taxable exchange. You are urged to consult your own tax advisor as to the consequences of an exercise of a warrant on a cashless basis.
If a warrant expires without being exercised, you will recognize a capital loss in an amount equal to your basis in the warrant. Such loss will be long-term capital loss if, at the time of the expiration, the warrant has been held by you for more than one year. The deductibility of capital losses is subject to limitations.
With respect to the rights, in general, you should not recognize gain or loss upon the acquisition of common stock pursuant to the rights. The tax basis of common stock acquired pursuant to the rights should be equal to your tax basis in such rights. The holding period of such common stock should begin on the day after the receipt of such common stock pursuant to such rights. The tax treatment of a right that expires worthless is unclear. Holders of rights should consult their own tax advisors regarding the tax treatment of any losses that result if the rights expire worthless.
Constructive Dividends on Warrants
As discussed under “Dividend Policy” above, we do not anticipate that any dividends will be paid in the foreseeable future. If at any time during the period you hold warrants, however, we were to pay a taxable dividend to our stockholders and, in accordance with the anti-dilution provisions of the warrants, the conversion rate of the warrants were increased, that increase would be deemed to be the payment of a taxable dividend to you to the extent of our earnings and profits, notwithstanding the fact that you will not receive a cash payment. If the conversion rate is adjusted in certain other circumstances (or in certain circumstances, there is a failure to make adjustments), such adjustments may also result in the deemed payment of a taxable dividend to you. You should consult your tax advisor regarding the proper treatment of any adjustments to the warrants.
Unearned Income Medicare Tax
A 3.8% Medicare contribution tax will generally apply to all or some portion of the net investment income of a U.S. holder that is an individual with adjusted gross income that exceeds a threshold amount ($250,000 if married filing jointly or if considered a “surviving spouse” for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax will also apply to all or some portion of the undistributed net investment income of certain U.S. holders that are estates and trusts. For these purposes, dividends and gains from the taxable dispositions of the common stock, rights and warrants will generally be taken into account in computing such a U.S. holder’s net investment income.
Information Reporting and Backup Withholding
Information returns may be filed with the IRS with respect to dividends or other distributions we may pay to you and proceeds from the sale of your shares of common stock, rights or warrants. You will be subject to backup withholding on these payments if you fail to provide your taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld with respect to your shares of common stock, rights or warrants under the backup withholding rules will be refunded to you or credited against your United States federal income tax liability, if any, by the IRS provided that certain required information is furnished to the IRS in a timely manner.
Non-U.S. Holders
This section is addressed to non-U.S. holders of the securities. For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of a security (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder.
Dividends and Distributions
As discussed under “Dividend Policy” above, we do not anticipate that any dividends will be paid in the foreseeable future. If, however, we were to pay taxable dividends to you with respect to your shares of common stock (including any deemed distributions treated as a dividend on the warrants, as described in “— Constructive Dividends on Warrants” below), those dividends would generally be subject to United States withholding tax at a rate of 30% of the gross amount, unless you are eligible for a reduced rate of withholding tax under an applicable income tax treaty and you provide proper certification of your eligibility for such reduced rate (usually on an IRS Form W-8BEN or Form W-8BEN-E). A distribution generally will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined under the Code. Any distribution not constituting a dividend generally will be treated first as reducing your basis in your shares of common stock and, to the extent it exceeds your basis, as gain from the disposition of your shares of common stock treated as described under “Sale or Other Disposition of Common Stock or Warrants” below. The full amount of any distributions to you may, however, be subject to United States withholding tax unless the applicable withholding agent elects to withhold a lesser amount based on a reasonable estimate of the amount of the distribution that would be treated as a dividend. In addition, if we determine that we are likely to be classified as a “United States real property holding corporation”(see “Sale or Other Disposition of Common Stock or Warrants” below), we will withhold at least 10% of any distribution that exceeds our current and accumulated earnings and profits as provided by the Code.
Dividends we pay to you that are effectively connected with your conduct of a trade or business within the United States (and, if certain income tax treaties apply, are attributable to a United States permanent establishment maintained by you) generally will not be subject to United States withholding tax if you comply with applicable certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to United States federal income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to United States persons. If you are a corporation, effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).
Exercise of Warrants
You generally will not be subject to U.S. federal income tax on the exercise of the warrants into shares of common stock. However, if a cashless exercise of warrants results in a taxable exchange, as described in “— U.S. Holders — Sale or Other Disposition, Exercise or Expiration of Warrants,” the rules described below under “Sale or Other Disposition of Common Stock or Warrants” would apply.
Sale or Other Disposition of Common Stock, Rights or Warrants
You generally will not be subject to United States federal income tax on any gain realized upon the sale, exchange or other disposition of our common stock (which would include a dissolution and liquidation in the event we do not consummate an initial business combination within the required timeframe), rights or warrants (including an expiration or redemption of our warrants), unless:
Gain that is effectively connected with your conduct of a trade or business within the United States generally will be subject to United States federal income tax, net of certain deductions, at the same rates applicable to United States persons. If you are a corporation, the branch profits tax also may apply to such effectively connected gain. If the gain from the sale or disposition of your shares of common stock, rights or warrants is effectively connected with your conduct of a trade or business in the United States but under an applicable income tax treaty is not attributable to a permanent establishment you maintain in the United States, your gain may be exempt from United States tax under the treaty. If you are described in the second bullet point above, you generally will be subject to United States federal income tax at a rate of 30% on the gain realized, although the gain may be offset by some United States source capital losses realized during the same taxable year. If you are described in the third bullet point above, gain recognized by you on the sale, exchange or other disposition of shares of common stock or warrants will be subject to U.S. federal income tax on a net income basis at normal graduated U.S. federal income tax rates. In addition, a buyer of your shares of common stock, rights or warrants may be required to withhold United States income tax at a rate of 10% of the amount realized upon such disposition.
If you convert your common stock into a right to receive cash as described in “Proposed Business — Effecting a Business Combination — Conversion Rights,” the conversion generally will be treated as a sale of common stock rather than as a dividend or distribution. The conversion will, however, be treated as a dividend or distribution and taxed as described in “Dividends and Distributions” if your percentage ownership in us (including shares that you are deemed to own under certain attribution rules, such as the shares into which the warrants are exercisable) after the conversion is not meaningfully reduced from what your percentage ownership was prior to the conversion. See the discussion in “— U.S. Holders — Sale or Other Disposition or Conversion of Common Stock.” You should consult your own tax advisor as to whether conversion of your common stock will be treated as a sale or as a dividend under the Code.
Constructive Dividends on Warrants
As discussed under “Dividend Policy” above, we do not anticipate that any dividends will be paid in the foreseeable future. If at any time during the period you hold warrants, however, we were to pay a taxable dividend to our stockholders and, in accordance with the anti-dilution provisions of the warrants, the conversion rate of the warrants were increased, that increase would be deemed to be the payment of a taxable dividend to you to the extent of our earnings and profits, notwithstanding the fact that you will not receive a cash payment. If the conversion rate is adjusted in certain other circumstances (or in certain circumstances, there is a failure to make adjustments), such adjustments may also result in the deemed payment of a taxable dividend to you. Any resulting withholding tax attributable to deemed dividends would be collected from other amounts payable or distributable to you. You should consult your tax advisor regarding the proper treatment of any adjustments to the warrants.
Information Reporting and Backup Withholding
We must report annually to the IRS the amount of dividends or other distributions we may pay to you on your shares of common stock and the amount of tax we withhold on any such distributions regardless of whether withholding is required. The IRS may make copies of the information returns reporting those dividends and amounts withheld available to the tax authorities in the country in which you reside pursuant to the provisions of an applicable income tax treaty or exchange of information treaty.
The United States imposes backup withholding on dividends and certain other types of payments to United States persons. You will not be subject to backup withholding on dividends you receive on your shares of common stock if you provide proper certification (usually on an IRS Form W-8BEN or Form W-8BEN-E) of your status as a non-United States person or you are a corporation or one of several types of entities and organizations that qualify for exemption (an “exempt recipient”).
Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale of your shares of common stock, rights or warrants outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if you sell your shares of common stock, rights or warrants through a United States broker or the United States office of a foreign broker, the broker will be required to report to the IRS the amount of proceeds paid to you unless you provide appropriate certification (usually on an IRS Form W-8BEN or Form W-8BEN-E) to the broker of your status as a non-United States person or you are an exempt recipient. Information reporting also would apply if you sell your shares of common stock, rights or warrants through a foreign broker deriving more than a specified percentage of its income from United States sources or having certain other connections to the United States.
Backup withholding is not an additional tax. Any amounts withheld with respect to your shares of common stock, rights or warrants under the backup withholding rules will be refunded to you or credited against your United States federal income tax liability, if any, by the IRS provided that certain required information is furnished to the IRS in a timely manner.
Estate Tax
Common stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of his or her death, or by an entity the property of which is potentially includible in such an individual’s gross estate, will be included in the individual’s gross estate for United States federal estate tax purposes and therefore may be subject to United States federal estate tax unless an applicable estate tax treaty provides otherwise. The foregoing may also apply to rights or warrants.
Unearned Income Medicare Tax
If you are a foreign estate or trust, you may be subject to the Medicare contribution tax described under “U.S. Holders — Unearned Income Medicare Tax” above. Non-U.S. holders should consult their tax advisors regarding the possible implications of the Medicare contribution tax on their investments in the units.
FATCA
A 30% withholding tax will be imposed on payments to certain foreign entities of U.S.-source dividends and the gross proceeds of dispositions of stock (including our securities) that can produce U.S.-source dividends, unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied or an exemption has otherwise been established. This withholding tax will not apply, however, to payments of gross proceeds from dispositions of stock before January 1, 2017. Potential investors should consult their tax advisors regarding the possible implications of this withholding tax on their investment in the units.
We are offering the units described in this prospectus through the underwriters named below. EarlyBirdCapital,Northland Securities, Inc. is acting as representative of each of the underwriters. We have entered into an underwriting agreement with the representative.underwriters named below. Subject to the terms and conditions ofset forth in the underwriting agreement among us and the underwriters, have agreed to purchase, and we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of units listed next to eachshares of common stock set forth opposite its name in the following table:below.
| Underwriter | ||||
| Number of Shares | ||||
| – | ||||
| Roth Capital Partners, LLC | – | |||
| Dougherty & Company, LLC | – | |||
| Total | ||||
TheSubject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of the shares are purchased. If an underwriter defaults, the underwriting agreement provides that the underwriters must buy allpurchase commitments of the units if they buy any of them. However, thenon-defaulting underwriters are not required to purchase the units covered by the option to purchase additional units as described below.
Our units are offered subject to a number of conditions, including:
In connection with this offering, the underwriters or securities dealers may distribute prospectuses electronically.
Option To Purchase Additional Units
We have granted the underwriters an option to buy up to an aggregate of 1,500,000 additional units. The underwriters have 45 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will purchase additional units approximately in proportion to the amounts specified in the table above.
Underwriting Discount
Units sold by the underwriters to the public will initially be offered at the initial offering price set forth on the cover of this prospectus. Any units sold by the underwriters to securities dealers may be sold at a discount of up to $ per unit from the initial public offering price and the dealers may reallow a concession not in excess of $ per unit to other dealers. Sales of units made outside of the United States may be made by affiliates of the underwriters. If all the units are not sold at the initial public offering price, the representative may change the offering price and the other selling terms. Upon execution ofincreased or the underwriting agreement the underwriters willmay be obligated to purchase the units at the prices and upon the terms stated therein.
The following table shows the per unit and total underwriting discount we will pay to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase up to 1,500,000 additional units.
| No Exercise | Full Exercise | |||||||
| Per Unit | $ | 0.20 | $ | 0.20 | ||||
| Total | $ | 2,000,000 | $ | 2,300,000 | ||||
We estimate that the total expenses of the offering payable by us, not including the underwriting discount, will be approximately $500,000. In addition, we have agreed to pay for the FINRA-related fees and expenses of the underwriters’ legal counsel, not to exceed $15,000, the expenses of transaction “bibles” and lucite cube “mementos,” not to exceed $3,000, and the expenses of investigations and background checks, not to exceed $24,500.
Indemnificationterminated.
We have agreed to indemnify the underwriterunderwriters against certain liabilities, including certain liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreedAct, or to contribute to payments the underwriterunderwriters may be required to make in respect of those liabilities.
NASDAQ ListingThe underwriters are offering the shares subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and subject to other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
WeCommissions and Discounts
The underwriters have appliedadvised us that they propose initially to have our units listedoffer the shares to the public at the public offering price set forth on the Nasdaq Capital Market undercover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the symbol “BRACU” and, onceinitial offering of the common stock, rights and warrants begin separate trading, toshares, the public offering price, concession or any other term of this offering may be listed onchanged by the Nasdaq Capital Market under the symbols “BRAC,” “BRACR” and “BRACW,” respectively.representatives.
Business Combination Marketing Agreement
We have engaged EarlyBirdCapital as an advisor in connection with our business combination to assist us in holding meetings with our shareholders to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities, assist us in obtaining shareholder approval for the business combination and assist us with our press releases and public filings inIn connection with the business combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross proceedssuccessful completion of this offering, (exclusivefor the price of any applicable finders’ fees which might become payable).
Purchase Option
We have agreed to sell to EarlyBirdCapital (and/or its designees), for $100, an option$50, Northland Securities, Inc. and Roth Capital Partners, LLC together may purchase a warrant to purchase upshares of our common stock equal to a total5.0% of 500,000 units exercisablethe shares sold in this offering at $11.50 per unit (or an aggregate exercise price of $5,750,000)115.0% of the public offering price per share in this offering; provided that Northland Securities, Inc. and Roth Capital Partners, LLC will only receive such warrants relating to the over-allotment option upon the closing (if any) of this offering.the over-allotment option. The purchase option may be exercised for cash or on a cashless basis, at the holder’s option, at any timewarrant is exercisable during the period commencing on the later of the first anniversary of the effective date of the registration statement of which this prospectus forms a part and the closing of our initial business combination and terminating on the fifth anniversary of such effectiveness date. Notwithstanding anything to the contrary, neither the option nor the warrants underlying the option shall be exercisable after theending five year anniversary of the effective date of the registration statement of which this prospectus forms a part. The option and such units purchased pursuant to the option, as well as the shares of common stock underlying such units, the warrants included in such units and the shares of common stock that are issuable for the warrants included in such units have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately followingyears from the date of this prospectus. The warrant will include “piggy back” registration rights, and a cashless or net exercise provision (including a mandatory net exercise upon the effectivenessfuture sale of the registration statementCompany or if the closing price of whichour common stock as reported on Nasdaq for 20 consecutive trading days exceeds 150% of the exercise price). The warrant may not be sold during this prospectus forms a part pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will notoffering, or sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securitieswarrants, or the shares acquirable upon exercise thereof, by any person for a period of 180 days immediately following the effective date of thethis registration statement, except as provided in paragraph (g)(2) of which this prospectus forms a part, nor may they be sold, transferred, assigned, pledged or hypothecated for a periodRule 5110 of 180 days immediately following the effective dateFINRA. The issuance of the registration statement of which this prospectus forms a part except to any underwriterunderwriters’ warrants and selected dealer participating in the offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement of which this prospectus forms a part with respect to the registration under the Securities Act of the securities directly and indirectlyshares issuable upon exercise of the option. We will bear all fees and expenses attendant to registering the securities, other than underwriting commissions, which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of shares of common stock at a price below its exercise price. We will have no obligation to net cash settle the exercise of the purchase option or the rights or warrants underlying the purchase option. The holder of the purchase option willthereof are not be entitled to exercise the purchase option or the rights or warrants underlying the purchase option unless a registration statement covering the securities underlying the purchase option is effective or an exemption from registration is available. If the holder is unable to exercise the purchase option or underlying rights or warrants, the purchase option, rights or warrants, as applicable, will expire worthless.covered by this prospectus.
The exercise price and number of units issuable upon exercise of the option (and the underlying securities) may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of shares of common stock at a price below its exercise price.
In the event the offering closes with gross proceeds to the Company of at least $10,000,000, we granted Northland Securities, Inc. a right of first refusal to serve as exclusive placement agent (in the case of a private offering) or lead book runner with at least 50% economics (in the case of a public offering) in the event that we determine to undertake such transaction within one year following the effective date of this offering. In accordance with applicable rules of FINRA, Northland Securities, Inc. does not have more than one opportunity to waive or terminate the right of first refusal in consideration of any payment or fee, and any payment or fee to waive or terminate the right of first refusal must be paid in cash and have a value not in excess of the greater of 1% of the proceeds in this offering (or, if greater, the maximum amount permitted by FINRA rules for compensation in connection with this offering) or 6% of the underwriting discount or commission paid in connection with any future financing subject to right of first refusal (including any overallotment option that may be exercised). This right of first refusal is not reflected in the table below.
Except as disclosed in this prospectus, the underwriters have not received and will not receive from us any other item of compensation or expense in connection with this offering considered by FINRA to be underwriting compensation under FINRA Rule 5110. The underwriting discount was determined through an arms’ length negotiation between us and the underwriters.
The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their overallotment option to purchase additional shares of our common stock.
| Total | ||||||||||
| Per Share | Total with No Over-Allotment | Total with Over-Allotment | ||||||||
| Public offering price | $ | – | $ | – | $ | – | ||||
| Underwriting discounts and commissions | $ | – | $ | – | $ | – | ||||
| Proceeds before expenses, to us | $ | – | $ | – | $ | – | ||||
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $ . This includes $100,000 of fees and expenses of the underwriters. These expenses are payable by us.
Option to Purchase Additional Shares
We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to additional shares at the public offering price, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to the conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.
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No Sales of Similar Securities
We, our executive officers and directors and certain holders of our outstanding stock have agreed not to sell or transfer any common stock or securities convertible into or exchangeable or exercisable for common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Northland Securities, Inc., on behalf of the underwriters. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
| • | offer, pledge, sell or contract to sell any common stock; | |
| • | sell any option or contract to purchase any common stock; | |
| • | purchase any option or contract to sell any common stock; | |
| • | grant any option, right or warrant for the sale of any common stock; | |
| • | otherwise dispose of or transfer any common stock; | |
| • | exercise any right with respect to the registration of any common stock, or file or caused to be filed a registration statement in connection therewith; or | |
| • | enter into any swap or other agreement or any transaction that transfers, in whole or in part, the economic consequence of ownership of any common stock, whether any such swap, agreement or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
The lock-up provisions apply to common stock and securities convertible into or exchangeable or exercisable for common stock. They also apply to common stock owned now or acquired later by the person executing the lock-up agreement or for which the person executing the lock-up agreement later acquires the power of disposition.
Nasdaq Capital Market Listing
Our common stock is currently traded on the Nasdaq Capital Market under the ticker symbol “AESE.”
Determination of Offering Price
The public offering price of our common stock offered by this prospectus has been determined by us, the selling stockholders and the underwriters and may bear no relation to our assets, book value, historical earnings or net worth, or any other accepted valuation criteria. No valuation or appraisal has been obtained in connection with this offering.
The public offering price of our common stock offered by this prospectus will be determined by negotiation between us, the selling stockholders and the underwriters based on many factors, including the price of our common stock on the Nasdaq Capital Market during recent periods, our history, our prospects, the industry in which we operate, our past and present operating results, the previous experience of our executive officers and the general condition of the securities markets at the time of this offering. It should be noted, however, that historically there has been a limited volume of trading in our common stock on the Nasdaq Capital Market. Therefore, the price of our common stock on the Nasdaq Capital Market during recent periods will only be one of many factors in determining the public offering price.
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Accordingly, the public offering price stated on the cover page of this prospectus should not be considered as an indication of the actual value of our common stock, which is subject to change as a result of market conditions and other factors. Neither we nor any of the underwriters can assure investors that, after this offering, an active trading market will develop for our common stock or warrants or that our common stock or warrants can be resold at or above the assumed public offering price.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price. Specifically, the underwriters may create a short position in our common stock for their own accounts by selling more shares of common stock than we have sold to the underwriters. The underwriters may close out any short position by purchasing shares in the open market.
In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of units duringpurchase and after this offering, including:
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a declinesell our common stock in the market price of our units while this offering is in progress. Stabilization transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.open market. These transactions may also include making short sales, of our units, whichpurchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of unitsshares than they are required to purchase in this offering and purchasing units on the open market to coveroffering. “Covered” short positions created by short sales. Short sales may be “covered shortare sales” which are short positions made in an amount not greater than the underwriters’ option to purchase additional units referred to above, or may be “naked short sales,” which are short positions in excess of that amount.
shares described above. The underwriters may close out any covered short position by either exercising their option in wholeto purchase additional shares or in part, or by purchasing unitsshares in the open market. In making this determination,determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of unitsshares available for purchase in the open market as compared to the price at which they may purchase unitsshares through the over-allotment option.
Nakedoption to purchase additional shares granted to them under the underwriting agreement described above. “Naked” short sales are short sales made in excess of the over-allotmentsuch option. The underwriters must close out any naked short position by purchasing unitsshares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the unitsour common stock in the open market after pricing that could adversely affect investors who purchasedpurchase in this offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the closing of this offering.
The underwriters may also may impose a penalty bid. This occurs when a particular underwriter repays to the representative of the underwriters a portion of the underwriting discount received by it because the representative hasrepresentatives have repurchased unitsshares sold by or for the account of thatsuch underwriter in stabilizing or short covering transactions.
These stabilizingSimilar to other purchase transactions, short sales,the underwriters’ purchases to cover positions created bythe syndicate short sales the imposition of penalty bids and syndicate covering transactions may have the effect of raising or maintaining the market price of our unitscommon stock or preventing or retarding a decline in the market price of our units.common stock. As a result, of these activities, the price of our unitscommon stock may be higher than the price that might otherwise might exist in the open market. The underwriters may carry outconduct these transactions on the Nasdaq Capital Market, in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the units. Neitherour common stock. In addition, neither we nor any of the underwriters make any representation that the underwriterrepresentatives will engage in these stabilization transactions or that any transaction,these transactions, once commenced, will not be discontinued without notice.
DeterminationThe underwriters may also engage in passive market making transactions in our common stock on the Nasdaq Capital Market in accordance with Rule 103 of Offering PriceRegulation M during a period before the commencement of offers or sales of shares of our common stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
Prior toElectronic Distribution
The underwriters or syndicate members may facilitate the marketing of this offering there was no public market for our units. The initial publiconline directly or through one of their respective affiliates. In those cases, prospective investors may view offering price will be determined by negotiation between usterms and a prospectus online and place orders online or through their financial advisors. Such websites and the representativeinformation contained on such websites, or connected to such sites, are not incorporated into and are not a part of the underwriters. The principal factors to be considered in determining the initial public offering price include:this prospectus.
The estimated public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our units, warrants or common stock or that the units will trade in the public market at or above the initial public offering price.Other Relationships
Affiliations
EarlyBirdCapitalThe underwriters and itscertain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. EarlyBirdCapitalSome of the underwriters and itscertain of their affiliates may from time to time in the future engage with usin investment banking and perform services for us orother commercial dealings in the ordinary course of their business with us and our affiliates, for which they willmay in the future receive customary fees, commissions and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may also make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of us.the issuer. The underwriters and itstheir affiliates may also make investment recommendations and/or publish or express independent research views in respect of thesesuch securities or instruments and may at any time hold, or recommend to clients that they acquire,it acquires, long and/or short positions in thesesuch securities and instruments.
