|
Item 2.01.
|
Completion of Acquisition or Disposition of Assets.
|
As described above, on August 9, 2019, Black
Ridge held the Special Meeting, at which the Black Ridge stockholders considered and adopted, among other matters, a proposal to
approve the Merger Agreement and the Transactions contemplated thereby. On the same date, the parties consummated the Mergers.
Holders of 12,261,851 shares of Black Ridge common stock sold
in its initial public offering (“
public shares
”) exercised their rights to convert those shares to cash at a
conversion price of approximately $10.29 per share, or an aggregate of approximately $126.2 million. 9,246,727 of such shares were
redeemed in advance of Black Ridge’s special meeting held on July 9, 2019, and the remaining 3,015,124 were converted in
advance of the Special Meeting.
As a result of the Mergers, among other things, pursuant to
the Merger Agreement, 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 will be 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 Mergers.
Pursuant to the terms of the Amendment, at the Closing, 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.
In July and August 2019, the Company entered into subscription
agreements with several third parties (the “
Subscribers
”) pursuant to which the Subscribers agreed to purchase
an aggregate of $18,000,000 of shares of the Company’s common stock in open market or privately negotiated transactions.
Subscribers that were unable to purchase their full amount of shares of common stock in open market or privately negotiated transactions
purchased 478,932 shares of common stock from the Company at Closing for $10.30 per share. One of the agreements also contains
certain restrictions on the use of cash from the purchase following the closing of the Mergers. At the Closing, the Company issued
to the Subscribers 262,136 shares of common stock pursuant to the agreements with the Subscribers representing 1.5 shares of common
stock for every 10 shares purchased by them under the purchase agreements. Additionally, Black Ridge Oil & Gas, Inc., the
Company’s sponsor from its initial public offering (the “
Sponsor
”), transferred an aggregate of 720,000
shares held by it to the Subscribers.
After giving effect to the Transactions, there are currently
23,088,700 shares of the Company’s common stock issued and outstanding. Upon the Closing, the Company’s common stock
and warrants commenced trading on the Nasdaq Capital Market under the symbols “AESE” and “AESEW,” subject
to ongoing review of the Company’s satisfaction of all listing criteria post-business combination.
As noted above, the aggregate conversion
price of $126.2 million was paid to holders of public shares electing conversion from the Company’s trust account, and the
remaining balance immediately prior to the Closing of approximately $15.9 million remained in the trust account. Of the remaining
amount in the trust account, (i) approximately $2.3 million was used to pay transaction expenses and (ii) the balance of approximately
$13.6 million was released to the Company to be used for working capital purposes.
Of the shares of the Company’s common
stock and warrants issued as consideration for the Mergers, an aggregate of 1,160,275 shares of common stock and warrants to purchase
an aggregate of 380,000 shares of common stock (“
Escrow Securities
”) were placed in escrow pursuant to an escrow
agreement (“
Indemnity Escrow Agreement
”) entered into by the Company, Continental Stock Transfer & Trust
Company, as escrow agent, and a representative of the former owners of Allied Esports and WPT. The Escrow Securities provide a
fund of payment to the Company with respect to its post-closing rights to indemnification under the Merger Agreement for breaches
of representations and warranties and covenants by the other parties to the agreement. Claims for indemnification will be reimbursable
to the full extent of the damages in excess of a $500,000 deductible (but in no event in excess of the securities held in escrow).
The Escrow Securities shall be released from escrow, subject to reduction for shares cancelled for claims ultimately resolved and
those still pending resolution at the time of the release, on August 9, 2020 (the one-year anniversary of the Closing).
FORM 10 INFORMATION
Item 2.01(f) of Form 8-K states that if the registrant was a
shell company, as the Company was immediately before the Mergers, then the registrant must disclose the information that would
be required if the registrant were filing a general form for registration of securities on Form 10. Accordingly, the Company is
providing below the information that would be included in a Form 10 if it were to file a Form 10. Please note that the information
provided below relates to the combined company after the consummation of the Mergers, unless otherwise specifically indicated or
the context otherwise requires.
Business
The business of the Company is described
in the Proxy Statement in the section entitled “
Business of Allied Esports and WPT
” beginning on page 134 and
that information is incorporated herein by reference.
Risk Factors
The risks associated with the Company’s
business are described in the Proxy Statement in the section entitled “
Risk Factors
” beginning on page 28 and
are incorporated herein by reference.
Financial Information
Reference is made to the disclosure set
forth in Section 9.01 of this Report concerning the financial information of the Company.
MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ALLIED
ESPORTS AND WPT
The following discussion and analysis
of AEII/WPT’s financial condition and results of operations should be read in conjunction with AEII/WPT’s combined
financial statements and related notes included herein. In addition to historical combined financial information, the following
discussion contains forward-looking statements that reflect AEII/WPT’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 Current Report on Form 8-K and in the Proxy Statement, particularly in “Risk
Factors.” AEII/WPT and BRAC assume no obligation to update any of these forward-looking statements.
