Confidential Treatment Requested by Super League Gaming,
Inc.
Pursuant to 17 C.F.R. Section 200.83
As confidentially submitted to the Securities and Exchange
Commission on September 14, 2018. This draft registration statement
has not been publicly filed with the Securities and Exchange
Commission and all information herein remains
strictly confidential.
Registration
No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUPER LEAGUE GAMING, INC.
(Exact name of registrant as specified in its
charter)
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Delaware
(State
or other jurisdiction of
incorporation or organization)
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7374
(Primary
Standard Industrial
Classification
Code Number)
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47-1990734
(I.R.S.
Employer
Identification
Number)
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2906 Colorado Ave.
Santa Monica, California 90404
(855) 248-7079
(Address, including zip code, and telephone number,
including
area code, of registrant's principal executive
offices)
Ann Hand
President and Chief Executive Officer
Super League Gaming, Inc.
2906 Colorado Ave.
Santa Monica, California 90404
(855) 248-7079
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
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Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group,
A Professional Corporation
600 West Broadway, Suite 700
San Diego, California 92101
(619) 272-7050
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Jonathan R. Zimmerman, Esq.
Ben A. Stacke, Esq.
Ryan R. Woessner, Esq.
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
(612) 766-7000
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of this
registration statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended, check
the following box. ☐
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same
offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration number of
the earlier effective registration statement for the same
offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☒
Emerging
growth company ☒
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If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
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Proposed
Maximum
Aggregate
Offering
Price
(1)
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Amount of
Registration
Fee (2)
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Common Stock,
$0.001 par value per share (3)
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$
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$
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Total
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$
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$
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(1)
In accordance with Rule 457(o) under the Securities Act of
1933, as amended, the number of shares being registered and the
proposed maximum offering price per share are not included in this
table.
(2)
Estimated solely
for purposes of computing the amount of the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as
amended. Includes the offering price of additional shares that the
underwriters have the option to purchase to cover over-allotments,
if any.
(3)
Pursuant to
Rule 416 under the Securities Act, the shares registered
hereby also include an indeterminate number of additional shares as
may from time to time become issuable by reason of share splits,
share dividends, recapitalizations or other similar
transactions.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment that
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may
determine.
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The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION,
DATED
, 2018
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PRELIMINARY PROSPECTUS
Shares
SUPER LEAGUE GAMING,
INC.
We are offering shares of our common stock. This is our initial
public offering and no public market currently exists for our
common stock. The initial public
offering price of our common stock is expected to be between
$ and
$ per
share. We have applied to list our common stock on the Nasdaq
Capital Market under the symbol
“SLGG.”
We are an “emerging growth company” as the term is used
in the Jumpstart Our Business Startups Act of 2012 and, as such,
have elected to comply with certain reduced public company
reporting requirements for this prospectus and future filings. See
“Prospectus
Summary – Implications of Being an Emerging Growth
Company.”
Investing in our common stock involves
risks. See “Risk
Factors” beginning on
page 9 of this prospectus for a discussion of the risks that you
should consider in connection with an investment in our
securities.
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Initial public
offering price
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$
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$
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Underwriting
discounts and commissions(1)
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$
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$
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Proceeds, before
expenses, to us
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$
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$
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(1)
In addition, we have agreed to issue a warrant to
purchase up
to shares
of our common stock to the underwriters, which equates
to %
of the number of shares of our common stock to be issued and sold
in this offering, and to reimburse the underwriters for certain
expenses. See “Underwriting”
for additional information regarding this warrant and underwriting
compensation generally.
We
have granted the underwriters an option to buy up to an
additional shares
of our common stock to cover over-allotments, if any. The
underwriters may exercise this option at any time during the 30-day
period from the date of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Delivery of the shares will be made on or about
,
2018, subject to customary closing conditions.
Joint Book-Running Managers
Northland Capital
Markets
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Lake Street
Capital Markets
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The date of this prospectus is
,
2018
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F-1
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You should rely only on the information contained in this
prospectus or in any free writing prospectus we or the underwriters
may authorize to be delivered or made available to you. Neither we
or the underwriters have authorized anyone to provide you with
different information. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information in this prospectus is
accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of shares of our
common stock. Our business, financial condition, operating results
and prospects may have changed since that date.
For investors outside of the United States: No action is being
taken in any jurisdiction outside of the United States that would
permit a public offering of the shares of our common stock or
possession or distribution of this prospectus in any such
jurisdiction. Persons outside of the United States who come into
possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the shares of
common stock and the distribution of this prospectus outside of the
United States.
In this prospectus, unless the context indicates otherwise,
references to “Super
League,”
“SLG,” “we,” the “Company,” “our” and “us” refer to Super League Gaming, Inc., a
Delaware corporation, and references to the
“Board” or the “Board of
Directors” means the
Board of Directors of the Company.
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This summary highlights information contained elsewhere in this
prospectus and does not contain all of the information you should
consider before investing in our common stock. You should read this
entire prospectus carefully, including the section entitled
“Risk Factors” and our financial statements and the
related notes thereto included elsewhere in this prospectus, before
making an investment decision.
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. According to the Electronic Software
Association, the avid gamer sees gameplay as central to their
social life with 55% playing video games to connect with friends
and 46% to spend time with family members. Through our proprietary,
cloud-based technology platform, we connect our network of gamers,
venues and brand partners to enable local, social and
competitive esports that can be uniquely broadcast through our
platform. We offer daily and season-focused offerings for which
amateur competitive gamers establish meaningful connections with
each other while improving their skills.
As a
first-mover in defining the amateur esports category in 2015, we
believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft Corporation (“Microsoft”) and Riot Games, Inc.
(“Riot Games”)
with titles including Minecraft and League of Legends,
respectively, to drive use among our
member base and further penetrate our target market. We deliver
enhanced gaming experiences to our members with these titles
through our platform, and we provide our venue and brand partners
access to our member network and platform technology. We
believe that our members and the organizations that use our
platform are only beginning to leverage the power of the consumer
experience, commercial benefits, and data analytics our technology
enables. Primarily targeting Generation Z and Millennials, members
join through accessible, free-to-play experiences, allowing us to
reach the expansive amateur gaming market. We convert members into
subscribers through offering two tiers of competitive gameplay
engagement: (i) our monthly subscription for the more casual
competitive player, offering access to exclusive weekly online
tournaments, member benefits and our loyalty program; and (ii) our
semi-annual season pass for the more competitive player offering
access to our city leagues and advanced amateur esports offers
along with membership rewards.
Our Platform
Our
proprietary cloud-based platform provides amateur gamers with a
modernized way to connect, play and view games in real-time. We
believe our platform will become central to the esports ecosystem and allow us to capture a
significant portion of our members’ gameplay hours and
share-of-wallet for greater lifetime value. Our platform
aggregates a diverse audience of gamers across multiple game titles
and provides our members access to online, in-person and hybrid
competitive experiences and broadcasts
that are accessible to a broad range of ages and
demographics. Through our platform, we have three core components
that enable differentiated and immersive gameplay at scale: (i) our
matchmaking system allows members to create their public-facing
gamer persona and applies distinct criteria and filters around team
size, skill level and geography to intelligently match our members
for competitive gameplay and facilitate rich online and in-person
social connections; (ii) our tournament system supports all major components of tournament
operations and automation including, for example, ticketing, user
management, event management, event operations, Application Program
Interface (“API”) integrations, data services, leaderboards
and prize fulfillment; and (iii) our proprietary, cloud-based
visualization and broadcast system is capable of capturing and live
streaming gameplay across all digital distribution platforms and
delivering separate streams simultaneously to multiple locations
and channels.
The end broadcast result is our customizable Heads-up-Display
(“HUD”), which complements the gameplay through
dynamic visualization of player and team statistics, competitive
status updates and contextual content that also can be uniquely
displayed on a hyper-local level across venues. In addition, our
proprietary SuperLeagueTV digital network is the first esports
media property principally dedicated to amateur players and teams.
Currently, live stream gameplay and video-on-demand
(“VOD”) content is broadcast through
SuperLeagueTV on Twitch and YouTube. SuperLeagueTV’s digital
broadcast distribution is an essential way to drive viewership and
membership interest along with new game title expansion and
additional online and in-person experiences through our distributed
venue partner network.
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Our Vision and History
Our
vision is to make Super League Gaming the preeminent brand and
platform for amateur esports. We do this by providing a
proprietary, end-to-end platform that allows our members to
compete, socialize and spectate premium amateur esports
gameplay and enables a wide ecosystem
of partners to bring Super League experiences at scale to gamers
around the world.
After
securing strategic partnerships with the publishers of top-tier
game titles beginning in 2016, we became the first consumer of our
platform technology through the establishment of our city league
consisting
of 16 teams based in various U.S. cities built around Minecraft,
League of Legends and, most recently,
Clash Royale. In 2017, we further differentiated our
offering by migrating to a cloud-based technology platform for
scale while continuing to build and establish the Super League
Gaming brand. We also developed intelligent technology that
facilitates personalized experiences and matchmaking for gamers,
and audience-targeted gameplay broadcasting content at scale. We
are now positioned to unlock the platform more extensively to new
game titles and a distributed network of venue operators and
gameplay organizers in order to further develop a self-organizing
marketplace for online and in-person gaming
experiences.
Industry Overview - The Esports Ecosystem
The
consumer appetite for esports continues to grow at a rapid pace
with passionate fans across the globe. According to NewZoo, the
global gaming market will reach
approximately $137.9 billion by the end of 2018, representing a
13.3% increase from 2017. The consumer appetite for esports
continues to grow at a rapid pace with passionate fans across the
globe. Key trends fueling this growth in gaming include the rise of
live streaming, real-time social networking within games, and
multi-generational and lifestyle gaming.
In particular, the professional esports industry is growing
quickly, evidenced through new leagues, teams and broadcast
distribution channels, and this growth is attracting high-profile
esports investments from brands, media organizations and
traditional sports rights holders. As professional esports player
salaries and the value of broadcast media rights have risen
substantially, there is large unmet demand at the amateur level for
competitions and viewing content, which, for esports fans, is
predominantly consumed through live streaming and over-the-top
(“OTT”) channels. The following data points
illustrate the vast growth opportunity for global
esports:
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Recent reports show
a “$15 billion blue sky revenue opportunity” for
professional esports due to the highly engaged and untapped fanbase
(Merrill Lynch Interactive Report, 2018).
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In 2018, Twitch
will live stream an estimated 355 billion minutes of esports, and
by 2022, esports is on track to reach 300 million global viewers,
similar to the current audience size of the National Football
League (“NFL”)
(Goldman Sachs Esports Equity Research, 2018).
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Gaming video
content is estimated to be a $4.6 billion market with more viewers
than HBO, Netflix, ESPN and Hulu combined (SuperData Research,
2017).
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Just a few top-tier
game titles currently deliver hundreds of millions of gamers;
estimated monthly active users (“MAU”) for Fortnite, League of
Legends and Minecraft is 125 million, 100 million and 74 million,
respectively (Statista and Microsoft, 2018).
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The average U.S.
gaming household has 1.7 gamers with 70% of parents believing
gaming “has a positive influence on their children’s
lives” (Electronic Software Association, 2018).
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Esports enthusiasts
on average have higher college graduation rates and average
household incomes, with 43% earning greater than $75,000 per year,
relative to traditional sports fans (Mindshare, Esports Fans: What
Marketers Should Know, 2016).
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An average esports
viewer spends up to nine hours per week watching esports-related
content in addition to over eight hours of gameplay per week
(Nielsen Esports Playbook, 2017).
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Our Opportunity
We believe that our esports community platform will transform the
way amateur gamers connect, interact, socialize and compete. Our
premium, competitive gameplay experiences and elite amateur
broadcasts, coupled with the expansion of our game title portfolio,
our retail venue partner network and our strategic brand
sponsorships, introduce new gamers into our customer funnel to
drive membership growth and subscription conversion. Esports is
still in its early stages and entering a new phase of growth.
Despite the significant growth potential outlined above, there are
several key challenges facing stakeholders in the esports landscape
for which we can offer solutions:
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Stakeholder
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Challenge
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Super
League’s Solution
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Amateur
Gamers
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As a
highly fragmented, often anonymous community, gamers have limited
ways to find gamers of similar skill-level for heightened
competitive play and new social connections.
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Through
our end-to-end platform, we connect players online and locally for
deeper competition and socialization along with providing a unique
lens on amateur gameplay.
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Game
Publishers
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With
significant capital investment in developing games titles and
increased competition, publishers need to grow and retain their
gamer base to extend the lifecycle and franchise value of their
intellectual property.
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Through
our offers and variety of alternative, premium experiences, we
introduce titles to new audiences while deepening engagement among
existing gamers for greater long-term retention.
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Venue
Operators (including restaurants and retailers)
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To
improve asset utilization and optimize weaker day-parts, venue
operators need to draw new foot-traffic to establishments, improve
overall customer satisfaction and retention.
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Through
our licensable technology, we provide access to our platform and
enable esports experiences that attract a new customer base of both
players and spectators to grow same-store sales.
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Sponsors and
Advertisers
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In a
world of increasing fragmentation of content distribution and
ad-blocking technology, sponsors need to identify channels to reach
gamers, particularly Generation Z and Millennials, with high
quality and non-invasive advertising.
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Through
a range of high-touch experiences and customizable content, we
deliver a highly targeted marketing channel that offers a relevant
path for brands to build affinity with the target
demographic.
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Professional
Esports Teams and Owners
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With
significant investments in esports teams, owners need to rapidly
develop a fanbase to achieve franchise values similar to
traditional sports teams as well as identify the next generation of
professionals.
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Through
amateur youth and young adult leagues, we cultivate the future
professional esports fanbase and provide a feeder system to the
professional level.
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Our Strengths
We
differentiate ourselves from potential competition through the
power of a pure horizontal platform and established partnerships
that enable experiences, community, content and commerce. Our core
strengths include the following:
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Game Publisher Agreements provide access
to existing user bases via strategic partnerships with
some of the largest game publishers. These partnerships draw
subscription interest and provide a line of defense. Our ability to
interact with this highly attractive, engaged user base draws
brands and sponsors to us to reach this otherwise hard-to-reach
target.
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Proprietary and Curated Content provides
a unique perspective to amateur competitive gameplay currently
absent from the esports ecosystem and is highly complementary and
valuable to the needs of large video streaming
providers.
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Patent-Pending Technology allows for
unique, intelligent content
capture and visualization to facilitate maximum scale of
interactive, in-person gaming, broadcast experience, and content
monetization.
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Over Three Years of Brand and Technology
Development provides us with a strong, distinctive lead on
followers with no obvious competitors in the holistic community,
league operations and media platform category.
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A Diverse Set of Enterprise and Commercial
Revenue Streams enabled by a pure platform play that
protects us from the risk of online-only offers subject to
commoditization and advertising revenue dependency.
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A Growing Member Base coupled with
highly customized gaming and viewing experiences allows us to
capture a global, highly engaged, yet somewhat elusive community
that we believe will provide many new ways to monetize over
time.
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Creation of Intangible Brand Value in
the quality of our offer, game titles, brand partners, and investor
base that validates our trusted, premium brand and distinctive
positioning to drive value in the fragmented, burgeoning esports
landscape.