Additional Future ArrangementsTransfer Agent and Registrar
We are not under any contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do so. However, the underwriters may introduce us to potential target businesses or assist us in raising additional capital in the future. If any of the underwriters provide services to us after this offering, we may pay such underwriter fair and reasonable fees that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with any underwriter and no fees for such services will be paid to any underwriter prior to the date thatOur transfer agent is 90 days from the date of this prospectus, unless FINRA determines that such payment would not be deemed underwriter’s compensation in connection with this offering.Continental Stock Transfer & Trust, whose address is 1 State Street, 30th Floor, New York, NY 10004-1561.
Electronic DistributionAdditional Information
A prospectus in electronic format may be made available onNorthland Capital Markets is the Internet sites or through other onlinetrade name for certain capital markets and investment banking services maintained by the underwriters participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.Northland Securities, Inc., member FINRA/SIPC.
Selling Restrictions
Canada
No action has been taken in any jurisdiction except the United States that would permit a public offering of our common stock, or the possession, circulation or distribution of this prospectus or any other material relating to us or our common stock in any jurisdiction where action for that purpose is required. Accordingly, the shares may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Resale RestrictionsNotice to Prospective Investors in the European Economic Area
We intendIn relation to distribute our securities ineach member state of the ProvinceEuropean Economic Area, no offer of Ontario, Canada (the “Canadian Offering Jurisdiction”) by wayshares that are the subject of a private placement and exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in such Canadian Offering Jurisdiction. Any resale of our securities in Canada must be made under applicable securities laws that will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptionsoffering has been, or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Canadian resale restrictions in some circumstances may apply to resales of interests made outside of Canada. Canadian purchasers are advised to seek legal advice prior to any resale of our securities. We may never be a “reporting issuer”, as such term is defined under applicable Canadian securities legislation, in any province or territory of Canada in which our securities will be offered and there currently is no public market for any of the securities in Canada, and one may never develop. Canadian investors are advised that we have no intention to file a prospectus or similar document with any securities regulatory authority in Canada qualifying the resale of the securitiesmade to the public in any province or territory in Canada.that Member State, other than under the following exemptions under the Prospectus Directive:
| (a) | to any legal entity which is a qualified investor as defined in the Prospectus Directive; | |
| (b) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the representative for any such offer; or | |
| (c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares referred to in (a) to (c) above shall result in a requirement for the Company or any Representative to publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each person located in a Member State to whom any offer of shares is made or who receives any communication in respect of an offer of shares, or who initially acquires any shares will be deemed to have represented, warranted, acknowledged and agreed to and with each Representative and the Company that (1) it is a “qualified investor” within the meaning of the law in that Member State implementing Article 2(1)(e) of the Prospectus Directive; and (2) in the case of any shares acquired by it as a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the representative has been given to the offer or resale; or where shares have been acquired by it on behalf of persons in any Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons.
The Company, the representative and their respective affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.
This prospectus has been prepared on the basis that any offer of shares in any Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the representative to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the representative have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the representative to publish a prospectus for such offer.
RepresentationsFor the purposes of Purchasersthis provision, the expression an “offer of shares to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended) and includes any relevant implementing measure in each Member State.
A Canadian purchaserThe above selling restriction is in addition to any other selling restrictions set out below.
United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be required to represent to us and the dealer from whom the purchase confirmation is received that:
Rights of Action — Ontario Purchasers Onlyengaged in with, relevant persons.
Under Ontario securities legislation, certain purchasers who purchase a security offered byFrance
Neither this prospectus duringnor any other offering material relating to the period of distribution will have a statutory right of action for damages, or while still the owner of our securities, for rescission against usshares described in the event that this prospectus contains a misrepresentation without regardhas been submitted to whether the purchaser relied onclearance procedures of the misrepresentation. The rightAutorité des March��s Financiersor by the competent authority of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledgeanother member state of the facts giving riseEuropean Economic Area and notified to the cause of actionAutorité des Marchés Financiers.
The shares have not been offered or sold and three years from the date on which payment is made for our securities. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for our securities. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which our securities were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for alloffered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any portionother offering material relating to the shares has been or will be:
| · | released, issued, distributed or caused to be released, issued or distributed to the public in France; or | |
| · | used in connection with any offer for subscription or sale of the shares to the public in France. |
Such offers, sales and distributions will be made in France only:
| · | to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with, Article L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Codemonétaire et financier; | |
| · | to investment services providers authorized to engage in portfolio management on behalf of third parties; or | |
| · | in a transaction that, in accordance with article L.411-2-II-1° -or-2° -or 3° of the French Codemonétaire et financier and article 211-2 of the General Regulations (Règlement Général) of theAutorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne). |
The shares may be resold directly or indirectly, only in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the damages that are proven to not represent the depreciation in value of our securities as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.French Codemonétaire et financier.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein are located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All of our assets and the assets of those persons are located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Collection of Personal Information
If a Canadian purchaser is resident in or otherwise subject to the securities laws of the Province of Ontario, the Purchaser authorizes the indirect collection of personal information pertaining to the Canadian purchaser by the Ontario Securities Commission (the “OSC”) and each Canadian purchaser will be required to acknowledge and agree that the Canadian purchaser has been notified by us (i) of the delivery to the OSC of personal information pertaining to the Canadian purchaser, including, without limitation, the full name, residential address and telephone number of the Canadian purchaser, the number and type of securities purchased and the total purchase price paid in respect of the securities, (ii) that this information is being collected indirectly by the OSC under the authority granted to it in securities legislation, (iii) that this information is being collected for the purposes of the administration and enforcement of the securities legislation of Ontario, and (iv) that the title, business address and business telephone number of the public official in Ontario who can answer questions about the OSC’s indirect collection of the information is the Administrative Assistant to the Director of Corporate Finance, the Ontario Securities Commission, Suite 1903, Box 5520, Queen Street West, Toronto, Ontario, M5H 3S8, Telephone: (416) 593-8086, Facsimile: (416) 593-8252.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offerCanada
Our shares may be sold in AustraliaCanada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106Prospectus Exemptionsor subsection 73.3(1) of theSecurities Act(Ontario), and are permitted clients, as defined in National Instrument 31-103Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of our shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105Underwriting Conflicts(NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
Our shares may onlynot be madeoffered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to persons (the “Exempt Investors”) who are “sophisticated investors” (withinthe public within the meaning of section 708(8)the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Corporations Act), “professional investors” (withinLaws of Hong Kong) (“Companies (Winding Up and Miscellaneous Provisions) Ordinance”) or which do not constitute an invitation to the public within the meaning of section 708(11)the Securities and Futures Ordinance (Cap. 571 of the Corporations Act)Laws of Hong Kong) (“Securities and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to our shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our shares may not be circulated or distributed, nor may our shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where our shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more exemptions containedindividuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in section 708that trust shall not be transferable for six months after that corporation or that trust has acquired our shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
| 94 |
Japan
Our shares have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. Our shares may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Australia
No prospectus or other disclosure document (as defined in the Corporations Act so that it is lawful2001 (Cth) of Australia (“Corporations Act”)) in relation to offer the shares without disclosurehas been or will be lodged with the Australian Securities & Investments Commission (“ASIC”). This document has not been lodged with ASIC and is only directed to investors under Chapter 6Dcertain categories of exempt persons. Accordingly, if you receive this document in Australia:
| (a) | you confirm and warrant that you are either: |
| i. | a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act; | |
| ii. | a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; | |
| iii. | a person associated with the company under section 708(12) of the Corporations Act; or | |
| iv. | a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and |
| (b) | you warrant and agree that you will not offer any of the common shares for resale in Australia within 12 months of the common shares being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act. |
Chile
The shares applied for by Exempt Investors in Australia mustare not be offered for sale in Australiaregistered in the period of 12 months afterSecurities Registry (Registro de Valores) or subject to the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6Dcontrol of the Corporations Act would not be required pursuantChilean Securities and Exchange Commission (Superintendencia de Valores y Seguros de Chile). This prospectus and other offering materials relating to an exemption under section 708the offer of the Corporations Actshares do not constitute a public offer of, or otherwisean invitation to subscribe for or wherepurchase, the offer isshares in the Republic of Chile, other than to individually identified purchasers pursuant to a disclosure document which complies with Chapter 6Dprivate offering within the meaning of Article 4 of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.Chilean Securities Market Act (Ley de Mercado de Valores) (an offer that is not “addressed to the public at large or to a certain sector or specific group of the public”).
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers.
The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The sharessecurities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the sharessecurities offered should conduct their own due diligence on the shares.securities. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.advisor
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “relevant member state”), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the “relevant implementation date”), an offer of units described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the units that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of our units may be made to the public in that relevant member state at any time:
Each purchaser of units described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.
For the purpose of this provision, the expression an “offer to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the units to be offered so as to enable an investor to decide to purchase or subscribe for the units, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the PD 2010 Amending Directive to the extent implemented by the relevant member state) and includes any relevant implementing measure in each relevant member state, and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
We have not authorized and do not authorize the making of any offer of units through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the units as contemplated in this prospectus. Accordingly, no purchaser of the units, other than the underwriters, is authorized to make any further offer of the units on behalf of us or the underwriters.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as a “relevant person”). The units are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such units will be engaged in only with, relevant persons. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the units described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or by the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The units have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the units has been or will be:
Such offers, sales and distributions will be made in France only:
The units may be resold directly or indirectly, only in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
Notice to Prospective Investors in Hong Kong
The units may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the units may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to units which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The units have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the units may not be circulated or distributed, nor may the units be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the units are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, under the Securities Act, a registration statement on Form S-1 relating to the shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and the shares offered by this prospectus, you should refer to the registration statement, including the exhibits and schedules thereto. Our SEC filings, including the registration statement relating to the shares offered hereby, are available on the SEC’s Internet website located at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions.
The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were made as of an earlier date. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
We maintain an Internet website at https://www.alliedesportsent.com. We have not incorporated by reference into this prospectus the information on our website, and you should not consider it to be a part of this prospectus.
Graubard Miller, New York, New York, is acting as our counsel
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Maslon LLP, Minneapolis, Minnesota. Certain legal matters in connection with this offering will be passed upon for the registration of our securities under the Securities Act, and as such, will pass upon the validity of the securities offered in this offering. Graubard Miller represents EarlyBirdCapital, Inc. in matters unrelated to this offering. Greenberg Traurig,underwriters by Faegre Baker Daniels LLP, New York, New York, is acting as counsel to the underwriters.Minneapolis, Minnesota.
The financial statements, which includes the combined balance sheets of Black Ridge Acquisition Corp. at MayWorld Poker Tour and Allied Esports as of December 31, 2018 and 2017, and the related combined statements of operations and comprehensive loss, changes in parent’s net investment and cash flows for each of the two years in the period from May 9, 2017 (inception) through Mayended December 31, 20172018 are included in this Prospectus have been audited byprospectus and the registration statement in reliance on the reports of Marcum LLP, an independent registered public accounting firm, as set forth in their report, thereon (which contains an explanatory paragraph relating to substantial doubt aboutgiven on the abilityauthority of Black Ridge Acquisition Corp. to continue as a going concern as described in Note 1 to the financial statements), appearing elsewhere in this prospectus, and are included in reliance on such report given upon suchsaid firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information about us and our securities, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are materially complete but may not include a description of all aspects of such contracts, agreements or other documents, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.
Upon completion of this offering, we will be subject to the information requirements of the Exchange Act and will file annual, quarterly and current event reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website atwww.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTSINFORMATION
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
World Poker Tour and Shareholderof Black Ridge Acquisition Corp.Allied Esports
Opinion on the Financial Statements
We have audited the accompanying combined balance sheetsheets of Black Ridge Acquisition Corp.World Poker Tour and Allied Esports (the “Company”) as of MayDecember 31, 2018 and 2017, and the related combined statements of operations stockholder’s equityand comprehensive loss, changes in parent’s net investment and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from May 9, 2017 (inception) through May 31, 2017. the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion,
/s/ Marcumllp
Marcumllp
We have served as the Company’s auditor since 2018.
Melville, New York
April 29, 2019
| F-2 |
WORLD POKER TOUR AND ALLIED ESPORTS
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 10,471,296 | $ | 5,589,229 | ||||
| Accounts receivable | 1,533,235 | 555,405 | ||||||
| Prepaid expenses and other current assets | 711,889 | 376,187 | ||||||
| Total Current Assets | 12,716,420 | 6,520,821 | ||||||
| Restricted cash | – | 8,020,909 | ||||||
| Property and equipment, net | 21,020,097 | 8,780,491 | ||||||
| Goodwill | 4,083,621 | 4,083,621 | ||||||
| Intangible assets, net | 17,234,992 | 20,277,562 | ||||||
| Deposits | 632,963 | 652,360 | ||||||
| Deferred production costs | 9,058,844 | 5,018,879 | ||||||
| Investment, ESA | 500,000 | – | ||||||
| Total Assets | $ | 65,246,937 | $ | 53,354,643 | ||||
| Liabilities and Parent's Net Investment | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,072,499 | $ | 1,979,013 | ||||
| Accrued expenses | 2,442,145 | 1,902,379 | ||||||
| Deferred revenue | 3,307,843 | 1,740,854 | ||||||
| Due to Parent | 33,019,510 | 10,107,305 | ||||||
| Total Current Liabilities | 39,841,997 | 15,729,551 | ||||||
| Deferred rent | 1,383,644 | 1,089,204 | ||||||
| Notes payable to Parent | – | 23,375,380 | ||||||
| Accrued interest on notes payable to Parent | – | 550,133 | ||||||
| Total Liabilities | 41,225,641 | 40,744,268 | ||||||
| Commitments and Contingencies | ||||||||
| Parent's Net Investment | ||||||||
| Parent's net investment | 24,021,296 | 12,610,375 | ||||||
| Total Parent's Net Investment | 24,021,296 | 12,610,375 | ||||||
| Total Liabilities and Parent's Net Investment | $ | 65,246,937 | $ | 53,354,643 | ||||
The accompanying notes are an integral part of these combined financial statements.
| F-3 |
WORLD POKER TOUR AND ALLIED ESPORTS
Combined Statements of Operations and Comprehensive Loss
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Revenues | ||||||||
| Multiplatform | $ | 2,996,657 | $ | 1,440,634 | ||||
| Interactive | 9,175,243 | 7,792,090 | ||||||
| In-person | 8,431,355 | 4,440,282 | ||||||
| Total Revenues | 20,603,255 | 13,673,006 | ||||||
| – | ||||||||
| Costs and expenses | ||||||||
| Multiplatform (exclusive of depreciation and amortization) | 2,296,790 | 7,879,750 | ||||||
| Interactive (exclusive of depreciation and amortization) | 2,473,970 | 2,688,556 | ||||||
| In-person (exclusive of depreciation and amortization) | 2,553,473 | 968,750 | ||||||
| Online operating expenses | 2,244,574 | 1,744,172 | ||||||
| Selling and marketing expenses | 4,022,602 | 3,384,222 | ||||||
| General and administrative expenses | 18,442,461 | 10,341,445 | ||||||
| Depreciation and amortization | 6,711,398 | 4,206,943 | ||||||
| Impairment of investment in ESA | 9,683,158 | – | ||||||
| Impairment of deferred production costs and intangible assets | 1,005,292 | – | ||||||
| Total Costs and Expenses | 49,433,718 | 31,213,838 | ||||||
| Loss From Operations | (28,830,463 | ) | (17,540,832 | ) | ||||
| Other (Expense) Income: | ||||||||
| Other income | 126,689 | – | ||||||
| Interest expense, net | (2,117,438 | ) | (540,370 | ) | ||||
| Foreign currency exchange loss | (198,513 | ) | (6,029 | ) | ||||
| Total Other Expense | (2,189,262 | ) | (546,399 | ) | ||||
| Net Loss | (31,019,725 | ) | (18,087,231 | ) | ||||
| Net loss attributed to non-controlling interest | 403,627 | – | ||||||
| Net Loss Attributable to Parent | $ | (30,616,098 | ) | $ | (18,087,231 | ) | ||
| Comprehensive Loss: | ||||||||
| Net loss | $ | (31,019,725 | ) | $ | (18,087,231 | ) | ||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation income (loss) | 288,111 | (193,222 | ) | |||||
| Total Comprehensive Loss | (30,731,614 | ) | (18,280,453 | ) | ||||
| Less: comprehensive loss attributable to non-controlling interest | 403,627 | – | ||||||
| Comprehensive loss attributable to Parent | $ | (30,327,987 | ) | $ | (18,280,453 | ) | ||
The accompanying notes are an integral part of these combined financial statements.
| F-4 |
WORLD POKER TOUR AND ALLIED ESPORTS
Combined Statements of Changes in Parent’s Net Investment
| Parent's Net Investment | ||||
| Balance at January 1, 2017 | $ | 30,407,457 | ||
| Net loss attributable to Parent | (18,087,231 | ) | ||
| Other comprehensive loss | (193,222 | ) | ||
| Net contributions from Parent | 483,371 | |||
| Balance at December 31, 2017 | 12,610,375 | |||
| Net loss attributable to Parent | (30,616,098 | ) | ||
| Effect of restructuring | 42,505,325 | |||
| Net contributions from Parent | (766,417 | ) | ||
| Other comprehensive income | 288,111 | |||
| Balance at December 31, 2018 | $ | 24,021,296 | ||
The accompanying notes are an integral part of these combined financial statements.
| F-5 |
WORLD POKER TOUR AND ALLIED ESPORTS
Combined Statements of Cash Flows
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (31,019,725 | ) | $ | (18,087,231 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | (766,417 | ) | 483,371 | |||||
| Bad debt (recovery)/expense | (79,414 | ) | 26,604 | |||||
| Depreciation and amortization | 6,711,398 | 4,206,943 | ||||||
| Write-offs of capitalized software costs | 648,563 | – | ||||||
| Subsidiary loss during consolidation period | 1,838,739 | – | ||||||
| Impairment of investment in ESA | 9,683,158 | – | ||||||
| Impairment of deferred production costs | 768,459 | – | ||||||
| Impairment of intangibles | 236,833 | – | ||||||
| Deferred rent | 294,440 | 929,155 | ||||||
| Accrued interest on notes payable to Parent | 1,843,659 | 550,133 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (902,614 | ) | 170,237 | |||||
| Deposits | 19,397 | (652,360 | ) | |||||
| Deferred production costs | (4,808,424 | ) | 168,417 | |||||
| Prepaid expenses and other current assets | (336,555 | ) | 88,354 | |||||
| Accounts payable | (861,632 | ) | 1,239,656 | |||||
| Accrued expenses | 551,593 | 246,342 | ||||||
| Deferred revenue | 1,566,989 | (128,185 | ) | |||||
| Total adjustments | 16,408,172 | 7,328,667 | ||||||
| Net Cash Used In Operating Activities | (14,611,553 | ) | (10,758,564 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | (17,144,397 | ) | (5,871,076 | ) | ||||
| Proceeds from licensing software | 341,193 | – | ||||||
| Purchases of intangible assets | (38,559 | ) | (262,092 | ) | ||||
| Funding of ESA investment | (6,230,038 | ) | – | |||||
| Net Cash Used In Investing Activities | (23,071,801 | ) | (6,133,168 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable to Parent | 11,383,207 | 20,351,165 | ||||||
| Due to Parent | 22,912,205 | 8,123,017 | ||||||
| Payment of acquisition liability | – | (500,000 | ) | |||||
| Net Cash Provided By Financing Activities | 34,295,412 | 27,974,182 | ||||||
| Effect of Exchange Rate Changes on Cash | 249,100 | 9,179 | ||||||
| Net (Decrease) Increase In Cash And Restricted Cash | (3,138,842 | ) | 11,091,629 | |||||
| Cash and restricted cash - Beginning of period | 13,610,138 | 2,518,509 | ||||||
| Cash and restricted cash - End of period | $ | 10,471,296 | $ | 13,610,138 | ||||
| Cash and restricted cash consisted of the following: | ||||||||
| Cash | 10,471,296 | 5,589,229 | ||||||
| Restricted cash | – | 8,020,909 | ||||||
| $ | 10,471,296 | $ | 13,610,138 | |||||
The accompanying notes are an integral part of these combined financial statements.
| F-6 |
WORLD POKER TOUR AND ALLIED ESPORTS
Combined Statements of Cash Flows, continued
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash paid during the period for interest | $ | 55,178 | $ | – | ||||
| Non-cash investing and financing activities: | ||||||||
| Due to Parent for purchase of Deepstacks | $ | – | $ | 500,000 | ||||
| Non-cash investment in ESA | $ | 5,363,706 | $ | – | ||||
| Notes payable to Parent for purchase of property and equipment | $ | – | $ | 1,278,967 | ||||
| Due to Parent for purchase of property and equipment | $ | – | $ | 525,582 | ||||
| Effect of restructuring | $ | 42,505,325 | $ | – | ||||
The accompanying notes are an integral part of these combined financial statements.
| F-7 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Note 1 – Background and Basis of Presentation
The accompanying combined financial statements include the accounts of Noble Link Global Limited (“Noble”) and Allied Esports Media, Inc., formerly known as Allied Esports Entertainment, Inc. (“AEM”). Allied Esports Media changed its name from Allied Esports Entertainment, Inc. to Allied Esports Media, Inc. on January 29, 2019. Allied Esports Media, together with its subsidiaries described below, is referred to above present fairly,herein as “Allied Esports”).
Noble was incorporated in all material respects, the British Virgin Islands on May 5, 2015. Noble operates through its wholly-owned subsidiaries Peerless Media Limited (“Peerless”), WPT Distribution Worldwide Limited (“WPT Distribution”) and WPT Studios Worldwide Limited (“WPT Studios”) (Noble and its subsidiaries are collectively “World Poker Tour” or “WPT”). World Poker Tour is an internationally televised gaming and entertainment company with brand presence in land-based tournaments, television, online and mobile applications. WPT has been involved in the sport of poker since 2002 and created a television show based on a series of high-stakes poker tournaments. WPT has broadcasted globally in more than 150 countries and territories and is sponsored by a third-party online social poker site. WPT also operates ClubWPT.com, a site that offers inside access to the WPT database, as well as sweepstakes-based poker available in 35 states across the United States. WPT also participates in strategic brand licensing, partnership, and sponsorship opportunities.
Allied Esports operates through its wholly-owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena Las Vegas, LLC (“ESALV”) and ELC Gaming GMBH (“ELC Gaming”). Allied Esports Media, a Delaware Corporation, was formed in November 2018 to eventually act as a holding company for Allied Esports and immediately prior to close of merger to also include WPT (see Note 11, Related Parties – Restructuring). AEII operates global competitive Esports properties designed to connect players and fans via a network of connected arenas. ESALV operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. ELC Gaming operates a mobile Esports truck that serves as both a battleground and content generation hub and also operates a studio for recording and streaming gaming events.