Results of Operations
Six Months Ended June 30, 2019 Compared to Six Months Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
|
Six
Months ended
June 30,
|
|
|
Increase
|
|
|
Six Months ended
June 30,
|
|
(in thousands except percentage of revenue data)
|
|
2019
|
|
|
2018
|
|
|
(Decrease)
|
|
|
2019
|
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiplatform content
|
|
$
|
2,509
|
|
|
$
|
1,172
|
|
|
$
|
1,337
|
|
|
|
18.5%
|
|
|
|
12.1%
|
|
Interactive
|
|
|
4,764
|
|
|
|
4,681
|
|
|
|
83
|
|
|
|
35.1%
|
|
|
|
48.2%
|
|
In-person experiences
|
|
|
6,300
|
|
|
|
3,866
|
|
|
|
2,434
|
|
|
|
46.4%
|
|
|
|
39.8%
|
|
Total revenues
|
|
|
13,573
|
|
|
|
9,719
|
|
|
|
3,854
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiplatform (exclusive of depreciation and amortization)
|
|
|
2,121
|
|
|
|
1,054
|
|
|
|
1,067
|
|
|
|
15.6%
|
|
|
|
10.8%
|
|
Interactive (exclusive of depreciation and amortization)
|
|
|
1,406
|
|
|
|
1,290
|
|
|
|
116
|
|
|
|
10.4%
|
|
|
|
13.3%
|
|
In-person (exclusive of depreciation and amortization)
|
|
|
1,491
|
|
|
|
2,778
|
|
|
|
(1,287
|
)
|
|
|
11.0%
|
|
|
|
28.6%
|
|
Online operating expenses
|
|
|
530
|
|
|
|
1,771
|
|
|
|
(1,241
|
)
|
|
|
3.9%
|
|
|
|
18.2%
|
|
Selling and marketing expenses
|
|
|
1,939
|
|
|
|
2,841
|
|
|
|
(902
|
)
|
|
|
14.3%
|
|
|
|
29.2%
|
|
General and administrative expenses
|
|
|
8,666
|
|
|
|
8,494
|
|
|
|
172
|
|
|
|
63.8%
|
|
|
|
87.4%
|
|
Depreciation and amortization
|
|
|
3,418
|
|
|
|
3,336
|
|
|
|
82
|
|
|
|
25.2%
|
|
|
|
34.3%
|
|
Impairment of investment in ESA
|
|
|
600
|
|
|
|
4,338
|
|
|
|
(3,738
|
)
|
|
|
4.4%
|
|
|
|
44.6%
|
|
Loss from operations
|
|
|
(6,598
|
)
|
|
|
(16,183
|
)
|
|
|
9,585
|
|
|
|
-48.6%
|
|
|
|
-166.5%
|
|
Loss on equity method investment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Interest expense, net
|
|
|
(67
|
)
|
|
|
(1,313
|
)
|
|
|
1,246
|
|
|
|
-0.5%
|
|
|
|
-13.5%
|
|
Other income
|
|
|
–
|
|
|
|
(116
|
)
|
|
|
116
|
|
|
|
0.0%
|
|
|
|
-1.2%
|
|
Net loss
|
|
$
|
(6,665
|
)
|
|
$
|
(17,612
|
)
|
|
$
|
10,947
|
|
|
|
-49.1%
|
|
|
|
-181.2%
|
|
Net loss attributed to non-controlling interest
|
|
|
–
|
|
|
|
2,804
|
|
|
|
(2,804
|
)
|
|
|
–
|
|
|
|
28.9%
|
|
Net loss attributed to Parent
|
|
|
(6,665
|
)
|
|
|
(14,808
|
)
|
|
|
8,143
|
|
|
|
-49.1%
|
|
|
|
-152.4%
|
|
Revenues
Multiplatform content revenues increased by approximately
$1.337 million, or 114%, to approximately $2.5 million for the six months ended June 30, 2019 from approximately $1.2 million
for the six months ended June 30, 2018. The increase in multiplatform revenues all relate to the WPT business with increases
in distribution revenue of approximately $551 thousand and approximately $545 thousand of music revenue. Sponsorship and
Advertising revenue also increased by $241 thousand.
Interactive revenues increased by approximately $83 thousand,
or 2%, to approximately $4.8 million for the six months ended June 30, 2019 from approximately $4.7 million for the six months
ended June 30, 2018. The increase in interactive revenues all relates to the WPT business and pertains to an increase in product
licensing revenue of approximately $83 thousand. Other revenue increased approximately $22 thousand. WPT managed social gaming
in-house in 2018, but has licensed out the product resulting in a $417 thousand decrease in the 2019 period as compared to the
2018 period. This is offset by an increase in 3
rd
party virtual products revenue of approximately $432 thousand. Subscription
revenue decreased by $37 thousand.
In-person experiences revenues increased by approximately
$2.4 million, or 63%, to approximately $6.3 million for the six months ended June 30, 2019 from approximately $3.9 million
for the six months ended June 30, 2018. The increase in in-person revenues is driven by AEII, particularly revenue generated
from AEII’s flagship Esports Arena Las Vegas, which opened its doors in March of 2018. AEI’s revenues as a group
increased by approximately $1.9 million for the six months ended June 30, 2019 compared to the same period in 2018. This was
largely a result of increase in revenues at AEII’s flagship Esports Arena Las Vegas and gaming truck events. WPT casino
revenue increased approximately $545 thousand for the six months ended June 30, 2019 compared to the same period in 2018.
Costs and expenses
Multiplatform costs (exclusive of depreciation and amortization)
increased by approximately $1.1 million, or 101%, to approximately $2.1 million for the six months ended June 30, 2019 from approximately
$1.1 million for the six months ended June 30, 2018. The increase in multiplatform costs was due to an increase of $872 thousand
in production cost, an increase of $196 thousand in commissions.
Interactive costs (exclusive of depreciation and
amortization) increased by approximately $116 thousand, or 9%, to approximately $1.4 million for the six months ended June
30, 2019 from approximately $1.3 million for the six months ended June 30, 2018. The increase in interactive costs relates to
increase in revenue share cost of $158 thousand in 2019 as compared to 2018. There was also an increase in platform fees of
$59 thousand. There was an increase of $28 thousand in prize pool over the same period in 2018. This is offset by the lower
processing fees of $97 thousand, fewer chargebacks of $25 thousand and reduced other costs of $7 thousand.
