| Significant Accounting Policies | Note 2 – Significant Accounting Policies There have been no material
changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements
included in the Annual Report on Form 10-K for the year ended December 31, 2022. Basis of Presentation and Principles of Consolidation The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly,
they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the
opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary
for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2023, and for the three
and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily
indicative of the operating results for the full year ending December 31, 2023 or any other period. These unaudited condensed consolidated
financial statements have been derived from the accounting records of AGAE and Allied Esports and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December
31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023, as amended on April 27, 2023 and May
3, 2023, on Forms 10-K/A. 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 following table provides
information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair
value hierarchy utilized to determine such fair values:
As of June 30, 2023 Level 1 Level 2 Level 3 Total
Digital assets $ 49,300 $ - $ - $ 49,300
Sponsor warrants - - 100 100
Total $ 49,300 $ - $ 100 $ 49,400
As of December 31, 2022 Level 1 Level 2 Level 3 Total
Digital assets $ 49,761 $ - $ - $ 49,761
Sponsor warrants - - 100 100
Total $ 49,761 $ - $ 100 $ 49,861 The carrying amounts of the
Company’s financial instruments, such as cash equivalents, accounts receivable, short-term investments, interest receivable, accounts
payable, operating lease liabilities, and accrued liabilities approximate fair value due to the short-term nature of these instruments. Short-term investments consist
of certificates of deposit with original maturities of greater than three months but less than or equal to twelve months when purchased.
See Digital Assets The Sponsor Warrants are
carried at fair value as of June 30, 2023 and December 31, 2022. The Sponsor Warrants are valued using level 3 inputs. The fair value
of the Sponsor Warrants is estimated using the Black-Scholes option pricing method. Significant level 3 inputs used to calculate the fair
value of the Sponsor Warrants include the share price on the valuation date, expected volatility, expected term and the risk-free interest
rate. The following is a roll forward
of the Company’s Level 3 instruments during the six months ended June 30, 2023:
Balance, January 1, 2023 $ 100
Change in fair value of sponsor warrants -
Balance, March 31, 2023 100
Change in fair value of sponsor warrants -
Balance, June 30, 2023 $ 100 The key inputs into the Black-Scholes
model used to value Sponsor Warrants at the relevant measurement dates were as follows:
June 30, December 31,
Input 2023 2022
Risk-free rate 5.40 % 4.57 %
Remaining term in years 1.11 1.61
Expected volatility 56.0 % 56.0 %
Exercise price $ 11.50 $ 11.50
Fair value of common stock $ 1.05 $ 1.05 Net Loss per Common Share Basic loss per common share
is computed by dividing net loss attributable to the Company by the weighted average number of common shares outstanding during the period.
Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common
shares outstanding, plus the impact of common shares, if dilutive, resulting from the potential exercise of outstanding stock options
and warrants and vesting of restricted stock awards. The following table presents
the computation of basic and diluted net loss per common share:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2023 2022 2023 2022
Numerator:
Net loss $ (691,218 ) $ (3,688,951 ) $ (2,585,005 ) $ (7,440,148 )
Denominator:
Weighted-average common shares outstanding 37,199,100 39,116,907 37,559,922 39,116,907
Less: weighted-average unvested restricted shares - - (26,077 )
Denominator for basic and diluted net loss per share 37,199,100 39,116,907 37,559,922 39,090,830
Basic and Diluted Net (Loss) Income per Common Share $ (0.02 ) $ (0.09 ) $ (0.07 ) $ (0.19 ) The following securities
are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
As of June 30,
2023 2022
Options 1,540,000 2,415,000
Warrants 20,091,549 20,091,549
Equity purchase options - 600,000
Contingent consideration shares (1) 192,308 192,308
21,823,857 23,298,857
(1) Holders who elected to convert a certain former Bridge Note from
the Company into common stock are entitled to receive contingent consideration shares equal to the product of (i) 3,846,153 shares, multiplied
by (ii) that holder’s investment amount, divided by (iii) $100,000,000, if at any time within five years after the August 9, 2019
closing date, the last exchange-reported sale price of common stock trades at or above $13.00 for thirty (30) consecutive calendar days. Revenue Recognition To determine the proper revenue
recognition method, the Company evaluates each of its contractual arrangements to identify its performance obligations. A performance
obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of the Company’s contracts
have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from
other promises within the contract and is therefore not distinct. Some of the Company’s contracts have multiple performance obligations,
primarily related to the provision of multiple goods or services. For contracts with more than one performance obligation, the Company
allocates the total transaction price in an amount based on the estimated relative standalone selling prices underlying each performance
obligation. The Company recognizes revenue