WPT and Allied Esports (collectively the “Company”) are subsidiaries of Ourgame International Holdings Limited (“Parent”), which was incorporated in the Cayman Islands on December 4, 2013. As of the earliest date of these financial positionstatements, the Parent owned 100% and 69.3% of WPT and AEII, respectively. The Company elected to apply pushdown accounting; accordingly, the combined financial statements of WPT and Allied Esports represent the carrying value of the Parent’s historical cost in these entities.
On December 19, 2018, the Company became a party to a Merger Agreement (the “Merger Agreement”) with Black Ridge Acquisition Corp. (“BRAC”), which will result in BRAC acquiring Allied Esports and WPT (the “Merger”). On August 9, 2019, the Merger was consummated such that Noble Link merged with and into AEM, with AEM being the surviving entity, and AEM became a wholly-owned subsidiary of BRAC (see Note 11 – Subsequent Events).
Note 2 - Going Concern and Management’s Plans
As of December 31, 2018, the Company had cash, a working capital deficit and Parent’s net investment of approximately $10.5 million, $27.1 million and $24.0 million, respectively. For the years ended December 31, 2018 and 2017, the Company incurred net losses of approximately $31.0 million and $18.1 million, respectively, and used cash in operations of $14.6 million and $10.8 million, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of May 31, 2017, and the results of its operations and its cash flows for the period from May 9, 2017 (inception) through May 31, 2017these financial statements.
| F-8 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
The accompanying combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assumingAmerica (“U.S. GAAP”), which contemplate continuation of the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no present revenue, its business plan is dependent on the completion of a financingconcern and the Company’s cashrealization of assets and working capital asthe satisfaction of May 31, 2017 are not sufficient to complete its planned activities forliabilities in the upcoming year. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Notes 1 and 3. Thesenormal course of business. The combined financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might result frombe necessary should the outcome of this uncertainty.Company be unable to continue as a going concern.
/s/ Marcum LLPMarcum LLPNew York, NYJune 9, 2017The Company’s continuation is dependent upon attaining and maintaining profitable operations and, until that time, raising additional capital as needed, but there can be no assurance that it will be able to close on sufficient financing. The Company’s ability to generate positive cash flow from operations is dependent upon generating sufficient revenues. To date, Parent has funded the Company’s operations. The Merger Agreement described above, is expected to be consummated in the second quarter of 2019, and requires that the acquiror have a minimum of $80 million of cash on hand at closing, of which $35 million will be used to repay certain obligations to the Parent. However, the Merger agreement is subject to approval by the stockholders and the fulfillment of certain other conditions and there can be no assurance that the Merger will close. The Company cannot provide any assurances that it will be able to secure additional funding, either from its Parent, or from equity offerings or debt financings on terms acceptable to the Company, if at all. If the Company is unable to obtain the requisite amount of financing needed to fund its planned operations, it would have a material adverse effect on its business and ability to continue as a going concern, and it may have to curtail, or even cease, certain operations.
Note 3 - Significant Accounting Policies
Basis of Presentation and Principles of Combination
The combined financial statements have been prepared using the consolidated accounting records of WPT and Allied Esports. All intercompany transactions and accounts within and between WPT and Allied Esports, and intercompany transactions and balances between WPT and Allied Esports and their subsidiaries, have been eliminated. The combined financial statements have been prepared in accordance with U.S. GAAP and pursuant to the accounting rules and regulations of the United States Securities and Exchange Commission (“SEC”). Parent expenses incurred on behalf of WPT and Allied Esports have been recorded on the books of each entity using specific identification.
Use of Estimates
Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company’s significant estimates used in these financial statements include, but are not limited to, the valuation and carrying amount of goodwill and other intangible assets, accounts receivable reserves, the valuation of deferred tax assets and the recoverability and useful lives of long-lived assets, including deferred production costs. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Business Combinations
The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
BLACK RIDGE ACQUISITION CORP.WORLD POKER TOUR AND ALLIED ESPORTS
BALANCE SHEETNotes to Combined Financial Statements
May 31, 2017
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 87,500 | ||
| Total current assets | 87,500 | |||
| Deferred offering costs | 62,500 | |||
| Total Assets | $ | 150,000 | ||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable - related party | $ | 323 | ||
| Promissory note - related party | 125,000 | |||
| Total current liabilities | 125,323 | |||
| Total Liabilities | 125,323 | |||
| Commitments and contingencies (See note 5) | - | |||
| Stockholder's equity: | ||||
| Preferred stock, $.0001 par value; 1,000,000 shares authorized, none issued and outstanding | - | |||
| Common stock, $.0001 par value; 30,000,000 shares authorized, 2,875,000 shares issued and outstanding(1) | 288 | |||
| Additional paid in capital | 24,712 | |||
| Accumulated deficit | (323 | ) | ||
| Total stockholder's equity | 24,677 | |||
| Total Liabilities And Stockholder's Equity | $ | 150,000 |
Cash and Cash Equivalents
(1) This numberAll short-term investments of the Company that have a maturity of three months or less when purchased are considered to be cash equivalents. There were no cash equivalents as of December 31, 2018 or 2017.
Concentration Risks
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times, may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company has not experienced any losses in such accounts, periodically evaluates the creditworthiness of the financial institutions and has determined the credit exposure to be negligible.
During the years ended December 31, 2018 and 2017, 11% and 15%, respectively, of the Companies revenues were from customers in foreign countries.
During the year ended December 31, 2018, the Company’s largest customer accounted for 15% of the Company’s total revenues.
See Note - 10 Segment Data for additional details.
Restricted Cash
Restricted cash was comprised of cash held in an escrow account for the purposes of constructing the Company's Esports arena in Las Vegas, Nevada. Construction was completed and the Esports arena opened in March 2018 and any remaining cash balances held for construction were released from escrow.
Accounts Receivable
Accounts receivable are carried at their contractual amounts. Management establishes an allowance for doubtful accounts based on its historic loss experience and current economic conditions. Losses are charged to the allowance when management deems further collection efforts will not produce additional recoveries. As of December 31, 2018 and 2017, there was no bad debt allowance.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives, once the asset is placed in service. Leasehold improvements are amortized over the lesser of (a) the useful life of the asset; or (b) the remaining lease term (including renewal periods that are reasonably assured). Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures which extend the economic life are capitalized. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized in the statement of operations for the respective period. Internally generated software costs are expensed as incurred in the preliminary project phase and post-implementation phase and will be capitalized during the application development stage. Assets are held in construction in progress until placed in service, upon which date, we begin to depreciate those assets.
| F-10 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
The estimated useful lives of property and equipment are as follows:
| Equipment | 3 - 5 years | |||
| Computer equipment | 3 - 5 years | |||
| Production equipment | 5 years | |||
| Furniture and fixtures | 3 - 5 years | |||
| Software | 1 - 5 years | |||
| Gaming truck | 5 years | |||
| Leasehold improvements | 5-10 years |
Goodwill and Intangibles
Intangible assets are comprised of goodwill, intellectual property, customer relationships, trademarks, and trade names. Intangible assets with definite lives are amortized on a straight-line basis over the shorter of their estimate useful lives, ranging from two to ten years, or their contract periods, if applicable. Intangible assets with indefinite lives are not amortized but are evaluated at least annually for impairment and more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates, consideration of the Company’s aggregate fair value, and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
When testing goodwill for impairment, the Company may assess qualitative factors for some or all of our reporting units to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, the Company may bypass this qualitative assessment for some or all of our reporting units and perform a detailed quantitative test of impairment (step 1). If the Company performs the detailed quantitative impairment test and the carrying amount of the reporting unit exceeds its fair value, the Company would perform an analysis (step 2) to measure such impairment. At December 31, 2018 and 2017, the Company performed a qualitative assessment to identify and evaluate events and circumstances to conclude whether it is more likely than not that the fair value of the Company’s reporting units is less than their carrying amounts. Based on the Company’s qualitative assessments, the Company concluded that a positive assertion can be made that it is more likely than not that the fair value of the reporting units exceeded their carrying values and no impairments were identified at December 31, 2018 and 2017.
Impairment of Long-Lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized for the amount by which the carrying value of the asset exceeds its fair value. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. During the year ended December 31, 2018 the Company recorded an aggregate of $1,005,292 for impairment charges related to deferred production costs and intangible assets as described in Note 8 - Deferred Production Costs and Note 7 – Intangible Assets, net, and recorded an impairment charge of $9,683,158 related to its investment in ESA as described in Note 5 – Investment.
| F-11 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Deferred Production Costs
Capitalized production costs represent the costs incurred to develop and produce the Company’s proprietary shows. These costs primarily consist of labor, equipment, production overhead costs and travel expenses. Capitalized production overhead costs include rent incurred in connection with our leased space in Los Angeles, California, which is used exclusively for film production. Capitalized production costs are stated at the lower of cost, less accumulated amortization and tax credits, if applicable, or fair value. Production costs in an amount up to 375,000 sharesthe amount of ultimate revenue expected to be earned from the related production are capitalized in accordance with FASB ASC Topic 926-20, “Other Assets – Film Costs”. Amortization of capitalized film costs begins when the related film is released and begins to recognize revenue. Capitalized film costs are expensed over the expected revenue period (not to exceed ten years) using a ratio of revenue earned during the period to estimated ultimate revenues for the related production. Costs incurred in excess of expected ultimate revenue are expensed as incurred and included in multiplatform costs in the accompanying combined statements of operations. Unamortized capitalized production costs are evaluated for impairment at each reporting period on a season-by-season basis. If estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that season, the unamortized capitalized production costs will be written down to fair value.
Due to the inherent uncertainties involved in making such estimates of revenues and expenses, these estimates are likely to differ to some extent from actual results. The Company’s management regularly reviews and revises when necessary its revenue and cost estimates, which may result in a change in the rate of amortization of film costs, participations and residuals and/or write-down of all or a portion of the unamortized deferred production costs to its net realizable value.
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).
The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments.
Nonrecurring Fair Value Measurements
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to forfeiturefair value adjustments in certain circumstances, such as when there is evidence of impairment. These fair value measurements are categorized within level 3 of the fair value hierarchy.
| F-12 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
The Company periodically evaluates the carrying value of long-lived assets to be held and used when events or circumstances warrant such a review. Fair value is determined primarily using anticipated cash flows assumed by a market participant discounted at a rate commensurate with the risk involved or in the case of nonfinancial assets or liabilities. During the year ended December 31, 2018, the Company recognized an impairment of $768,459 related to deferred production costs that were deemed impaired due to determination that the remaining revenue associated with the deferred production costs is not sufficient to recover the unamortized cost. Additionally, during the year ended December 31, 2018, the Company recognized an impairment of $236,833 related to certain intangible assets that were deemed impaired due to determination that the future cash flows is not sufficient to recover the carrying value of those assets.
During the year ended December 31, 2018 the Company recorded impairment expense of $9,683,158 to reduce the carrying value of its investment in ESA to fair value, which was determined using a combination of the market approach and asset approach. See Note 5 – Investment for additional details.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company recognizes the tax benefit from an uncertain income tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement by examining taxing authorities.
The Company’s policy is to recognize interest and penalties accrued on uncertain income tax positions in interest expense in the Company’s statements of operations. As of December 31, 2018, and 2017, the Company had no liability for unrecognized tax benefits. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
See Note 12 – Income Taxes for additional details including the effects of the Tax Cuts and Jobs Act enacted in December 2017.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Revenue Recognition
The Company recognizes revenue when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) fees are fixed or determinable, and (4) the collectability is reasonably assured.
For multiple element contracts, the Company allocates consideration to the multiple elements based on the relative selling price of each separate element which are determined using vendor specific objective evidence, third-party evidence or the Company’s best estimate in order to assign relative fair values.
| F-13 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Multiplatform revenue
The Company’s multiplatform revenue is comprised of distribution revenue, sponsorship revenue, music royalty revenue and online advertising revenue. Distribution revenue is generated through the distribution of content from both World Poker Tour’s library as well as third-party content to global TV networks or through online channels such as Pluto and Unreel from which the Company earns revenue through the placement of ads around WPT’s content. Sponsorship revenue is generated through the sponsorship of the Company’s content such as its TV content, online events and online streams. Online advertising revenue is generated from third-party advertisements placed on the Company’s website. Music royalty revenue is generated when the Company’s music is played in the Company’s TV series both on TV networks and online.
The Company recognizes distribution revenue and sponsorship revenue pursuant to the terms of each individual contract with the customer and records deferred revenue to the extent the Company has received a payment for services that have yet to be performed or products that have yet to be delivered. Music royalty revenue is recognized at the point in time when the music is played.
Multiplatform revenue was comprised of the following for the years ended December 31, 2018 and 2017:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Distribution revenue | $ | 861,994 | $ | 191,188 | ||||
| Sponsorship revenue | 1,082,077 | 373,445 | ||||||
| Music royalty revenue | 1,031,425 | 876,001 | ||||||
| Online advertising revenue | 21,161 | – | ||||||
| Total multiplatform revenue | $ | 2,996,657 | $ | 1,440,634 | ||||
Interactive revenue
The Company’s interactive revenue is primarily comprised of subscription revenue, licensing, social gaming and virtual product revenue. Subscription revenue is generated through fixed rate (monthly, quarterly, annual) subscriptions which offer the opportunity for subscribers to play unlimited poker and access benefits not available to non-subscribers.
The Company recognizes subscription revenue on a straight-line basis and records deferred revenue to the extent the Company receives payments for services that have yet to be provided. The Company recognizes social gaming revenue and virtual product revenue at the point when the product has been delivered. The Company generates licensing revenue by licensing the right to use the Company’s brand on products to third-parties. Licensing revenue is recognized pursuant to the terms of each individual contract with the customer and records deferred revenue to the extent the Company has received a payment for products that have yet to be delivered.
| F-14 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Interactive revenue was comprised of the following for the years ended December 31, 2018 and 2017:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Subscription revenue | $ | 4,964,086 | $ | 5,226,136 | ||||
| Virtual product revenue | 3,093,973 | – | ||||||
| Social gaming revenue | 674,497 | 1,871,507 | ||||||
| Licensing revenue | 349,199 | 546,955 | ||||||
| Other revenue | 93,488 | 147,492 | ||||||
| Total interactive revenue | $ | 9,175,243 | $ | 7,792,090 | ||||
In-person revenue
The Company’s in-person revenue is comprised of event revenue, merchandising revenue and other revenue. Event revenue is generated through World Poker Tour events – TV, non-TV, and DeepStacks Entertainment, LLC and Deepstacks Poker Tour, LLC (collectively “DeepStacks”) events – held at the Company’s partner casinos as well as Allied Esports events held at the Company’s Esports properties. Event revenue is generated from the use of the WPT brand by partner casinos, from naming rights for the Allied Esports arena and from sponsorship arrangements for Allied Esports events at the Esports arena. 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.
The Company recognizes event revenue related to the use of the WPT brand by partner casinos at the time of the WPT-branded event. Event revenues from naming rights of the Company’s Esports Arena are recognized on a straight-line basis over the contractual term of the naming rights agreement. Event revenues from sponsorship arrangements for Allied Esports events are recognized on a straight-line basis over the duration of the event, usually three to four days. Ticket revenue is recognized at the completion of an 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 records deferred revenue to the extent that payment has been received for services that have yet to be performed.
In-person revenue consisted of the following for the years ended December 31, 2018 and 2017:
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Event revenue | $ | 5,802,399 | $ | 4,440,282 | ||||
| Food and beverage revenue | 814,247 | – | ||||||
| Ticket and gaming revenue | 1,621,721 | – | ||||||
| Merchandising revenue | 167,194 | – | ||||||
| Other revenues | 25,794 | – | ||||||
| Total in-person revenue | $ | 8,431,355 | $ | 4,440,282 | ||||
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The Parent estimates the fair value of the awards granted to its employees and service-providers using a binomial options pricing model based on the market value of the Parent’s freely tradable common stock (listed on the Stock Exchange of Hong Kong), for awards that have been granted by the Parent, with compensation expense recorded by the Company.
| F-15 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Advertising Costs
Advertising costs are charged to operations in the year incurred and totaled approximately $1,240,000 and $1,352,000 for the years ended December 31, 2018 and 2017, respectively.
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 at the balance sheet date (1.1444 and 1.2002 at December 31, 2018 and 2017, respectively), and revenue and expense accounts are translated at a weighted average exchange rate for the years then ended (1.1809 and 1.1304 for the years ended December 31, 2018 and 2017, respectively). Resulting translation adjustments are made directly to accumulated other comprehensive (loss) income. Losses of $198,513 and $6,029 arising from exchange rate fluctuations on transactions denominated in a currency other than the reporting currency for the years ended December 31, 2018 and 2017, respectively, are recognized in operating results in the combined statements of operations. The Company engages in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies.
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 combined financial statements, except as disclosed.
Segment Reporting
Reportable segments are components of an enterprise about which separate financial information is available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The chief operating decision maker of WPT is WPT’s Vice President of Finance and the chief operating decision maker of Allied Esports is Allied Esports’ Chief Executive Officer and Chief Financial Officer. Separate discrete financial information for each of WPT and Allied Esports are reviewed separately by different chief operating decision makers, and the operations of each of WPT and Allied Esports are managed separately. As such, the operations of WPT (principally poker gaming and entertainment) and Allied Esports (principally video game events and competitions) are reported as separate operating segments of the Company. See Note 10 – Segment.
| F-16 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective approach). The guidance was revised in July 2015 to be effective for private companies and emerging growth public companies for annual and interim periods beginning on or after December 15, 2018. Except for certain contracts related to the Company’s distribution and event revenue streams, the Company has completed its ASC 606 analysis and, to date, has not identified any material differences in revenue recognition policies that would have a material impact on its combined financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its combined financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted this guidance effective January 1, 2018, and the standard did not have a material impact on the Company’s combined financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard for private companies and emerging growth public companies is effective for fiscal years beginning after December 15, 2018. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s combined financial statements or disclosures.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash.” This guidance standardizes the presentation of changes to restricted cash on the statement of cash flows by requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amount generally described as restricted cash or restricted cash equivalents. The provisions of this standard are effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, and early adoption is permitted. The Company adopted this guidance effective January 1, 2018 and applied it retrospectively. The adoption of ASU 2016-18 had a material impact to the combined statements of cash flows, as the Company had $8,020,909 in restricted cash at December 31. 2017.
| F-17 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718); Scope of Modification Accounting. The amendments in this ASU provide guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. If the value, vesting conditions or classification of the award changes, modification accounting will apply. The guidance is effective for private companies and emerging growth public companies’ fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2018, and the standard did not have a material impact on the Company’s combined financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which simplifies accounting for share-based payment transactions resulting for acquiring goods and services from nonemployees. ASU 2018-07 is effective for private companies and emerging growth public companies’ fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating ASU 2018-07 and its impact on its combined financial statements or disclosures.
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company is currently assessing the impact this guidance will have on its combined financial statements.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2019. The Company is currently evaluating and assessing the impact this guidance will have on its combined financial statements.
In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its combined financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating ASU 2018-13 and its impact on its combined financial statements.
| F-18 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Note 4 – Business Combination
In January 2018, the Parent sold its 18.2% ownership interest in Esports Arena, LLC ("ESA"), to Allied Esports. Simultaneously, Allied Esports paid cash of $1,337,454 to purchase an additional 64.2% interest in ESA, such that Allied Esports owned an aggregate 82.4% controlling interest in Esports Arena. The acquisition was considered a business combination as the assets and the intangible assets acquired represent an integrated set of inputs and processes.
Allied Esports recognized goodwill of $4,337,660, arising from the acquisition, which is due mainly to the strategic nature of the Esports Arena acquisition. The goodwill acquired is expected to be deductible for income tax purposes.
The following table summarizes the fair value of the assets acquired and the liabilities recognized at the acquisition date:
| Assets acquired: | ||||
| Cash | $ | 10,353 | ||
| Property, plant and equipment | 1,975,864 | |||
| Customer list | 940,000 | |||
| Trade names | 140,000 | |||
| Goodwill | 4,337,660 | |||
| Other intangibles | 22,300 | |||
| Total assets acquired | 7,426,177 | |||
| Liabilities assumed | ||||
| Affiliate advances | (3,013,706 | ) | ||
| Accounts payable | (241,716 | ) | ||
| Debt | (120,447 | ) | ||
| Total liabilities assumed | (3,375,869 | ) | ||
| Non-controlling interests | (712,854 | ) | ||
| $ | 3,337,454 | |||
Allied Esports identified the following intangible assets that meet the criteria for separate recognition apart from the goodwill for financial reporting purposes:
| · | Customer list in the amount of $940,000, which represents the important relationships with its customers who purchased sponsorships, merchandise, gaming services and rented the facilities, and, |
| · | Trade names in the aggregate amount of $140,000, which includes Esports Arena names, trademarks, and related domain names, which have recognition in the industry. |
| F-19 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Contribution Agreement
In January 2018, Allied Esports entered into a contribution agreement with ESA (the "Contribution Agreement"), whereby Allied Esports committed to contribute $40 million to ESA for the acquisition, construction and development of up to 12 new arenas through January 31, 2020 (“Funding”).
Pursuant to the terms of the Contribution Agreement, in the event that Allied Esports failed to contribute the minimum funding commitments noted above, Allied Esports would be required to convey a portion of its membership interests in ESA to the minority investors of ESA. Effective August 1, 2018, Allied Esports entered into an amendment to the agreement with the non-controlling interest members of ESA (who are not related parties to Allied Esports) to reduce Allied Esports' ongoing contribution requirements, and accordingly, conveyed a majority of its membership interests in ESA to the minority investors, and only retained a 25% non-voting interest in ESA. Additionally, as part of the amendment, Allied Esports reduced its funding commitment to $1,803,126. As of August 1, 2018, Allied Esports derecognized the assets, liabilities and equity of ESA since Allied Esports no longer had a controlling interest in ESA. See Note 5 – Investment for additional details. The deconsolidation of ESA is not considered a discontinued operation, because deconsolidation of ESA does not meet the criteria for discontinued operations under ASC 205-20 “Presentation of Financial Statements, Discontinued Operations”.
Note 5 – Investment
As of December 31, 2018, the Company owns a 25% non-voting membership interest in ESA and its wholly-owned subsidiary. See Note 4 – Business Combination and Contribution Agreement. The investment is accounted for as a cost method investment, since the Company does not have the ability to exercise significant influence over the operating and financial policies of ESA.
Management estimated the fair value of ESA with the assistance of a third-party valuation advisor who weighted the estimated fair values determined using the asset approach and the market approach. The income approach wasn’t utilized due to the uncertainty associated with any financial projections that could have been prepared. Under the asset approach, management assessed the fair value of the assets and liabilities using the ESA balance sheets as of each valuation date. Under the market approach, management assessed the fair value of ESA by applying the observed market multiples for a group of comparable public companies, include revenue multiples of 3.7-4.5x and book value multiples of 0.6-1.3x, depending on the valuation date. Management wrote down the carrying value of the investment in ESA to its estimated fair value, recording an aggregate 2018 impairment charge of $9,683,158, which consisted of a $7,438,324 impairment loss at deconsolidation and an additional subsequent impairment loss of $2,244,834.