In-person costs (exclusive of depreciation and
amortization) decreased by approximately $1.3 million, or 46%, to approximately $1.5 million for the six months ended June
30, 2019 from approximately $2.8 million for the six months ended June 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 six months
ended June 30, 2019 due to the reduction in ownership. Therefore, no costs were included in these arenas for the six months
ended June 30, 2019.
Online operating expenses decreased by approximately $1.2 million,
or 70%, to approximately $0.5 million for the six months ended June 30, 2019 from approximately $1.8 million for the six months
ended June 30, 2018.
WPT had a decrease in online expenses of approximately $891
thousand due to a decrease in development and hosting for the WPT platform.
Selling and marketing expenses decreased by approximately $0.9
million, or 32%, to approximately $1.9 million for the six months ended June 30, 2019 from approximately $2.8 million for the six
months ended June 30, 2018. The decrease in selling and marketing expenses is partially related to a decrease in AEI’s advertising
and promotion expense of approximately $524 thousand primarily pertaining to the grand opening of AEI’s flagship arena in
Las Vegas in early 2018, WPT had additional decreases in advertising costs of approximately $89 thousand for the ClubWPT and PlayWPT
products, $94 thousand decrease in agency and other promotional activities, and $210 thousand decrease in the costs incurred at
events.
General and administrative expenses increased by approximately
$0.2 million, or 2%, to approximately $8.7 million for the six months ended June 30, 2019 from approximately $8.5 million for the
six months ended June 30, 2018. The increase in general and administrative expenses related primarily to the WPT business increase
in general and administrative costs of approximately $1.7 million largely due to a credit of $0.8 million in 2018 resulting from
a change in incentive structures. WPT also incurred $518 thousand in audit and legal costs in preparation for the transaction.
WPT also incurred $264 thousand of additional rent relating to the new lease. AEII’s general and administrative expenses
decreased by $1.5 million due to a reduction in overall general corporate expenses that were related to grand opening of the flagship
arena in Las Vegas as well as the exclusion of Esports Arenas Santa Ana and Oakland expenses due to deconsolidation in the six
months ended June 30, 2019.
Depreciation and amortization increased by approximately $0.1
million, or 2%, to approximately $3.4 million for the six months ended June 30, 2019 from approximately $3.3 million for the six
months ended June 30, 2018. The increase in depreciation and amortization relates to increased depreciation for AEII’s flagship
Esports Arena Las Vegas which was put into service in March of 2018 as well as the U. S. mobile arena truck which was purchased
in January of 2018. The Company started depreciating the assets related to AEII’s flagship Esports Arena Las Vegas in the
second quarter of 2018. WPT depreciation and amortization decreased by $433 thousand for the six months ended June 30, 2019 compared
to the same period in 2018 mostly due to assets becoming fully depreciated and amortized, and assets that were previously fully
depreciated being written off.
Impairment of investment in ESA was approximately $0.6 million
for the six months ended June 30, 2019 and $4.3 million for the six months ended June 30, 2018. The losses were the result of the
derecognition and disposal of the assets, liabilities and equity of an investment made in 2018 by AEII for which AEII 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 25 percent.
Interest expense
Interest expense, was approximately $0.1 million and approximately
$1.3 million for the six months ended June 30, 2019 and 2018, respectively. The 2019 interest relates to $4.0 million of convertible
debt incurred in April of 2019. All of the interest in the 2018 period was related to loans to AEII from its parent company and/or
affiliates to fund operating and capital costs. The loans from its parent were converted to equity in November 2018.
Year Ended December 31, 2018 Compared to Years Ended December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
|
Years ended
December 31,
|
|
|
Increase
|
|
|
Year ended
December 31,
|
|
In thousands except percentage of revenue data
|
|
2018
|
|
|
2017
|
|
|
(Decrease)
|
|
|
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%
|
|
Revenues
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 multiplatform revenues all relates to the WPT business with increases in
distribution revenue of 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.
Interactive 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 all relates to the WPT business and pertains to an increase 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 revenues is driven by revenue from AEII, particularly revenue
generated from AEII’s flagship Esports Arena Las Vegas, which opened its doors in March of 2018. AEII’s revenues
increased approximately $4.2 million when comparing the year ended December 31, 2018 compared 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 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 deferred 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 relates 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 relates 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 a 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 AEII’s advertising and
promotion expense of approximately $1.0 million primarily pertaining to the grand opening of AEII’s 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 cost of approximately $9.8 million at AEII 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 AEII, the WPT business had decreased general and administrative costs 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.
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 AEII’s flagship
arena in Las Vegas which was put into service in March of 2018 as well as the U. S. mobile arena truck which was purchased in January
of 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 2017 comparative period. The 2018 loss
was the result of the impairment, derecognition and disposal of the assets, liabilities and equity of an investment made earlier
in 2018 by AEII for which AEII 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 25 percent.
Impairment of deferred production costs and intangible assets
was approximately $1.0 million in 2018. Management determined that the projected cash flows from certain deferred production costs
and intellectual property would not be sufficient to recover the carrying value of those assets. There was no comparable 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 AEII from its parent company and/or affiliates
to fund operating and capital costs. The increase in interest expense is due to the increases in the note payable to Parent balance
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 relates to a $5 million line of credit entered into by AEII in May of 2018 and 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 is due to attributing the non-controlling share of losses to minority shareholders
from January through July 31, 2018 while AEII 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
AEII/WPT’s primary sources of liquidity
and capital resources are cash on the balance sheet and borrowings from its parent. As of June 30, 2019, the Company had cash,
a working capital deficit and Parent’s net investment of approximately $7.0 million, $33.6 million and $17.4 million, respectively.