primarily from the following sources: In-person revenue In-person revenue was comprised
of the following for the three and six months ended June 30, 2023 and 2022:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2023 2022 2023 2022
Event Revenue $ 612,006 $ 664,547 $ 1,173,084 $ 1,201,144
Sponsorship revenue 457,739 156,250 817,479 332,500
Food and beverage revenue 37,939 80,851 125,791 232,114
Ticket and gaming revenue 119,568 133,372 249,705 251,151
Merchandising revenue 40,521 94,351 95,044 165,528
Total in-person revenue $ 1,267,773 $ 1,129,371 $ 2,461,103 $ 2,182,437 Event revenues from the rental of the Allied Esports
arena and gaming trucks are recognized over the term of the event based on the number of days completed relative to the total days of
the event, as this method best depicts the transfer of control to the customer. In-person revenue also includes revenue from ticket sales,
admission fees and food and beverage sales for events held at the Company’s esports properties. Ticket revenue is recognized
at the completion of the applicable event. Point of sale revenues, such as food and beverage, gaming and merchandising revenues, are recognized
when control of the related goods are transferred to the customer. The Company generates sponsorship
revenue from the naming rights of its esports arena which are recognized on a straight-line basis over the contractual term of the agreement. The Company records deferred revenue to the extent
that payment has been received for services that have yet to be performed. Multiplatform revenue Multiplatform revenue was
comprised of the following for the three and six months ended June 30, 2023 and 2022:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2023 2022 2023 2022
NFT revenue $ - $ 27,690 $ - $ 236,448
Sponsorship revenue 2,000,000 - 2,000,000 1,150,000
Distribution revenue 322 773 424 1,003
Total multiplatform revenue $ 2,000,322 $ 28,463 $ 2,000,424 $ 1,387,451 The Company’s NFT revenue
is generated from the sale of non-fungible tokens (NFTs). The Company’s NFTs exist on the Ethereum Blockchain under the Company’s
EPICBEAST brand, a digital art collection of 1,958 unique beasts inspired by past and present e-sport games. The Company uses the NFT
exchange, OpenSea, to facilitate the sale of NFTs. The Company, through OpenSea, has custody and control of the NFT prior to the delivery
to the customer and records revenue at a point in time when the NFT is delivered to the customer and the customer pays. The Company has
no obligations for returns, refunds or warranty after the NFT sale. The Company also earns a
royalty of up to 10% of the sale price when an NFT is resold by its owner in a secondary market transaction. The Company recognizes this
royalty as revenue when the sale is consummated. The Company generates sponsorship
revenue from the production and distribution of original content programming over live-streaming services. The Company recognizes sponsorship
revenue pursuant to the terms of each individual contract when the Company satisfies the respective performance obligations, which could
be recognized at a point in time or over the term of the contract. The Company’s distribution
revenue is generated primarily through the distribution of content to online channels. Any advertising revenue earned by online channels
is shared with the Company. The Company recognizes online advertising revenue at the point in time when the advertisements are placed
in the video content. Revenue recognition The following table summarizes
our revenue recognized under ASC 606 in our condensed consolidated statements of operations:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2023 2022 2023 2022
Revenues Recognized at a Point in Time:
Event revenue $ 612,006 $ 664,547 $ 1,173,084 $ 1,201,144
NFT revenue - 27,690 - 236,448
Food and beverage revenue 37,939 80,851 125,791 232,114
Ticket and gaming revenue 119,568 133,372 249,705 251,151
Merchandising revenue 40,521 94,351 95,044 165,528
Distribution revenue 322 773 424 1,003
Total Revenues Recognized at a Point in Time 810,356 1,001,584 1,644,048 2,087,388
Revenues Recognized Over a Period of Time:
Sponsorship revenue 2,457,739 156,250 2,817,479 1,482,500
Total Revenues Recognized Over a Period of Time 2,457,739 156,250 2,817,479 1,482,500
Total Revenues $ 3,268,095 $ 1,157,834 $ 4,461,527 $ 3,569,888 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 June 30, 2023 and December 31, 2022,
the Company had contract liabilities of $119,752 and $108,428, respectively, which is included in deferred revenue on the condensed consolidated
balance sheet. As of June 30, 2023, $94,660
of performance obligations in connection with contract liabilities included within deferred revenue on the December 31, 2022 consolidated
balance sheet have been satisfied. The Company expects to satisfy the remaining performance obligations of $13,768 related to its December
31, 2022 deferred revenue balance within the next twelve months. During the six months ended June 30, 2023 and 2022, there was no revenue
recognized from performance obligations satisfied (or partially satisfied) in previous periods. Digital Assets The Company accepts Ether
as a form of payment for NFT sales. The Company accounts for digital assets held as the result of the receipt of Ether, as indefinite-lived
intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. The Company has ownership of and control over
the digital assets and the Company may use third-party custodial services to secure them. The digital assets are initially recorded at
cost and are subsequently remeasured net of any impairment losses incurred since the date of acquisition. The Company determines the