Note 6 – Property and Equipment, net
Property and equipment consist of the following:
| As of | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Software | $ | 3,551,214 | $ | 3,771,509 | ||||
| Equipment | 1,172,882 | 1,158,650 | ||||||
| Computer equipment | 2,616,510 | 2,206,391 | ||||||
| Esports gaming truck | 1,128,905 | 771,279 | ||||||
| Furniture and fixtures | 877,472 | 292,374 | ||||||
| Production equipment | 7,487,752 | – | ||||||
| Leasehold improvements | 12,903,762 | 281,753 | ||||||
| 29,738,497 | 8,481,956 | |||||||
| Less: accumulated depreciation and amortization | (8,718,400 | ) | (4,970,620 | ) | ||||
| Subtotal | 21,020,097 | 3,511,336 | ||||||
| Construction-in-progress | – | 5,269,155 | ||||||
| Property and equipment, net | $ | 21,020,097 | $ | 8,780,491 | ||||
| F-20 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
During the years ended December 31, 2018 and 2017, depreciation and amortization expense amounted to $3,867,102 and $1,111,936 respectively. During the years ended December 31, 2018 and 2017, the Company disposed of an aggregate of $67,784 and $335,694 of fully depreciated property and equipment, respectively.
Construction in progress consists of the following:
| As of | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Esports arena in Las Vegas, Nevada | ||||||||
| Leasehold improvements | $ | – | $ | 2,630,809 | ||||
| Computer equipment | – | 2,012,470 | ||||||
| Furniture and fixtures | – | 263,248 | ||||||
| Software | – | 5,000 | ||||||
| Total Esports arena in Las Vegas, Nevada | – | 4,911,527 | ||||||
| Gaming truck | – | 357,628 | ||||||
| Total construction-in-progress | $ | – | $ | 5,269,155 | ||||
In preparation for hosting Esports events, Allied Esports committed to repurpose leased space in the Luxor Hotel (the "Lessor") in Las Vegas into an Esports gaming arena, which opened in March 2018. As part of the lease agreement with the Lessor, Allied Esports deposited $9,000,000 with a third-party escrow company. The deposit was held for the sole purpose of constructing the leasehold improvements and withdrawals require approval from a third-party quality control engineer approved by the Lessor. At December 31, 2018 and 2017, $-0- and $8,020,909, respectively remained in the escrow account.
As of December 31, 2017, Allied Esports was in the process of developing a mobile gaming truck to allow the Company to host videogaming events and create content generation hubs throughout the United States. The mobile gaming truck was completed and placed into service during 2018.
Note 7 – Intangible Assets, net
Intangible assets consist of the following:
| Indefinite-Lived Trade Names | Trademarks | Customer Relationships | Intellectual Property | Accumulated Amortization | Total | |||||||||||||||||||
| Balance as of January 1, 2017 | 1,000,000 | 24,882,577 | 3,457,724 | – | (6,229,824 | ) | 23,110,477 | |||||||||||||||||
| Purchases of intangibles | – | – | – | 262,092 | – | 262,092 | ||||||||||||||||||
| Amortization expense | – | – | – | – | (3,095,007 | ) | (3,095,007 | ) | ||||||||||||||||
| Balance as of December 31, 2017 | 1,000,000 | 24,882,577 | 3,457,724 | 262,092 | (9,324,831 | ) | 20,277,562 | |||||||||||||||||
| Purchases of intangibles | – | 31,739 | – | 6,820 | – | 38,559 | ||||||||||||||||||
| Amortization expense | – | – | – | – | (2,844,296 | ) | (2,844,296 | ) | ||||||||||||||||
| Impairment of intellectual property | – | – | – | (236,833 | ) | – | (236,833 | ) | ||||||||||||||||
| Balance as of December 31, 2018 | $ | 1,000,000 | $ | 24,914,316 | $ | 3,457,724 | $ | 32,079 | $ | (12,169,127 | ) | $ | 17,234,992 | |||||||||||
| Weighted average remaining amortization period at December 31, 2018 (in years) | n/a | 6.5 | n/a | 9.3 | ||||||||||||||||||||
| F-21 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Amortization of intangible assets consists of the following:
| Indefinite-Lived Trade Names | Trademarks | Customer Relationships | Intellectual Property | Accumulated Amortization | ||||||||||||||||
| Balance as of January 1, 2017 | $ | – | $ | 3,720,649 | $ | 2,509,175 | $ | – | $ | 6,229,824 | ||||||||||
| Amortization expense | – | 2,494,174 | 600,833 | – | 3,095,007 | |||||||||||||||
| Balance as of December 31, 2017 | – | 6,214,823 | 3,110,008 | – | 9,324,831 | |||||||||||||||
| Amortization expense | – | 2,494,174 | 347,716 | 2,406 | 2,844,296 | |||||||||||||||
| Balance as of December 31, 2018 | $ | – | $ | 8,708,997 | $ | 3,457,724 | $ | 2,406 | $ | 12,169,127 | ||||||||||
As of December 31, 2018, management determined that the projected cash flows from certain intellectual property would not be sufficient to recover the carrying value of those assets. Accordingly, the Company recorded an impairment charge of $236,833 which is included in operating costs and expenses on the accompanying combined statements of operations. As of December 31, 2018, trademarks in the aggregate amount of $133,853 have not yet been placed in service and therefore the Company has not recognized any amortization expense relating to these intangibles for the periods presented. These intangible assets will be amortized on a straight-line basis over the shorter of their license periods or estimated useful lives ranging from two to ten years.
Estimated future amortization expense is as follows:
| Years Ending December 31, | |||||
| 2019 | $ | 2,497,382 | |||
| 2020 | 2,497,382 | ||||
| 2021 | 2,497,382 | ||||
| 2022 | 2,497,382 | ||||
| 2023 | 2,497,382 | ||||
| Thereafter | 3,748,082 | ||||
| $ | 16,234,992 | ||||
Note 8 – Deferred Production Costs
Deferred production costs consist of the following:
| As of | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Deferred production costs | $ | 23,604,111 | $ | 17,905,111 | ||||
| Less: accumulated amortization | (14,545,267 | ) | (12,886,232 | ) | ||||
| Deferred production costs, net | $ | 9,058,844 | $ | 5,018,879 | ||||
| Weighted average remaining amortization period at December 31, 2018 (in years) | 4.02 | |||||||
| F-22 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
During the years ended December 31, 2018 and 2017, production costs of $1,663,835 and $3,707,590, respectively, were expensed and are reflected in multiplatform costs in the combined statements of operations. In addition, the Company recorded impairment of capitalized production costs of $768,459 and $0 during the years ended December 31, 2018 and 2017, respectively.
Note 9 – Line of Credit
In May 2018, Allied Esports entered into a $5,000,000 line of credit with a bank, bearing interest of 2.650% per annum with monthly payments of interest only. The line of credit is secured by a $5,000,000 certificate of deposit provided by Parent as collateral. All outstanding principal and accrued interest are due at maturity in May 2019. In October 2018, the $5,000,000 line of credit was repaid by the Parent using its collateralized certificate of deposit. As a result, Allied Esports owed $5,000,000 to the Parent as of December 31, 2018. There is no stated interest rate or repayment terms related to this liability. See Note 11 – Related Parties – Due to Parent for additional details. During 2018, the Company incurred $55,178 of interest expense related to this line of credit.
Note 10 – Segment Data
Each of the Company’s business segments offer different, but synergistic products and services and are managed separately, by different chief operating decision makers.
The Company’s business consists of two reportable segments:
| · | Poker gaming and entertainment, provided through WPT, including televised gaming and entertainment, land-based poker tournaments, online and mobile poker applications. |
| · | Esports, provided through Allied Esports, including multiplayer video game competitions. |
The following tables present segment information for each of the last two years:
| For the year ended December 31, 2018 | For the year ended December 31, 2017 | |||||||||||||||||||||||
| Gaming & Entertainment | Esports | TOTAL | Gaming & Entertainment | Esports | TOTAL | |||||||||||||||||||
| Revenues | $ | 16,326,923 | $ | 4,276,332 | $ | 20,603,255 | $ | 13,575,239 | $ | 97,767 | $ | 13,673,006 | ||||||||||||
| Revenues from Foreign Operations | $ | 2,499,058 | $ | 384,433 | $ | 2,883,491 | $ | 2,199,058 | $ | 97,663 | $ | 2,296,721 | ||||||||||||
| Loss from Operations | $ | (2,116,272 | ) | $ | (26,714,191 | ) | $ | (28,830,463 | ) | $ | (13,512,157 | ) | $ | (4,028,675 | ) | $ | (17,540,832 | ) | ||||||
| Depreciation and Amortization | $ | 4,003,937 | $ | 2,707,461 | $ | 6,711,398 | $ | 4,070,283 | $ | 136,660 | $ | 4,206,943 | ||||||||||||
| Interest Expense, net | $ | – | $ | (2,117,438 | ) | $ | (2,117,438 | ) | $ | (49 | ) | $ | (540,321 | ) | $ | (540,370 | ) | |||||||
| Capital Expenditures | $ | 735,031 | $ | 16,409,366 | $ | 17,144,397 | $ | 1,473,437 | $ | 6,202,188 | $ | 7,675,625 | ||||||||||||
| Total Assets | $ | 37,315,493 | $ | 27,931,444 | $ | 65,246,937 | $ | 32,978,709 | $ | 20,375,934 | $ | 53,354,643 | ||||||||||||
| Total Property and Equipment, net | $ | 711,863 | $ | 20,308,234 | $ | 21,020,097 | $ | 2,128,635 | $ | 6,651,856 | $ | 8,780,491 | ||||||||||||
| Total Property and Equipment, net in Foreign Countries | $ | – | $ | 442,925 | $ | 442,925 | $ | 2,573 | $ | 611,809 | $ | 614,382 | ||||||||||||
| F-23 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
One customer of the Gaming and Entertainment segment accounted for 18% of its segment revenues and 15% of total Company revenues for the year ended December 31, 2018.
During the years ended December 31, 2018 and 2017, 9% and 100% of the Esports segment revenues, respectively, were from foreign sources, and 15% and 16%, of the Gaming and Entertainment revenues, respectively, were from foreign sources.
Note 11 – Related Parties
Notes Payable to Parent
The Company has promissory notes payable to Parent. Borrowings on the notes are unsecured and bear interest at 6% per annum. The notes mature on December 31, 2021. As of December 31, 2017, the Company owed principal and interest under the Notes Payable to Parent of $23,375,380 and $550,133, respectively. From January – October 2018, Notes Payable to Parent increased by $13,997,142 of which $8,357,057 represented cash proceeds and $5,610,085 represented non-cash. During November and December 2018, as part of a corporate restructuring, the Parent converted $37,372,522 of the outstanding notes payable to Parent to Parent’s Net Investment. In addition, in connection with the restructuring, accrued interest in the amount of $2,150,487 was forgiven by the Parent, and was recorded as a contribution to capital.
Due to Parent
As of December 31, 2018 and 2017, due to Parent consisted of payments of certain operating expenses, investing activities and financing activities made on behalf of the Company by the Parent. There is no stated interest rate or definitive repayment terms related to this liability.
In May 2018, Allied Esports entered into a $5,000,000 line of credit with a bank, bearing interest of 2.650% per annum with monthly payments of interest only. The line of credit was secured by a $5,000,000 certificate of deposit held by Parent as collateral. All outstanding principal and accrued interest were due at maturity in May 2019. In October 2018, the $5,000,000 line of credit was repaid using the collateralized certificate of deposit. As a result, Allied Esports owed $5,000,000 to Parent, which is included in the amount Due to Parent as of December 31, 2018. There is no stated interest rate or defined repayment terms related to this liability.
During the year ended December 31, 2018, Allied Esports received net aggregate advances of $16,800,000 from the Parent. During the years ended December 31, 2018 and 2017, WPT received advances from the Parent net of repayments, totaling approximately $6,112,000 and $9,148,000, respectively. These advances from the Parent were partially funded from the bridge financing described below. There are no stated interest rates or defined repayment terms related to these advances. The weighted average balance of advances owed to the Parent during the years ended December 31, 2018 and 2017 was $21,965,152 and $6,426,526, respectively. Advances during the years ended December 31, 2018 and 2017 consisted of the following:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Advances for working capital needs | $ | 22,912,205 | $ | 8,123,017 | ||||
| Due to Parent for purchase of Deepstacks | – | 500,000 | ||||||
| Due to Parent for purchase of property and equipment | – | 525,582 | ||||||
| $ | 22,912,205 | $ | 9,148,599 | |||||
| F-24 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Bridge Financing
On October 11, 2018, the Parent issued a series of secured convertible promissory notes (the “Notes”) whereby investors provided Parent with $10 million to be used for the operations of the Company. The Notes are due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) upon conversion of the Notes into equity as part of the Merger. As security for purchasing the Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT. The liens and pledge described above only apply during the period of time that the investors are note holders.
Restructuring
In November and December 2018, the Company underwent a corporate entity restructuring for the purpose preparing the Company for the Merger. As part of the restructuring, AEEI, a new holding entity, was formed and AEII became a wholly-owned subsidiary of AEEI. The plan is for WPT to also become a wholly-owned subsidiary of AEEI prior to the closing of the Merger. The restructuring resulted in a $42,505,325 increase in Parent’s net investment consisting of notes payable, accrued interest and other related liabilities.
Stock Options
In 2015, the Parent issued options to purchase common stock of the Parent to certain employees and a consultant of WPT. Accordingly, during the years ended December 31, 2018 and 2017, the Company recorded ($766,417) and $483,371, respectively, of stock-based compensation which is reflected in general and administrative expenses in the combined statements of operations. As of December 31, 2018, there was $5,877 of unamortized stock-based compensation expense which will be recognized over a remaining period of 0.5 years.
Profit Participation Plan
In January 2018, certain employees of WPT entered into profit participation agreements pursuant to which the employees, commencing with the calendar year 2018, were entitled to an annual payment equal to a range of 1% to 4% of the net profits of the Company during such calendar year. Upon an occurrence of a change in control of WPT, the employees would be entitled to: (i) a payment equal to a range of 1% to 4% of the net profits of the Company through the fiscal quarter end prior to the closing of such change in control; and (ii) a payment equal to a range of 0.5% to 4% of the value of outstanding shares of WPT, pursuant to the profit participation agreement. In connection with the profit participation agreement, the participating employees forfeited the unvested portion of their options to purchase the Parent’s common stock. The Company recognized expense of $70,000 related to the Profit Participation Plan during the year ended December 31, 2018.
| F-25 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Share Purchase Agreements
On November 5, 2018, Allied Esports Media Inc. sold 1,199,191 shares of restricted common stock, representing an aggregate 12.16% ownership interest, to certain employees and stakeholders of the Company, for consideration of $0.001 per share. A December 17, 2018 Letter Agreement between the parties clarifies that if the over-allotmentMerger fails to close before July 1, 2019, upon the request of Allied Esports Media, Inc. or Allied Esports International, Inc., the common stock will be forfeited and it will be replaced with an equivalent number of options to purchase the equity of Allied Esports International, Inc., but the remaining option terms, including the exercise price, have not been specified. Accordingly, the option doesn’t currently meet the accounting definition of a grant. The Company has determined that it cannot consider the closing of the Merger to be probable as of December 31, 2018. Accordingly, the Company has not recognized any stock-based compensation during 2018. The excess of the grant date fair value of the common stock as compared to the purchase price will eventually be recorded as stock-based compensation, if the merger closes on a timely basis. Management, with the assistance of a third-party valuator, estimated the grant date fair value on November 5, 2018 (prior to combination with World Poker Tour and prior to the conversion of notes payable to Parent to Parent’s Net Investment) to be $0.33 per share by weighting the estimated values derived under the asset approach, the market approach and by reference to the letter of intent terms for the Merger.
Note 12 – Income Taxes
The Company and its subsidiaries file tax returns in the United States (federal and California), Gibraltar, Ireland and Germany.
In December 2017, the U.S. Congress enacted The Tax Cuts and Jobs Act (the “Act”). The primary provisions of the Act impacting the Company is the reduction to the U.S. corporate income tax rate from 35% to 21%, eliminating certain deductions, and imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries. The change in tax law required the Company to remeasure existing net deferred tax assets using the lower rate in the period of enactment resulting in an income tax expense of approximately $5,300,000 which is fully offset by a corresponding tax benefit of $5,300,000 which related to the corresponding reduction in the valuation allowance for the year ended December 31, 2017. There were no specific impacts of Tax Reform that could not exercisedbe reasonably estimated which the Company accounted for under prior tax law.
The U.S. and foreign components of income (loss) before income taxes were as follows:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| United States | $ | (28,118,382 | ) | $ | (14,890,677 | ) | ||
| Foreign | (2,901,343 | ) | (3,196,554 | ) | ||||
| Loss before income taxes | $ | (31,019,725 | ) | $ | (18,087,231 | ) | ||
| F-26 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
The income tax provision (benefit) for the years ended December 31, 2018 and 2017 consist of the following:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Federal | ||||||||
| Current | $ | – | $ | – | ||||
| Deferred | (4,840,852 | ) | 847,315 | |||||
| State and local: | ||||||||
| Current | – | – | ||||||
| Deferred | 346,679 | (1,290,314 | ) | |||||
| Foreign | ||||||||
| Current | – | – | ||||||
| Deferred | (187,853 | ) | (160,764 | ) | ||||
| (4,682,026 | ) | (603,763 | ) | |||||
| Change in valuation allowance | 4,682,026 | 603,763 | ||||||
| Income tax provision (benefit) | $ | – | $ | – | ||||
The reconciliation of the expected tax expense (benefit) based on the U.S. federal statutory rates for 2018 and 2017, respectively, with the actual expense is as follows:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| U.S. federal statutory rate | (21.0% | ) | (34.0% | ) | ||||
| State taxes, net of federal benefit | (2.0% | ) | (6.0% | ) | ||||
| Permanent differences | 3.8% | 1.4% | ||||||
| Statutory rate differential - domestic. vs. foreign | 1.8% | 6.2% | ||||||
| Changes in tax rates | 2.9% | 29.2% | ||||||
| Other | (0.6% | ) | (0.1% | ) | ||||
| Change in valuation allowance | 15.1% | 3.3% | ||||||
| Income tax provision (benefit) | 0.0% | 0.0% | ||||||
| F-27 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
The tax effects of temporary differences that give rise to deferred tax assets are presented below:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating loss carryforwards | $ | 13,521,964 | $ | 7,465,367 | ||||
| Production costs | 2,056,726 | 3,512,147 | ||||||
| Investment | 2,183,396 | – | ||||||
| Stock-based compensation | 40,516 | 540,277 | ||||||
| Capitalized start-up costs | 411,842 | 517,932 | ||||||
| Property and equipment | – | 123,241 | ||||||
| Accruals and other | 398,310 | 343,689 | ||||||
| Gross deferred tax assets | 18,612,754 | 12,502,653 | ||||||
| Property and equipment | (1,428,075 | ) | – | |||||
| Net deferred tax assets | 17,184,679 | 12,502,653 | ||||||
| Valuation allowance | (17,184,679 | ) | (12,502,653 | ) | ||||
| Deferred tax assets, net of valuation allowance | $ | – | $ | – | ||||
As of December 31, 2018, the Company had approximately $51,000,000, $33,500,000 and $3,500,000 of federal, state and foreign net operating loss (“NOL”) carryforwards available to offset against future taxable income. Of the federal NOLS, $25,900,000 may be carried forward for twenty years and begin to expire in 2035, while $25,100,000 have no expiration. The federal and state NOL carryovers are subject to annual limitations under Section 382 of the U.S. Internal Revenue Code when there is a greater than 50% ownership change, as determined under the regulations. There was a change of control on or about June 2015 and the Company has determined that, approximately $34,000,000 of federal and state NOLs will expire unused and are not included in the available NOLs stated above. Therefore, we reduced the related deferred tax asset for these NOL carryovers by approximately $13,600,000 from June 2015 forward. To date, no additional annual limitations have been triggered, but the Company remains subject to the possibility that a future greater than 50% ownership change could trigger annual limitations on the usage of NOLs.
The Company assesses the likelihood that deferred tax assets will be realized. ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2018 and 2017. For the years ended December 31, 2018 and 2017, the increase in the valuation allowance was $4,682,026 and $603,763, respectively.
The Company’s tax returns remain subject to examination by various taxing authorities beginning with the tax year ended December 31, 2015. No tax audits were commenced or were in process during the years ended December 31, 2018 and 2017.
| F-28 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Note 13 – Commitments and Contingencies
Operating Leases
Effective on March 23, 2017, Allied Esports entered into a non-cancellable operating lease for 30,000 square feet of event space in Las Vegas, Nevada, for the purpose of hosting Esports activities (the “Las Vegas Lease”). As part of the Las Vegas Lease, Allied Esports committed to build leasehold improvements to repurpose the space for Esports events prior to March 23, 2018, the day the Arena opened to the public (the “Commencement Date”). Initial lease terms are for minimum monthly payments of $125,000 for 60 months with an option to extend for an additional 60 months at $137,500 per month. Additional annual tenant obligations are estimated at $2 per square foot for Allied Esports’ portion of real estate taxes and $5 per square foot for common area maintenance costs. Lease payments are scheduled to start at the Commencement Date. The aggregate base rent payable over the lease term will be recognized on a straight-line basis.
The Las Vegas Lease also provides for Allied Esports to pay to the lessor an amount equal to 7% of Allied Esports gross sales from the Las Vegas arena, as defined, ("Percentage Rent") to the extent that the Percentage Rent exceeds the minimum annual rent commitment. The Percentage rent shall not exceed $3,000,000 per lease year and is to be paid in monthly installments.
The Company recognized lease expense related to the Las Vegas Lease amounted to $1,250,000 and $968,750 for years ended December 31, 2018 and 2017, respectively, which is included in in-person costs on the accompanying statement of operations.
WPT entered into a non-cancellable operating lease in 2004 for 8,519 square feet of space located in Los Angeles, California (the “LA Lease”) with respect to its operations. The LA Lease calls for an annual base rental during the term ranging between $393,578 and $442,975 and expires in January 2021, with an option to extend for an additional 60 months at the market rate, as defined. The aggregate base rent payable over the lease term will be recognized on a straight-line basis. Rent expense in connection with the LA Lease is capitalized as deferred production costs as incurred (see Note 8 - Deferred Production Costs).
ELC Gaming maintains an office space under a non-cancellable operating lease in Germany that expires in December 2019 with an option to extend for three years (the “Germany Lease”). Lease payments are approximately $7,100 per month.
WPT entered into a non-cancellable operating lease in 2011 for 11,156 square feet of space located in Irvine, California (the “Irvine Lease”) with respect to its operations. The Irvine Lease calls for minimum monthly payments ranging between $25,101 and $29,563 during the rental term and expires in April 2019 with an option to extend for an additional 60 months at the market rate, as defined. The aggregate base rent payable over the lease term is recognized on a straight-line basis. The lease was not renewed and WPT plans to move its headquarters to a temporary location while construction is completed on a new lease that the Company entered on March 29, 2019 (see Note 14 – Subsequent Events).