For the six months ended June 30, 2019 and 2018, the Company incurred net losses of approximately $6.7 million and $17.6 million,
respectively, and used cash in operations of $5.0 million and $10.0 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 these condensed
combined financial statements.
On May 15, 2019, Noble issued a series of secured convertible
promissory notes (the “Notes”) whereby investors provided Noble with $4 million to be used for the operations of AEII/WPT.
The Notes accrue annual interest at 12%; provided that no interest is payable in the event the Notes are converted into Company
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 upon conversion of the Notes into equity as part of
the Merger. If the note is paid by AEM or BRAC, the investor will receive 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 guaranty of Ourgame and the Company. The debt is convertible into shares of BRAC common stock at $8.50 per share.
Additionally, 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 a bridge financing, pursuant to which the Notes and another $10 million series of convertible promissory
notes (collectively, the “Bridge
Notes
”) were previously issued, whereby bridge holders provided $14 million
to be used for the operations of Allied Esports and WPT. Pursuant to the Acknowledgement Agreement, the bridge holders have agreed
to defer repayment of the Bridge Notes to one year and two weeks following the closing of the Mergers (the “
Closing
,”
and the maturity date of the 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 Note to equity. The Company agreed to assume the debt under the Bridge 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 Sponsor has
also agreed that it will not make any further transfer of its initial shares, subject to certain exceptions, until the debt is
repaid. The Bridge Notes are convertible at any time by a holder between the Closing and the Maturity Date, into shares that are
freely tradable without restriction, at the lesser of $8.50 per share or the price at which shares are issued to Ourgame or its
affiliates in connection with the Mergers.
Each Bridge Note holder will receive a Warrant to purchase shares
of BRAC Common Stock in an amount equal to the product of (i) 3,800,000 shares, multiplied by (ii) the investor’s investment
amount, divided by (iii) $100,000,000. The Warrants will be subject to the exercise price and such other terms and conditions as
determined by BRAC and Ourgame in the Merger; provided, however, the terms and conditions of the Warrant and the date of issuance
of the Warrants shall be the same as the warrants to be issued to Ourgame, the Company and/or its affiliates in connection with
the Merger.
If the investors in the bridge financing elect to convert their
Bridge Notes into Company Common Stock, they would be entitled to receive additional shares of Company Common Stock (the “Earn-out
Shares”) equal to the product of (i) 3,846,153 shares, multiplied by (ii) the investor’s investment amount, divided
by (iii) $100,000,000, if at any time within five years after the closing date of the Merger, the last exchange-reported sale price
of Company Common Stock trades at or above $13.00 for thirty (30) consecutive calendar days.
Cash Flows from Operating, Investing and Financing Activities
The tables below summarize cash flows for the six months ended
June 30, 2019 and 2018, and the years ended December 31, 2018 and 2017.
|
|
Six months ended June 30,
|
|
|
Year ended December 31,
|
|
In thousands
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(4,965
|
)
|
|
$
|
(9,989
|
)
|
|
$
|
(14,612
|
)
|
|
$
|
(10,759
|
)
|
Investing activities
|
|
|
(2,219
|
)
|
|
|
(20,252
|
)
|
|
|
(23,072
|
)
|
|
|
(6,133
|
)
|
Financing activities
|
|
|
3,683
|
|
|
|
30,531
|
|
|
|
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 six months ended
June 30, 2019 was approximately $5.0 million as compared to approximately $10.0 million for the six months ended June 30,
2018, a decrease of approximately $5.0 million. The primary driver for the decrease in cash used in operating activities was a
decrease in the net loss to approximately $6.7 million for the six months ended June 30, 2019 from approximately $17.6 million
in the comparable 2018 period. The reduction in loss was driven by increased sales, primarily from increased in-person revenues
generated from AEII’s flagship Esports Arena Las Vegas as well as an increase in Truck revenue and events revenue and a
reduction in impairment expenses of approximately 3.7 million. Changes in operating working capital items (excluding cash, debt
and balances due to Parent) increased cash used in operations by $2.4 million and $1.2 million for the six months ended June 30,
2019, and 2018 respectively.
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 administrative expenses and selling and marketing expenses which together represent approximately $8.7
million increase and result primarily from the growth of the operations of AEII, 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 used in Investing Activities
Net cash used in investing activities primarily relates to the
purchase of property and equipment.
Net cash used in investing activities for the six months ended
June 30, 2019 was approximately $2.2 million as compared to approximately $20.3 million for the six months ended June 30, 2018,
a decrease of approximately $18.0 million. The primary driver for the decrease in cash used in investing activities was the construction
and completion of AEII’s Las Vegas arena in 2018.
Net cash used in investing activities for the year ended December
31, 2018 was approximately $23.1 million as compared to approximately $6.1 million for the year ended December 31, 2017, an increase
of approximately $17.0 million. The primary driver for the increase in cash used in investing activities was the construction and
completion of AEII’s Las Vegas arena in 2018.
Net Cash Provided by (Used in) 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 and the issuance of convertible notes in 2019.
Net cash provided by financing activities for the six months
ended June 30, 2019 was approximately $3.7 million as compared to approximately $30.5 million for the six months ended June 30,
2018, a net decrease of approximately $26.8 million. The primary driver for the decrease was a net decrease in cash infusions
from Ourgame for the six months ended June 30, 2019 of $30.8 million as compared the comparable 2018 period offset by $4.0 million
of convertible debt obtained in 2019. The cash infusions in the six months ended June 30, 2018 were primarily used for the construction
and completion of AEII’s 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
AEII will require continual investment to facilitate its growth
plans. As a result of the reduced cash available after the closing of the Merger, 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. We will provide further updates in future filings as we update our business plans.