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Our Growth Strategy
Our
core strategy is to pursue initiatives that promote the viral
growth of our member base, and in doing so drive subscription,
sponsorships and other new revenue streams utilizing the following
levers:
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Member Growth and Network Effect is
driven organically through direct marketing, partner and influencer
promotion, as well as search engine optimization, but we believe
the most efficient member acquisition will come through word of
mouth and referral programs leading to a declining customer
acquisition cost (“CAC”) and accretive life time
value (“LTV”)
over time.
●
Mutually Beneficial Relationships with Game
Publishers, along with our game-agnostic platform interface,
allow us to access large, built-in customer bases from game titles
amassing access to hundreds of millions of MAU and offering enhanced competitive
gameplay experiences to deepen their connection to the game
titles.
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Strategic Retail Venue Partnerships
allow us to reach domestic and international scale by leveraging
their infrastructure, operations and marketing to create daily,
weekly and monthly in-person experiences with amateur gamers to
drive more membership and competitive gameplay through our
platform.
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Brand and Media Partnerships extend our
platform by leveraging their broadcast, social and customer loyalty
programs to extend our audience reach and drive more gamers and
viewers into the top of our funnel.
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International Expansion, once we prove
the model domestically, will
enable us to access the
massive global scale of gamers worldwide and unlock greater brand
partnership and media rights revenue opportunities through global
audience development.
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Selected Risk Related to our Business
Our
business is subject to numerous risks, including risks that may
prevent us from achieving our business objectives or may adversely
affect our business, financial condition, results of operations,
cash flows and prospects, that you should consider before making an
investment decision. Some of the more significant risks and
uncertainties relating to an investment in our company are listed
below. These risks are more fully described in the
“Risk Factors”
section of this prospectus immediately following this prospectus
summary:
●
overall strength
and stability of general economic conditions, and of the esports
industry, both in the United States and globally;
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changes in consumer
demand for, and acceptance of, the game titles that we license for
our tournaments and activities, as well as online multiplayer
competitive amateur gaming in general;
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changes in the
competitive environment, including new entrants in the market for
online amateur competitive gaming, tournaments and competitions
that compete with our own;
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competition
from new entrants in the amateur esports space, and if we are
unable to compete effectively, we may not be able to achieve or
maintain significant market penetration or improve our results of
operations;
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our ability to
generate consistent revenue;
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our ability to
effectively execute our business plan;
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changes in the
licensing fees charged by the publishers of the most popular online
video games;
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changes in laws or
regulations governing our business and operations;
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our ability to
maintain adequate liquidity and financing sources and an
appropriate level of debt on terms favorable to us;
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our ability to
effectively market our amateur city leagues, tournaments and
competitions;
●
our ability to
obtain and protect our existing intellectual property protections,
including patents, trademarks and copyrights;
●
our ability to
obtain and enter into new licensing agreements with game publishers
and owners;
●
our ability to list
our shares on the Nasdaq Capital Market or any other national
exchange and maintain such listing; and
●
other risks
described from time to time in periodic and current reports that we
file with the Securities and Exchange Commission (the
“SEC”).
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. You should be able to bear a complete loss of your
investment.
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Implications of Being an Emerging Growth Company
As a
company with less than $1.07 billion in revenue during our last
fiscal year, we qualify as an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). An
emerging growth company may take advantage of specified reduced
reporting and other burdens that are otherwise applicable generally
to public companies. These provisions include:
●
A requirement to
have only two years of audited financial statements and only two
years of related Management’s Discussion and Analysis of
Financial Condition and Results of Operations;
●
An exemption from
the auditor attestation requirement on the effectiveness of our
internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley
Act”);
●
An extended
transition period for complying with new or revised accounting
standards;
●
Reduced disclosure
about our executive compensation arrangements; and
●
No non-binding
advisory votes on executive compensation or golden parachute
arrangements.
We may take
advantage of these provisions from the JOBS Act until the end of
the fiscal year in which the fifth anniversary of this offering
occurs, or such earlier time when we no longer qualify as an
emerging growth company. We would cease to be an emerging growth
company on the earlier of (i) the last day of the fiscal year (a)
in which we have more than $1.07 billion in annual revenue or (b)
in which we have more than $700 million in market value of our
capital stock held by non-affiliates, or (ii) the date on which we
issue more than $1.0 billion of non-convertible debt over a
three-year period. We may choose to take advantage of some but not
all of these reduced burdens under the JOBS Act. We have
irrevocably taken advantage of other reduced reporting requirements
in this prospectus, and we may choose to do so in future filings.
To the extent we do, the information that we provide stockholders
may be different than you might get from other public companies in
which you hold equity interests.
Corporate Information
Super
League Gaming, Inc. was incorporated under the laws of the State of
Delaware on October 1, 2014 as Nth Games, Inc. On July 13, 2015, we
changed our corporate name from Nth Games, Inc. to Super League
Gaming, Inc. Our principal executive offices are located at 2906
Colorado Avenue, Santa Monica, California 90404, and our telephone
number is (855) 248-7079. Our corporate website address is
www.superleague.com. Information
contained in, or accessible through, our website is not a part of
this prospectus, and the inclusion of our website address in this
prospectus is an inactive textual reference
only.
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The Offering
The following summary is provided solely for your convenience and
is not intended to be complete. You should read the full text and
more specific details contained elsewhere in this
prospectus
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Issuer
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Super
League Gaming, Inc.
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Common
stock offered by us
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shares
|
|
|
|
|
|
|
|
|
|
|
Over-allotment
option
|
The
underwriters have an option for a period of 30 days from the date
of this prospectus to purchase up to additional shares of our
common stock to cover over-allotments, if any.
|
|
|
|
|
Common
stock to be outstanding after this offering
|
shares,
or
shares
if the underwriters exercise their option to purchase additional
shares in full.
|
|
|
|
|
Use of
proceeds
|
We estimate that
the net proceeds from this offering, after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us, will be approximately $
million, or approximately
$
million if the underwriters exercise their option to purchase
additional shares from us in full, assuming an initial public
offering price of $ per share, which is the midpoint of the
price range set forth on the cover page of this prospectus. We
intend to use the net proceeds of this offering for working capital
and general corporate purposes, including sales and marketing
activities, product development and capital expenditures. See
“Use of
Proceeds” for a more complete description of the
intended use of proceeds from this offering
|
|
|
|
|
Risk
factors
|
You
should read the “Risk
Factors” section of this prospectus and the other
information in this prospectus for a discussion of factors to
consider carefully before deciding to invest in shares of our
common stock.
|
|
|
|
|
Proposed
listing
|
We
have applied to have our common stock listed on the Nasdaq Capital
Market in connection with this offering. No assurance can be given
that such listing will be approved.
|
|
|
|
|
|
|
|
|
|
|
Proposed Nasdaq
Capital Market symbol
|
“SLGG”
|
|
|
|
|
The number of shares of our common stock to be outstanding after
this offering is based on 13,830,487
shares of our common stock outstanding
as of September 14, 2018, and excludes:
●
6,338,176
shares of common stock issuable upon exercise of warrants to
purchase our common stock, of which 3,793,301 warrants are callable
at the election of the Company, at any time following the
completion of this offering;
●
3,975,487
shares of common stock issuable upon exercise of options held and
1,454,513 shares of common stock reserved for issuance pursuant to
our 2014 Plan (as defined herein); and
●
shares
of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which
equates to %
of the number of shares of our common stock to be issued and sold
in this offering.
Except as otherwise indicated, all information in this prospectus
assumes the following:
●
automatic
conversion of our outstanding 9.00% secured convertible promissory
notes issued between May 2018 and August 2018
into shares of our common
stock;
●
a
one-for- reverse
stock split of our common stock to be effected prior to the
effectiveness of the registration statement of which this
prospectus is a part; and
●
no
exercise by the underwriters of their option to purchase up to an
additional shares of common stock from us in this offering to cover
over-allotments, if any.
|
|
|
|
|
The following tables set forth a summary of our historical
financial data as of, and for the periods ended on, the dates
indicated. We have derived the statements of operations data for
the years ended December 31, 2017 and 2016 from our audited
financial statements included elsewhere in this prospectus. The
statements of operations data for the six-months ended June 30,
2018 and 2017 and the balance sheet data as of June 30, 2018 have
been derived from our unaudited financial statements included
elsewhere in this prospectus and have been prepared on the same
basis as the audited financial statements. In the opinion of our
management, the unaudited data reflects all adjustments, consisting
of normal and recurring adjustments, necessary for a fair
presentation of results as of and for these periods. You should
read this data together with our financial statements and related
notes included elsewhere in this prospectus and the sections in
this prospectus entitled “Selected Financial
Data” and
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.” Our
historical results for any prior period are not indicative of our
future results, and our results for the six-months ended June 30,
2018 may not be indicative of our results for the year ending
December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$201,182
|
$269,892
|
$486,859
|
$34,042
|
|
|
|
|
Cost of goods
sold
|
1,487,905
|
1,460,438
|
304,872
|
744,188
|
|
|
|
|
Gross profit
(loss)
|
(1,286,723)
|
(1,190,546)
|
181,987
|
(710,146)
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling, marketing
and advertising
|
1,155,506
|
1,295,016
|
668,648
|
372,638
|
|
|
|
|
Research and
development
|
61,543
|
142,380
|
7,670
|
27,534
|
|
|
|
|
General and
administrative
|
12,451,636
|
9,737,460
|
7,244,139
|
5,705,805
|
|
|
|
|
Total operating
expenses
|
(13,668,685)
|
11,174,856
|
7,920,457
|
6,105,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
(14,955,408)
|
(12,365,402)
|
(7,738,470)
|
(6,816,123)
|
|
|
|
|
Other income
(expense), net
|
-
|
-
|
(394,975)
|
389
|
|
|
|
|
|
$(14,955,408)
|
$(12,365,402)
|
$(8,133,445)
|
$(6,815,734)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share attributable to common stockholders(1)
|
|
|
|
|
|
|
|
|
Basic
|
$(1.17)
|
$(1.53)
|
$(0.59)
|
$(0.58)
|
|
|
|
|
Diluted
|
$(1.17)
|
$(1.53)
|
$(0.59)
|
(0.58)
|
|
|
|
|
Weighted average
shares outstanding used in computing net income (loss) per share
attributable to common stockholders(1)
|
|
|
|
|
|
|
|
|
Basic
|
12,740,023
|
8,066,901
|
13,810,487
|
11,667,164
|
|
|
|
|
Diluted
|
12,740,023
|
8,066,901
|
13,810,487
|
11,667,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See
Note 1 to each of our audited and unaudited condensed financial
statements, respectively, included elsewhere in this prospectus for
an explanation of the methods used to calculate the historical net
income (loss) per share, basic and diluted, and the number of
shares used in the computation of the per share
amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$785,269
|
$
|
|
|
|
|
Working
capital
|
1,780,948
|
|
|
|
|
|
Total
assets
|
2,749,075
|
|
|
|
|
|
Long-term notes
payable
|
3,057,851
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
42,030,167
|
|
|
|
|
|
Accumulated
deficit
|
(42,640,103)
|
|
|
|
|
|
Total
stockholders’ deficit
|
(596,125)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pro forma as adjusted balance sheet data reflects the pro forma
items described immediately above plus our sale
of shares
of common stock in this offering at an assumed initial public
offering price of
$ per
share, the midpoint of the price range set forth on the cover page
of this prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. Pro
forma as adjusted balance sheet data is illustrative only and will
change based on the actual initial public offering price and other
terms of this offering determined at pricing. Each $1.00 increase
or decrease in the assumed initial public offering price of
$ per
share, the midpoint of the price range set forth on the cover page
of this prospectus, would increase or decrease pro forma as
adjusted cash, total assets and total stockholders' deficit by
approximately
$ million,
assuming that the number of shares offered by us, as set forth on
the cover page of this prospectus, remains the same, and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. We may also increase or decrease
the number of shares we are offering. A 1,000,000 share increase or
decrease in the number of shares offered by us would increase or
decrease pro forma as adjusted cash, total assets and total
stockholders' deficit by approximately
$ million,
assuming that the assumed initial price to public remains the same,
and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. These unaudited pro
forma adjustments are based upon available information and certain
assumptions we believe are reasonable under the
circumstances.
|
|
|
Investing in our common stock involves a high degree of risk. You
should carefully consider the risks described below, as well as the
other information in this prospectus, including our financial
statements and the related notes thereto and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” before deciding whether
to invest in our common stock. The occurrence of any of the events
or developments described below could harm our business, financial
condition, operating results, and growth prospects. In such an
event, the market price of our common stock could decline, and you
may lose all or part of your investment. Additional risks and
uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations.
Risks Related to Our Business and Industry
We have incurred significant losses since our inception and we may
continue to experience losses in the future.
We incurred a net loss of approximately $14.9 million and $12.4
million, respectively, in 2017 and 2016. We expect that we will
continue to incur costs and expenses such as development costs and
bandwidth costs to support our video functions, personnel costs and
other expenses to host our leagues and tournaments, costs to retain
and attract gamers and license first tier game titles, grow our
online gamer community and generally expand our business
operations. We may not generate sufficient revenues to offset such
costs to achieve or sustain profitability in the future. In
addition, we expect to continue to invest heavily in our
operations, in person experiences, business development related to
game publishers, advertisers, sponsors and gamer capture, to
accelerate as well as maintain our current market position, support
anticipated future growth and to meet our expanded reporting and
compliance obligations as a public company.
Our profitability is also affected by other factors beyond our
control. For example, esports and live streaming of gameplay as a
form of entertainment may not continue to retain or increase its
popularity or viewership levels. In addition, advertisers and
sponsors may not increase or maintain their spending on live
streaming gaming platforms, including our gaming platform, or
sponsorship of online and in person amateur tournaments and
competitions. The continued success of our business depends on our
ability to identify which games and titles will appeal to our
community of gamers and to offer them through our amateur city
league tournaments and competitions, and other experiences. Our
profitability also depends in part on our ability to convert active
gamers into subscription-based gamers competing in our city league
tournaments, competitions and other experiences utilizing our
gaming platform, attract sponsors and advertisers and successfully
compete in a very competitive market.
We are a relatively young company, and we may not be able to
sustain our rapid growth, effectively manage our anticipated future
growth or implement our business strategies.
We have a limited operating history. Although we have experienced
significant growth since our gaming platform for amateur online and
in person gaming experiences was launched, and we established our
amateur city leagues, tournaments and competitions, our historical
growth rate may not be indicative of our future performance due to
our limited operating history and the rapid evolution of our
business model, including a focus on subscription-based gaming. We
may not be able to achieve similar results or accelerate growth at
the same rate as we have historically. As our amateur city leagues,
tournaments and competitions continue to develop, we may adjust our
strategy and business model to adapt. These adjustments may not
achieve expected results and may have a material and adverse impact
on our financial condition and results of operations.
In addition, our rapid growth and expansion have placed, and continue to
place, significant strain on our management and resources. This
level of significant growth may not be sustainable or achievable at
all in the future. We believe that our continued growth will depend
on many factors, including our ability to develop new sources of
revenues, diversify monetization methods including our multi-tier
subscription offerings, attract and retain competitive gamers,
increase engagement, continue developing innovative technologies,
tournaments and competitions in response to shifting demand in
esports and online gaming, increase brand awareness, and expand
into new markets. We cannot assure you that we will achieve any of
the above, and our failure to do so may materially and adversely
affect our business and results of operations.