The Company’s aggregate rent expense related to the Germany Lease and the Irvine Lease amounted to $432,707 and $400,224 for the years ended December 31, 2018 and 2017, respectively, and is reflected in general and administrative expenses in the combined statements of operations.
The scheduled future minimum lease payments under the Company’s leases are as follows:
| Year Ending December 31, | ||||
| 2019 | 2,163,160 | |||
| 2020 | 1,941,900 | |||
| 2021 | 1,536,915 | |||
| 2022 | 1,500,000 | |||
| 2023 | 337,500 | |||
| $ | 7,479,475 | |||
| F-29 |
WORLD POKER TOUR AND ALLIED ESPORTS
Notes to Combined Financial Statements
Executive Engagement Agreement
In January 2018, the Parent amended an employment agreement between the Parent and the Chief Executive Officer of WPT (the “WPT CEO”), such that WPT guarantees any unpaid compensation obligations earned through June 2019, including payments to the WPT CEO upon the closing of the Merger, as described below.
Payments to WPT CEO
Pursuant to the employment agreement of the WPT CEO, both personally and through his consulting company, upon the closing of the Merger, the WPT CEO will be entitled to receive payments equal to (i) 2% of the sale of WPT up to $45 million, and 1% of the sale of WPT over $45 million; (ii) 2.5% of the shares and cash received by Parent in the Merger; and (iii) a payment of $1.5 million for reaching certain profitability goals of WPT, as described above, which are an obligation of the Parent.
Litigations, Claims, and Assessments
The Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows.
Note 14 – Subsequent Events
Lease Agreement
On March 29, 2019, WPT entered into an operating lease for approximately 25,000 square feet of space located in Irvine, California (the “New Irvine Lease”) with respect to its operations. The lease term is 167 months and monthly base rent under the New Irvine lease begins at $65,134 and increases to $95,652 over the term of the lease. The lease is guaranteed by the underwritersParent. WPT has a one-time option of reducing the size of the leased premises to 10,000 square feet on or before June 15, 2019. In the event of such reduction, the parties have agreed to amend the lease agreement, along with the base rent and other costs payable by WPT, based upon the reduced square footage.
| F-30 |
Allied Esports Entertainment, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2019 | December 31, 2018 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 9,355,496 | $ | 10,471,296 | ||||
| Restricted cash | 4,950,000 | – | ||||||
| Accounts receivable | 2,446,427 | 1,533,235 | ||||||
| Prepaid expenses and other current assets | 1,706,102 | 711,889 | ||||||
| Total Current Assets | 18,458,025 | 12,716,420 | ||||||
| Property and equipment, net | 19,918,061 | 21,020,097 | ||||||
| Goodwill | 4,083,621 | 4,083,621 | ||||||
| Intangible assets, net | 15,459,080 | 17,234,992 | ||||||
| Deposits | 712,463 | 632,963 | ||||||
| Deferred production costs | 11,204,843 | 9,058,844 | ||||||
| Investments | 4,638,631 | 500,000 | ||||||
| Total Assets | $ | 74,474,724 | $ | 65,246,937 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,285,149 | $ | 1,072,499 | ||||
| Accrued expenses and other current liabilities | 3,474,902 | 2,442,145 | ||||||
| Deferred revenue | 3,153,197 | 3,307,843 | ||||||
| Convertible debt, net of discount | 12,785,519 | – | ||||||
| Convertible debt, related party, net of discount | 983,501 | – | ||||||
| Accrued interest on convertible debt | 1,462,173 | – | ||||||
| Due to Former Parent | – | 33,019,510 | ||||||
| Total Current Liabilities | 23,144,441 | 39,841,997 | ||||||
| Deferred rent | 1,558,958 | 1,383,644 | ||||||
| Total Liabilities | 24,703,399 | 41,225,641 | ||||||
| Commitments and Contingencies | – | – | ||||||
| Stockholders' Equity | ||||||||
| Preferred stock, $0.0001 par value, 1,000,000 shares authorized, none issued and outstanding | – | – | ||||||
| Common stock, $0.0001 par value; 35,000,000 shares authorized, 23,176,146 and 11,602,754 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 2,317 | 1,160 | ||||||
| Additional paid in capital | 161,042,278 | 124,361,130 | ||||||
| Accumulated deficit | (111,398,765 | ) | (100,479,855 | ) | ||||
| Accumulated other comprehensive income | 125,495 | 138,861 | ||||||
| Total Stockholders' Equity | 49,771,325 | 24,021,296 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 74,474,724 | $ | 65,246,937 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-31 |
Allied Esports Entertainment, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues | ||||||||||||||||
| In-person | $ | 2,586,965 | $ | 2,202,443 | $ | 8,887,366 | $ | 6,068,081 | ||||||||
| Multiplatform content | 1,031,383 | 949,345 | 3,540,373 | 2,121,645 | ||||||||||||
| Interactive | 2,423,193 | 2,328,453 | 7,187,196 | 7,009,570 | ||||||||||||
| Total Revenues | 6,041,541 | 5,480,241 | 19,614,935 | 15,199,296 | ||||||||||||
| Costs and expenses | ||||||||||||||||
| In-person (exclusive of depreciation and amortization) | 1,196,572 | 975,254 | 2,901,220 | 3,992,607 | ||||||||||||
| Multiplatform content (exclusive of depreciation and amortization) | 786,706 | 860,332 | 2,907,827 | 2,033,834 | ||||||||||||
| Interactive (exclusive of depreciation and amortization) | 569,478 | 612,786 | 1,976,012 | 1,903,347 | ||||||||||||
| Online operating expenses | 172,879 | 129,770 | 489,269 | 1,541,789 | ||||||||||||
| Selling and marketing expenses | 705,714 | 302,508 | 2,644,645 | 3,143,563 | ||||||||||||
| General and administrative expenses | 4,711,692 | 3,871,179 | 13,378,166 | 12,364,722 | ||||||||||||
| Depreciation and amortization | 1,716,103 | 1,892,665 | 5,133,947 | 5,228,709 | ||||||||||||
| Impairment expense | – | 3,252,545 | 600,000 | 7,590,205 | ||||||||||||
| Total Costs and Expenses | 9,859,144 | 11,897,039 | 30,031,086 | 37,798,776 | ||||||||||||
| Loss From Operations | (3,817,603 | ) | (6,416,798 | ) | (10,416,151 | ) | (22,599,480 | ) | ||||||||
| Other (Expense) Income: | ||||||||||||||||
| Other income | 15,684 | 102,613 | 15,684 | 115,508 | ||||||||||||
| Interest expense | (451,553 | ) | (564,358 | ) | (518,443 | ) | (1,877,616 | ) | ||||||||
| Foreign currency exchange income (loss) | – | 113,916 | – | (15,394 | ) | |||||||||||
| Total Other Expense | (435,869 | ) | (347,829 | ) | (502,759 | ) | (1,777,502 | ) | ||||||||
| Net Loss | (4,253,472 | ) | (6,764,627 | ) | (10,918,910 | ) | (24,376,982 | ) | ||||||||
| Net loss attributed to non-controlling interest | – | (76,525 | ) | – | (403,627 | ) | ||||||||||
| Net Loss Attributable to Allied Esports Entertainment, Inc. | $ | (4,253,472 | ) | $ | (6,688,102 | ) | $ | (10,918,910 | ) | $ | (23,973,355 | ) | ||||
| Basic and Diluted Net Loss per Common Share | $ | (0.24 | ) | $ | (0.58 | ) | $ | (0.79 | ) | $ | (2.07 | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic and Diluted | 18,098,797 | 11,602,754 | 13,791,896 | 11,602,754 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
Allied Esports Entertainment, Inc.
BLACK RIDGE ACQUISITION CORP.Condensed Consolidated Statements of Operations and Comprehensive Loss
STATEMENT OF OPERATIONS
For the Period from May 9, 2017 (Inception) through May 31, 2017(unaudited)
| Formation and operating costs | $ | 323 | ||
| Net loss | $ | (323 | ) | |
| Weighted average shares outstanding, basic and diluted(1) | 2,500,000 | |||
| Basic and diluted net loss per common share | $ | (0.00 | ) |
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30 | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net loss | $ | (4,253,472 | ) | $ | (6,764,627 | ) | $ | (10,918,910 | ) | $ | (24,376,982 | ) | ||||
| Other comprehensive (loss) gain: | ||||||||||||||||
| Foreign currency translation adjustments | (21,083 | ) | 253,814 | (13,366 | ) | 70,787 | ||||||||||
| Total comprehensive loss | (4,274,555 | ) | (6,510,813 | ) | (10,932,276 | ) | (24,306,195 | ) | ||||||||
| Less: Comprehensive loss attributable to non-controlling interests | – | (76,525 | ) | – | (403,627 | ) | ||||||||||
| Comprehensive loss attributable to Allied Esports Entertainment, Inc. | $ | (4,274,555 | ) | $ | (6,434,288 | ) | $ | (10,932,276 | ) | $ | (23,902,568 | ) | ||||
(1) This number excludes an aggregate of up to 375,000 shares subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters.
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
Allied Esports Entertainment, Inc.
BLACK RIDGE ACQUISITION CORP.Condensed Combined Statements of Changes in Stockholders’ Equity
STATEMENT OF STOCKHOLDER'S EQUITYFor The Nine Months ended September 30, 2019
(unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock(1) | Paid-in | Accumulated | Stockholder's | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, May 9, 2017 | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Issuance of common stock to Sponsor, net (see note 6) | 2,875,000 | 288 | 24,712 | - | 25,000 | |||||||||||||||
| Net loss | - | - | - | (323 | ) | (323 | ) | |||||||||||||
| Balance, May 31, 2017 | 2,875,000 | $ | 288 | $ | 24,712 | $ | (323 | ) | $ | 24,677 | ||||||||||
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholder’s | ||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| Balance, January 1, 2019 | 11,602,754 | $ | 1,160 | $ | 124,361,130 | $ | 138,861 | $ | (100,479,855 | ) | $ | 24,021,296 | ||||||||||||
| Net loss | – | – | – | – | (3,854,152 | ) | (3,854,152 | ) | ||||||||||||||||
| Other comprehensive loss | – | – | – | (3,082 | ) | – | (3,082 | ) | ||||||||||||||||
| Balance, March 31, 2019 | 11,602,754 | 1,160 | 124,361,130 | 135,779 | (104,334,007 | ) | 20,164,062 | |||||||||||||||||
| Net loss | – | – | – | – | (2,811,286 | ) | (2,811,286 | ) | ||||||||||||||||
| Other comprehensive income | – | – | – | 10,799 | – | 10,799 | ||||||||||||||||||
| Balance, June 30, 2019 | 11,602,754 | 1,160 | 124,361,130 | 146,578 | (107,145,293 | ) | 17,363,575 | |||||||||||||||||
| Effect of reverse merger | 11,492,999 | 1,149 | 36,395,355 | – | – | 36,396,504 | ||||||||||||||||||
| Warrants issued to convertible debt holders | – | – | 114,804 | – | – | 114,804 | ||||||||||||||||||
| Contingent consideration for convertible debt holders | – | – | 152,590 | – | – | 152,590 | ||||||||||||||||||
| Restricted stock | 80,393 | 8 | (8 | ) | – | – | – | |||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||
| Stock options | – | – | 5,940 | – | – | 5,940 | ||||||||||||||||||
| Restricted stock | – | – | 12,467 | – | – | 12,467 | ||||||||||||||||||
| Net loss | – | – | – | – | (4,253,472 | ) | (4,253,472 | ) | ||||||||||||||||
| Other comprehensive loss | – | – | – | (21,083 | ) | – | (21,083 | ) | ||||||||||||||||
| Balance, September 30, 2019 | 23,176,146 | $ | 2,317 | $ | 161,042,278 | $ | 125,495 | $ | (111,398,765 | ) | $ | 49,771,325 | ||||||||||||
(1) This number includes an aggregate of up to 375,000 shares subject to forfeiture if the over-allotment option is not exercised by the underwriters
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
Allied Esports Entertainment, Inc.
STATEMENT OF CASH FLOWSCondensed Combined Statements of Changes in Stockholders’ Equity
For the Period from May 9, 2017 (Inception) through May 31, 2017The Nine Months ended September 30, 2018
(unaudited)
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net loss | $ | (323 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Formation costs paid by related party | 323 | |||
| Net cash provided by operating activities | - | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Proceeds from promissory note - related party | 62,500 | |||
| Proceeds from issuance of common stock to Sponsor | 25,000 | |||
| Net cash provided by financing activities | 87,500 | |||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 87,500 | |||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | - | |||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 87,500 | ||
| NON-CASH INVESTING AND FINANCE ACTIVITIES: | ||||
| Payment of offering costs through promissory note - related party | $ | 62,500 |
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Non- Controlling | Accumulated | Total Stockholder’s | ||||||||||||||||
| Shares | Amount | Capital | Loss | Interest | Deficit | Deficit | |||||||||||||||
| Balance at January 1, 2018 | 11,602,754 | $ | 1,160 | $ | 82,622,222 | $ | (149,250 | ) | $ | – | $ | (69,863,757 | ) | $ | 12,610,375 | ||||||
| Net loss | – | – | – | – | (136,156 | ) | (6,175,136 | ) | (6,311,292 | ) | |||||||||||
| Acquisition of ESA | – | – | – | – | 712,854 | – | 712,854 | ||||||||||||||
| Other comprehensive loss | – | – | – | (225,992 | ) | – | – | (225,992 | ) | ||||||||||||
| Net contributions from Parent | – | – | (779,000 | ) | – | – | – | (779,000 | ) | ||||||||||||
| Balance at March 31, 2018 | 11,602,754 | 1,160 | 81,843,222 | (375,242 | ) | 576,698 | (76,038,893 | ) | 6,006,945 | ||||||||||||
| Net loss | – | – | – | – | (190,946 | ) | (11,110,116 | ) | (11,301,062 | ) | |||||||||||
| Other comprehensive income | – | – | – | 42,965 | – | – | 42,965 | ||||||||||||||
| Balance at June 30, 2018 | 11,602,754 | 1,160 | 81,843,222 | (332,277 | ) | 385,752 | (87,149,009 | ) | (5,251,152 | ) | |||||||||||
| Net loss | – | – | – | – | (76,525 | ) | (6,688,103 | ) | (6,764,628 | ) | |||||||||||
| Deconsolidation of ESA | – | – | – | – | (309,227 | ) | – | (309,227 | ) | ||||||||||||
| Other comprehensive income | – | – | – | 253,814 | – | – | 253,814 | ||||||||||||||
| Balance at September 30, 2018 | 11,602,754 | $ | 1,160 | $ | 81,843,222 | $ | (78,463 | ) | $ | – | $ | (93,837,112 | ) | $ | (12,071,193 | ) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
Allied Esports Entertainment, Inc.
BLACK RIDGE ACQUISITION CORP.Condensed Combined Statements of Cash Flows
NOTES TO THE FINANCIAL STATEMENTS(unaudited)
For the Period from May 9, 2017 (Inception)
| For The Nine Months Ended | ||||||||
| September | ||||||||
| 2019 | 2018 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (10,918,910 | ) | $ | (24,376,982 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 18,407 | (779,000 | ) | |||||
| Amortization of debt discount | 36,414 | – | ||||||
| Bad debt expense | 115,726 | 79,414 | ||||||
| Depreciation and amortization | 5,133,947 | 5,228,709 | ||||||
| Realized loss on equity method investment | – | 151,881 | ||||||
| Subsidiary impairment / loss during consolidation period | – | 1,838,739 | ||||||
| Impairment / loss on deconsolidation of subsidiary | – | 7,438,324 | ||||||
| Impairment expense | 600,000 | – | ||||||
| Write-off of capitalized software costs | – | 648,563 | ||||||
| Deferred rent | 175,314 | (147,605 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,029,096 | ) | (593,675 | ) | ||||
| Deposits | (79,500 | ) | 19,397 | |||||
| Deferred production costs | (2,145,999 | ) | (4,108,748 | ) | ||||
| Prepaid expenses and other current assets | (227,324 | ) | (179,247 | ) | ||||
| Accounts payable | (642,686 | ) | 367,956 | |||||
| Accrued expenses | 898,157 | 576,731 | ||||||
| Accrued interest on convertible debt | 469,296 | – | ||||||
| Accrued interest on notes payable to Former Parent | – | 1,787,527 | ||||||
| Deferred revenue | (154,646 | ) | 815,568 | |||||
| Total adjustments | 3,168,010 | 13,144,534 | ||||||
| Net Cash Used In Operating Activities | (7,750,900 | ) | (11,232,448 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Net cash acquired in Merger | 14,941,683 | – | ||||||
| Investment in TV Azteca | (3,500,000 | ) | – | |||||
| Investment in ESA | (1,238,631 | ) | (5,851,858 | ) | ||||
| Purchases of property and equipment | (2,173,200 | ) | (16,834,824 | ) | ||||
| Purchases of intangible assets | (99,822 | ) | (38,334 | ) | ||||
| Net Cash Provided by (Used In) Investing Activities | $ | 7,930,030 | $ | (22,725,016 | ) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-36 |
Allied Esports Entertainment, Inc.
Condensed Combined Statements of Cash Flows, continued
(unaudited)
| For The Nine Months Ended | ||||||||
| September | ||||||||
| 2019 | 2018 | |||||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from line of credit | $ | – | $ | 5,000,000 | ||||
| Proceeds from convertible debt | 3,000,000 | – | ||||||
| Proceeds from convertible debt, related party | 1,000,000 | – | ||||||
| Proceeds from notes payable to Parent | – | 11,174,913 | ||||||
| Due to Former Parent | (346,804 | ) | 14,269,373 | |||||
| Net Cash Provided By Financing Activities | 3,653,196 | 30,444,286 | ||||||
| Effect of Exchange Rate Changes on Cash | 1,874 | (36,872 | ) | |||||
| Net Increase (Decrease) In Cash And Restricted Cash | 3,834,200 | (3,550,050 | ) | |||||
| Cash and restricted cash - Beginning of period | 10,471,296 | 13,610,138 | ||||||
| Cash and restricted cash - End of period | $ | 14,305,496 | $ | 10,060,088 | ||||
| Cash and restricted cash consisted of the following: | ||||||||
| Cash | 9,355,496 | 10,060,088 | ||||||
| Restricted cash | 4,950,000 | – | ||||||
| $ | 14,305,496 | $ | 10,060,088 | |||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | – | $ | 46,466 | ||||
| Non-cash investing and financing activities: | ||||||||
| Non cash investment in ESA | $ | – | $ | 5,610,085 | ||||
| Due to Former Parent satisfied by issuance of common stock in connection with Merger | $ | 18,179,745 | $ | – | ||||
| Convertible debt and related interest assumed in Merger | $ | 10,992,877 | $ | – | ||||
| Warrants granted to convertible debt holders in connection with Merger | $ | 114,804 | $ | – | ||||
| Contingent consideration for convertible debt holders in connection with Merger | $ | 152,590 | $ | – | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-37 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to May 31, 2017Condensed Consolidated Financial Statements
Note 1 – DescriptionBackground and Basis of Organization and Business OperationsPresentation
Allied Esports Entertainment Inc., (“AESE” and formerly known as Black Ridge Acquisition Corp. (“BRAC”, the “Company”, “we”, “us”Corp, or “our”“BRAC”) was incorporated in Delaware on May 9, 2017 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business Combination”). The Company’s efforts
Allied Esports Media, Inc. (“AEM”), a Delaware corporation, was formed in November 2018 to identifyact as a prospective targetholding company for Allied Esports International Inc. (“Allied Esports”) and immediately prior to close of the Merger (see below) to also include Noble Link Global Limited (“Noble Link”). Allied Esports, together with its subsidiaries described below owns and operates the esports-related businesses of AESE. Noble Link (prior to the AEM Merger) and its wholly owned subsidiaries Peerless Media Limited, Club Services, Inc. and WPT Enterprises, Inc. operate the poker-related business will not be limitedof AESE and are collectively referred to a particular industryherein as “World Poker Tour” or geographic region, although we intend“WPT”. Prior to focus our search for target businesses in the energy or energy-relatedindustries with an emphasis on opportunities in the upstream oilMerger, as described below, Noble Link and gas industry in North AmericaAllied Esports were subsidiaries of Ourgame International Holdings Limited (the “Former Parent”).
As
On December 19, 2018, BRAC, Noble Link and AEM executed an Agreement and Plan of May 31, 2017,Reorganization (as amended from time to time, the Company had not yet commenced any operations. All activity through May 31, 2017 relates“Merger Agreement”). On August 9, 2019 (the “Closing Date”), Noble Link was merged with and into AEM, with AEM being the surviving entity, which was accounted for as a common control merger (the “AEM Merger”). Further, on August 9, 2019, a subsidiary of AESE merged with AEM pursuant to the Company’s formationMerger Agreement with AEM being the surviving entity (the “Merger”). The Merger was accounted for as a reverse recapitalization, and AEM is deemed to be the accounting acquirer. Consequently, the assets and liabilities and the proposed public offering described below.historical operations that are reflected in these condensed consolidated financial statements prior to the Merger are those of Allied Esports and WPT. The Company has selected December 31preferred stock, common stock, additional paid in capital and earnings per share amount in these condensed consolidated financial statements for the period prior to the Merger have been restated to reflect the recapitalization in accordance with the shares issued to the Former Parent as a result of the Merger. References herein to the “Company” are to the combination of AEM and WPT during the period prior to the AEM Merger and are to AESE and subsidiaries after the Merger.
Allied Esports operates through its fiscal year-end. The Companywholly owned subsidiaries Allied Esports International, Inc., (“AEII”), Esports Arena Las Vegas, LLC (“ESALV”) and ELC Gaming GMBH (“ELC Gaming”). AEII operates global competitive esports properties designed to connect players and fans via a network of connected arenas. ESALV operates a flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada. ELC Gaming operates a mobile esports truck that serves as both a battleground and content generation hub and also operates a studio for recording and streaming gaming events.
World Poker Tour is an early stageinternationally televised gaming and emerging growthentertainment company with brand presence in land-based tournaments, television, online and mobile applications. WPT has been involved in the sport of poker since 2002 and created a television show based on a series of high-stakes poker tournaments. WPT has broadcasted globally in more than 150 countries and territories and its shows are sponsored by established brands in many areas, including watches, crystal, playing cards and online social poker operators. WPT also operates ClubWPT.com, a subscription-based site that offers its members inside access to the WPT content database, as such,well as sweepstakes-based poker product that allows members to play for real cash and prizes in 36 states and territories across the Company is subject to all of the risks associated with early stageUnited States and emerging growth companies.4 foreign countries. WPT also participates in strategic brand licensing, partnership, and sponsorship opportunities.
The Company’s ability to commence operations is contingent upon obtaining adequate financial resources through the proposed public offering of 10,000,000 units (or 11,500,000 units if the underwriters’ over-allotment option is exercised in full) at a purchase price of $10.00 per Unit as discussed in Note 3 (the “Proposed Public Offering”). Each unit consists of consists of one share of common stock, one right and one warrant. Each right will convert to one-tenth (1/10) of one share of common stock upon consummation of a business combination. Each warrant entitles the holder to purchase one share of common stock at a price of $11.50. Each warrant will become exercisable on the later of 30 days after the completion of an initial business combination or 12 months from the closing of this offering and will expire on the fifth anniversary of our completion of an initial business combination, or earlier upon redemption or liquidation. The company has granted the underwriters a 45-day option to purchase up to an additional 1,500,000 units to cover over-allotments, if any.