fair value of its digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices
on the active exchange(s) that the Company has determined is the principal market for Ether (Level 1 inputs). The Company performs
an analysis each quarter to identify whether events or changes in circumstances, or decreases in the quoted prices on active exchanges,
indicate that it is more likely than not that the Company’s digital assets are impaired. In determining if an impairment has occurred,
the Company considers the lowest market price quoted on an active exchange since acquiring the respective digital asset. If the then-current
carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the
amount equal to the difference between their carrying values and the fair value of such assets. The impaired digital assets are written down to their fair value at
the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded
until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining
the gain or loss to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital
assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within operating expenses in our
condensed consolidated statements of operations and comprehensive loss. There were $0 The following table sets
forth changes in our digital assets for the six months ended June 30, 2023:
Balance, December 31, 2022 $ 49,761
Expenses paid using digital assets (461 )
Balance, June 30, 2023 $ 49,300 Concentration Risks Financial instruments that
potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, short-term investments
and trade accounts receivable. The Company holds cash, cash equivalents and short-term investments at major financial institutions in
amounts which often exceed Federal Deposit Insurance Corporation’s insurance limits. As of June 30, 2023, three customers represented
100% of the Company’s accounts receivable balance. Historically, the Company has not experienced any losses due to such concentration
of credit risk. During the three months ended
June 30, 2023 and 2022, 0% and 7%, respectively, of the Company’s revenues were from customers in foreign countries. During
the six months ended June 30, 2023 and 2022, 0% and 4%, respectively, of the Company’s revenues were from customers in foreign countries. During
the three months ended June 30, 2023, the Company’s two largest customers accounted for 61% and 12% of the Company’s consolidated
revenues. During the six months ended June 30, 2023, the Company’s two largest customers accounted for 45% and 16% of the Company’s
consolidated revenues. During the three months ended June 30, 2022, the Company’s three largest customers accounted for 21%, 13%,
and 12% of the Company’s consolidated revenues. During the six months ended June 30, 2022, the Company’s largest customer
accounted for 28% of the Company’s consolidated revenues Foreign Currency Translation The Company’s reporting
currency is the United States Dollar. The functional currencies of the Company’s operating subsidiaries are their local currencies
(United States Dollar and Euro). Euro-denominated assets and liabilities are translated into the United States Dollar using the exchange
rate at the balance sheet date 1.08844 and 1.0699 at June 30, 2023 and December 31, 2022, respectively), and revenue and expense accounts
are translated using the weighted average exchange rate in effect for that period (1.0885 and 1.0653 for the three months ended June 30,
2023 and 2022, respectively, and 1.0806 and 1.0935 for the six months ended June 30, 2023 and 2022, respectively). Resulting translation
adjustments are made directly to accumulated other comprehensive income. The Company engages in foreign
currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies.
Realized losses of $942 and $735 arising from exchange rate fluctuations on transactions denominated in a currency other than the functional
currency for the six months ended June 30, 2023 and 2022, respectively, are recognized in operating results in the accompanying condensed
consolidated statements of operations. Subsequent Events The Company evaluates events
that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company
did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
consolidated financial statements. Reclassifications Certain prior period balances
have been reclassified in order to conform to the current year presentation. These reclassifications had no effect on previously reported
results of operations or loss per share. Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued
Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. In August 2020, the FASB
issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in
Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to
clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update
reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion
model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being
separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with
embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative,
and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial
premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible
instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based
accounting conclusions driven by remote contingent events. The amendments in this update are effective for our fiscal years beginning
after December 15, 2023, and interim periods within those fiscal years. Early adoption will be permitted, but no earlier than for fiscal
years beginning after December 15, 2020. The Company early adopted ASU 2020-06 effective January 1, 2023 which eliminated the need to
assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments. |