Debt Agreements
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 were due
at maturity in May 2019. During the year ended December 31, 2018, Allied Esports paid an aggregate $55,178 of interest payments.
In October 2018, the $5,000,000 line of credit was repaid by the Parent using its collateralized certificate of deposit resulting
in an addition to the balances due to the Parent.
Convertible Debt
See “Related Part Transactions – Second Bridge Financing”
below.
Contractual Obligations
AEII/WPT enters into certain contractual obligations in the
normal course of its business. The following table summarizes the known contractual commitments as of June 30, 2019:
(in thousands)
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
27,923
|
|
|
|
2,229
|
|
|
|
4,979
|
|
|
|
5,029
|
|
|
|
15,686
|
|
Total
|
|
$
|
27,923
|
|
|
$
|
2,229
|
|
|
$
|
4,979
|
|
|
$
|
5,029
|
|
|
$
|
15,686
|
|
Off-Balance Sheet Arrangements
AEII/WPT does not engage in any off-balance sheet financing
activities, nor does AEII/WPT have any interest in entities referred to as variable interest entities.
Customer Concentration
One customer accounted for 11% and 15% of AEII/WPT revenues
for the six months ended June 30, 2019 and 2018, respectively.
During the six months ended June 30, 2019 and 2018, 11% and
15%, respectively, of AEII/WPT revenue was from customers in foreign countries.
During the year ended December 31, 2018, one customer accounted
for 15% of total AEII/WPT revenue. No customer accounted for more than 10% of the AEII/WPT revenue in the year ended December 31,
2017.
During the years ended December 31, 2018 and 2017, 14% and 17%,
of AEII/WPT revenue was from customers in foreign countries.
Seasonality
Historically, WPT’s results of operations have not been
significantly affected by seasonality. AEII’s results of operations maybe affected by seasonality in the Las Vegas market
where 1st and 4th quarters tend to be slightly lower than the rest of the year.
Quantitative and Qualitative Disclosures About Market Risk
AEII/WPT is exposed to market risks from foreign currency fluctuation.
AEII/WPT has not entered into any derivative financial instrument transaction to manage or reduce market risk for speculative purposes.
AEII/WPT has no significant exposure to interest rate or commodity price fluctuation. The combined financial statements are subject
to subject to concentrations of credit risk consisting primarily of accounts receivable.
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. AEII/WPT regularly evaluates estimates and judgments based on historical experience and other relevant facts and circumstances.
AEII/WPT discusses its significant estimates used in the preparation
of the financial statements in the notes accompanying the financial statements. Listed below are the accounting policies AEII/WPT
believes are critical to its financial statements due to 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 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, and recorded
an impairment charge of $9,683,158 related to its investment in ESA. During the six months ended June 30, 2019 the Company recorded
an impairment charge of $600,000 related to its investment in ESA.
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 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 the amount of ultimate revenue expected to be earned
from the related production are capitalized in accordance with 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 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 estimated fair value.
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 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.
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, no material differences in
revenue recognition policies have been identified, as compared to ASC 605.
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 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 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.
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 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
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.
Related Party Transactions
Amounts Due to Parent
As of December 31, 2018, amounts due to Parent consisted of
payments of certain operating expenses, investing and financing activities made on behalf of AEII by the Parent. There is no stated
interest rate or definitive repayment terms related to this liability.
Notes Payable to Parent
AEII had 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. During November and December of 2018,
the amount due related to the notes of $37,372,522 and accrued interest payable of $2,150,487 were forgiven by the parent and recorded
as a contribution to equity.
Bridge Financing
On October 11, 2018, the Parent issued a series of secured convertible
promissory notes (the “Initial Notes”) whereby investors provided Parent with $10 million to be used for the operations
of the Company. 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 defined below). 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.
Second Bridge Financing
On May 15, 2019, Noble issued a series of secured convertible
promissory notes (the “Additional Notes,” and together with the Initial Notes, the “Notes”) whereby investors
provided Noble with $4 million to be used for the operations of AEII/WPT. Ms. Man Sha purchased a $1 million Additional Note, and
is the wife of Mr. Ng Kwok Leung Frank, who will join as a director and CEO upon the closing of the Mergers. 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
Notes accrue annual interest at 12%; provided that no interest is payable in the event the Notes are converted into BRAC Common
Stock as described below. The 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 and ending on the
date that is three (3) months after the Closing. If any Note is paid by AEM or BRAC, the investor will receive 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 guaranty of Ourgame and the Company. The debt is convertible into shares of BRAC Common Stock
that are freely tradeable without restriction at $8.50 per share.
Additionally, 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 the Notes. Pursuant to the Acknowledgement Agreement, the bridge holders have agreed to defer repayment of the
Notes to one year and two weeks following the closing of the Mergers (the “Closing,” and the maturity date of the 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 Note to
equity. The Company agreed to assume the debt under the 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 Sponsor has also agreed that it will not make any further transfer
of its initial shares, subject to certain exceptions, until the debt is repaid. The Notes are convertible at any time by a holder
between the Closing and the Maturity Date, into shares that are freely tradable without restriction, at the lesser of $8.50 per
share or the price at which shares are issued to Ourgame or its affiliates in connection with the Mergers.