Black Ridge Oil & Gas, Inc. (“BROG” and “the Sponsor”) has committed to purchase from us an aggregate of 350,000 units, or “private units,” at $10.00 per unit (for a total purchase price of $3,500,000) in a private placement that will occur simultaneously with the consummation of this offering. The Sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us additional private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit in an amount that is necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The private units are identical to the units sold in this offering, subject to certain limited exceptions.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Proposed Public Offering and private units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. Upon the closing of the Proposed Public Offering, management has agreed that at least $10.05 per Unit sold in the Proposed Public Offering, including the proceeds of the Private Placements will be held in a trust account (“Trust Account”) until the earlier of (i) the consummation of its initial Business Combination or (ii) the Company’s failure to consummate a Business Combination within 21 months from the consummation of the Proposed Public Offering. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to the Company for any amounts that are necessary to pay the Company’s income and other tax obligations.
BLACK RIDGE ACQUISITION CORP.ALLIED ESPORTS ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 1 – Description of Organization2 - Going Concern and Business Operations (Continued)Management’s Plans
The amountAs of proceeds not held in Trust is expected to be approximately $500,000, after the payment of approximately $2.5 million in expenses related to the Proposed Public Offering, inclusive of $2.0 million of underwriting fees. In order to meet its working capital needs following the consummation of the Proposed Public Offering, the Company’s Sponsor or their affiliates may, but are not obligated to, loan the Company funds as may be required. The loans would either be paid upon consummation of the Company’s initial Business Combination, or, at the lender’s discretion, up to $1,500,000 of such loans may be converted upon consummation of the Company’s Business Combination into units at a price of $10.00 per unit. These units would be identical to the private units. If the Company does not complete a Business Combination, the loans would be repaid only out of funds held outside of the Trust Account.
Subject to certain exceptions, the sponsor has agreed that it will be liable to ensure that the proceeds in the trust account are not reduced below $10.05 per share by the claims of target businesses or claims of vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to us.
Initial Business Combination
Pursuant to the Nasdaq Capital Markets listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the Trust Account, net of taxes payable, at the time of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of the target will be determined by the Company’s board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). The target business or businesses that the Company acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. In order to consummate such a Business Combination, the Company may issue a significant amount of its debt or equity securities to the sellers of such business and/or seek to raise additional funds through a private offering of debt or equity securities. If the Company’s securities are not listed on NASDAQ after the Proposed Public Offering, the Company would not be required to satisfy the 80% requirement. However, the Company intends to satisfy the 80% requirement even if the Company’s securities are not listed on NASDAQ at the time of the initial Business Combination.
The Company will provide the public stockholders, who are the holders of the Common stock (“Public Shares”) which will be sold as part of the Units in the Proposed Public Offering, whether they are purchased in the Proposed Public Offering or in the aftermarket and the Company’s shareholders prior to the Proposed Public Offering (included the Sponsor) (the “Initial Stockholders”) to the extent that they purchase such Public Shares (“Public Stockholders”), with an opportunity to redeem all or a portion of their Public Shares of the Company’s Common stock, irrespective of whether they vote for or against the proposed transaction or if the Company conducts a tender offer, upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called to approve the Business Combination, or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest (net of taxes payable, divided by the number of then outstanding shares of Common stock. The amount in the Trust Account is initially anticipated to be $10.05 per Public Share. The common stock subject to redemption will be recorded at a redemption value and classified a temporary equity upon the completion of the Proposed Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. In such case, the Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and in the case of a stockholder vote, a majority of the outstanding shares voted are voted in favor of the Business Combination. The decision as to whether the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement. If a stockholder vote is not required and the Company decides not to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to the proposed amended and restated certificate of incorporation, (i) conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the SEC prior to completing the initial Business Combination which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 1 – Description of Organization and Business Operations (Continued)
The Initial Stockholders will agree to vote their Founder Shares (as described in Note 6) and any Public Shares purchased during or after the Proposed Public Offering in favor of the initial Business Combination, and the Company’s executive officers, directors and director nominees have also agreed to vote any Public Shares purchased during or after the Proposed Public Offering in favor of the initial Business Combination. The Initial Stockholders will enter into a letter agreement, pursuant to which they agree to waive their redemption rights with respect to the Founder Share, the shares underlying the Private Units and Public Shares in connection with the completion of the initial Business Combination. In addition, the Initial Stockholders will also agree to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares and the shares underlying the Private Units if the Company fails to complete the initial Business Combination within the prescribed time frame. However, if the Initial Stockholders (or any of the Company’s executive officers, directors or affiliates) acquire Public Shares in or after the Proposed Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares in the event the Company does not complete the initial Business Combination within such applicable time period.
Failure to Consummate a Business Combination
If the Company is unable to complete the initial Business Combination within 21 months from the consummation of the Proposed Public Offering, the Company must: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable and up to $50,000 that may be used to pay for liquidation expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s Board of Directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Going Concern Consideration
At May 31, 2017, the CompanySeptember 30, 2019, we had cash and cash equivalents of $87,500 and a working capital deficit of $37,823. Further,approximately $9.4 million (not including approximately $5.0 million of restricted cash) and $4.7 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company has incurred net losses of approximately $10.9 million and expects to continue to incur, significant costs$24.4 million, respectively, and used cash in pursuitoperations of its financingapproximately $7.8 million and acquisition plans. These conditions$11.2 million, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern for at leastwithin one year fromafter the issuance date of these condensed consolidated financial statements. Management plans to address this uncertainty through the Proposed Public Offering as discussed in Note 3. There is no assurance that the Company’s plans to raise capital or to consummate a Business Combination will be successful or successful within the required time period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 – Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and pursuantthe realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s continuation is dependent upon attaining and maintaining profitable operations and, until that time, raising additional capital as needed, but there can be no assurance that it will be able to close on sufficient financing. The Company’s ability to generate positive cash flow from operations is dependent upon generating sufficient revenues. To date, the Company’s operations have been funded by the Former Parent and through the issuance of debt. The Company cannot provide any assurances that it will be able to secure additional funding, either from equity offerings or debt financings on terms acceptable to the Company, if at all. If the Company is unable to obtain the requisite amount of financing needed to fund its planned operations, it would have a material adverse effect on its business and ability to continue as a going concern, and it may have to curtail, or even cease, certain operations.
Note 3 - Significant Accounting Policies
There are no material changes from the significant accounting and disclosure rules and regulationspolicies set forth in Note 3 – Significant Accounting Policies of the SEC.Company’s accompanying notes to the audited combined financial statements of Allied Esports and WPT for the year ended December 31, 2018, as presented in the Company’s Form 8k filed on August 15, 2019, except for the following accounting policies.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual combined financial statements. For additional information, these condensed consolidated financial statements should be read in conjunction with the audited combined financial statements of Allied Esports and WPT for the years ended December 31, 2018 and 2017, included in the Report on Form 8-K filed with the SEC on August 15, 2019. 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, 2019 and for the nine months ended September 30, 2019 and 2018. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the operating results for the full year ending December 31, 2019 or any other period. These unaudited condensed consolidated financial statements have been derived from the accounting records of AESE, WPT and Allied Esports and should be read in conjunction with the accompanying notes thereto.
Intangible Assets and Goodwill
Intangible assets are comprised of goodwill, intellectual property, customer relationships, trademarks, and trade names. Intangible assets with definite lives are amortized on a straight-line basis over the shorter of their estimate useful lives, ranging from two to ten years, or their contract periods, if applicable. Intangible assets with indefinite lives are not amortized but are evaluated at least annually for impairment and more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable.
BLACK RIDGE ACQUISITION CORP.ALLIED ESPORTS ENTERTAINMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception)Notes to May 31, 2017Condensed Consolidated Financial Statements
Note 2 – Significant Accounting Policies (Continued)
Net Loss per Common Share
Emerging growth company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
Cash and cash equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of May 31, 2017.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At May 31, 2017, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
LossBasic loss per share
Loss percommon share is computed by dividing net loss attributable to AESE common stockholders by the weighted-averageweighted average number of shares of common stockshares outstanding during the period excluding shares subjectperiod. Diluted loss per common share is computed by dividing net loss attributable to forfeiture. Weightedcommon stockholders by the weighted average shares was reduced for the effect of an aggregate of 375,000 sharesnumber of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the exercise of outstanding stock thatoptions and warrants and the conversion of convertible instruments.
The following securities are subject to forfeiture ifexcluded from the over-allotment option is not exercised by the underwriters. At May 31, 2017,calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
| Three and Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Options | 400,000 | – | ||||||
| Warrants | 18,637,003 | 3,800,000 | ||||||
| Convertible Debt | 1,647,058 | – | ||||||
| Equity Purchase Options | 600,000 | 600,000 | ||||||
| 21,284,061 | 4,400,000 | |||||||
Revenue Recognition
On January 1, 2019, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC 606 did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share ina material impact on the earningsCompany’s consolidated financial statements as of the Company.date of adoption. As a result, diluted loss pera cumulative-effect adjustment was not required.
The Company recognizes revenue primarily from the following sources:
In-person revenue
The Company’s in-person revenue is comprised of event revenue, merchandising revenue and other revenue. Event revenue is generated through World Poker Tour events – TV, non-TV, and DeepStacks Entertainment, LLC and DeepStacks Poker Tour, LLC (collectively “DeepStacks”) events – held at the Company’s partner casinos as well as Allied Esports events held at the Company’s esports properties. Event revenue is generated from the use of the WPT brand by partner casinos, from naming rights for the HyperX Esports Arena Las Vegas and from sponsorship arrangements for Allied Esports events held at the Las Vegas arena. 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.
| F-40 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
The Company recognizes event revenue related to the use of the WPT brand by partner casinos at the time of the WPT-branded event. Event revenues from naming rights of the Company’s esports arena are recognized on a straight-line basis over the contractual term of the naming rights agreement. Event revenues from sponsorship arrangements for Allied Esports events are recognized on a straight-line basis over the duration of the event, usually three to four days. 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 records deferred revenue to the extent that payment has been received for services that have yet to be performed.
In-person revenue was comprised of the following for the three and nine months ended September 30, 2019 and 2018:
| In-person revenue | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Event revenue | $ | 2,064,618 | $ | 1,551,861 | $ | 7,322,466 | $ | 4,603,071 | ||||||||
| Food and beverage revenue | 289,261 | 292,306 | 972,352 | 619,647 | ||||||||||||
| Ticket and gaming revenue | 182,136 | 290,518 | 447,156 | 695,227 | ||||||||||||
| Merchandising revenue | 50,950 | 67,758 | 145,273 | 149,399 | ||||||||||||
| Other revenue | – | – | 119 | 737 | ||||||||||||
| Total in-person revenue | $ | 2,586,965 | $ | 2,202,443 | $ | 8,887,366 | $ | 6,068,081 | ||||||||
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.
Multiplatform content revenue
The Company’s multiplatform content revenue is comprised of distribution revenue, sponsorship revenue, music royalty revenue and online advertising revenue. Distribution revenue is generated primarily through the distribution of content from World Poker Tour’s library. World Poker Tour provides video content to global television networks, who then have the right to air the content over the related license period. Revenue from the distribution of video content to television networks is received pursuant to the contract payment terms and is recognized over the license period on a pro rata basis. Occasionally, WPT will bundle third-party content with its own content in a distribution arrangement and will share the revenue with the third party. However, the revenues related to third party content are de minimis.
The Company also distributes video content to online channels. Both the global television networks and the online channels place ads within the WPT content and any advertising revenue earned by the global TV network or online channel is shared with WPT. Advertising revenue is received on a lag, based upon the samenumber of times an advertisement is aired during the previous month, and is recognized during the period that the ad aired on the network or online channel.
Sponsorship revenue is generated through the sponsorship of the Company’s TV content, online events and online streams. Online advertising revenue is generated from third-party advertisements placed on the Company’s website. Music royalty revenue is generated when the Company’s music is played in the Company’s TV series both on TV networks and online.
| F-41 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
The Company recognizes distribution revenue and sponsorship revenue pursuant to the terms of each individual contract with the customer and records deferred revenue to the extent the Company has received a payment for services that have yet to be performed or products that have yet to be delivered. Music royalty revenue is recognized at the point in time when the music is played.
Multiplatform content revenue was comprised of the following for the three and nine months ended September 30, 2019 and 2018:
| Multiplatform content revenue | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Distribution revenue | $ | 282,508 | 280,708 | $ | 1,069,328 | $ | 516,874 | |||||||||
| Sponsorship revenue | 544,541 | 320,624 | 1,252,131 | 776,327 | ||||||||||||
| Music royalty revenue | 200,787 | 339,547 | 1,214,286 | 808,537 | ||||||||||||
| Online advertising revenue | 3,547 | 8,466 | 4,628 | 19,907 | ||||||||||||
| Total multiplatform content revenue | $ | 1,031,383 | $ | 949,345 | $ | 3,540,373 | $ | 2,121,645 | ||||||||
Interactive revenue
The Company’s interactive revenue is primarily comprised of subscription revenue, licensing, social gaming and virtual product revenue. Subscription revenue is generated through fixed rate (monthly, quarterly, annual) subscriptions which offer the opportunity for subscribers to play unlimited poker and access benefits not available to non-subscribers.
The Company recognizes subscription revenue on a straight-line basis and records deferred revenue to the extent the Company receives payments for services that have yet to be provided. The Company recognizes social gaming revenue and virtual product revenue at the point when the product has been delivered. The Company generates licensing revenue by licensing the right to use the Company’s brand on products to third parties. Licensing revenue is recognized pursuant to the terms of each individual contract with the customer and deferred revenue is recorded to the extent the Company has received a payment for products that have yet to be delivered.
Interactive revenue was comprised of the following for the three and nine months ended September 30, 2019 and 2018:
| Interactive revenue | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Subscription revenue | $ | 1,313,217 | $ | 1,272,077 | $ | 3,745,622 | $ | 3,751,379 | ||||||||
| Virtual product revenue | 925,411 | 1,056,376 | 2,773,769 | 2,473,043 | ||||||||||||
| Social gaming revenue | 152,317 | – | 397,065 | 661,863 | ||||||||||||
| Licensing revenue | 16,872 | – | 198,481 | 50,398 | ||||||||||||
| Other revenue | 15,376 | – | 72,259 | 72,887 | ||||||||||||
| Total interactive revenue | $ | 2,423,193 | $ | 2,328,453 | $ | 7,187,196 | $ | 7,009,570 | ||||||||
| F-42 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
The following table summarizes our revenue recognized under ASC 606 in our condensed consolidated statements of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues Recognized at a Point in Time: | ||||||||||||||||
| Event revenue | $ | 2,064,618 | $ | 1,551,861 | $ | 7,322,466 | $ | 4,603,071 | ||||||||
| Food and beverage revenue | 289,261 | 292,306 | 972,352 | 619,647 | ||||||||||||
| Ticket and gaming revenue | 182,136 | 290,518 | 447,156 | 695,227 | ||||||||||||
| Merchandising revenue | 50,950 | 67,758 | 145,273 | 149,399 | ||||||||||||
| Sponsorship revenue | 544,541 | 320,624 | 1,252,131 | 776,327 | ||||||||||||
| Music royalty revenue | 200,787 | 339,547 | 1,214,286 | 808,537 | ||||||||||||
| Online advertising revenue | 3,547 | 8,466 | 4,628 | 19,907 | ||||||||||||
| Virtual product revenue | 925,411 | 1,056,376 | 2,773,769 | 2,473,043 | ||||||||||||
| Social gaming revenue | 152,317 | – | 397,065 | 661,863 | ||||||||||||
| Distribution revenue | 282,508 | 280,708 | 1,069,328 | 516,874 | ||||||||||||
| Other revenue | 15,376 | – | 72,378 | 73,624 | ||||||||||||
| Total Revenues Recognized at a Point in Time | 4,711,452 | 4,208,164 | 15,670,832 | 11,397,519 | ||||||||||||
| Revenues Recognized Over a Period of Time: | ||||||||||||||||
| Licensing revenue | 16,872 | – | 198,481 | 50,398 | ||||||||||||
| Subscription revenue | 1,313,217 | 1,272,077 | 3,745,622 | 3,751,379 | ||||||||||||
| Total Revenues Recognized Over a Period of Time | 1,330,089 | 1,272,077 | 3,944,103 | 3,801,777 | ||||||||||||
| Total Revenues | $ | 6,041,541 | $ | 5,480,241 | $ | 19,614,935 | $ | 15,199,296 | ||||||||
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, 2019, there remained $38,245 of contract liabilities which were included within deferred revenue on the combined balance sheet as basicof December 31, 2018, and for which performance obligations had not yet been satisfied as of September 30, 2019. The Company expects to satisfy its remaining performance obligations within the next twelve months. During the three and nine months ended September 30, 2019, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.
Reclassification
Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported results of operations or loss per share.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP
| F-43 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02 requires management to make estimates and assumptions that affecta lessee recognize the reported amounts of assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and disclosurea right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of contingent12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilitieslease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the datebeginning of the earliest period presented using a modified retrospective approach. This amendment will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The Company will be required to adopt the provisions of this ASU on January 1, 2020, with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The Company is currently evaluating Topic 326, including its potential impact to its process and controls.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard for private companies and emerging growth public companies is effective for fiscal years beginning after December 15, 2018. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.or disclosures.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2019. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company is currently assessing the impact this guidance will have on its combined financial statements.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 2 – Significant Accounting Policies (Continued)ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Fair value
In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for private companies and emerging growth public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its combined financial instrumentsstatements.
The fair value ofIn March 2019, the Company’s assets and liabilities,FASB issued ASU 2019-02, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures”, approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Deferred offering costs
Deferred offering costs consist principally of legal, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Proposed Public Offering and that will be charged to stockholder’s equity upon the receipt of the capital raised. Should the Proposed Public Offering prove to be unsuccessful, these deferred costs as well as additional expenses to be incurred will be charged to operations.
Income taxes
The Company accounts for income taxes under ASC Topic 740 “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifiesaligns the accounting for uncertaintyproduction costs of episodic television series with the accounting for production costs of films. In addition, ASU 2019-02 modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements in income taxes recognizedAccounting Standards Codification (“ASC”) 926-20 and the impairment, presentation and disclosure requirements in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax positionASC 920-350. This ASU must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidanceadopted on derecognition, classification, interesta prospective basis and penalties, accounting inis effective for annual periods beginning after December 15, 2020, including interim periods disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on May 9, 2017, the evaluation was performed for the upcoming 2017 tax year, which will be the only period subject to examination upon filing of appropriate tax returns.within those years, with early adoption permitted. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes to its financial position.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the period from May 9, 2017 (inception) through May 31, 2017. Management is currently unaware of any issues under reviewevaluating the impact that could result in significant payments, accruals or material deviations fromthis pronouncement will have on its position.
The provision for income taxes was deemed to be immaterial for the period ended May 31, 2017.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 2 – Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
The Company has evaluated recently issued, but not yet effective, accounting pronouncements and does not believe they would have a material effect on the Company’sconsolidated financial statements.
Note 3 — Proposed Public Offering4 – Reverse Merger and Private PlacementRecapitalization
Proposed Public Offering
As described in Note 1 – Background and Basis of Presentation above, on the Closing Date, the AEM Merger and the Merger took place. All of AEM capital stock outstanding immediately prior to the merger was exchanged for (i) 11,602,754 shares of AESE common stock, (ii) warrants for the purchase of 3,800,003 shares of AESE common stock with an exercise price of $11.50 per share, and (iii) 3,846,153 contingent shares to be issued if the last exchange-reported sales price of AESE common stock equals or exceeds $13.00 per share for any thirty consecutive days during the five year period commencing on the Closing Date.
On the Closing Date, pursuant to the Merger Agreement, in order to extinguish amounts owed to the Former Parent by WPT and Allied Esports in the aggregate amount of $32,672,622, AESE (i) repaid $3,500,000 of the amount due to the Former Parent in cash, (ii) assumed $10,000,000 principal of the convertible debt obligations of the Former Parent plus $992,877 of related accrued interest, (iii) issued 2,928,679 shares of the Company’s common stock to the Former Parent with no limitations or encumbrances on sale and (iii) transferred 600,000 shares of the Company’s common stock to the Former Parent which will be subject to a lockup period for one year from the Closing Date.
In connection with the Merger, the Company issued an aggregate of 11,492,999 shares of common stock, including 3,528,679 shares issued in satisfaction of amount owed to the Former Parent as described above, and 7,964,320 shares of common stock issued to BRAC shareholders prior to the Merger, but which are deemed to be issued by the Company on the Closing Date as a result of the reverse recapitalization.
Note 5 – Investments
The Proposed Public Offering callsCompany’s investments consist of the following:
| September 30, 2019 | December 31, 2018 | |||||||
| (unaudited) | ||||||||
| Investment in ESA | $ | 1,138,631 | $ | 500,000 | ||||
| TV Azteca Investment | 3,500,000 | – | ||||||
| $ | 4,638,631 | $ | 500,000 | |||||
As of September 30, 2019, the Company owns a 25% non-voting membership interest in Esports Arena, LLC (“ESA”) and ESA’s wholly owned subsidiary. The investment is accounted for as a cost method investment, since the Company does not have the ability to exercise significant influence over the operating and financial policies of ESA.
During January 2019, the Company contributed $1,238,631 to ESA, in order to fulfill the remainder of its funding commitment to ESA. The Company recognized an immediate impairment of $600,000 related to this funding.
In August 2019, the Company paid $3,500,000 to TV Azteca, S.A.B. DE C.V., a Grupo Salinas company (“TV Azteca”), in connection with a Strategic Investment Agreement with TV Azteca in order to expand the Allied Esports brand into Mexico. See Note 11 – Commitments and Contingencies, Investment Agreements for additional details.
| F-45 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Note 6 – Deferred Production Costs
Deferred production costs consist of the following:
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Deferred production costs | $ | 27,975,552 | 23,604,111 | |||||
| Less: accumulated amortization | (16,770,709 | ) | (14,545,267 | ) | ||||
| Deferred production costs, net | $ | 11,204,843 | $ | 9,058,844 | ||||
| Weighted average remaining amortization period at September 30, 2019 (in years) | 3.80 | |||||||
During the nine months ended September 30, 2019 and 2018, production costs of $2,225,442 and $1,307,069 respectively, were expensed and are reflected in multiplatform content costs in the condensed consolidated statements of operations.