We are subject to risks associated with operating in a rapidly
developing industry and a relatively new market.
Many elements of our business are unique, evolving and relatively
unproven. Our business and prospects depend on the continuing
development of live streaming of competitive esports gaming. The
market for esports and amateur online gaming competition is
relatively new and rapidly developing and are subject to
significant challenges. Our business relies upon our ability to
cultivate and grow an active gamer community, and our ability to
successfully monetize such community through tournament fees,
subscriptions for our esports gaming services, and advertising and
sponsorship opportunities. In addition, our continued growth
depends, in part, on our ability to respond to constant changes in
the esports gaming industry, including rapid technological
evolution, continued shifts in gamer trends and demands, frequent
introductions of new games and titles and the constant emergence of
new industry standards and practices. Developing and integrating
new games, titles, content, products, services or infrastructure
could be expensive and time-consuming, and these efforts may not
yield the benefits we expect to achieve at all. We cannot assure
you that we will succeed in any of these aspects or that the
esports gaming industry will continue to grow as rapidly as it has
in the past.
We generate a portion of our revenues from advertising and
sponsorship. If we fail to attract more advertisers and sponsors to
our gaming platform or tournaments or competitions, or if
advertisers or sponsors are less willing to advertise with or
sponsor us, our revenues may be adversely affected.
We generate a growing portion of our revenues from advertising and
sponsorship, which we expect to further develop and expand in the
near future as online viewership of our esports gaming offerings
expand. Our revenues from advertising and sponsorship partly depend
on the continual development of the online advertising industry and
advertisers’ willingness to allocate budgets to online
advertising in the esports gaming industry. In addition, companies
that decide to advertise or promote online may utilize more
established methods or channels, such as more established internet
portals or search engines, over advertising on our gaming platform.
If the online advertising and sponsorship market does not continue
to grow, or if we are unable to capture and retain a sufficient
share of that market, our ability to increase our current level of
advertising and sponsorship revenue and our profitability and
prospects may be materially and adversely affected.
Furthermore, our core and long-term priority of optimizing the
gamer experience and satisfaction may limit our gaming
platform’s ability to generate revenues from advertising and
sponsorship. For example, in order to provide our gamers with an
uninterrupted competitive gaming experience, we do not place
significant amounts of advertising on our streaming interface or
insert pop-up advertisements during streaming. While this
decision could adversely affect our operating results in the
short-term, we believe it enables us to provide a superior gamer
experience on our gaming platform, which will help us expand and
maintain our current base of gamers and enhance our monetization
potential in the long-term. However, this philosophy of putting our
gamers first may also negatively impact our relationships with
advertisers, sponsors or other third parties, and may not result in
the long-term benefits that we expect, in which case the success of
our business and operating results could be harmed.
Our revenue model may not remain effective and we cannot guarantee
that our future monetization strategies will be successfully
implemented or generate sustainable revenues and
profit.
We generate revenues from advertising and sponsorship of our league
tournaments, and through the operation of our live streaming gaming
platform using a revenue model whereby gamers can get free access
to certain live streaming of amateur tournaments, and gamers pay
fees to compete in league competition. We have generated, and
expect to continue to generate, a substantial portion of revenues
using this revenue model in the near term. We are, however,
particularly focused on implementing a multi-tier subscription
model for our expanding gamer base. Although our business has
experienced significant growth in recent years, there is no
guarantee that our subscription packages will gain significant
traction to maximize our growth rate in the future, as the demand
for our offerings may change, decrease substantially or dissipate,
or we may fail to anticipate and serve gamer demands
effectively.
Our marketing and advertising efforts may fail to resonate with
amateur gamers.
Our
amateur city league tournaments and competitions are marketed
through a diverse spectrum of advertising and promotional programs
such as online and mobile advertising, marketing through websites,
event sponsorship and direct communications with our gaming
community including via email, blogs and other electronic means. An
increasing portion of our marketing activity is taking place on
social media platforms that are either outside, or not totally
within, our direct control. Changes to gamer preferences,
marketing regulations, privacy and data protection laws, technology
changes or service disruptions may negatively impact our ability to
reach target gamers. Our ability to market our amateur city league
tournaments and competitions is dependent in part upon the success
of these programs. If the marketing for our amateur city league
tournaments and competitions fails to resonate and expand with the
gamer community, or if advertising rates or other media placement
costs increase, our business and operating results could be
harmed.
We have a unique community culture that is vital to our success.
Our operations may be materially and adversely affected if we fail
to maintain this community culture as we expand in our addressable
gamer communities.
We have cultivated an interactive and vibrant online social gamer
community centered around amateur online and in person gaming. We
ensure a superior gamer experience by continuously improving the
user interface and features of our gaming platform along with
offering a multitude of competitive and recreational gaming
experiences with first tier esports games. We believe that
maintaining and promoting a vibrant community culture is critical
to retaining and expanding our gamer community. We have taken
multiple initiatives to preserve our community culture and values.
Despite our efforts, we may be unable to maintain our community
culture and cease to be the preferred platform for our target
gamers as we expand our gamer footprint, which would be detrimental
to our business operations.
The amateur esports gaming industry is intensely competitive.
Gamers may prefer our competitors’ amateur leagues,
competitions or tournaments over our own.
Competition
in the amateur esports gaming industry generally is intense. Our
competitors range from established leagues and championships owned
directly, as well as leagues franchised by, well known and
capitalized game publishers and developers, interactive
entertainment companies and diversified media companies to emerging
start-ups, and we expect new competitors to continue to emerge
throughout the amateur esports gaming ecosystem. If our competitors
develop and launch competing amateur city leagues, tournaments or
competitions, or develop a more successful amateur online gaming
platform, our revenue, margins, and profitability will
decline.
The amateur esports gaming industry is very “hit”
driven. We may not have access to “hit” games or
titles.
Select
game titles dominate competitive amateur esports and online gaming,
including League of Legends, Minecraft, Fortnite and Overwatch, and
many new games titles are regularly introduced in each major
industry segment (console, mobile and PC free-to-download). Despite
the number of new entrants, only a very few “hit”
titles account for a significant portion of total revenue in each
segment.
The size and engagement level of our online and in
person
gamers are critical to our success and are closely linked to the
quality and popularity of the esports game publishers with which we
have licenses. Esports game publishers on our gaming platform,
including those who have entered into license agreements with us,
may leave us for other gaming platforms or amateur leagues which
may offer better competition, and terms and conditions than we do.
Furthermore, we may lose esports game publishers if we fail to
generate the number of gamers to our amateur tournaments and
competitions expected by such publishers. In addition, if popular
esports game publishers cease to license their games to us, or our
live streams fail to attract gamers, we may experience a decline in
gamer traffic, subscriptions and engagement, which may have a
material and adverse impact on our results of operations and
financial conditions.
Although we have entered into multi-year agreements with the
publishers of League of Legends and Minecraft, if we fail to
license multiple additional “hit” games or any of our
existing licensed esports game
publishers with which we currently have a license decide to breach
the license agreement or choose not to continue with us once the
term of the license agreement expires, the popularity of our
amateur city leagues, tournaments and competitions may decline and
the number of our gamers may decrease, which could materially and
adversely affect our results of operations and financial
condition.
In addition to the esports games we have licensed, we must continue
to attract and retain the most popular esports gaming titles in
order to maintain and increase the popularity of our amateur city
leagues, tournaments and competitions, and ensure the sustainable
growth of our gamer community. We must continue to identify and
enter into license agreements with esports gaming publishers
developing “hit’ games that resonate with our community
on an ongoing basis. We cannot assure you that we can continue to
attract and retain the same level of first-tier esports game
publishers and our ability to do so is critical to our future
success.
If we fail to keep our existing gamers highly engaged, to acquire
new gamers, to successfully implement a multi-tier subscription
model for our gaming community, our business, profitability and
prospects may be adversely affected.
Our success depends on our ability to maintain and grow the number
of amateur gamers attending our tournaments and competitions, and
using our gaming platform, and keeping our gamers highly engaged.
Of particular importance is the successful initial deployment and
expansion of a multi-tier subscription model to our gaming
community for purposes of creating predictable recurring
revenues.
In order to attract, retain and engage amateur gamers and remain
competitive, we must continue to develop and expand our city
leagues, including internationally, produce engaging tournaments
and competitions, successfully license the newest “hit”
esports games and titles, implement new technologies and
strategies, improve features of our gaming platform and stimulate
interactions in our gamer community.
A decline in the number of our amateur gamers in our ecosystem may
adversely affect the engagement level of our gamers, the vibrancy
of our gamer community, or the popularity of our amateur league
play, which may in turn reduce our monetization opportunities, and
have a material and adverse effect on our business, financial
condition and results of operations. If we are unable to attract
and retain, or convert gamers into subscription-based paying
gamers, our revenues may decline and our results of operations and
financial condition may suffer.
We cannot assure you that our online and in person
gaming platform will remain sufficiently popular with amateur
gamers to offset the costs incurred to operate and expand it. It is
vital to our operations that we remain sensitive and responsive to
evolving gamer preferences and offer first-tier esports game
content that attracts our amateur gamers. We must also keep
providing amateur gamers with new features and functions to enable
superior content viewing, and social interaction. Further, we will
need to continue to develop and improve our gaming platform and to
enhance our brand awareness, which may require us to incur
substantial costs and expenses. If such increased costs and
expenses do not effectively translate into an improved gamer
experience and subscription-based, long-term engagement, our
results of operations may be materially and adversely
affected.
The ability to grow our business is dependent in part on the
success and availability of mass media channels developed by third
parties, as well as our ability to develop commercially successful
content, and amateur tournaments and competitions.
The
success of our business is driven in part by the commercial success
and adequate supply of third-party mass media channels for which we
may distribute our content, amateur league tournaments and
competitions, including Twitch, YouTube and ESL.tv. Our success
also depends on our ability to accurately predict which channels
and platforms will be successful with the esports gaming community,
our ability to develop commercially successful content and
distribute via SuperLeagueTV, which is presently available on
Twitch, amateur tournaments and competition for these channels and
gaming platforms and our ability to effectively manage the
transition of our gamers from one generation or demographic to the
next. Additionally, we may enter into certain exclusive licensing
arrangements that affect our ability to deliver or market our
amateur gaming tournaments and competitions on certain channels and
platforms. A channel or platform may not succeed as expected or new
channels or platforms may take market share and gamers away from
platforms for which we have devoted significant resources. If
demand for the channels or platforms for which we are developing
amateur tournaments or competitions is lower than our expectations,
we may be unable to fully recover the investments we have made, and
our financial performance may be harmed. Alternatively, a channel
or platform for which we have not devoted significant resources
could be more successful than we initially anticipated, causing us
to not be able to take advantage of meaningful revenue
opportunities.
Our business is subject to risks generally associated with the
entertainment industry.
Our
business is subject to risks that are generally associated with the
entertainment industry, many of which are beyond our control. These
risks could negatively impact our operating results and include the
popularity, price to play, and timing of release of our esports
licensed games, economic conditions that adversely affect
discretionary consumer spending, changes in gamer demographics, the
availability and popularity of other forms of entertainment, and
critical reviews and public tastes and preferences, which may
change rapidly and cannot necessarily be predicted.
If we fail to maintain and enhance our brand or if we incur
excessive expenses in this effort, our business, results of
operations and prospects may be materially and adversely
affected.
We believe that maintaining and enhancing our brand is of
significant importance to the success of our business. A
well-recognized brand is important to increasing the number of
esports gamers and the level of engagement of our overall gaming
community which is critical in enhancing our attractiveness to
advertisers and sponsors. Since we operate in a highly competitive
market, brand maintenance and enhancement directly affect our
ability to maintain and enhance our market position.
Although we have developed our brand and amateur tournaments and
competitions through word of mouth referrals, key strategic
partners and our esports game publisher licensors, as we expand, we
may conduct various marketing and brand promotion activities using
various methods to continue promoting our brand. We cannot assure
you, however, that these activities will be successful or that we
will be able to achieve the brand promotion effect we
expect.
In addition, any negative publicity in relation to our league
tournaments or competitions, or operations, regardless of its
veracity, could harm our brands and reputation. Negative publicity
or public complaints from gamers may harm our reputation, and if
complaints against us are not addressed to their satisfaction, our
reputation and our market position could be significantly harmed,
which may materially and adversely affect our business, results of
operations and prospects.
Negative gamer perceptions about our brand, gaming platform,
amateur city leagues, tournaments or competitions and/or business
practices may damage our business and increase the costs incurred
in addressing gamer concerns.
Esports
gamer expectations regarding the quality, performance and integrity
of our amateur city league tournaments and competitions are high.
Esports gamers may be critical of our brand, gaming platform,
amateur city leagues, tournaments or competitions and/or business
practices for a wide variety of reasons. These negative gamer
reactions may not be foreseeable or within our control to manage
effectively, including perceptions about gameplay fairness,
negative gamer reactions to game content via social media or other
outlets, components and services, or objections to certain of our
business practices. Negative gamer sentiment about our business
practices also can lead to investigations from regulatory agencies
and consumer groups, as well as litigation, which, regardless of
their outcome, may be costly, damaging to our reputation and harm
our business.
Technology changes rapidly in our
business and if we fail to anticipate or successfully implement new technologies or
adopt new business strategies, technologies or methods, the
quality, timeliness and competitiveness of our amateur city
leagues, tournaments or competition may suffer.
Rapid
technology changes in the esports gaming market require us to
anticipate, sometimes years in advance, which technologies we must
develop, implement and take advantage of in order to be and remain
competitive in the esports gaming market. We have invested, and in
the future may invest, in new business strategies including a
multi-tier subscription model, technologies, products, or games or
first-tier game titles to continue to persistently engage the
amateur gamer and deliver the best online and in person
gaming experience. Such endeavors may involve significant risks and
uncertainties, and no assurance can be given that the technology we
choose to adopt and the features that we pursue will be successful.
If we do not successfully implement these new technologies, our
reputation may be materially adversely affected and our financial
condition and operating results may be impacted. We also may miss
opportunities to adopt technology, or develop amateur city leagues,
tournaments or competitions that become popular with gamers, which
could adversely affect our financial results. It may take
significant time and resources to shift our focus to such
technologies, putting us at a competitive
disadvantage.
Our
development process usually starts with particular gamer
experiences in mind, and a range of technical development and
feature goals that we hope to be able to achieve. We may not be
able to achieve these goals, or our competitors may be able to
achieve them more quickly and effectively than we can based on
having greater operating capital and personnel resources. If we
cannot achieve our technology goals within the original development
schedule, then we may delay their release until these goals can be
achieved, which may delay or reduce revenue and increase our
development expenses. Alternatively, we may be required to
significantly increase the resources employed in research and
development in an attempt to accelerate our development of new
technologies, either to preserve our launch schedule or to keep up
with our competitors, which would increase our development
expenses.
We may experience security breaches and cyber threats.
We
continually face cyber risks and threats that seek to damage,
disrupt or gain access to our networks and our gaming platform,
supporting infrastructure, intellectual property and other assets.
In addition, we rely on technological infrastructure, including
third party cloud hosting and broadband, provided by third party
business partners to support the in person
and online functionality of our gaming platform. These business
partners are also subject to cyber risks and threats. Such
cyber risks and threats may be difficult to detect. Both our
partners and we have implemented certain systems and processes to
guard against cyber risks and to help protect our data and systems.