Each investor received a warrant to purchase shares of BRAC
Common Stock in an amount equal to the product of (i) 3,800,000 shares, multiplied by (ii) the investor’s investment amount,
divided by (iii) $100,000,000 The terms and conditions of the warrants and the date of issuance of the warrants were the same
as the warrants issued to Ourgame, the Company and/or its affiliates in connection with the Mergers.
If the Note holders elect to convert their notes into Company
common stock, they would be entitled to receive additional shares of Company Common Stock (the “Earn-out Shares”) equal
to the product of (i) 3,846,153 shares, multiplied by (ii) the investor’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 BRAC Common Stock
trades at or above $13.00 for thirty (30) consecutive calendar days.
Stock Options
In 2015, the Parent issued options to purchase common stock
of the Parent to certain employees and a consultant of WPT, and 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 would be recognized over a remaining period of 0.5 years.
Employees
As of July 31, 2019, the Company (including Allied Epsorts
and WPT) had 96 full-time employees. The Company considers its employee relations to be satisfactory.
Properties
The Company’s main offices are located
at 17877 Von Karman Avenue, Suite 300, Irvine, California, 92614, with WPT. Allied Esports currently maintains its principal executive
offices at 4000 MacArthur Blvd. East Tower, Suite 600, Newport Beach, CA 92660, renting space on a month-to-month basis. Certain
employees of the Company utilize the Sponsor’s offices located at 110 North 5th Street, Suite 410, Minneapolis, MN 55403.
The Company considers the current office spaces, combined with the other office space otherwise available to its executive officers,
adequate for current operations.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information
as of the Closing regarding the beneficial ownership of the Company’s common stock by:
|
·
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Each person known to be the beneficial owner of more than 5% of the Company’s outstanding common stock;
|
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·
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Each director and executive officer of the Company; and
|
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·
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All executive officers and directors as a group.
|
Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with respect to all common shares beneficially owned by them.
Name and Address of Beneficial Owners
(1)
|
|
Number of Shares
(2)
|
|
|
Percent
|
|
Black Ridge Oil & Gas, Inc.
(3)
|
|
|
3,190,500
|
|
|
|
13.5%
|
|
Primo Vital Limite
(4)
|
|
|
15,112,163
|
|
|
|
57.6%
|
|
Kenneth DeCubellis
(5)
|
|
|
3,190,500
|
|
|
|
13.8%
|
|
Lyle Berman
(6)
|
|
|
455,688
|
|
|
|
2.0%
|
|
Bradley Berman
(7)
|
|
|
–
|
|
|
|
–
|
|
Benjamin S. Oehler
(7)
|
|
|
–
|
|
|
|
–
|
|
Joseph Lahti
(7)
|
|
|
–
|
|
|
|
–
|
|
Frank Ng
(8)
|
|
|
432,219
|
|
|
|
1.9%
|
|
Eric Yang
(9)
|
|
|
15,388,646
|
|
|
|
66.5%
|
|
Adam Pliska
(10)
|
|
|
1,115,487
|
|
|
|
4.8%
|
|
Maya Rogers
|
|
|
–
|
|
|
|
–
|
|
Dr. Kan Hee Anthony Tyen
|
|
|
–
|
|
|
|
–
|
|
Ho min Kim
|
|
|
–
|
|
|
|
–
|
|
All directors and executive officers, as a group (11 individuals)
|
|
|
20,575,516
|
|
|
|
76.1%
|
|
(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
|
(2)
|
The percentage of beneficial ownership on the record date is calculated based on 23,088,701 outstanding shares of common stock as of such date, but does not reflect any shares of common stock issuable upon exercise of warrants that are not exercisable within 60 days. 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.
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(3)
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These shares represent the 3,450,000 founder shares and 445,000 shares purchased in a private placement simultaneous with our initial public offering, less 600,000 shares that will be transferred Primo Vital Limited upon consummation of the Mergers, less 732,000 shares transferred to Subscribers as part of the Merger plus 66,000 shares issued upon conversion of convertible notes. Includes 505,000 warrants exercisable within 60 days of August 9, 2019. The address of Black Ridge Oil & Gas, Inc. is 110 North 5
th
Street, Suite 410, Minneapolis, Minnesota 55403
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(4)
|
Includes warrants to purchase 3,125,640 shares of common stock
pursuant to the merger exercisable within 60 days of August 9, 2019. Of the 3,125,640 warrants issued in the merger, 324,665
warrants are currently being held in escrow and are subject to forfeiture during the one-year period following the merger to satisfy
claims arising as a result of AEM's breach of any of its representations and warranties or covenants in the merger agreement.
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(5)
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Mr. DeCubellis does not beneficially own any shares of our common stock. Represents shares held by Black Ridge Oil & Gas, Inc., of which Mr. DeCubellis, as chief executive officer, exercises voting and dispositive power over such shares. Mr. DeCubellis has a pecuniary interest in shares of our common stock through his ownership of common stock in Black Ridge Oil and Gas, Inc. Mr. DeCubellis disclaims beneficial ownership of such shares except to the extent of his ultimate pecuniary interest.
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(6)
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Represents (i) 292,000 shares purchased to fulfill obligation under purchase commitments, (ii) 43,689 shares issued as consideration for fulfilling purchase commitments by the Company as consideration in the Mergers and (iii) 120,000 shares transferred from Black Ridge Oil & Gas, Inc. as consideration for fulfilling purchase commitments in the Mergers. This calculation does not include shares for which Mr. Lyle Berman has a pecuniary interest in through his ownership of common stock in Black Ridge Oil and Gas, Inc.