Note 7 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Compensation expense | $ | 1,087,557 | $ | 1,218,455 | ||||
| Taxes | 205,121 | 981 | ||||||
| Rent | 53,561 | 58,781 | ||||||
| Revenue sharing obligations | 380,677 | 122,928 | ||||||
| Event costs | 107,753 | 61,740 | ||||||
| Production costs | 143,707 | 15,329 | ||||||
| Unclaimed player prizes | 420,993 | 380,120 | ||||||
| Other accrued expenses | 1,025,223 | 395,441 | ||||||
| Other current liabilities | 50,310 | 188,370 | ||||||
| $ | 3,474,902 | $ | 2,442,145 | |||||
Note 8 – Convertible Debt and Convertible Debt, Related Party
On May 15, 2019, Noble Link issued a series of secured convertible promissory notes (the “Noble Link Notes”) whereby investors provided Noble Link with $4 million to be used for the operations of Allied Esports and WPT, of which one Noble Link Note in the amount of $1 million was issued to the wife of a related party who formerly served as co-CEO of the Former Parent and a Director of Noble Link. Pursuant to the original terms of the Noble Link Notes, the Noble Link Notes accrued annual interest at 12%; provided that no interest would payable in the event the Noble Link Notes were converted into AESE common stock, as described below. The Noble Link Notes were due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) the date on which a demand for payment was made during the time period beginning on the Closing Date and ending on the date that was three (3) months after the Closing Date. As security for purchasing the Noble Link Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT, and a guarantee of the Former Parent and BRAC. Upon the closing of the Merger, the Noble Link Notes were convertible, at the option of the holder, into shares of AESE common stock at $8.50 per share. On August 5, 2019, the Noble Link Notes were amended pursuant to an Amendment and Acknowledgement Agreement as described below.
| F-46 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Pursuant to the Merger Agreement, on the Closing Date, in addition to the $4 million of Noble Link Notes, AESE assumed $10,000,000 of the convertible debt obligations of the Former Parent (the “Former Parent Notes”; see Note 4 - Reverse Merger and Recapitalization), such that the aggregate indebtedness of the Company pursuant to offer for public sale 10,000,000 Unitsthe Noble Link Notes and Bridge Notes (collectively, the “Notes”) is $14 million. The Notes bear interest at 12% per annum. Pursuant to the Amendment and Acknowledgement agreement discussed below, the Former Parent Notes are secured by all property and assets owned by AESE and its subsidiaries.
Pursuant to an Amendment and Acknowledgement Agreement dated August 5, 2019 (the “Amendment and Acknowledgement Agreement”), the Notes were amended such that the Notes mature one year and two weeks after the closing of the Merger (the “Maturity Date”). The Notes are convertible into shares of AESE common stock at any time between the Closing Date and the Maturity Date at a proposed offeringconversion price of $10.00$8.50 per Unit (plus upshare. Further, the minimum interest to anbe paid under each Note shall be the greater of (a) 18 months of accrued interest at 12% per annum; or (b) the sum of the actual interest accrued plus 6 months of additional 1,500,000 Units solelyinterest at 12% per annum. The Company recorded interest expense of $411,433 and $469,296, respectively, related to cover over-allotments,the Notes during the three and nine months ended September 30, 2019.
Pursuant to the note purchase agreements entered into by the purchase of the Notes (the “Noteholders” and such agreements, the “Note Purchase Agreements”), upon the consummation of the Merger, each Noteholder received a five-year warrant to purchase their proportionate share of 532,000 shares of AESE common stock. In addition, pursuant to the Note Purchase Agreements, Noteholders are each entitled to their proportionate share of 3,846,153 shares of AESE common stock if any). Each Unit consistssuch Noteholder’s Note is converted into AESE common stock and, at any time within five years after the date of one sharethe closing of the Mergers, the last exchange-reported sale price of AESE common stock is at or above $13.00 for thirty (30) consecutive calendar days (the “Contingent Consideration”).
The relative fair value of the warrants and the Contingent Consideration of $114,804 and $152,590, respectively, was recorded as debt discount and additional paid in capital. The Company recorded amortization of debt discount of $36,414 during the three and nine months ended September 30, 2019, which is included in interest expense on the accompanying condensed consolidated statements of operations. Unamortized debt discount is $230,980 at September 30, 2019.
Note 9 – Segment Data
Each of the Company’s Commonbusiness segments offer different, but synergistic products and services, and are managed separately, by different chief operating decision makers.
The Company’s business consists of three reportable segments:
| · | Poker, gaming and entertainment, provided through WPT, including televised gaming and entertainment, land-based poker tournaments, online and mobile poker applications. | |
| · | E-sports, provided through Allied Esports, including multiplayer video game competitions. | |
| · | Corporate |
| F-47 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
The following tables present segment information for each of the three and nine months ended September 30, 2019 and 2018:
| For the three months ended September 30, 2019 | For the nine months ended September 30, 2019 | ||||||||||||||||||||||||
| Gaming & Entertainment | E-sports | Corporate(1) | TOTAL | Gaming & Entertainment | E-sports | Corporate(1) | TOTAL | ||||||||||||||||||
| Revenues | $ | 4,137,091 | $ | 1,904,450 | $ | – | $ | 6,041,541 | $ | 14,022,841 | $ | 5,592,094 | $ | – | $ | 19,614,935 | |||||||||
| Loss from Operations | $ | 172,502 | $ | 2,984,047 | $ | 661,054 | $ | 3,817,603 | $ | 1,069,712 | $ | 8,685,384 | $ | 661,054 | $ | 10,416,151 | |||||||||
| For the three months ended September 30, 2018 | For the nine months ended September 30, 2018 | ||||||||||||||||||||||||
| Gaming & Entertainment | E-sports | Corporate(1) | TOTAL | Gaming & Entertainment | E-sports | Corporate(1) | TOTAL | ||||||||||||||||||
| Revenues | $ | 4,426,935 | $ | 1,053,306 | $ | – | $ | 5,480,241 | $ | 12,347,616 | $ | 2,851,680 | $ | – | $ | 15,199,296 | |||||||||
| Loss from Operations | $ | 232,220 | $ | 6,184,578 | $ | – | $ | 6,416,798 | $ | 1,926,092 | $ | 20,673,388 | $ | – | $ | 22,599,480 | |||||||||
| As of September 30, 2019 | As of December 31, 2018 | |||||||||||||||||||||||
| Gaming & Entertainment | E-sports | Corporate(2) | TOTAL | Gaming & Entertainment | E-sports | Corporate(2) | TOTAL | |||||||||||||||||
| Total Assets | $ | 37,398,491 | $ | 22,347,135 | $ | 14,729,098 | $ | 74,474,724 | $ | 37,315,493 | $ | 27,931,444 | $ | – | $ | 65,246,937 | ||||||||
___________________
| 1) | Unallocated corporate operating losses result from general corporate overhead expenses not directly attributable to any one of the business segments. These expenses are reported separate from the Company’s identified segments and are included in General and Administrative expenses on the accompanying condensed consolidated statements of operations. |
| 2) | Unallocated corporate assets not directly attributable to any one of the business segments. |
Note 10 – Related Parties
Notes Payable to Former Parent
During the nine months ended September 30, 2018, the Company received proceeds of $11,174,913 from the issuance of notes payable to the Former Parent. During November and December 2018, as part of a corporate restructuring, all outstanding notes payable to Former Parent were converted to Former Parent’s equity, and all accrued interest related to the notes payable to Former Parent was forgiven and recorded as a contribution to capital.
Due to Former Parent
As of December 31, 2018, amounts due to the Former Parent of $33,019,510 consisted of payments of certain operating expenses, investing activities and financing activities made on behalf of the Company by the Former Parent. There was no stated interest rate or definitive repayment terms related to this liability. The weighted average balance of advances owed to the Former Parent was $20,143,485 during the nine months ended September 30, 2018 and was $32,788,017 for the period from January 1, 2019 through August 9, 2019. On August 9, 2019, all obligations to the Former Parent in the aggregate amount of $32,672,622 were satisfied in connection with the Merger. See Note 4 – Reverse Merger and Recapitalization, for additional details.
| F-48 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Note 11 – Commitments and Contingencies
Litigations, Claims, and Assessments
The Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows.
Employment Agreement
On November 5, 2019, the Company entered into an employment agreement (the “CEO Agreement”) with the Company’s Chief Executive Officer (“CEO”). The CEO Agreement is effective as of September 20, 2019. The CEO Agreement provides for a base salary of $300,000 per annum as well as annual incentive bonuses as determined by the Board of Directors, subject to the attainment of certain objectives. The CEO Agreement provides for severance equal to the twelve months of the CEO’s base salary. In connection with the CEO agreement, the CEO also received 17,668 of the Company’s restricted common stock, with a grant date value of $100,000, which vests one rightyear from date of issuance (See Note 12 – Equity, Restricted Stock). The employment agreement expires on August 9, 2022 and may be extended for a period up to one warrant. Each rightyear upon mutual written agreement by the CEO and the Company at least thirty days prior to expiration.
Consulting Agreement
On August 9, 2019 the Company entered into a consulting services agreement with a related party, Black Ridge Oil & Gas, the Company’s prior sponsor (“BROG”), pursuant to which BROG will convertprovide administration and accounting services to the Company through December 31, 2019, in exchange for consulting fees in the aggregate of $348,853.
Operating Leases
On March 29, 2019, AEM entered into one-tenth (1/10)a 167-month operating lease for approximately 25,000 square feet of onespace located in Irvine, California (the “New Irvine Lease”) with respect to its operations. On June 15, 2019, the New Irvine Lease was amended to reduce the leased space to approximately 15,000 square feet. On August 9, 2019 the lease was assigned to WPT. The initial base rent pursuant to the leases, as amended, is $39,832 per month, increasing to $58,495 per month over the term of the lease. The New Irvine Lease also provides for a tenant improvement allowance of up to $1,352,790.
The Company’s aggregate rent expense incurred during the three and nine months ended September 30, 2019 amounted to $711,302 and $2,079,800, respectively, of which $96,278 and $288,835, respectively was capitalized into deferred production costs, $448,861 and $1,073,864, respectively, was included within in-person cost of revenues, and $166,163 and $717,102, respectively, was included within general administrative expenses on the condensed consolidated statements of operations. The Company’s aggregate rent expense incurred during the three and nine months ended September 30, 2018 amounted to $706,160 and $2,420,717, respectively, of which $96,278 and $288,835, respectively was capitalized into deferred production costs, $370,993 and $1,395,203, respectively, was included within in-person cost of revenues, and $238,889 and $736,679, respectively, was included within general administrative expenses on the condensed consolidated statements of operations.
Investment Agreements
In June 2019, the Company entered into an exclusive ten-year strategic investment and revenue sharing agreement (the “TV Azteca Agreement”) with TV Azteca, in order to expand the Allied Esports brand into Mexico. Pursuant to the terms of the TV Azteca Agreement, as amended, TV Azteca purchased 742,692 shares of AESE common stock for $5,000,000.
| F-49 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
In connection with the TV Azteca Agreement, AESE will provide $7,000,000 to be used for various strategic initiatives including digital channel development, facility and flagship construction in Mexico, co-production of Spanish language content, platform localization, and marketing initiatives. The Company will be entitled to various revenues generated from the investment.
Currently, the Company has paid $3,500,000 with the rest of the payments as follows:
| · | $1,500,000 payable on March 1, 2020; |
| · | $1,000,000 payable on March 1, 2021, and |
| · | $1,000,000 payable on March 1, 2022. |
In June 2019, the Company entered into an agreement (the “Simon Agreement”) with Simon Equity Development, LLC (“Simon”), a shareholder of the Company, pursuant to which Allied Esports will conduct a series of mobile esports gaming tournaments and events at selected Simon shopping malls and online called the Simon Cup, and will also develop esports and gaming venues at certain Simon shopping malls in the U.S. The Simon Cup will be staged in each of 2019, 2020 and 2021. In connection with the Simon Agreement, AESE placed $5,000,000 of cash into an escrow account to be utilized for various strategic initiatives including the build-out of branded esports facilities at Simon malls, and esports event programs.
As of September 30, 2019, the balance in the escrow account is $4,950,000, which is shown as restricted cash on the accompanying condensed consolidated balance sheet. (See Note 13 – Subsequent Events).
Note 12 – Stockholder’s Equity
Share Purchase Agreements
On November 5, 2018, Allied Esports Media Inc. sold 1,199,191 shares of restricted common stock (the “Employee Shares”), to certain employees and stakeholders of the Company, for consideration of $0.001 per share, which were exchanged for AESE common stock and warrants in connection with the recapitalization (See Note 4 - Reverse Merger and Recapitalization).
Equity Incentive Plan
On August 9, 2019, the Company’s Equity Incentive Plan (the “Incentive Plan”) was approved by the Company’s stockholders. The Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors to do so. The effective date of the Incentive Plan is December 19, 2018. The Incentive Plan provides the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted common stock awards, restricted common stock unit awards, as well as other stock-based awards that are deemed to be consistent with the purposes of the plan. There are 3,463,305 shares of common stockupon consummationstock reserved under the Incentive Plan, of which 2,982,912 shares remain available to be issued as of September 30, 2019.
Stock Options
On September 20, 2019 the Company issued ten-year options for the purchase of 400,000 shares of AESE common stock, with an exercise price of $5.66 per share, pursuant to the Incentive Plan. The options have a Business Combination. Each warrant4-year vesting term, and vest 25% on each anniversary of the date of grant. The options had an aggregate grant date fair value of $867,120, calculated using the Black-Scholes option pricing model, with the following assumptions used:
| Risk free interest rate | 1.74% | |||
| Expected term (years) | 6.25 years | |||
| Expected volatility | 36% | |||
| Expected dividends | 0.0 |
| F-50 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
The expected term used for options is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
The Company recorded stock-based compensation expense of $5,940 for the three and nine months ended September 30, 2019 related to stock options issued as compensation, which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. As of September 30, 2019, there was $861,180 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the remaining vesting period of 3.97 years.
A summary of the option activity during the nine months ended September 30, 2019 is presented below:
| Weighted | Weighted | ||||||||||||||||
| Average | Average | ||||||||||||||||
| Number of | Exercise | Remaining | Intrinsic | ||||||||||||||
| Options | Price | Term (Yrs) | Value | ||||||||||||||
| Outstanding, January 1, 2019 | – | – | |||||||||||||||
| Granted | 400,000 | $ | 5.66 | ||||||||||||||
| Exercised | – | – | |||||||||||||||
| Expired | – | – | |||||||||||||||
| Forfeited | – | – | |||||||||||||||
| Outstanding, September 30, 2019 | 400,000 | $ | 5.66 | 9.97 | $ | – | |||||||||||
| Exercisable, September 30, 2019 | – | $ | – | – | $ | – | |||||||||||
Warrants
Prior to the Closing Date, BRAC issued 14,305,000 warrants (the “BRAC Warrants”) for the purchase of the Company’s common stock at $11.50 per share in connection with BRAC’s initial public offering. These previously issued BRAC Warrants are deemed to be issued in connection with the Merger, as a result of the reverse recapitalization.
As of result of the Merger, the Company issued to the former owners of Allied Esports and WPT five-year warrants to purchase one sharean aggregate of Common3,800,003 shares of common stock at a price of $11.50 per share subjectand issued five-year warrants for the purchase of an aggregate of 532,000 shares of common stock to adjustment (“Warrants”).the Noteholders.
| F-51 |
ALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
A summary of warrant activity during the nine months ended September 30, 2019 is presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | ||||||||||||||
| Outstanding, December 31, 2018 | 3,800,003 | $ | 11.50 | ||||||||||||||
| Issued | 14,837,000 | $ | 11.50 | ||||||||||||||
| Exercised | – | – | |||||||||||||||
| Cancelled | – | – | |||||||||||||||
| Outstanding, September 30, 2019 | 18,637,003 | $ | 11.50 | 4.9 | $ | – | |||||||||||
| Exercisable, September 30, 2019 | 18,637,003 | $ | 11.50 | 4.9 | $ | – | |||||||||||
Restricted Stock
On September 20, 2019 the Company issued an aggregate of 80,393 shares of restricted common stock, pursuant to the Incentive Plan, to certain members of the Board of Directors and Executives. The Warrants will become exercisablerestricted common stock had an aggregate grant date fair value of $455,000, and vest on the later of (i) 30 days after the completionone-year anniversary of the initial Business Combination and (ii) 12 months fromdate of grant. The shares were valued at the closingtrading price of the Proposed Public Offering, and will expire five years afterCompany’s stock on the completiondate of the initial Business Combination or earlier upon redemption or liquidation.grant.
The Company may redeemrecorded stock-based compensation expense of $12,467 for the Warrants,three and nine months ended September 30, 2019 related to restricted common stock issued as compensation, which is recorded in wholegeneral and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day redemption period”), only in the event that the last sale price of the Common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period endingadministrative expenses on the third trading day prior to the date on which noticeaccompanying condensed consolidated statements of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” the management will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of Common stock issuable upon the exercise of the Warrants.
There will be no redemption rights or liquidating distributions with respect to the Warrants, which will expire worthless if we fail to complete our business combination within the 21-month time period.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 3 — Proposed Public Offering and Private Placement (Continued)
Private Placement
The Sponsor has committed to purchase from us an aggregate of 350,000 units, or “private units,” at $10.00 per unit (for a total purchase price of $3,500,000) in a private placement that will occur simultaneously with the consummation of this offering. The Sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us additional private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit in an amount that is necessary to maintain in the trust account $10.05 per unit sold to the public in this offering. These additional private units will be purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The private units are identical to the units sold in this offering, subject to certain limited exceptions.
Note 4 — Related Party Transactions
Founders Shares
In connection with the organization of the Company, a total of 2,875,000 shares of common stock were sold to the Sponsor at a price of approximately $0.01 per share for an aggregate of $25,000 (“Founder Shares”). The 2,875,000 Founders Shares include an aggregate of up to 375,000 shares of common stock subject to forfeiture to the extent that the over-allotment option is not exercised by the underwriters in full or in part. The Sponsor will be required to forfeit only a number of shares of common stock necessary to continue to maintain the 20.0% ownership interest in our shares of common stock after giving effect to the offering and exercise, if any, of the underwriters’ over-allotment option.
Related Party Loans
operations. As of May 31, 2017, the Sponsor has loaned an aggregateSeptember 30, 2019, there was $442,533 of $125,000 to cover expensesunrecognized stock-based compensation expense related to the Company’s formation andrestricted stock that will be recognized over the Proposed Public Offering. This note is payable without interest and shall be payable on the earlierremaining vesting period of (i) June 1, 2018, (ii) consummation of the initial Business Combination, or (iii) the date on which it is determined not to proceed with the Proposed Public Offering. The Company intends to repay the note from the proceeds of the Proposed Public Offering not placed in the Trust Account.0.97 years.
We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, in order to finance transaction costs in connection with an intended initial business combination, our sponsor, officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we consummate an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identicalEquity Purchase Option
Prior to the private units.
Administrative Service Agreement
Commencing on the effective date of the prospectus for Proposed Public Offering through the earlier of our consummation of our initial Business Combination or our liquidation, the Sponsor will make available to us certain general and administrative services, including office space, utilities and administrative support, as we may require from time to time. The Company has agreed to pay the Sponsor $10,000 per month for these services.We believe, based on rents and fees for similar services in the Minneapolis, Minnesota metropolitan area, that the fee charged by the Sponsor is at least as favorable as we could have obtained from an unaffiliated person.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 4 — Related Party Transactions (Continued)
As discussed in Note 1, the Sponsor has committed that it will purchase an aggregate of 350,000 private units at $10.00 per private unit (for a total purchase price of $3,500,000) from us simultaneous with the Proposed Public Offering. The Sponsor has also agreed that if the over-allotment option is exercised by the underwriters in full or in part, it will purchase from us an additional number of private units (up to a maximum of 37,500 private units) at a price of $10.00 per private unit necessary to maintain in the Trust Account $10.05 per unitClosing Date, BRAC sold to the public in the Proposed Public Offering.
Note 5 — Commitments and Contingencies
Agreements with underwriters
The Company will grant the underwriters a 45-day option to purchase up to 1,500,000 additional Units to cover the over-allotment at the Proposed Public Offering price less the underwriting discounts and commissions. In addition, the underwriters will be entitled to an underwriting discount of 2.0%, payable in cash at the closing of the Proposed Public Offering. No discounts or commissions will be paid on the sale of the Private Placement Units.
Business Contribution Marketing Agreement
The Company engaged the underwriters as advisors in connection with our business combination to assist us in holding meetings with our shareholders to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities, assist us in obtaining shareholder approval for the business combination and assist us with our press releases and public filings in connection with the business combination. The Company will pay the underwriters a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross proceeds of this offering (exclusive of any applicable finders’ fees which might become payable).
Registration Rights
The holders of our founders’ shares issued and outstanding on the date of the prospectus for the Proposed Public Offering, as well as the holders of the private units and any units our Sponsor, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units and units issued to our sponsor, officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Other General and Administrative Services
Commencing on the effective date of the prospectus for the Proposed Public Offering through the earlier of our consummation of our initial Business Combination or our liquidation, the Sponsor will make available to us certain general and administrative services, including office space, utilities and administrative support, as we may require from time to time. The Company has agreed to pay the Sponsor $10,000 per month for these services (see Note 4).
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 5 — Commitments and Contingencies (Continued)
Unit Purchase Option
The Company has agreed to sell the underwriter (and/or its designees), for $100, an option to purchase upof to 500,000 Units600,000 units, exercisable at $11.50 per Unit, (or an aggregate exercise pricein connection with BRAC’s initial public offering (the “Equity Purchase Option”). Each Unit consisted of $5,750,000) upon the closing of a proposed public offering. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement for the proposed offeringone and the closing of an initial business combination and terminating on the fifth anniversary of the effective date for the proposed offering. The Units issuable upon exercise of this option are identical to those offered in the proposed offering. The Company intends to account for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the proposed offering resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of this unit purchase option is approximately $1,428,154 (or $2.86 per Unit) using the Black-Scholes option-pricing model. The fair value of the unit purchase option to be granted to the underwriters is estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.71% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the ordinary shares underlying such units, the rights included in such units, the ordinary shares that are issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Proposed Offering except to any underwriter and selected dealer participating in the Proposed Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below its exercise price. The Company will have no obligation to cash settle the exercise of the purchase option or the rights and warrants underlying the purchase option. The holder of the purchase option will not be entitled to exercise the purchase option or the rights or warrants underlying the purchase option unless a registration statement covering the securities underlying the purchase option is effective or an exemption from registration is available. If the holder is unable to exercise the purchase option or underlying rights and warrants, the purchase option, rights or warrants, as applicable, will expire worthless.
Note 6 — Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of May 31, 2017, no preferred stock is issued or outstanding.
Common Stock
The Company is authorized to issue 30,000,000one-tenth shares of common stock par value $0.0001 per share
A total of 2,875,000 Founder Shares of common stock were soldand a warrant to the Sponsor at a price of approximately $0.01 per share for an aggregate of $25,000. The Founders Shares include an aggregate of up to 375,000 shares of common stock subject to forfeiture to the extent that the over-allotment option is not exercised by the underwriters in full or in part. The Sponsor will be required to forfeit only a number of shares of common stock necessary to continue to maintain the 20.0% ownership interest in our shares of common stock after giving effect to the offering and exercise, if any, of the underwriters’ over-allotment option.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the Period from May 9, 2017 (Inception) to May 31, 2017
Note 6 — Stockholders’ Equity (Continued)
Subject to certain limited exceptions, 50% of the Founder Shares will not be transferred, assigned, sold until the earlier of: (i) one year after the date of the consummation of the initial Business Combination or (ii) the date on which the closing price of the Company’s common stock equals or exceeds $12.50 per share (as adjusted) for any 20 trading days within any 30-trading day period commencing 150 days after the initial Business Combination, and the remaining 50% of the Founder Shares will not be transferred, assigned, sold until one year after the date of the consummation of the initial Business Combination, or earlier, in either case, if, subsequent to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange, reorganization or other similar transaction which results in all of shareholders having the right to exchange their common stock for cash, securities or other property.