However, the techniques that may be used to obtain unauthorized
access or disable, degrade, exploit or sabotage our networks and
gaming platform change frequently and often are not detected. Our
systems and processes, and the systems and processes of our
third-party business partners, may not be adequate. Any failure to
prevent or mitigate security breaches or cyber risks, or respond
adequately to a security breach or cyber risk, could result in
interruptions to our gaming platform, degrade the gamer experience,
cause gamers to lose confidence in our gaming platform and cease
utilizing it, as well as significant legal and financial
exposure. This could harm our business and reputation, disrupt
our relationships with partners and diminish our competitive
position.
Successful
exploitation of our networks and gaming platform can have other
negative effects upon the gamer experience we offer. In particular,
the virtual economies that exist in certain of our licensed game
publishers’ games are subject to abuse, exploitation and
other forms of fraudulent activity that can negatively impact our
business. Virtual economies involve the use of virtual
currency and/or virtual assets that can be used or redeemed by a
player within a particular online game or service.
Our business could be adversely affected if our data privacy and
security practices are not adequate, or perceived as being
inadequate, to prevent data breaches, or by the application of data
privacy and security laws generally.
In the
course of our business, we may collect, process, store and use
gamer and other information, including personally identifiable
information, passwords and credit card information, the latter of
which is subject to PCI-DSS compliance. Although we take measures
to protect this information from unauthorized access, acquisition,
disclosure and misuse, our security controls, policies and
practices may not be able to prevent the improper or unauthorized
access, acquisition or disclosure of such information. The
unauthorized access, acquisition or disclosure of this information,
or a perception that we do not adequately secure this information
could result in legal liability, costly remedial measures,
governmental and regulatory investigations, harm our profitability
and reputation and cause our financial results to be materially
affected. In addition, third party vendors and business partners
receive access to information that we collect. These vendors and
business partners may not prevent data security breaches with
respect to the information we provide them or fully enforce our
policies, contractual obligations and disclosures regarding the
collection, use, storage, transfer and retention of personal data.
A data security breach of one of our vendors or business partners
could cause reputational harm to them and/or negatively impact our
ability to maintain the credibility of our gamer
community.
Data
privacy, data protection, localization, security and
consumer-protection laws are evolving, and the interpretation and
application of these laws in the United States, Europe (including
compliance with the General Data Protection Regulation), and
elsewhere often are uncertain, contradictory and changing. It is
possible that these laws may be interpreted or applied in a manner
that is averse to us or otherwise inconsistent with our practices,
which could result in litigation, regulatory investigations and
potential legal liability or require us to change our practices in
a manner adverse to our business. As a result, our reputation and
brand may be harmed, we could incur substantial costs, and we could
lose both gamers and revenue.
We depend on servers to operate our games with online features and
our proprietary online gaming service. If we were to lose server
functionality for any reason, our business may be negatively
impacted.
Our business relies on the continuous operation of servers, some of
which are owned and operated by third parties. Although we strive
to maintain more than sufficient server capacity, and provide for
active redundancy in the event of limited hardware failure, any
broad-based catastrophic server malfunction, a significant
service-disrupting attack or intrusion by hackers that circumvents
security measures, a failure of disaster recovery service or the
failure of a company on which we are relying for server capacity to
provide that capacity for whatever reason could degrade or
interrupt the functionality of our platform, and could prevent the
operation of our platform for both in-person and online gaming
experiences.
We also rely on networks operated by third parties to support
content on our platform, including networks owned and operated by
game publishers. An extended interruption to any of these services
could adversely affect the use of our platform, which would have a
negative impact on our business.
Further, insufficient server capacity could also negatively impact
our business. Conversely, if we overestimate the amount of server
capacity required by our business, we may incur additional
operating costs.
Our online gaming platform and games offered through our gaming
platform may contain defects.
Our
online gaming platform and the games offered through our gaming
platform are extremely complex, and are difficult to develop and
distribute. We have quality controls in place to detect defects in
our gaming platform before they are released. Nonetheless, these
quality controls are subject to human error, overriding, and
reasonable resource or technical constraints. Further, we have not
undertaken independent third-party testing, verification or
analysis of our gaming platform and associated systems and
controls. Therefore, our gaming platform and quality controls and
preventative measures we have implemented may not be effective in
detecting all defects in our gaming platform. In the event a
significant defect in our gaming platform and associated systems
and controls is realized, we could be required to offer refunds,
suspend the availability of our city league competitions and other
gameplay, or expend significant resources to cure the defect, each
of which could significantly harm our business and operating
results.
We may experience outages and disruptions of our
infrastructure.
We may
experience outages or disruptions of our infrastructure, including
information technology system failures and network disruptions,
cloud hosting and broadband availability at in person
and online experiences. These may be caused by natural disasters,
cyber-incidents, weather events, power disruptions,
telecommunications failures, acts of terrorism or war or other
events. System redundancy may be ineffective or inadequate, and our
disaster recovery planning may not be sufficient for all
eventualities. Such failures or disruptions could prevent access to
our products, services or online stores selling our products and
services. Our corporate headquarters in Santa Monica, California
are located in seismically active regions, and certain of our
development activities and other essential business operations are
conducted at these locations. An event that results in the
disruption of any of our critical business or information
technology systems could harm our ability to conduct normal
business operations.
We use third-party services and technologies in connection with our
business, and any disruption to the provision of these services and
technologies to us could result in negative publicity and a
slowdown in the growth of our users, which could materially and
adversely affect our business, financial condition and results of
operations.
Our business partially depends on services provided by, and
relationships with, various third parties, including cloud hosting
and broadband providers, among others. To this end, when our cloud
hosting and broadband vendors experience outages, our esports
gaming services will be negatively impacted and alternative
resources will not be immediately available. In addition, certain
third-party software we use in our operations is currently publicly
available free of charge. If the owner of any such software decides
to charge users or no longer makes the software publicly available,
we may need to incur significant costs to obtain licensing, find
replacement software or develop it on our own. If we are unable to
obtain licensing, find or develop replacement software at a
reasonable cost, or at all, our business and operations may be
adversely affected.
We exercise no control over the third-party vendors that we rely
upon for cloud hosting, broadband and software service. If such
third parties increase their prices, fail to provide their services
effectively, terminate their service or agreements or discontinue
their relationships with us, we could suffer service interruptions,
reduced revenues or increased costs, any of which may have a
material adverse effect on our business, financial condition and
results of operations.
Growth and engagement of our gamer community depends upon effective
interoperability with mobile operating systems, networks, mobile
devices and standards that we do not control.
We make our services available across a variety of mobile operating
systems and devices. We are dependent on the interoperability of
our services with popular mobile devices and mobile operating
systems that we do not control, such as Android and iOS. Any
changes in such mobile operating systems or devices that degrade
the functionality of our services or give preferential treatment to
competitive services could adversely affect usage of our services.
In order to deliver high quality services, it is important that our
services work well across a range of mobile operating systems,
networks, mobile devices and standards that we do not control. We
may not be successful in developing relationships with key
participants in the mobile industry or in developing services that
operate effectively with these operating systems, networks, devices
and standards. In the event that it is difficult for our users to
access and use our services, particularly on their mobile devices,
our user growth and user engagement could be harmed, and our
business and operating results could be adversely
affected.
Our business depends substantially on the continuing efforts of our
executive officers, key employees and qualified personnel, and our
business operations may be severely disrupted if we lose their
services.
Our future success depends substantially on the continued efforts
of our executive officers and key employees. If one or more of our
executive officers or key employees were unable or unwilling to
continue their services with us, we might not be able to replace
them easily, in a timely manner, or at all. Since the esports
gaming industry is characterized by high demand and intense
competition for talents, we cannot assure you that we will be able
to attract or retain qualified staff or other highly skilled
employees. In addition, as the Company is relatively young, our
ability to train and integrate new employees into our operations
may not meet the growing demands of our business which may
materially and adversely affect our ability to grow our business
and hence our results of operations.
If any of our executive officers and key employees terminates their
services with us, our business may be severely disrupted, our
financial condition and results of operations may be materially and
adversely affected and we may incur additional expenses to recruit,
train and retain qualified personnel. If any of our executive
officers or key employees joins a competitor or forms a competing
company, we may lose gamers, know-how and key
professionals and staff members. Certain of our executive officers
and key employees have entered into a non-solicitation and
non-competition agreements with us. However, certain provisions
under the non-solicitation and non-competition agreement may
be deemed legally invalid or unenforceable. If any dispute arises
between our executive officers and us, we cannot assure you that we
would be able to enforce
these non-compete agreements.
Our business is subject to regulation, and changes in applicable
regulations may negatively impact our business.
We are
subject to a number of foreign and domestic laws and regulations
that affect companies conducting business on the Internet. In
addition, laws and regulations relating to user privacy, data
collection, retention, electronic commerce, virtual items and
currency, consumer protection, content, advertising, localization,
and information security have been adopted or are being considered
for adoption by many jurisdictions and countries throughout the
world. These laws could harm our business by limiting the products
and services we can offer consumers or the manner in which we offer
them. The costs of compliance with these laws may increase in the
future as a result of changes in interpretation. Furthermore, any
failure on our part to comply with these laws or the application of
these laws in an unanticipated manner may harm our business and
result in penalties or significant legal liability.
In
addition, we include modes in our gaming platform that allow
players to compete against each other. Although we structure and
operate these skill-based competitions with applicable laws in
mind, our skill-based competitions in the future could become
subject to evolving rules and regulations and expose us to
significant liability, penalties and reputational
harm.
Our online activities are subject to various laws and regulations
relating to privacy and child protection, which, if violated, could
subject us to an increased risk of litigation and regulatory
actions.
In addition to our gaming platform, we use third-party
applications, websites, and social media platforms to promote our
amateur tournaments and competitions and engage gamers, as well as
monitor and collect certain information about gamers in our online
forums. A variety of laws and regulations have been adopted in
recent years aimed at protecting children using the internet such
as the Children’s Online Privacy and Protection Act of 1998
(“COPPA”). COPPA sets forth, among other things, a
number of restrictions on what website operators can present to
children under the age of 13 and what information can be collected
from them. COPPA is of particular concern to us, and in an effort
to minimize our risk of potential exposure, we retained a COPPA
expert as a consultant and have posted a compliant privacy policy,
terms of use and various other policies on our website. We
undertake significant effort to implement certain precautions to
ensure that access to our gaming platform for competitive gameplay
is COPPA compliant. Despite our efforts, no assurances can be given
that such measures will be sufficient to completely avoid exposure
and COPPA violations, any of which could expose us to significant
liability, penalties, reputational harm and loss of revenue, among
other things.
The laws and regulations concerning data privacy are continually
evolving. Failure to comply with these laws and regulations could
harm our business.
Consumers are able to play our licensed game titles online, using
our platform. We collect and store information about our consumers
both personally identifying and non-personally identifying
information. We are subject to laws from a variety of jurisdictions
regarding privacy and the protection of this information in
addition to COPPA. For example, the E.U. has traditionally taken a
broader view than the United States and certain other jurisdictions
as to what is considered personal information and has imposed
greater obligations under data privacy regulations.
Data privacy protection laws are rapidly changing and likely will
continue to do so for the foreseeable future, which could impact
our approach to operating our platform. For example, the European
Union’s General Data Protection Regulation (the
“GDPR”), which became effective in May 2018,
imposes a range of new compliance obligations for us and other
companies with European users, and increases financial penalties
for noncompliance significantly. Regulators have not yet issued
clear guidance for many of these new compliance obligations under
the GDPR. The U.S. government, including the Federal Trade
Commission and the Department of Commerce, is continuing to review
the need for greater regulation over the collection of personal
information and information about consumer behavior on the Internet
and on mobile devices, and the E.U. has proposed reforms to its
existing data protection legal framework, including the GDPR.
Various government and consumer agencies worldwide have also called
for new regulation and changes in industry practices. In addition,
in some cases, we are dependent upon our platform providers to
solicit, collect and provide us with information regarding our
consumers that is necessary for compliance with these various types
of regulations.
Player interaction on our platform is subject to our privacy
policies, end user license agreements (“EULAs”), and terms of service. If we fail to
comply with our posted privacy policies, EULAs, or terms of
service, or if we fail to comply with existing privacy-related or
data protection laws and regulations, it could result in
proceedings or litigation against us by governmental authorities or
others, which could result in fines or judgments against us, damage
our reputation, impact our financial condition and harm our
business. If regulators, the media, or consumers raise any concerns
about our privacy and data protection or consumer protection
practices, even if unfounded, this could also result in fines or
judgments against us, damage our reputation, negatively impact our
financial condition, and damage our business.
The preparation of our financial statements involves the use of
good faith estimates, judgments and assumptions, and our financial
statements may be materially affected if such good faith estimates,
judgments or good faith assumptions prove to be
inaccurate.
Financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”)
typically require the use of good faith estimates, judgments and
assumptions that affect the reported amounts. Often, different
estimates, judgments and assumptions could reasonably be used that
would have a material effect on such financial statements, and
changes in these estimates, judgments and assumptions may occur
from period to period over time. Significant areas of accounting
requiring the application of management’s judgment include,
but are not limited to, determining the fair value of assets,
share-based compensation and the timing and amount of cash flows
from assets. These estimates, judgments and assumptions are
inherently uncertain and, if our estimates were to prove to be
wrong, we would face the risk that charges to income or other
financial statement changes or adjustments would be required. Any
such charges or changes would require a restatement of our
financial statements and could harm our business, including our
financial condition and results of operations and the price of our
securities. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for a
discussion of the accounting estimates, judgments and assumptions
that we believe are the most critical to an understanding of our
financial statements and our business.
We may be held liable for information or content displayed on,
retrieved from or linked to our gaming platform, or distributed to
our users.
Our interactive live streaming platform enables gamers to exchange
information and engage in various other online activities. Although
we require our gamers to register their real name, we do not
require user identifications used and displayed during gameplay to
contain any real-name information, and hence we are unable to
verify the sources of all the information posted by our gamers. In
addition, because a majority of the communications on our online
and in person
gaming platform is conducted in real time, we are unable to examine
the content generated by gamers before they are posted or streamed.
Therefore, it is possible that gamers may engage in illegal,
obscene or incendiary conversations or activities, including
publishing of inappropriate or illegal content that may be deemed
unlawful. If any content on our platform is deemed illegal, obscene
or incendiary, or if appropriate licenses and third-party consents
have not been obtained, claims may be brought against us for
defamation, libel, negligence, copyright, patent or trademark
infringement, other unlawful activities or other theories and
claims based on the nature and content of the information delivered
on or otherwise accessed through our platform. Moreover, the costs
of compliance may continue to increase when more content is made
available on our platform as a result of our growing base of
gamers, which may adversely affect our results of
operations.
Intensified government regulation of the Internet industry could
restrict our ability to maintain or increase the level of traffic
to our gaming platform as well as our ability to capture other
market opportunities.
The Internet industry is increasingly subject to strict scrutiny.
New laws and regulations may be adopted from time to time to
address new issues that come to the authorities’ attention.