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(7)
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Mr. Bradley Berman, Mr. Ben Oehler and Mr. Joseph Lahti do not beneficially own any shares of our common stock. However, they have a pecuniary interest in shares of our common stock through their ownership of common stock and /or options to purchase common stock of Black Ridge Oil and Gas, Inc.
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(8)
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Represents (i) 208,339 shares to be issued directly to Mr. Ng as consideration in the Mergers and (ii) 38,000 warrants to purchase common stock, and 117,647 shares will be issuable to Ms. Man Sha, the wife of Mr. Ng, upon conversion of the $1 million promissory note issued to Ms. Man Sha on or about May 17, 2019.
Includes warrants to purchase 68,233 shares of common stock pursuant to the merger exercisable within 60 days of August 9, 2019. Of the 68,233 warrants issued in the merger, 6,823 warrants are currently being held in escrow and are subject to forfeiture during the one-year period following the merger to satisfy claims arising as a result of AEM's breach of any of its representations and warranties or covenants in the merger agreement.
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(9)
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Represents 208,272 shares to be issued directly to Mr. Yang
as consideration in the Mergers and 11,986,523
shares to be issued
as consideration in the Mergers
to Primo Vital Limited, a 100% owned subsidiary of
Ourgame International Holdings Ltd.,
of which Mr. Yang, as director and co-chief executive officer, exercises voting and dispositive power over such shares.
Includes warrants to purchase 68,211 shares of common stock pursuant to the merger exercisable within 60 days of August 9, 2019. Of the 68,211 warrants issued in the merger, 6,821 warrants are currently being held in escrow and are subject to forfeiture during the one-year period following the merger to satisfy claims arising as a result of AEM's breach of any of its representations and warranties or covenants in the merger agreement.
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(10)
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These shares represent the 469,113 shares to be
issued
directly to Mr. Pliska
as consideration in the Mergers as follows: (i) 303,508 shares for profit participation payment converted
into equity, (ii) 144,158 shares for WPT-related performance bonus converted to equity, and (iii) 21,447 shares issued for directors
services to AEM. An additional 388,703 shares and 7,024 warrants were issued as consideration in the Mergers to Mr. Pliska for
Trisara Ventures, LLC finder services, an entity of which Mr. Pliska owns 99% of the equity and is the sole executive officer,
and which
exercises voting and dispositive power over such shares.
The above warrants
issued on account of the finder services fee are exercisable within 60 days of August 9, 2019. Of the 102,024 warrants issued in
the merger, 10,202 warrants are currently being held in escrow and are subject to forfeiture during the one-year period following
the merger to satisfy claims arising as a result of AEM's breach of any of its representations and warranties or covenants in the
merger agreement.
38,000 warrants to purchase common stock, and 117,647 shares
will be issuable to the Lipscomb/Visoli Children’s Trust, of which Mr. Pliska is trustee, if the trust elects to convert
the $1 million promissory note issued to such trust on or about May 17, 2019. Mr. Pliska disclaims any pecuniary interest in such
shares and warrants.
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Directors and Executive Officers
The Company’s directors and executive
officers upon the Closing are described in the Proxy Statement in the section entitled “
The Director Election Proposal
”
beginning on page 100 and that information is incorporated herein by reference.
Executive Compensation
The executive compensation of Black Ridge’s
and Allied Esports’ and WPT’s executive officers and directors is described in the Proxy Statement in the section entitled
“
The Director Election Proposal - Executive Compensation
” beginning on page 112 and that information is incorporated
herein by reference.
Certain Relationships and Related Transactions
The certain relationships and related party
transactions of the Black Ridge, Allied Esports and WPT are described in the Proxy Statement in the section entitled “
Certain
Relationships and Related Person Transactions
” beginning on page 159 and are incorporated herein by reference.
Legal Proceedings
There are no material legal proceedings
against the Company.
Market Price of Common Stock and Warrants
Prior to Closing, Black Ridge’s common stock and warrants
was traded on The Nasdaq Capital Market under the symbols BRAC and BRACW, respectively. The Company’s common stock and warrants
began trading on the Nasdaq Capital Market under the symbols “AESE” and “AESEW,” respectively, on August
12, 2019, subject to ongoing review of the Company’s satisfaction of all listing criteria post-business combination, in
lieu of the common stock and warrants of Black Ridge. The following table sets forth the high and low sales prices for our common
stock and warrants for the periods indicated since the common and warrants began separate public trading on October 25, 2017.
The closing price of our common stock warrants
on December 18, 2018, the last trading day before announcement of the execution of the Agreement, was $10.50, $9.98, $0.38, and
$0.22, respectively. As of the record date, the closing price of each unit, share of common stock, right, and warrant was $10.7993,
$10.33, $0.30, and $0.24, respectively.
The table below sets
forth, for the calendar quarter indicated, the high and low bid prices of our units, common stock, rights, and warrants as reported
on the Nasdaq Capital Market for the period from October 5, 2017 through August 12, 2019.
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Common Stock
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Warrants
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Low
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High
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Low
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High
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Fiscal 2019
|
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|
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|
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|
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Third Quarter through August 12, 2019
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|
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|
|
|
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Second Quarter
|
|
|
10.20
|
|
|
|
10.35
|
|
|
|
0.214
|
|
|
|
0.35
|
|
First Quarter
|
|
|
9.97
|
|
|
|
10.23
|
|
|
|
0.173
|
|
|
|
0.45
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Fourth Quarter
|
|
|
9.52
|
|
|
|
12.11
|
|
|
|
0.17
|
|
|
|
0.45
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|
Third Quarter
|
|
|
9.58
|
|
|
|
9.88
|
|
|
|
0.320
|
|
|
|
0.52
|
|
Second Quarter
|
|
|
9.69
|
|
|
|
9.80
|
|
|
|
0.28
|
|
|
|
0.45
|
|
First Quarter
|
|
|
9.58
|
|
|
|
9.72
|
|
|
|
0.196
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Holders of common stock and warrants should obtain current market
quotations for their securities. The market price of our securities could vary at any time before the transactions.