Rights
Each holder of a right will receive one-tenth (1/10) ofpurchase one share of common stock at $11.50 per share. Effective upon consummation of a Business Combination, even if a holder of such right converted all ordinary shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchangethe closing of the rights. No additional consideration will be required to be paidMerger, the units converted by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Proposed Public Offering. If the Company enterstheir terms into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the shares of common stock will receive inand warrants, and the transaction on an as-converted into shares of common stock basis and each holder of rights will be requiredoption now represents the ability to affirmatively covert its rights in order to receive 1/10 of a share of common stock underlying each right (without paying additional consideration)buy such securities directly (and not units). The shares of common stock issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rightsEquity Purchase Option may expire worthless.
The rights included in the Private Units being sold in the Private Placement will be identical to the rights included in the Units being sold in the Proposed Public Offering, except that, among others, the rights including the shares issuable upon exchange of such rights, are being purchased pursuant to an exemption from the registration requirements of the Securities Act and will become tradable only after certain conditions are met or the resale of such rights (including underlying securities) is registered under the Securities Act.
Warrants
Warrants may only be exercised foron either a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. The Warrants will become exercisable on the later of (a) 30 days after the consummation of a Business Combinationcash or (b) 12 months from the effective date of the registration statement relating to the Proposed Public Offering. No Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the Warrants and a current prospectus relating to such shares. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon the exercise of the Warrants is not effective within a to-be-determined number of days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Warrants on a cashless basis. The Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Warrants underlying the private units (“Private Warrants”) will be identical to the Warrants underlying the Units being sold in the Proposed Public Offering, except the Private Warrants will be exercisable for cash (even if a registration statement covering the shares of common stock issuable upon exercise of such Private Warrants is not effective) or on a cashless basis, at the holder’s option, and will notexpires on October 4, 2022. These previously issued BRAC Shares and Warrant Purchase Options are deemed to be redeemable byissued in connection with the Company, in each case so longMerger, as they are still held bya result of the Initial Stockholders or their affiliates.reverse recapitalization.
The Company may call the Warrants for redemption (excluding the Private Warrants but including any outstanding Warrants issued upon exercise of the unit purchase option issued to EarlyBirdCapital), in whole and not in part, at a price of $.01 per Warrant:
| F-52 | ||
If the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise priceALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
A summary of the Equity Purchase Option activity during the nine months ended September 30, 2019 is presented below:
| Number of | Weighted | Weighted | |||||||||||||||
| Equity | Average | Average | |||||||||||||||
| Purchase | Exercise | Remaining | Intrinsic | ||||||||||||||
| Options | Price | Term (Yrs) | Value | ||||||||||||||
| Outstanding, January 1, 2019 | – | – | |||||||||||||||
| Granted | 600,000 | $ | 11.50 | ||||||||||||||
| Exercised | – | – | |||||||||||||||
| Expired | – | – | |||||||||||||||
| Forfeited | – | – | |||||||||||||||
| Outstanding, September 30, 2019 | 600,000 | $ | 11.50 | 3.0 | $ | – | |||||||||||
| Exercisable, September 30, 2019 | 600,000 | $ | 11.50 | 3.0 | $ | – | |||||||||||
Note 13 – Subsequent Events
Restricted cash
On October 22, 2019, restricted cash in the amount of $1,300,000 was released from escrow in order to fund expenses incurred in connection with the Simon Cup (see Note 11 – Commitments and numberContingencies).
Issuance of common stock for restricted cash proceeds
On January 16, 2020, the Company issued 758,725 shares of common stock issuable upon exercisefor cash proceeds of $5,000,000 (the “Purchase Price”), pursuant to a share purchase agreement (the “Purchase Agreement”) with BPR Cumulus LLC (“Brookfield”). Pursuant to the terms of the Warrants mayPurchase Agreement, the Purchase Price is to be adjustedused to develop integrated esports experience venues (each, an “Esports Venue”) at mutually agreed upon shopping malls owned and/or operated by Brookfield or any of its affiliates. As a result, half of the Purchase Price is held in certain circumstances includingescrow until the parties execute a written lease agreement for the first Esports Venue, and the other half is held in escrow until the event ofparties execute a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However,written lease agreement for the Warrants will not be adjusted for issuances of shares of common stock at a price below its exercise price. Additionally, in no event willsecond Esports Venue. Under the Purchase Agreement, the Company must create, produce, and execute three esports events during each calendar year 2020, 2021 and 2022 to be required to net cash settleheld at the Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Warrants. Accordingly, the Warrants may expire worthless.agreed upon Esports Venues.
Note 7 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to June 8, 2017, the date the financial statements were available to be issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
10,000,000 UnitsALLIED ESPORTS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
Black Ridge Acquisition Corp.
Note 14 - Correction of Prior Period Net Loss Attributable to Non-Controlling Interest
Subsequent to the issuance of the Company’s Current Report on Form 8-K on August 15, 2019 (the “Report”), the Company determined that there was an error in the allocation of net loss attributable to controlling and non-controlling interests on the Condensed Combined Statements of Operations and Comprehensive Loss for the six months ended June 30, 2018, such that the net income attributable to non-controlling interests was overstated (and net loss attributable to the Parent was understated) by approximately $2.5 million. There was no effect of this error on the Condensed Combined Balance Sheet, on the Condensed Combined Statements of Changes in Parent’s Net Investment, or on the Condensed Combined Statements of Cash Flows contained in the Report. The Company evaluated the effect of this error and determined that the error was not qualitatively significant for the period presented.
The following tables summarize the impact of this error on the Condensed Combined Statements or Operations and Comprehensive Loss for the six months ended June 30, 2018:
| For the Six Months Ended June 30, 2018 | ||||||||||||
| As Previously Reported | Adjustment | As Restated | ||||||||||
| Net Loss | $ | (17,612,354 | ) | $ | – | $ | (17,612,354 | ) | ||||
| Net loss attributed to non-controlling interest | 2,803,922 | (2,476,820 | ) | 327,102 | ||||||||
| Net Loss Attributable to Parent | $ | (14,808,432 | ) | $ | (2,476,820 | ) | $ | (17,285,252 | ) | |||
| Comprehensive Loss: | ||||||||||||
| Net loss | $ | (17,612,354 | ) | $ | – | $ | (17,612,354 | ) | ||||
| Other comprehensive loss: | ||||||||||||
| Foreign currency translation gain (loss) | (183,027 | ) | – | (183,027 | ) | |||||||
| Total Comprehensive Loss | (17,795,381 | ) | – | (17,795,381 | ) | |||||||
| Less: comprehensive loss attributable to | ||||||||||||
| non-controlling interest | 2,803,922 | (2,476,820 | ) | 327,102 | ||||||||
| Comprehensive loss attributable to Parent | $ | (14,991,459 | ) | $ | (2,476,820 | ) | $ | (17,468,279 | ) | |||
| F-54 |
PRELIMINARY PROSPECTUS
ALLIED ESPORTS ENTERTAINMENT, INC.
Common Stock
, 2017
Sole Book-Running ManagerPROSPECTUS
EarlyBirdCapital, Inc.
Joint Book-Running Managers
Northland Capital Markets
Roth Capital Partners
Co-Manager
Dougherty & Company
The date of this prospectus is , 2020.
Until , 2017 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ItemITEM 13. Other Expenses of Issuance and Distribution.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimatedSet forth below are expenses payable by uswe expect to incur in connection with the offering described in thisissuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration statement (other thanfee, the underwriting discountamounts set forth below are estimates and commissions) will be as follows:actual expenses may vary considerably from these estimates:
| Initial Trustees’ fee | $ | 1,000 | (1) | |
| SEC Registration Fee | 14,000 | |||
| FINRA filing fee | 18,625 | |||
| Accounting fees and expenses | 40,000 | |||
| Nasdaq listing fees | 75,000 | |||
| Printing and engraving expenses | 40,000 | |||
| Directors & Officers liability insurance premiums | 90,000 | (2) | ||
| Legal fees and expenses | 250,000 | |||
| Miscellaneous | 61,375 | (3) | ||
| Total | $ | 590,000 |
| Securities and Exchange Commission registration fee | $ | 1,947 | ||
| FINRA filing fees | $ | 2,750 | ||
| Accounting fees and expenses | $ | 50,000 | ||
| Legal fees and expenses | $ | 150,000 | ||
| Printing and mailing expenses | $ | 4,000 | ||
| Total | $ | 208,697 |
Item 14. Indemnification of Directors and Officers.
Our certificate of incorporation provides that all directors, officers, employees and agents of the registrant shall be entitled to be indemnified by us to the fullest extent permitted by ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145102 of the Delaware General Corporation Law.Law, or the DGCL, permits a corporation to eliminate the personal liability of its directors to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our Certificate of Incorporation that will be effective upon the closing of this offering provides that no director shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the Delaware General Corporation Law concerning indemnificationDGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of officers, directors, employeesthe corporation and agents is set forth below.
“Section 145. Indemnificationcertain other persons serving at the request of officers, directors, employeesthe corporation in related capacities against expenses (including attorneys’ fees), judgments, fines and agents; insurance.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with an action, suit or proceeding to which he or she is or is threatened to be made a party by reason of such position, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the securities being registered, we will, unlessbest interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the opinioncase of its counselactions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter hasas to which such person shall have been settled by controlling precedent, submitadjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court of appropriate jurisdictiondetermines that, despite the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of liability but in view of all of the circumstances of the case, such issue.person is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery or such other court shall deem proper.
Paragraph BOur Certificate of Article Eighth of our certificate of incorporation provides:
“The Corporation, to the full extent permitted by Section 145 of the GCL,Incorporation, as amended, from time to time,provides that the Company shall indemnify all persons whom it may indemnify pursuant thereto. Expensesto Section 145 of DGCL. Further, expenses (including attorneys’ fees) incurred by an officer or director of the Company in defending any civil, criminal, administrative, or investigative action, suit or proceeding for which such officer or director may be entitled to indemnification hereunderunder our Certificate of Incorporation, as amended, shall be paid by the CorporationCompany in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized hereby.”Company.
Pursuant
| II-1 |
Our Bylaws also provided that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he/she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him /her in connection with such action, suit or proceeding if he/she acted in good faith and in a manner he/she reasonably believed to be in or not opposed to the Underwriting Agreement filedbest interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he/she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his/her conduct was unlawful.
Our Bylaws further provide that the Company shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he/she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as Exhibit 1.1a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him/her in connection with the defense or settlement of such action or suit if he she acted in good faith and in a manner he/she reasonably believed to this Registration Statement, webe in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have agreedbeen adjudged to indemnifybe liable to the UnderwritersCompany unless and only to the Underwriters have agreedextent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify us againstindemnity for such expenses which the Court of Chancery or such other court shall deem proper.
We maintain a general liability insurance policy that covers certain civil liabilities that may be incurredof our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers.
The underwriting agreement entered into in connection with this offering includingof common stock being registered hereby provides that the underwriters will indemnify, under certain conditions, our directors and officers (as well as certain other persons) against certain liabilities arising in connection with such offering.
Insofar as the foregoing provisions permit indemnification of directors, executive officers, or persons controlling us for liability arising under the Securities Act.Act of 1933, as amended (the “Securities Act”), we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Merger Consideration
On August 9, 2019, the Company consummated its merger transaction (the “Merger”) contemplated by the Agreement and Plan of Reorganization, dated as of December 19, 2018 and amended by the Amendment dated August 5, 2019 (the “Merger Agreement”), by and among the Company, Black Ridge Merger Sub Corp., Allied Esports Media, Inc. (“AEM”), Noble Link Global Limited, Ourgame International Holdings Limited, and Primo Vital Limited, pursuant to which, among other things, AEM became a wholly-owned subsidiary of the Company and the Company assumed ownership of the businesses of Allied Esports International, Inc. (“Allied Esports”) and the World Poker Tour® (“WPT”). Upon consummation of the Merger, the Company issued to the former owners of Allied Esports and WPT (i) an aggregate of 11,602,754 shares of Company common stock and (ii) an aggregate of 3,800,003 Company warrants, which warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019. Additionally, the former owners of Allied Esports and WPT are entitled to receive their pro rata portion of an aggregate of an additional 3,846,153 shares of common stock if the last sales price of the common stock reported on the Nasdaq Capital Market equals or exceeds $13.00 per share (as adjusted for stock splits, dividends, and the like) for 30 consecutive trading days at any time during the five-year period after the consummation of the Mergers.
Investment Bankers
In connection with the consummation of the Merger, the following service providers of the Company were entitled to cash payments, and agreed to accept shares of the Company’s common stock in lieu of such cash payments: EarlyBirdCapital, Inc., MIHI LLC, Roth Capital Partners, LLC, Northland Securities, Inc., The Oak Ridge Financial Services Group, Inc., Dougherty & Company LLC, and D.A. Davidson & Co, Inc.
| II-2 |
Bridge Loans
The former owners of WPT and Allied Esports issued a series of secured convertible promissory notes on October 11, 2018 and May 15, 2019 in the aggregate original principal amount of $14,000,000. These notes were assumed by the Company effective upon the closing of the Mergers as follows.
$10 million of secured convertible promissory notes (the “Initial Notes”) were purchased on October 11, 2018. The Initial Notes were due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) upon conversion of the Notes into equity as part of the Merger. As security for purchasing the Initial Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT. The liens and pledge described above would terminate upon the closing of the Merger.
On May 15, 2019, $4 million of another series of secured convertible promissory notes (the “Additional Notes,” and together with the Initial Notes, the “Bridge Loan Notes”) were purchased. Ms. Man Sha purchased a $1 million Additional Note, and is the wife of Mr. Ng Kwok Leung Frank, a director and CEO of the Company. As part of the Additional Notes, the terms of the Initial Notes were amended such that the terms of the Additional Notes applied to the Initial Notes. The Bridge Loan Notes accrue annual interest at 12%; provided that no interest is payable in the event the Notes are converted into Company common stock. The Bridge Loan Notes were due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) the date on which a demand for payment is made during the time period beginning on the closing of the Merger (the “Closing”) and ending on the date that is three (3) months after the Closing. If any Bridge Loan Note is paid by the Company or AEM, the investor will receive one year of interest. As security for purchasing the Bridge Loan Notes, the investors received a security interest in Allied Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge of the equity of all of the entities comprising WPT, and a guaranty of Ourgame and the Company. The debt is convertible into shares of common stock that are freely tradeable without restriction at $8.50 per share.
On August 5, 2019, the Company entered into an amendment and acknowledgement agreement (the “Acknowledgement Agreement”), pursuant to which Allied Esports and WPT amended the terms of the Bridge Loan Notes. Pursuant to the Acknowledgement Agreement, the bridge holders agreed to defer repayment of the Bridge Loan Notes to one year and two weeks following the Closing (the maturity date of the Bridge Loan Notes, the “Maturity Date”). In consideration of agreeing to the deferred repayment, the bridge holders will be paid an additional six months of interest (i.e., a total of 18 months interest) to the extent any bridge holder elects not to convert their Bridge Loan Note to common stock. The Company agreed to assume the debt under the Bridge Loan Notes as part of the Mergers, and agreed that the debt will be secured by all the assets of the Company following the Closing. The Bridge Loan Notes are convertible at any time by a holder between the Closing and the Maturity Date, into shares of common stock that are freely tradable without restriction, at $8.50 per share.
If the Bridge Loan Note holders elect to convert their Bridge Loan Notes into common stock, they would be entitled to receive additional shares of common stock equal to the product of (i) 3,846,153 shares, multiplied by (ii) the Bridge Loan Note holder’s investment amount, divided by (iii) $100,000,000, if, at any time within five years after the closing date of Merger, the last exchange-reported sale price of common stock trades at or above $13.00 for thirty (30) consecutive calendar days.
Each Bridge Loan Note holder received a warrant to purchase shares of common stock in an amount equal to the product of (i) 3,800,000 shares, multiplied by (ii) the Bridge Loan Note holder’s investment amount, divided by (iii) $100,000,000. The warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019.
Share Purchase Investors
The Company previously entered into Share Purchase Agreements (the “Purchase Agreements”) with the following investors: TV AZTECA, S.A.B. de C.V., Simon Equity Development LLC, Morris Goldfarb, Kepos Capital LP, Pennington Capital, Ron Geiger IRA, and Lyle Berman, the Company’s Chairman of the Board (collectively, the “Investors”). Pursuant to the Purchase Agreements, the Investors purchased an aggregate of $18,000,000 of shares of common stock in open market or privately negotiated transactions at a price not to exceed the per share amount held in the Company’s trust account (which was approximately $10.30 per share) (the “Maximum Price”). The Investors agreed not to convert any shares purchased in the open market or in privately negotiated transactions at the Company’s meeting of stockholders held August 9, 2019 that approved, among other things, the Merger. If the Investors were unable to purchase their full amount of shares in the open market or in privately negotiated transactions, the Company agreed to sell to them newly issued shares upon closing of the Merger at the Maximum Price to fulfill their purchase obligations. In addition, the Purchase Agreements provided that upon the closing of the Merger, the Company would issue to the Investors 1.5 shares of its common stock for every 10 shares purchased by the Investors, and that the Company would file a registration statement with the SEC as promptly as practicable following closing of the Merger to register the resale of any shares of common stock purchased by the Purchasers that are not already registered and cause such registration statement to become effective as soon as possible. Black Ridge, the Company’s sponsor (as described below), transferred 720,000 shares of common stock to the Investors.
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Item 15. Recent SalesSponsor
Prior to the Merger, the Company was a special purchase acquisition company, and Black Ridge Oil & Gas, Inc. (“Black Ridge”) was its sponsor. In connection with initially capitalizing and founding the Company in 2017, Black Ridge purchased 445,000 units of Unregistered Securities.
Such shares were issued on Maythe Company. Each unit was entitled to one share of common stock, one warrant to purchase common stock, and a right to one-tenth of a share of common stock upon the consummation of a business combination by the Company. On August 9, 20172019 in connection with the Merger, such units were automatically converted into 445,000 shares of common stock, 445,000 warrants to purchase common stock, and 445,000 rights to purchase one-tenth of a share of common stock. The rights were simultaneously converted into an additional 44,500 shares of common stock. The warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019.
Black Ridge received an additional 60,000 units upon conversion of convertible promissory notes issued by the Company to Black Ridge, which had an aggregate outstanding principal amount of $600,000 and accrued no interest, at a rate of $10 per unit. On the Closing Date in connection with the Merger, the notes were converted into 60,000 shares of common stock, 60,000 warrants to purchase common stock, and 60,000 rights to purchase one-tenth of a share of common stock. The rights were simultaneously converted into an additional 6,000 shares of common stock. The warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019.
Black Ridge’s shares of common stock (other than the 66,000 shares issued upon conversion of the Company’s promissory notes issued to Black Ridge) are kept in an escrow account maintained in New York, New York by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares may not be transferred, assigned, sold or released from escrow until (1) with respect to 50% of the shares, the earlier of one year after the date of the consummation of Merger or the date on which the closing price of our organizationcommon stock equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination and (2) with respect to the remaining 50% of the shares, one year after the date of the consummation of Merger, or earlier, in either case, if, subsequent to the Merger, the Company consummates a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property. The limited exceptions include transfers, assignments or sales (i) to the Company’s or Black Ridge’s officers, directors, consultants or their affiliates, (ii) to an entity’s members upon its liquidation, (iii) to relatives and trusts for estate planning purposes, (iv) by virtue of the laws of descent and distribution upon death, (v) pursuant to a qualified domestic relations order, (vi) to us for no value for cancellation in connection with the consummation of our initial business combination, or (vii) in connection with the consummation of a business combination at prices no greater than the price at which the shares were originally purchased, in each case (except for clause (vi) or with our prior consent) where the transferee agrees to the terms of the escrow agreement and to be bound by these transfer restrictions.
Exempt Issuances
The foregoing issuances of warrants and shares of common stock were not registered under the Securities Act at the time of sale, and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. For these issuances, the Company relied on the exemption from federal registration contained inunder Section 4(a)(2) of the Securities Act asand/or Rule 506 promulgated thereunder, based on the shares were sold to an accredited investor. The shares issued were sold for an aggregate offering priceCompany’s belief that the offer and sale of $25,000 at an average purchase price of approximately $0.01 per share.such common stock and warrants did not involve a public offering.
Black Ridge Oil & Gas, Inc. has also committedITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Some of the agreements included as exhibits to purchase from us 350,000 units at $10.00 per private unit (for an aggregate purchase pricethis registration statement contain representations and warranties by the parties to the applicable agreement. These representations and warranties were made solely for the benefit of $3,500,000). This purchase will take place onthe other parties to the applicable agreement and (1) were not intended to be treated as categorical statements of fact, but rather as a private placement basis simultaneouslyway of allocating the risk to one of the parties if those statements prove to be inaccurate; (2) may have been qualified in such agreement by disclosures that were made to the other party in connection with the consummation of our initial public offering. It has also committed to purchase up to a maximum of 37,500 units in proportion to the amountnegotiation of the underwriters’ over-allotment optionapplicable agreement; (3) may apply contract standards of “materiality” that is exercised. These issuances will beare different from “materiality” under the applicable securities laws; and (4) were made pursuant to the exemption from registration contained in Section 4(a)(2)only as of the Securities Act.date of the applicable agreement or such other date or dates as may be specified in the agreement.
No underwriting discounts or commissions were paid with respect to such sales.
Item 16. Exhibits and Financial Statement Schedules.
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The undersigned registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding contractual provisions are required to make the statements in this registration statement not misleading.
(a)Exhibits. The following exhibits listed below are filed as a part of this Registration Statement:registration statement.
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Labels Linkbase Document | |
__________________
Item 17. Undertakings.* Previously filed
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ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
| (1) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Minneapolis, Minnesota, on the 27th day of September, 2017.authorized.
| By: | |||||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ken DeCubellis, Michael Eisele and James Moe his true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including pre- and post-effective amendments to this registration statement, any subsequent registration statement for the same offering which may be filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated.indicated below.
| Name | Date | |||
| /s/ | ||||
| Frank Ng | ||||
/s/ Anthony Hung | Chief Financial Officer | |||
| Anthony Hung | ||||
* | President and Director | |||
| Adam Pliska | ||||
| * | Director | |||
| Lyle Berman | ||||
| * | Director | |||
| Bradley Berman | ||||
| * | Director | January 28, 2020 | ||
| Ho Min Kim | ||||
| * | Director | |||
| * | Director | January 28, 2020 | ||
| Benjamin Oehler | ||||
| * | Director | January 28, 2020 | ||
| Maya Rogers | ||||
* | Director | January 28, 2020 | ||
| Dr. Kan Hee Anthony Tyen | ||||
| * | Director | January 28, 2020 | ||
| Eric Yang |
| * | /s/ Frank Ng | |
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