We may not timely obtain or maintain all the required licenses or
approvals or make all the necessary filings in the future. We also
cannot assure you that we will be able to obtain the required
licenses or approvals if we plan to expand into other Internet
businesses. If we fail to obtain or maintain any of the required
licenses or approvals or make the necessary filings, we may be
subject to various penalties, which may disrupt our business
operations or derail our business strategy, and materially and
adversely affect our business, financial condition and results of
operations.
From time to time we may become involved in legal
proceedings.
From
time to time we may become subject to legal proceedings, claims,
litigation and government investigations or inquiries, which could
be expensive, lengthy, disruptive to normal business operations and
occupy a significant amount of our employees’ time and
attention. In addition, the outcome of any legal proceedings,
claims, litigation, investigations or inquiries may be difficult to
predict and could have a material adverse effect on our business,
operating results, or financial condition.
Risks Related to Intellectual Property
We may be subject to claims of infringement of third-party
intellectual property rights.
From
time to time, third parties may claim that we have infringed their
intellectual property rights. For example, patent holding companies
may assert patent claims against us in which they seek to monetize
patents they have purchased or otherwise obtained. Although we take
steps to avoid knowingly violating the intellectual property rights
of others, it is possible that third parties still may claim
infringement.
Existing
or future infringement claims against us, whether valid or not, may
be expensive to defend and divert the attention of our employees
from business operations. Such claims or litigation could require
us to pay damages, royalties, legal fees and other costs. We also
could be required to stop offering, distributing or supporting
esports games, our gaming platform or other features or services
which incorporate the affected intellectual property rights,
redesign products, features or services to avoid infringement, or
obtain a license, all of which could be costly and harm our
business.
In
addition, many patents have been issued that may apply to potential
new modes of delivering, playing or monetizing interactive
entertainment software products and services, such as those offered
on our gaming platform or that we would like to offer in the
future. We may discover that future opportunities to provide new
and innovative modes of game play and game delivery to gamers may
be precluded by existing patents that we are unable to license on
reasonable terms.
Our technology, content and brands are subject to the threat of
piracy, unauthorized copying and other forms of intellectual
property infringement.
We
regard our technology, content and brands as proprietary and take
measures to protect our technology, content and brands and other
confidential information from infringement. Piracy and other forms
of unauthorized copying and use of our technology, content and
brands are persistent, and policing is difficult. Further, the laws
of some countries in which our products are or may be distributed
either do not protect our intellectual property rights to the same
extent as the laws of the United States, or are poorly enforced.
Legal protection of our rights may be ineffective in such
countries. In addition, although we take steps to enforce and
police our rights, factors such as the proliferation of technology
designed to circumvent the protection measures used by our business
partners or by us, the availability of broadband access to the
Internet, the refusal of Internet service providers or platform
holders to remove infringing content in certain instances, and the
proliferation of online channels through which infringing product
is distributed all have contributed to an expansion in unauthorized
copying of our technology, content and brands.
Third parties may register trademarks or domain names or purchase
internet search engine keywords that are similar to our registered
trademark or pending trademarks, brands or websites, or
misappropriate our data and copy our gaming platform, all of which
could cause confusion, divert gamers away from our gaming platform
and league tournaments, or harm our reputation.
Competitors and other third parties may purchase
(i) trademarks that are similar to our trademarks and
(ii) keywords that are confusingly similar to our brands or
websites in internet search engine advertising programs and in the
header and text of the resulting sponsored links or advertisements
in order to divert gamers from us to their websites. Preventing
such unauthorized use is inherently difficult. If we are unable to
prevent such unauthorized use, competitors and other third parties
may continue to drive potential gamers away from our gaming
platform to competing, irrelevant or potentially offensive
platforms, which could harm our reputation and cause us to lose
revenue.
We may not be able to prevent others from unauthorized use of our
intellectual property, which could harm our business and
competitive position.
We regard our registered trademark and pending trademarks, service
marks, pending patents, domain names, trade secrets, proprietary
technologies and similar intellectual property as critical to our
success. We rely on trademark and patent law, trade secret
protection and confidentiality and license agreements with our
employees and others to protect our proprietary
rights.
We have invested significant resources to develop our own
intellectual property and acquire licenses to use and distribute
the intellectual property of others on our gaming platform. Failure
to maintain or protect these rights could harm our business. In
addition, any unauthorized use of our intellectual property by
third parties may adversely affect our current and future revenues
and our reputation.
Policing unauthorized use of proprietary technology is difficult
and expensive. We rely on a combination of patent, copyright,
trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. Further, we require every
employee and consultant to execute proprietary information and
invention agreements prior to commencing work. Despite our efforts
to protect our proprietary rights, third parties may attempt to
copy or otherwise obtain and use our intellectual property or seek
court declarations that they do not infringe upon our intellectual
property rights. Monitoring unauthorized use of our intellectual
property is difficult and costly, and we cannot assure you that the
steps we have taken will prevent misappropriation of our
intellectual property. From time to time, we may have to resort to
litigation to enforce our intellectual property rights, which could
result in substantial costs and diversion of our
resources.
Our patent and trademark applications may not be granted and our
patent and trademark rights, once patents are issued and trademarks
are registered, may be contested, circumvented, invalidated or
limited in scope, and our patent and trademark rights may not
protect us effectively once issued and registered, respectively. In
particular, we may not be able to prevent others from developing or
exploiting competing technologies and trademarks, which could have
a material and adverse effect on our business operations, financial
condition and results of operations.
Currently, we have three patent applications pending, one
registered trademark and eighteen pending trademark applications,
along with licenses from game publishers to utilize their
proprietary games. For our pending patent applications and we
cannot assure you that we will be granted patents pursuant to our
pending applications as well as future patent applications we
intend to file. Even if our patent applications succeed, it is
still uncertain whether these patents will be contested,
circumvented or invalidated in the future. In addition, the rights
granted under any issued patents may not provide us with sufficient
protection or competitive advantages. The claims under any patents
that issue from our patent applications may not be broad enough to
prevent others from developing technologies that are similar or
that achieve results similar to ours. It is also possible that the
intellectual property rights of others will bar us from licensing
and from exploiting any patents that issue from our pending
applications. Numerous U.S. and foreign issued patents and pending
patent applications owned by others exist in the fields in which we
have developed and are developing our technology. These patents and
patent applications might have priority over our patent
applications and could subject our patent applications to
invalidation. Finally, in addition to those who may claim priority,
any of our pending patent and trademark applications may also be
challenged by others on the basis that they are otherwise invalid
or unenforceable.
We may be held liable for information or content displayed on,
retrieved from or linked to our gaming platform, or distributed to
our users.
Our interactive live streaming platform enables gamers to exchange
information and engage in various other online activities. Although
we require our gamers to register their real name, we do not
require user identifications used and displayed during gameplay to
contain any real-name information, and hence we are unable to
verify the sources of all the information posted by our gamers. In
addition, because a majority of the communications on our online
and in person
gaming platform is conducted in real time, we are unable to examine
the content generated by gamers before they are posted or streamed.
Therefore, it is possible that gamers may engage in illegal,
obscene or incendiary conversations or activities, including
publishing of inappropriate or illegal content that may be deemed
unlawful. If any content on our platform is deemed illegal, obscene
or incendiary, or if appropriate licenses and third-party consents
have not been obtained, claims may be brought against us for
defamation, libel, negligence, copyright, patent or trademark
infringement, other unlawful activities or other theories and
claims based on the nature and content of the information delivered
on or otherwise accessed through our platform. Moreover, the costs
of compliance may continue to increase when more content is made
available on our platform as a result of our growing base of
gamers, which may adversely affect our results of
operations.
Intensified government regulation of the Internet industry could
restrict our ability to maintain or increase the level of traffic
to our gaming platform as well as our ability to capture other
market opportunities.
The Internet industry is increasingly subject to strict scrutiny.
New laws and regulations may be adopted from time to time to
address new issues that come to the authorities’ attention.
We may not timely obtain or maintain all the required licenses or
approvals or make all the necessary filings in the future. We also
cannot assure you that we will be able to obtain the required
licenses or approvals if we plan to expand into other Internet
businesses. If we fail to obtain or maintain any of the required
licenses or approvals or make the necessary filings, we may be
subject to various penalties, which may disrupt our business
operations or derail our business strategy, and materially and
adversely affect our business, financial condition and results of
operations.
From time to time we may become involved in legal
proceedings.
From
time to time we may become subject to legal proceedings, claims,
litigation and government investigations or inquiries, which could
be expensive, lengthy, disruptive to normal business operations and
occupy a significant amount of our employees’ time and
attention. In addition, the outcome of any legal proceedings,
claims, litigation, investigations or inquiries may be difficult to
predict and could have a material adverse effect on our business,
operating results, or financial condition.
Risks Related to our Common Stock and this Offering
There is currently no trading market for our common stock and we
cannot ensure that one will ever develop or be
sustained.
There
is no current market for any of our shares of common stock and a
market may not develop. We have applied to list our common stock on
the Nasdaq Capital Market and intend to list our common stock on
the Nasdaq Capital Market if we raise sufficient capital in this
offering, but there is no guarantee that we will be able to do so.
If we are not successful in listing our shares of common stock on
the Nasdaq Capital Market, our common stock may be traded on an
over-the-counter market to the extent any demand exists. Even if
listed on the Nasdaq Capital Market, a liquid trading market may
not develop. Investors should assume that they may not be able to
liquidate their investment for some time or be able to pledge their
shares as collateral.
If we successfully list on
Nasdaq Capital Market, our shares are likely to
be thinly traded for some time and an active market may never
develop.
If we
successfully list on the Nasdaq Capital Market, it is likely that
initially there will be a very limited trading market for our
common stock and we cannot ensure that a robust trading market will
ever develop or be sustained. Our shares of common stock may be
thinly traded, and the price, if traded, may not reflect our actual
or perceived value. There can be no assurance that there will be an
active market for our shares of common stock in the future. The
market liquidity will be dependent on the perception of our
operating business, competitive forces, state of the esports gaming
industry, growth rate and becoming cash flow profitable on a
sustainable basis, among other things. We may, in the future, take
certain steps, including utilizing investor awareness campaigns,
press releases, road shows, and conferences to increase awareness
of our business and any steps that we might take to bring us to the
awareness of investors may require we compensate financial public
relations firms with cash and/or stock. There can be no assurance
that there will be any awareness generated or the results of any
efforts will result in any impact on our trading volume.
Consequently, investors may not be able to liquidate their
investment or liquidate it at a price that reflects the value of
the business and trading may be at an inflated price relative to
the performance of our company due to, among other things,
availability of sellers of our shares. If a market should develop,
the price may be highly volatile. Because there may be a low price
for our shares of common stock, many brokerage firms or clearing
firms may not be willing to effect transactions in the securities
or accept our shares for deposit in an account. Even if an investor
finds a broker willing to effect a transaction in the shares of our
common stock, the combination of brokerage commissions, transfer
fees, taxes, if any, and any other selling costs may exceed the
selling price. Further, many lending institutions will not permit
the use of low priced shares of common stock as collateral for any
loans.
Our stock price may be volatile, and you could lose all or part of
your investment.
The
trading price of our common stock following this offering may
fluctuate substantially and may be higher or lower than the initial
public offering price. This may be especially true for companies
with a small public float. The trading price of our common stock
following this offering will depend on several factors, including
those described in this “Risk Factors” section, many of
which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to lose
all or part of your investment in our common stock since you might
be unable to sell your shares at or above the price you paid in
this offering. Factors that could cause fluctuations in the trading
price of our common stock include:
●
changes to our
industry, including demand and regulations;
●
we may not be able
to compete successfully against current and future
competitors;
●
competitive pricing
pressures;
●
our ability to
obtain working capital financing as required;
●
additions or
departures of key personnel;
●
sales of our common
stock;
●
our ability to
execute our business plan;
●
operating results
that fall below expectations;
●
loss of any
strategic relationship, sponsor or licensor;
●
any major change in
our management;
●
changes in
accounting standards, procedures, guidelines, interpretations or
principals; and
●
economic,
geo-political and other external factors.
In
addition, the stock market in general, and the market for
technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies.
Broad market and industry factors, as well as general economic,
political and market conditions such as recessions or interest rate
changes, may seriously affect the market price of our common stock,
regardless of our actual operating performance. These fluctuations
may be even more pronounced in the trading market for our stock
shortly following this offering. If the market price of our common
stock after this offering does not exceed the initial public
offering price, you may not realize any return on your investment
in us and may lose some or all of your investment.
In
addition, in the past, following periods of volatility in the
overall market and the market prices of particular companies’
securities, securities class action litigations have often been
instituted against these companies. Litigation of this type, if
instituted against us, could result in substantial costs and a
diversion of our management’s attention and resources. Any
adverse determination in any such litigation or any amounts paid to
settle any such actual or threatened litigation could require that
we make significant payments.
If securities industry analysts do not publish research reports on
us, or publish unfavorable reports on us, then the market price and
market trading volume of our common stock could be negatively
affected.
Any
trading market for our common stock will be influenced in part by
any research reports that securities industry analysts publish
about us. We may not obtain any future research coverage by
securities industry analysts. In the event we are covered by
research analysts, and one or more of such analysts downgrade our
securities, or otherwise reports on us unfavorably, or discontinues
coverage of us, the market price and market trading volume of our
common stock could be negatively affected.
You will experience dilution as a result of future equity
offerings.
We may
in the future offer additional shares of our common stock or other
securities convertible into or exchangeable for our common stock.
Although no assurances can be given that we will consummate a
future financing, in the event we do, or in the event we sell
shares of common stock or other securities convertible into shares
of our common stock in the future, additional and potentially
substantial dilution will occur. In addition, investors purchasing
shares or other securities in the future could have rights superior
to investors in this offering.
We have not paid cash dividends in the past and do not expect to
pay dividends in the future. Any return on investment will likely
be limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other
business and economic factors affecting us at such time as our
board of directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return
on your investment will only occur if our stock price
appreciates.
Since we do not anticipate paying any cash dividends on our capital
stock in the foreseeable future, stock price appreciation, if any,
will be your sole source of gain.
We currently intend to retain all of our future earnings, if any,
to finance the growth and development of our business. In addition,
the terms of any future debt agreements may preclude us from paying
dividends. As a result, appreciation, if any, in the market price
of our common stock will be your sole source of gain for the
foreseeable future.
Future issuances of debt securities, which would rank senior to our
common stock upon our bankruptcy or liquidation, and future
issuances of preferred stock, which would rank senior to our common
stock for the purposes of dividends and liquidating distributions,
may adversely affect the level of return you may be able to achieve
from an investment in our common stock.
In the
future, we may attempt to increase our capital resources by
offering debt securities. In the event of a bankruptcy or
liquidation, holders of our debt securities, and lenders with
respect to other borrowings we may make, would receive
distributions of our available assets prior to any distributions
being made to holders of our common stock. Moreover, if we issue
preferred stock in the future, the holders of such preferred stock
could be entitled to preferences over holders of common stock in
respect of the payment of dividends and the payment of liquidating
distributions. Because our decision to issue debt or preferred
securities in any future offering, or borrow money from lenders,
will depend in part on market conditions and other factors beyond
our control, we cannot predict or estimate the amount, timing or
nature of any such future offerings or borrowings. Holders of our
common stock must bear the risk that any such future offerings we
conduct or borrowings we make may adversely affect the level of
return they may be able to achieve from an investment in our common
stock.