Securities Authorized for Issuance Under Equity Compensation
Plans
Reference is made to the disclosure described
in the Proxy Statement in the section entitled “
The Incentive Plan Proposal
” beginning on page 119, which is
incorporated herein by reference.
Description of Securities
General
As of the date of this Report, the Company is authorized to
issue 65,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001. As of
the date of this Report, 23,088,700 shares of common stock are outstanding. No shares of preferred stock are currently outstanding.
The following description summarizes the material terms of our securities. Because it is only a summary, it may not contain all
the information that is important to you. For a complete description you should refer to our amended and restated certificate
of incorporation, bylaws and the form of warrant agreement, which are filed as exhibits to this Report, and to the applicable
provisions of Delaware law.
Common Stock
Our stockholders of record are entitled
to one vote for each share held on all matters to be voted on by stockholders. 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 respect to the election of directors, with the result that the holders of more than 50% of the shares
eligible to vote for the election of directors can elect all of the directors. Our stockholders have no conversion, preemptive
or other subscription rights and there are no sinking fund or redemption provisions applicable to the shares of common stock.
Preferred Stock
There are no shares of preferred stock outstanding. Our amended
and restated certificate of incorporation authorizes the issuance of 1,000,000 shares of preferred stock with such designation,
rights and preferences as may be determined from time to time by our board of directors. No 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. 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.
Warrants
Each warrant entitles the registered holder
to purchase one share of common stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time after
September 9, 2019 until expiration. However, no warrants will be exercisable for cash unless we have 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 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) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption,
is not available, holders will not be able to exercise their warrants on a cashless basis. In such event, each holder would pay
the exercise price by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing
(x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise
price of the warrants and the “fair market value”(defined below) by (y) the fair market value. The “fair market
value” 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.
We may call the warrants for redemption (excluding certain
warrants), in whole and not in part, at a price of $0.01 per warrant.
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·
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at any time after the warrants become exercisable,
|
|
·
|
upon not less than 30 days’ prior written notice of redemption to each warrant holder,
|
|
·
|
if, and only if, the reported last sale price of the shares of 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 the notice of redemption to warrant holders; and
|
|
·
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if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
|
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.
If we call the warrants for redemption as
described above, our management will have the option to require all holders that wish to exercise warrants to do so on a “cashless
basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of
common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the
warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined
below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price 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 redemption
is sent to the holders of warrants.
The warrants are 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, but requires the approval, by written consent or vote, of 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.
The exercise price and number of shares
of 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 the terms 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 issuable
upon exercise of the warrants and keep such prospectus current until the expiration of 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.
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.
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.
Dividends
We have not paid any cash dividends on our shares of common
stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements
and general financial condition. The payment of any dividends is 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, 1 State Street
Plaza, New York, New York 10004.
Recent Sales of Unregistered Securities
Reference is made to the disclosure set
forth under Item 3.02 of this Report concerning the issuance of the Company’s common stock and warrants in connection with
the Transactions, which is incorporated herein by reference.
Indemnification of Directors and Officers
The Company’s amended and restated
certificate of incorporation contains provisions eliminating the personal liability of directors to the Company and its stockholders
for monetary damages for breaches of their fiduciary duties as directors to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware or any other applicable law as it exists on the date of the Company’s amended
and restated certificate of incorporation or as it may be amended. The General Corporation Law of the State of Delaware prohibits
such elimination of personal liability of a director for:
|
·
|
any breach of the director’s duty of loyalty to the Company or its stockholders;
|
|
·
|
acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law;
|
|
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the payment of dividends, stock repurchases or redemptions that are unlawful under Delaware law; and
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any transaction in which the director receives an improper personal benefit.
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These provisions only apply to breaches
of duty by directors as directors and not in any other corporate capacity, such as officers. In addition, these provisions limit
liability only for breaches of fiduciary duties under the General Corporation Law of the State of Delaware and not for violations
of other laws such as the U.S. federal securities laws and U.S. federal and state environmental laws. As a result of these provisions
in the Company’s amended and restated certificate of incorporation, the Company’s stockholders may be unable to recover
monetary damages against directors for actions taken by them that constitute negligence or gross negligence or that are in violation
of their fiduciary duties. However, the Company’s stockholders may obtain injunctive or other equitable relief for these
actions. These provisions also reduce the likelihood of derivative litigation against directors that might benefit the Company.
In addition, the Company’s amended
and restated certificate of incorporation and bylaws provide that the Company will indemnify and advance expenses to, and hold
harmless, each of the Company’s directors and officers (each, an “
indemnitee
”), to the fullest extent
permitted by applicable law, who was or is made or is threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the Company or, while a director or officer of the Company, is
or was serving at the Company’s request as a director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in the Company’s amended and restated certificate of incorporation and bylaws, the
Company will be required under the Company’s amended and restated certificate of incorporation and bylaws to indemnify, or
advance expenses to, an indemnitee in connection with a proceeding (or part thereof) commenced by such indemnitee only if the commencement
of such proceeding (or part thereof) by the indemnitee was authorized by the Company’s board of directors.
Financial Statements and Supplementary Data
Reference is made to the disclosure set
forth under Item 9.01 of this Report concerning the financial statements and supplementary data of the Company, AEM and WPT.