We may need to implement additional
finance and accounting systems, procedures and controls as we grow
our business and organization and to satisfy new reporting
requirements.
Upon
becoming subject to reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), we will be
required to comply with a variety of extensive reporting,
accounting, and other rules and regulations. Compliance with each
of these requirements is expensive, time consuming and intricate.
Further requirements may increase our costs and require additional
management time and resources. We may need to implement additional
finance and accounting systems, procedures and controls to satisfy
our reporting requirements. If our internal controls over financial
reporting are determined to be ineffective, such failure could
cause investors to lose confidence in our reported financial
information, negatively affect the market price of our common
stock, subject us to regulatory investigations and penalties, cause
us to have to restate our financial statements, and adversely
impact our business and financial condition.
We are an emerging growth company and may take advantage of certain
reduced reporting requirements.
We are an “emerging growth company,” as defined in the
JOBS Act, and we may take advantage of certain exemptions from
various requirements applicable to other public companies that are
not emerging growth companies including, most significantly, not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002
(“SOX”) for so
long as we are an emerging growth company. As a result, if we elect
not to comply with such auditor attestation requirements, our
investors may not have access to certain information they may deem
important.
The JOBS Act also provides that an emerging growth company does not
need to comply with any new or revised financial accounting
standards until such date that a private company is otherwise
required to comply with such new or revised accounting standards.
However, we have elected to “opt out” of this provision
and, as a result, we will comply with new or revised accounting
standards as required when they are adopted for public companies.
This decision to opt out of the extended transition period under
the JOBS Act is irrevocable.
We will incur increased costs as a result of being a public
company, particularly after we cease to qualify as an
“emerging growth company.”
Upon completion of this offering, we will become a public company
and expect to incur significant legal, accounting and other
expenses that we did not incur as a private company. SOX, as well
as rules subsequently implemented by the SEC and Nasdaq, impose
various requirements on the corporate governance practices of
public companies. We expect these rules and regulations to increase
our legal and financial compliance costs and to make some corporate
activities more time-consuming and costly. We expect to incur
significant expenses and devote substantial management effort
toward ensuring compliance with the requirements of
Section 404 of SOX and the other rules and regulations of the
SEC. For example, as a result of becoming a public company, we will
need to increase the number of independent directors and adopt
policies regarding internal controls and disclosure controls and
procedures. We also expect that operating as a public company will
make it more difficult and more expensive for us to obtain director
and officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. In addition, we will
incur additional costs associated with our public company reporting
requirements. It may also be more difficult for us to find
qualified persons to serve on our board of directors or as
executive officers. We are currently evaluating and monitoring
developments with respect to these rules and regulations, and we
cannot predict or estimate with any degree of certainty the amount
of additional costs we may incur or the timing of such
costs.
In the past, stockholders of a public company often brought
securities class action suits against the company following periods
of instability in the market price of that company’s
securities. If we were involved in a class action suit, it could
divert a significant amount of our management’s attention and
other resources from our business and operations, which could harm
our results of operations and require us to incur significant
expenses to defend the suit. Any such class action suit, whether or
not successful, could harm our reputation and restrict our ability
to raise capital in the future. In addition, if a claim is
successfully made against us, we may be required to pay significant
damages, which could have a material adverse effect on our
financial condition and results of operations.
Because of our status as an emerging growth company, you will not
be able to depend on any attestation from our independent
registered public accounting firm as to our internal control over
financial reporting for the foreseeable future.
Our
independent registered public accounting firm will not be required
to attest to the effectiveness of our internal control over
financial reporting pursuant to Section 404 of SOX until the later
of the year following our first annual report required to be filed
with the SEC or the date we are no longer an “emerging growth
company” as defined in the JOBS Act. Accordingly, you will
not be able to depend on any attestation concerning our internal
control over financial reporting from our independent registered
public accounting firm for the foreseeable future.
Subsequent
to the time frame above, our independent registered public
accounting firm will not be required to attest to the effectiveness
of our internal control over financial reporting pursuant to SOX
until such time that the Company becomes an “accelerated
filer,” as defined by the SEC.
If our shares become subject to the penny stock rules, it would
become more difficult to trade our shares.
The SEC
has adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stocks are
generally equity securities with a price of less than $5.00, other
than securities registered on certain national securities exchanges
or authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or
system. If we do not obtain or retain a listing on the Nasdaq
Capital Market or if the price of our common stock falls below
$5.00, our common stock will be deemed a penny stock. The penny
stock rules require a broker-dealer, before a transaction in a
penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document containing specified
information. In addition, the penny stock rules require that before
effecting any transaction in a penny stock not otherwise exempt
from those rules, a broker-dealer must make a special written
determination that the penny stock is a suitable investment for the
purchaser and receive (i) the purchaser’s written
acknowledgment of the receipt of a risk disclosure statement; (ii)
a written agreement to transactions involving penny stocks; and
(iii) a signed and dated copy of a written suitability statement.
These disclosure requirements would likely have the effect of
reducing the trading activity in the secondary market for our
common stock, and therefore stockholders may have difficulty
selling their shares.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority, Inc.
(“FINRA”), has
adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative, low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
The FINRA requirements may make it more difficult for
broker-dealers to recommend that their customers buy our common
stock, which may have the effect of reducing the level of trading
activity in our common stock. As a result, fewer broker-dealers may
be willing to make a market in our common stock, reducing a
stockholder’s ability to resell shares, as well as overall
liquidity, of our common stock.
We will incur increased costs as a result of operating as a listed
public company and our management will be required to devote
substantial time to new compliance initiatives and corporate
governance practices.
If at
some point in the future we are no longer an “emerging growth
company,” we will incur significant legal, accounting and
other expenses that we have not incurred in the past. SOX, the JOBS
Act, the listing requirements of the Nasdaq Capital Market and
other applicable securities rules and regulations impose various
requirements on public companies beyond what management has
experienced in operating a privately held company. Our management
and other personnel will need to devote a substantial amount of
time to comply with these requirements. Moreover, these rules and
regulations will increase our legal and financial compliance costs
and will make some activities more time-consuming and costly. For
example, we expect that these rules and regulations may make it
more difficult and more expensive for us to obtain directors’
and officers’ liability insurance, which could make it more
difficult for us to attract and retain qualified members of our
board of directors. We cannot predict or estimate the amount of
additional costs we will incur as a listed public company, or the
timing of such costs, but such costs will be
significant.
We are evaluating these rules and regulations, and cannot predict
or estimate the amount of additional costs we may incur or the
timing of such costs. These rules and regulations are often subject
to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and
governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance
practices.
We may be considered a smaller reporting company and will be exempt
from certain disclosure requirements, which could make our common
stock less attractive to potential investors.
Rule
12b-2 of the Exchange Act, defines a “smaller reporting
company” as an issuer that is not an investment company, an
asset-backed issuer, or a majority-owned subsidiary of a parent
that is not a smaller reporting company and that:
●
had a public float
of less than $75.0 million as of the last business day of its most
recently completed second fiscal quarter, computed by multiplying
the aggregate worldwide number of shares of its voting and
non-voting common equity held by non-affiliates by the price at
which the common equity was last sold, or the average of the bid
and asked prices of common equity, in the principal market for the
common equity; or
●
in the case of an
initial registration statement under the Securities Act of 1933, as
amended (“Securities
Act”), or the Exchange Act for shares of its common
equity, had a public float of less than $75.0 million as of a date
within 30 days of the date of the filing of the registration
statement, computed by multiplying the aggregate worldwide number
of such shares held by non-affiliates before the registration plus,
in the case of a Securities Act registration statement, the number
of such shares included in the registration statement by the
estimated public offering price of the shares; or
●
in the case of an
issuer whose public float was zero, had annual revenues of less
than $50.0 million during the most recently completed fiscal year
for which audited financial statements are available.
As a
smaller reporting company, we would not be required and may not
include a Compensation Discussion and Analysis section in our proxy
statements; we would provide only two years of financial
statements; and we would not need to provide the table of selected
financial data. We also would have other “scaled”
disclosure requirements that are less comprehensive than issuers
that are not smaller reporting companies which could make our
common stock less attractive to potential investors, and also could
make it more difficult for our stockholders to sell their
shares.
Changes in tax laws or regulations that are applied adversely to us
or our customers may have a material adverse effect on our
business, cash flow, financial condition or results of
operations.
New income, sales, use or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time, which could
affect the tax treatment of our earnings and adversely affect our
operations, and our business and financial performance. Further,
existing tax laws, statutes, rules, regulations or ordinances could
be interpreted, changed,
modified or applied adversely to us. For example, on
December 22, 2017, President Trump signed tax legislation into
law, commonly referred to as the Tax Cuts and Jobs Act of 2017,
that contains many significant changes to the U.S. tax laws.
The new legislation reduced the corporate income tax rate from 34%
to 21% effective January 1, 2018, causing all of our deferred
income tax assets and liabilities, including NOLs, to be measured
using the new rate and which value is reflected in the valuation of
these assets as of December 31, 2017. As a result, the value of our
deferred tax assets decreased by approximately $4.3 million and the
related valuation allowance has been reduced by the same amount.
Our analysis and interpretation of this legislation is ongoing.
Given the full valuation allowance provided for net deferred tax
assets for the periods presented herein, the change in tax law did
not have a material impact on our financial statements provided
herein. There may, however, be additional tax impacts identified in
subsequent periods throughout 2018 in accordance with subsequent
interpretive guidance issued by the SEC or the Internal Revenue
Service. Further, there may be other material adverse effects
resulting from the legislation that we have not yet identified. No
estimated tax provision has been recorded in the financial
statements included herein for tax attributes that are incomplete
or subject to change.
The foregoing items could have a
material adverse effect on our business, cash flow, financial
condition or results of operations. In addition, it is
unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a
starting point for computing state and local tax liabilities.
The impact of this tax legislation on
holders of our common stock is also uncertain and could be adverse.
We urge our stockholders and investors to consult with our legal
and tax advisors with respect to this legislation and the potential
tax consequences of investing in or holding our common
stock.
Our management has broad discretion as to the use of certain of the
net proceeds from this offering and may not use them
effectively.
We
currently intend to use the net proceeds of the offering for
working capital and general corporate purposes, including sales and
marketing activities, game licensing, product development, and
capital expenditures. Our management will have considerable
discretion in the application of the net proceeds from this
offering, and investors will be relying on the judgment of our
management regarding the application of those proceeds. Our
management may spend the proceeds in ways that do not improve our
operating results or enhance the value of our common stock, and you
will not have the opportunity to influence management’s
decisions on how to use the proceeds from this offering. The
failure by our management to apply these funds effectively could
harm our business. Pending their use, we may also invest the net
proceeds of this offering in a manner that does not produce income
or that loses value. See “Use of Proceeds” below for more
information.
If we fail to maintain an effective system of internal controls
over financial reporting, we may be unable to accurately report our
results of operations, meet our reporting obligations or prevent
fraud, and investor confidence and the market price of our common
stock may be materially and adversely affected.
Prior to this offering, we were a private company with limited
accounting personnel and other resources with which to address our
internal controls and procedures. Although management has reviewed
our current internal controls over financial reporting and
concluded that our internal controls are effective, our independent
registered public accounting firm has not conducted an audit of our
internal control over financial reporting. In addition, after we
become a public company, our reporting obligations may place a
significant strain on our management, operational and financial
resources and systems for the foreseeable future and we may be
unable to timely complete our evaluation testing and any required
remediation.
During the course of documenting and testing our internal control
procedures, we may identify weaknesses and deficiencies in our
internal control over financial reporting. In addition, if we fail
to maintain the adequacy of our internal control over financial
reporting, as these standards are modified supplemented or amended
from time to time, we may not be able to conclude on an ongoing
basis that we have effective internal control over financial
reporting. Generally, if we fail to achieve and maintain an
effective internal control environment, we could suffer material
misstatements in our financial statements and fail to meet our
reporting obligations, which would likely cause investors to lose
confidence in our reported financial information. This could in
turn limit our access to capital markets, harm our results of
operations, and lead to a decline in the trading price of our
common stock. Additionally, ineffective internal control over
financial reporting could expose us to increased risk of fraud or
misuse of corporate assets and subject us to potential delisting
from the stock exchange on which we list, regulatory investigations
and civil or criminal sanctions.
We may need additional capital, and we may be unable to obtain such
capital in a timely manner or on acceptable terms, or at all.
Furthermore, our future capital needs may require us to sell
additional equity or debt securities that may dilute our
stockholders or introduce covenants that may restrict our
operations or our ability to pay dividends.
To grow our business and remain competitive, we may require
additional capital from time to time for our daily operation. Our
ability to obtain additional capital is subject to a variety of
uncertainties, including:
●
our
market position and competitiveness in the esports and online
amateur gaming market;
●
our
future profitability, overall financial condition, results of
operations and cash flows; and
●
economic,
political and other conditions in the U.S. and
internationally.
We may be unable to obtain additional capital in a timely manner or
on acceptable terms or at all. In addition, our future capital
needs and other business reasons could require us to sell
additional equity or debt securities or obtain a credit facility.
The sale of additional equity or equity-linked securities could
dilute our stockholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in
operating and financing covenants that would restrict our
operations or our ability to pay dividends to our
stockholders.
Our existing stockholders have substantial influence over our
company and their interests may not be aligned with the interests
of our other stockholders, which may discourage, delay or prevent a
change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their
securities.
As of the date of this prospectus, certain stockholders control
approximately 34.1% of the voting power in us, including
management. As a result, these stockholders have substantial
influence over our business, including decisions regarding mergers,
consolidations and the sale of all or substantially all of our
assets, election of directors and other significant corporate
actions. This concentration of ownership may discourage, delay or
prevent a change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their
shares as part of any contemplated sale of our company and may
reduce the price of our common stock.
Because our offering price is substantially higher than our net
tangible book value per share, you will experience immediate and
substantial dilution.
If you purchase common stock in this offering, you will pay more
for your common stock than the amount paid by our existing
stockholders for their common stock on a per share basis. As a
result, you will experience immediate and substantial dilution of
$
per share, representing the difference between the assumed initial
public offering price of
$
per share, which is the midpoint of the price range set forth on
the cover page of this prospectus, and our net tangible book value
per share as of June 30, 2018, after giving effect to the net
proceeds to us from this offering. In addition, you may experience
further dilution to the extent that our shares are issued upon the
exercise of any share options. See “Dilution” for a more complete description of how the
value of your investment in our common stock will be diluted upon
completion of this offering.
Because we do not expect to pay dividends in the foreseeable future
after this offering, you must rely on price appreciation of our
common stock for return on your investment.
We currently intend to retain most, if not all, of our available
funds and any future earnings after this offering to fund the
development and growth of our business. As a result, we do not
expect to pay any cash dividends in the foreseeable future.
Therefore, you should not rely on an investment in our common stock
as a source for any future dividend income.
Our board of directors has complete discretion as to whether to
distribute dividends, subject to certain requirements of Delaware
General Corporation Law. Even if our board of directors decides to
declare and pay dividends, the timing, amount and form of future
dividends, if any, will depend on, among other things, our future
results of operations and cash flow, our capital requirements and
surplus, the amount of distributions, if any, received by us from
our subsidiaries, our financial condition, contractual restrictions
and other factors deemed relevant by our board of directors.
Accordingly, the return on your investment in our common stock will
likely depend entirely upon any future price appreciation of our
common stock. There is no guarantee that our common stock will
appreciate in value after this offering or even maintain the price
at which you purchased the common stock. You may not realize a
return on your investment in our common stock and you may even lose
your entire investment in our common stock.
Substantial future sales or perceived potential sales of our common
stock in the public market could cause the price of our common
stock to decline.
Sales of our common stock in the public market after this offering,
or the perception that these sales could occur, could cause the
market price of our common stock to decline. Immediately after the
completion of this offering, we will have shares of common stock
outstanding, assuming the underwriters do not exercise their option
to purchase additional shares of common stock from us. All common
stock sold in this offering will be freely transferable without
restriction or additional registration under the Securities Act.
The remaining shares outstanding after this offering will be
available for sale, upon the expiration of
the
-day lock-up period beginning from the date of this
prospectus, subject to volume and other restrictions as applicable
under Rules 144 and 701 under the Securities Act. Any or all of
these shares may be released prior to the expiration of
the lock-up period at the discretion of Northland
Securities, Inc. and Lake Street Capital Markets LLC. To the extent
shares are released before the expiration of
the lock-up period and sold into the market, the market
price of our common stock could decline.
We have granted, and may continue to grant, share incentive awards,
which may result in increased share-based compensation
expenses.
We adopted our Amended and Restated 2014 Stock Option and Incentive
Plan (the “2014 Plan”) in October 2014, for purposes of granting
share-based compensation awards to employees, directors and
consultants to incentivize their performance and align their
interests with ours. We account for compensation costs for all
share options issued under the 2014 Plan using a fair-value based
method and recognize expenses in our statements of comprehensive
loss in accordance with GAAP. Under the 2014 Plan, we are
authorized to grant options to purchase shares of common stock of
our Company and restricted share units to receive shares of common
stock. Following the approval of an amendment to the 2014 Plan to
increase the number shares which may be issued pursuant to all
awards under the 2014 Plan by our Board of Directors and holders of
a majority of our outstanding voting securities, the number of
shares of common stock available for issuance under the 2014 Plan
is 5.5 million. As of the date of this prospectus, options to
purchase 3,975,487 shares of common stock have been granted and are
outstanding, 70,000 shares have been issued pursuant to the
exercise of options, and 25,000 restricted share units have been
granted, and none of these restricted share units have vested. For
the year ended December 31, 2017, we recorded share-based
compensation of $1.95 million related to 2014
Plan.
We believe the granting of share incentive awards is important to
our ability to attract and retain employees, and we will continue
to grant share incentive awards to employees in the future. As a
result, our expenses associated with share-based compensation may
increase, which may have an adverse effect on our results of
operations.
State securities laws may limit secondary trading of our common
stock if our common stock is not listed on a national securities
exchange, which may restrict the states in which and conditions
under which you can sell shares purchased in this
offering.
Secondary
trading of the shares sold in this offering will not be possible in
any state until the shares are qualified for sale
under the applicable securities laws of the state, or there is
confirmation that an exemption, such as resulting from the
potential listing of our common stock on the Nasdaq Capital Market
or another national securities exchange or listing in certain
recognized securities manuals, is available for secondary trading
in the state. If we fail to list our common stock on a national
securities exchange and otherwise fail to register, qualify, obtain
or verify an exemption for the secondary trading of our common
stock in any particular state, any shares purchased in this
offering may not be offered, sold to, or be purchased by a resident
of such state. In the event that a significant number of states
refuse to permit secondary trading in our common stock, the
liquidity for our common stock could be significantly impacted,
thus causing you to suffer a loss on your investment. While we
intend to seek to facilitate secondary trading in our common stock
in the event our common stock is not listed on a national
securities exchange, there can be no assurances that we will be
successful in qualifying or finding an exemption in each state or
other jurisdictions.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve
substantial risks and uncertainties. The forward-looking statements
are contained principally in the sections of this prospectus
entitled “Prospectus
Summary,” “Risk
Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and
“Business,” but
are also contained elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by the words
“anticipate,” “believe,”
“continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “might,” “objective,”
“ongoing,” “plan,” “predict,”
“project,” “potential,”
“should,” “will,” or “would,”
or the negative of these terms, or other comparable terminology
intended to identify statements about the future. These statements
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements to be materially different from the information
expressed or implied by these forward-looking statements. Although
we believe that we have a reasonable basis for each forward-looking
statement contained in this prospectus, we caution you that these
statements are based on a combination of facts and factors
currently known by us and our expectations of the future, about
which we cannot be certain. Forward-looking statements include
statements about:
●
overall strength
and stability of general economic conditions and of the electronic
video game sports (“esports”) industry in the United
States and globally;
●
changes in consumer
demand for, and acceptance of, our services and the games that we
license for our tournaments and other experiences, as well as
online gaming in general;
●
changes in the
competitive environment, including adoption of technologies,
services and products that compete with our own;
●
our ability to
generate consistent revenue;
●
our ability to
effectively execute our business plan;
●
changes in the
price of streaming services, licensing fees, and network
infrastructure, hosting and maintenance;
●
changes in laws or
regulations governing our business and operations;
●
our ability to
maintain adequate liquidity and financing sources and an
appropriate level of debt on terms favorable to us;
●
our ability to
effectively market our services;
●
costs and risks
associated with litigation;
●
our ability to
obtain and protect our existing intellectual property protections,
including patents, trademarks and copyrights;
●
our ability to
obtain and enter into new licensing agreements with game publishers
and owners;
●
changes in
accounting principles, or their application or interpretation, and
our ability to make estimates and the assumptions underlying the
estimates, which could have an effect on earnings;
●
interest rates and
the credit markets;
●
our ability to list
our shares on the Nasdaq Capital Market or any other exchange and
maintain such listing; and
●
other risks
described from time to time in periodic and current reports that we
file with the SEC.
This
list of factors that may affect future performance and the accuracy
of forward-looking statements is illustrative, but not exhaustive.
New risk factors and uncertainties not described here or elsewhere
in this prospectus, including in the sections entitled
“Risk Factors,”
may emerge from time to time. Moreover, because we operate in a
competitive and rapidly changing environment, it is not possible
for our management to predict all risk factors and uncertainties,
nor can we assess the impact of all factors on our business or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements we may make. The forward-looking
statements are also subject to the risks and uncertainties specific
to our Company, including but not limited to the fact that we have
no operating history as a public company. In light of these risks,
uncertainties and assumptions, the future events and trends
discussed in this prospectus may not occur, and actual results
could differ materially and adversely from those anticipated or
implied in the forward-looking statements.
You
should not rely upon forward-looking statements as predictions of
future events. Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee
that the future results, levels of activity, performance and events
and circumstances reflected in the forward-looking statements will
be achieved or occur. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of the
forward-looking statements. Except as
required by applicable law, including the securities laws of the
United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
You
should read this prospectus, the documents referenced herein and
those documents filed as exhibits to the registration statement, of
which this prospectus is a part, with the understanding that our
actual future results, levels of activity, performance and
achievements may be materially different from what we
expect.
In addition to the industry, market and competitive position data
referenced in this prospectus from our own internal estimates and
research, some market data and other statistical information
included in this prospectus are based in part upon information
obtained from third-party industry publications, research, surveys
and studies, none of which we commissioned. Third-party industry
publications, research, surveys and studies generally indicate that
their information has been obtained from sources believed to be
reliable, although they do not guarantee the accuracy or
completeness of such information.
We are responsible for all of the disclosure in this prospectus and
while we believe that each of the publications, research, surveys
and studies included in this prospectus are prepared by reputable
sources, neither we, nor the underwriters have independently
verified market and industry data from third-party sources. In
addition, while we believe our internal company research and
estimates are reliable, such research and estimates have not been
verified by independent sources. Assumptions and estimates of our
and our industry’s future performance are necessarily subject
to a high degree of uncertainty and risk due to a variety of
factors, including those described in “Risk
Factors.” These and other
factors could cause our future performance to differ materially
from our assumptions and estimates. See “Special Note Regarding
Forward-Looking Statements.”
We estimate that the net proceeds to us from the sale of shares of
our common stock in this offering will be approximately
$
million (or approximately $
million if the underwriters exercise their option to purchase
additional shares of common stock from us in full), based on an
assumed initial public offering price of $
per share, which is the midpoint of the price range set forth on
the cover page of this prospectus, after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public
offering price of $
per share would increase (decrease) the net proceeds to us from
this offering by approximately $
million, assuming the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same, and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. We may also increase or decrease
the number of shares we are offering. Each increase (decrease) of
1,000,000 shares in the number of shares offered by us would
increase (decrease) the net proceeds to us from this offering by
approximately $
million, assuming the assumed initial public offering price stays
the same, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by
us.
The principal purposes of this offering are to obtain additional
capital to support our operations, to create a public market for
our common stock and to facilitate our future access to the public
equity markets. We currently intend to use the net proceeds we
receive from this offering for working capital and general
corporate purposes, includin sales and marketing activities, product
development and capital expenditures . We may also use a portion of
the net proceeds for the acquisition of, or investment in,
technologies, solutions or businesses. However, we have no present
commitments or agreements to enter into any acquisitions or
investments. Pending these uses, we may invest the net proceeds
from this offering in short-term, investment-grade interest-bearing
securities such as money market accounts, certificates of deposit,
commercial paper and guaranteed obligations of the U.S.
government.
The amounts and timing of our actual expenditure, including
expenditure related to sales and marketing and product development
will depend on numerous factors, including the status of our
product development efforts, our sales and marketing activities,
expansion internationally, the amount of cash generated or used by
our operations, competitive pressures and other factors described
under “Risk
Factors” in this prospectus. We therefore cannot
estimate the amount of net proceeds to be used for the purposes
described above. As a result, we may find it necessary or advisable
to use the net proceeds for other purposes. Our management will
have broad discretion in the application of the net proceeds, and
investors will be relying on our judgment regarding the application
of the net proceeds from this offering. Investors will not have an
opportunity to evaluate the economic, financial or other
information on which we base our decisions regarding the use of
these proceeds.
We have never declared or paid any dividends on our capital stock.
We currently intend to retain all available funds and any future
earnings for the operation and expansion of our business and,
therefore, we do not anticipate declaring or paying cash dividends
in the foreseeable future. The payment of dividends will be at the
discretion of our Board of Directors and will depend on our results
of operations, capital requirements, financial condition,
prospects, contractual arrangements, any limitations on payment of
dividends present in our current and future debt agreements, and
other factors that our board of directors may deem
relevant.
The following table sets forth our cash and capitalization as of
June 30, 2018:
●
on a pro forma basis, giving effect to the
automatic conversion of all outstanding
principal and accrued but unpaid interest on our outstanding 9.00%
secured convertible promissory notes, totaling $5.1 million at June
30, 2018, into an aggregate
of shares of our common
stock immediately prior to the closing of this offering (assuming
an initial public offering price of
$ , the
midpoint of the price range set forth on the cover page of this
prospectus);
and
●
on
a pro forma as adjusted basis to reflect the sale by us
of shares
of common stock in this offering at an assumed initial public
offering price of $
per share, the midpoint of the price range set
forth on the cover page of this prospectus, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
The pro forma and pro forma as adjusted information below is
illustrative only, and our capitalization following the closing of
this offering will be adjusted based on the actual initial public
offering price and other terms of this offering determined at
pricing as well as our actual expenses. You should read this table
together with “Selected Financial
Data” and
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our
financial statements and the related notes thereto appearing
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
$785,269
|
$
|
$
|
|
|
|
|
Convertible notes
payable
|
3,057,851
|
|
|
Common stock, par
value $0.001 per share, 50,000,000 shares authorized, 13,810,487
shares issued and outstanding, actual;
shares
issued and outstanding, pro forma;
shares
issued and outstanding, pro forma as adjusted
|
13,811
|
|
|
Additional paid-in
capital
|
42,030,167
|
|
|
|
(42,640,103)
|
|
|
Total
stockholders’ deficit
|
(596,125)
|
|
|
|
$2,461,726
|
$
|
$
|
_______________
(1)
Each $1.00 increase
(decrease) in the assumed initial public offering price of $
per share, which is the midpoint of the
price range set forth on the cover page of this prospectus, would
increase (decrease) each of cash, total stockholders’
(deficit) equity and total capitalization by approximately $
million, assuming that the number
of shares offered by us, as set forth on the cover page of this
prospectus, remains the same, and after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us. Similarly, each increase (decrease) of 1,000,000 shares in
the number of shares offered by us would increase (decrease)
each of cash, total stockholders’ (deficit) equity and total
capitalization by approximately $
million, assuming that the
assumed initial public offering price remains the same, and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. The pro forma as adjusted information discussed
above is illustrative only and will adjust based on the actual
initial public offering price and other terms of this offering
determined at pricing.
The number of shares of common stock that will be outstanding after
this offering is based on 13,810,487 shares of common stock
outstanding as of June 30, 2018, and excludes as of such
date:
●
4,105,898
shares of common stock issuable upon
exercise of warrants to purchase our common stock, including an
estimated 1,561,023 warrants that are callable, at the election of
the Company, at any time following the completion of this
offering;
●
3,975,487
shares of common stock issuable upon
exercise of options held and 454,513
shares of common stock reserved for
issuance pursuant to our 2014 Plan; and
●
shares
of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which
equates
to %
of the number of shares of our common stock to be issued and sold
in this offering.
If you invest in our common stock in this offering, your interest
will be diluted to the extent of the difference between the assumed
initial public offering price per share of our common stock and the
pro forma as adjusted net tangible book value per share of our
common stock immediately after the completion of this
offering. Net tangible book value per share of our common
stock is determined at any date by subtracting our total
liabilities from the amount of our total tangible assets (total
assets, less intangible assets) and dividing the difference by the
number of shares of our common stock deemed to be outstanding at
that date.
Our historical net tangible book value (deficit) as of June 30,
2018 was approximately $(936,000), or $(0.07) per share of common
stock. Our historical net tangible book value per share represents
our total tangible assets less our total liabilities, divided by
the number of shares of common stock outstanding as of June 30,
2018.
Our pro forma net tangible book value as of June 30, 2018 was
$ million,
or $ per
share of common stock. Pro forma net tangible book value per share
represents our total tangible assets less our total liabilities,
divided by the number of shares of common stock outstanding as of
June 30, 2018, after giving effect to the automatic conversion of
all principal and accrued but unpaid interest on our outstanding
9.00% convertible promissory notes, totaling $5.1 million at June
30, 2018, into an aggregate of shares of our
common stock immediately prior to the closing of this
offering.
After further giving effect to (i) the pro forma adjustment
described above, and (ii) our receipt of approximately
$
million of estimated net proceeds, after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us, from our sale of common stock in this offering at an assumed
initial public offering price of
$
per share, the midpoint of the price range set forth on the cover
page of this prospectus, our pro forma as adjusted net tangible
book value as of June 30, 2018, would have been approximately
$
million, or
$
per share. This amount represents an immediate increase in net
tangible book value of
$
per share of our common stock to existing stockholders and an
immediate dilution in net tangible book value of
$
per share of our common stock to new investors purchasing shares of
common stock in this offering.
The following table illustrates this dilution on a per share
basis to new investors:
|
|
|
|
|
|
|
|
Assumed initial
public offering price per share
|
|
|
|
|
$
|
|
|
Historical net
tangible book value (deficit) per share as of June 30, 2018
|
|
$
|
(0.07)
|
|
|
|
|
Pro forma increase in
net tangible book value per share attributable to the
transactions described above
|
|
$
|
|
|
|
|
|
Pro forma net
tangible book value per share as of June 30, 2018
|
|
$
|
|
|
|
|
|
Increase in pro
forma net tangible book value per share attributed to new investors
purchasing shares from us in this offering
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as
adjusted net tangible book value per share after giving effect to
this offering
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro
forma as adjusted net tangible book value per share to new
investors in this offering
|
|
|
|
|
$
|
|
|
The dilution information discussed above is illustrative only and
will change based on the actual initial public offering price and
other terms of this offering to be determined at pricing. Each
$1.00 increase (decrease) in the assumed initial public offering
price of
$ per
share, the midpoint of the price range set forth on the cover page
of this prospectus, would increase (decrease) the pro forma as
adjusted net tangible book value per share by approximately
$ million,
or by approximately $ per share,
assuming the number of shares of common stock offered by us, as set
forth on the cover page of this prospectus, remains the same, after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. Similarly, each increase
(decrease) of 1,000,000 shares in the number of shares of common
stock offered by us would increase (decrease) the pro forma as
adjusted net tangible book value per share by approximately
$ million, or
approximately
$ per
share, assuming the assumed initial public offering price remains
the same, after deducting underwriting discounts and commissions
and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional
shares in full in this offering, the pro forma as adjusted net
tangible book value after this offering would be approximately $
million, or approximately
$
per share, the increase in pro forma net tangible book value to
existing stockholders would be
$
per share, and the dilution per share to new investors would be
$
per share, in each case based on an assumed initial public offering
price of
$
per share, the midpoint of the price range set forth on the cover
page of this prospectus.
The
following table summarizes as of June 30, 2018 on the pro forma as
adjusted basis described above, the number of shares of our common
stock, the total consideration and the average price per share
(i) paid to us by our existing stockholders and (ii) to
be paid by investors purchasing our common stock in this offering
at an assumed initial public offering price of
$ per
share, the midpoint of the price range set forth on the cover page
of this prospectus, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
The number of shares of common stock that will be outstanding after
this offering is based on 13,810,487 shares of common stock
outstanding as of June 30, 2018, and excludes as of such
date:
●
4,105,898
shares of common stock issuable upon exercise of warrants to
purchase our common stock, including
an estimated 1,561,023 warrants that are callable, at the election
of the Company, at any time following the completion of this
offering ;
●
3,975,487
shares of common stock issuable upon exercise of options held and
454,513 shares of common stock reserved for issuance pursuant to
our 2014 Plan; and
●
shares
of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which
equates
to %
of the number of shares of our common stock to be issued and sold
in this offering.
If the underwriters exercise their option to purchase additional
shares in full, the percentage of shares of common stock held by
existing stockholders will decrease to
approximately % of the total
number of shares of our common stock outstanding after this
offering, and the number of shares held by new investors will
increase to , or
approximately % of the total
number of shares of common stock outstanding after the
offering.
To the extent that options or warrants are exercised, new options
or other securities are issued under our equity incentive plans, or
we issue additional shares of common stock in the future, there
will be further dilution to investors participating in this
offering. In addition, we may choose to raise additional capital
because of market conditions or strategic considerations, even if
we believe that we have sufficient funds for our current or future
operating plans. If we raise additional capital through the sale of
equity or convertible debt securities, the issuance of these
securities could result in further dilution to our
stockholders.
The following selected financial data should be read together with
our financial statements and related notes thereto, as well as the
information found under the sections titled
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” included
elsewhere in this prospectus. We derived the selected financial
data as of and for the years ended December 31, 2017 and 2016 from
our audited financial statements included elsewhere in this
prospectus. We have derived the unaudited financial data for the
six months ended June 30, 2018 and 2017 and as of June 30, 2018
from our unaudited condensed financial statements included
elsewhere in this prospectus. Our historical results are not
necessarily indicative of the results to be expected in the future
and our interim results are not necessarily indicative of results
to be expected for the full year ending December 31, 2018, or
any other period.
|
Year
Ended December 31,
|
Six
Months Ended June 30,
|
|
2017
|
2016
|
2018
|
2017
|
|
|
|
(unaudited)
|
Statements
of Operations Data:
|
|
Sales
|
$201,182
|
$269,892
|
$486,859
|
$34,042
|
Cost of
sales
|
1,487,905
|
1,460,438
|
304,872
|
744,188
|
Gross profit
(loss)
|
(1,286,723)
|
(1,190,546)
|
181,987
|
(710,146)
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
Sales, marketing
and advertising
|
1,155,506
|
1,295,016
|
668,648
|
372,638
|
Research and
development
|
61,543
|
142,380
|
7,670
|
27,534
|
General and
administrative
|
12,451,636
|
9,737,460
|
7,244,139
|
5,705,805
|
Total operating
expense
|
13,668,685
|
11,174,856
|
7,920,457
|
6,105,977
|
Loss from
operations
|
(14,955,408)
|
(12,365,402)
|
(7,738,470)
|
(6,816,123)
|
|
|
|
|
|
Other Income
(expense), net:
|
|
|
|
|
Interest expense,
net
|
-
|
-
|
(397,051)
|
(11)
|
Other
|
-
|
-
|
2,076
|
400
|
Other income
(expense), net
|
-
|
-
|
(394,975)
|
389
|
Net loss
|
$(14,955,408)
|
$(12,365,402)
|
$(8,133,445)
|
$(6,815,734)
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
Basic and
diluted
|
$(1.17)
|
$(1.53)
|
$(0.59)
|
$(0.58)
|
Weighted average
common shares used to compute net loss per
share:
|
|
|
|
|
Basic and
diluted
|
12,740,023
|
8,066,901
|
13,810,487
|
11,667,164
|
Pro forma net loss
per share (unaudited):
|
|
|
|
|
Basic and
diluted(1)
|
$
|
$
|
$
|
$
|
Pro forma weighted
average common shares outstanding
(unaudited):
|
|
|
|
|
Basic and
diluted(1)
|
|
|
|
|
_______________
(1)
See Note 1 to each
of our audited and unaudited condensed financial statements,
respectively, included elsewhere in this prospectus for an
explanation of the method used to calculate the historical and pro
forma net loss per share, basic and diluted, and the number of
shares used in the computation of the per share
amounts.
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
Cash
|
$1,709,473
|
$2,870,546
|
$785,269
|
Accounts
receivable
|
113,702
|
-
|
310,900
|
Prepaid expenses
and other current assets
|
780,111
|
41,224
|
468,083
|
Property and
equipment, net
|
1,137,817
|
1,804,353
|
844,009
|
Intangible and
other assets, net
|
340,998
|
475,001
|
340,814
|
Accounts payable
and accrued expenses
|
383,814
|
449,221
|
287,349
|
Total
stockholders’ equity (deficit)
|
3,698,287
|
4,741,903
|
(596,125)
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of our operations together with our
financial statements and the notes thereto appearing elsewhere in
this prospectus. This discussion contains forward-looking
statements reflecting our current expectations, whose actual
outcomes involve risks and uncertainties. Actual results and the
timing of events may differ materially from those stated in or
implied by these forward-looking statements due to a number of
factors, including those discussed in the sections entitled
“Risk Factors,” “Cautionary Statement Regarding
Forward-Looking Statements” and elsewhere in this
prospectus.
Overview
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. Through our proprietary, cloud-based technology
platform, we connect our network of gamers, venues and brand
partners to enable local, social and competitive esports that can
be uniquely broadcast through our platform. We offer daily and
season-focused offerings for which amateur competitive gamers
establish meaningful connections with each other while improving
their skills.
As a
first-mover in defining the amateur esports category in 2015, we
believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft and Riot Games with titles including
Minecraft and League of Legends, respectively, to drive use among our member base and further
penetrate our target market. We deliver enhanced gaming experiences
to our members with these titles through our platform, and we
provide our venue and brand partners access to our member network
and platform technology. We believe that our members and the
organizations that use our platform are only beginning to leverage
the power of the consumer experience, commercial benefits, and data
analytics our technology enables. Primarily targeting Generation Z
and Millennials, members join through accessible, free-to-play
experiences allowing us to reach the expansive amateur gaming
market. We convert members into subscribers through offering two
tiers of competitive gameplay engagement: (i) our monthly
subscription for the more casual competitive player, offering
access to exclusive weekly online tournaments, member benefits and
our loyalty program; and (ii) our semi-annual season pass for the
more competitive player, offering access to our city leagues and
advanced amateur esports offers along with membership
rewards.
Components of Results of Operations
Revenue
We
generate revenues and related cash flows from (i) the sale of
subscriptions to gamers for participation in our in-person and
online multiplayer gaming experiences, (ii) brand and media
partnerships and (iii) merchandise sales.
Subscription Revenue. To date, subscription revenues have
consisted of the sale of season passes to gamers for participation
in our in-person and or online multiplayer gaming experiences. For
the periods presented herein, season passes for gaming experiences
were primarily comprised of multi-week packages and include
one-time, single experience admissions. The majority of the gaming
experiences we have offered to date have occurred in movie
theatres.
Commencing
in the second half of 2018 and going forward, we intend to convert
members into subscribers by offering our members two tiers of
competitive gameplay engagement: (i) a monthly subscription for the
more casual competitive player, offering access to exclusive weekly
online tournaments, member benefits and our loyalty program; and
(ii) a semi-annual season pass for the more competitive player,
offering access to our city leagues and advanced amateur esports
offers along with membership and loyalty rewards.
Brand and Media Partnerships. We generate brand and
media partnership revenues primarily from sales of various
forms of sponsorships and promotional campaigns on our online
platforms and from sponsorship at our in-person esports
experiences. We also generate brand and media partnership revenues
from the development of content tailored specifically for our
partners’ distribution channels. We believe our
brand and media partnerships extend the utilization of
our platform by leveraging broadcast, social and customer
loyalty programs which, in turn, extends our audience
reach and drives more gamers and viewers to our amateur
esports gaming content and technology platform. We actively
pursue the sale of sponsorships through our brand and media
partnerships, including arrangements that may include: exclusive or
non-exclusive title sponsorships, marketing benefits, official
product status exclusivity, product visibly and additional
infrastructure placement, social media rights (including rights to
create and post social content and clips), rights to on-screen
activations and promotions, display material rights, media rights,
hospitality and tickets and merchandising rights.
We
expect our brand and media partnerships revenues to
increase in the foreseeable future as we introduce new brand and
media partnership solutions and attract more sponsorship partners,
particularly as we license additional game titles, grow our
subscriber base, and generate a large volume of amateur gaming
content.
Cost of Sales
Cost of
sales includes direct costs incurred for the production of our
in-theatre and online gaming experiences, including theatre rental,
licenses and contract services.
Theatre rental. Theatre rental costs consists of net revenue
share payments to our contracted theatre groups, including
Cinemark, National Amusements, Studio Movie Grill and others, for
hosting our in-theatre experiences.
Licenses Fees. License agreements with game developers
generally include the grant to us of a license, during the
applicable term, to (i) reproduce, publicly display and publicly
perform the applicable game and approved game content to authorized
users of the game as part of our leagues, and (ii) display approved
advertising content in connection with game developer-approved
advertising, marketing and promotion of our leagues. License
agreements may also include a license to create derivative works
using game content and/or game publisher marks in connection with
the creation of merchandise. In consideration for the licenses
granted, we are typically obligated to pay a royalty to the
game-publisher.
License
fees for the 18-month period ended December 31, 2017 also include
amortized license fee expense related to a June 2016 gaming license
agreement whereby we issued restricted stock units to a third-party
upon the achievement of certain game related service conditions. As
we continue to become a more widely recognized brand in the esports
space, we expect we will be in a position to secure more favorable
terms in future license agreements with game
publishers.
Contract Services. Contract
services includes agency and contract labor costs incurred in
connection with the execution of our in-person experiences held in
theatres, including onsite staff to manage logistics and technical
support, assist participants and ensure and promote the quality of
the brand and overall gaming experience.
Materials / Giveaways and Prizing. Materials, giveaways and
prizing costs include the costs of apparel and other paraphernalia,
as well as the cost of scholarships and other prizes and awards
provided in connection with our amateur esports league
seasons.
Selling, Marketing and Advertising.
Selling,
marketing and advertising expenses include the cost of creating and
implementing marketing strategies, conducting market research,
building relationships with our target audience, and increasing the
overall exposure of our amateur esports brand to gamers. In-theatre
gaming experience and Super League brand related advertising costs
include the cost of producing advertisements, social media, print
media, marketing, promotions, and merchandising. The Company
expenses advertising costs as incurred.
Research and Development
Research
and development costs represent costs incurred to develop and test
our technology platform and include outside consultants and
contractors.
General and Administrative
General and administrative expenses consist primarily of
personnel-related costs, including salaries and benefits, non-cash
stock compensation expenses, office and facilities costs, legal,
accounting and other professional fees, public relations costs and
other corporate and administrative costs.
Results of Operations
Comparison of the Six Months ended June 30, 2018 and
2017
The
following table sets forth a summary of our statements of
operations for the six months ended June 30, 2018 and
2017:
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
SALES
|
$486,859
|
$34,042
|
COST OF SALES
|
304,872
|
744,188
|
GROSS PROFIT (LOSS)
|
181,987
|
(710,146)
|
|
|
|
OPERATING EXPENSES
|
|
|
Selling,
marketing and advertising
|
668,648
|
372,638
|
Research
and development
|
7,670
|
27,534
|
General
and administrative
|
7,244,139
|
5,705,805
|
Total
operating expenses
|
7,920,457
|
6,105,977
|
Net
operating loss
|
(7,738,470)
|
(6,816,123)
|
Total
other income (expense)
|
(394,975)
|
389
|
NET LOSS
|
$(8,133,445)
|
$(6,815,734)
|
Revenue
Revenue
for the six months ended June 30, 2018 increased $452,818, or over
300% when compared to the same period in 2017. Revenues for the
periods presented were comprised of the following:
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
$49,459
|
$21,775
|
$27,684
|
127%
|
Brand
and Media Partnerships
|
437,400
|
12,267
|
425,133
|
3,466%
|
|
$486,859
|
$34,042
|
$452,817
|
1,330%
|
Subscriptions. Subscription revenue for the six months ended
June 30, 2018 increased $27,684, or 127%, compared to the same
period in 2017. The increase was primarily due to an increase in
the number of unique experiences held during the six months ended
June 30, 2018, compared to the same period in 2017.
Revenue-generating experiences held during the six months ended
June 30, 2018 totaled 143, as compared to 108 during the same
period in 2017, primarily as a result of the expansion of the
number of cities participating in our season pass from 12 to 16
cities, as well as completing a full City Champs, our semi-annual
national tournament series, for both Minecraft and League of
Legends during the six months ended June 30, 2018, compared to only
a full Minecraft City Champs season along with League of Legends
pilot experiences in the prior year.
Brand and Media
Partnerships. Brand and media partnerships revenue for the
six months ended June 30, 2018 increased $425,134, or over 300%,
compared to the same period in 2017. The increase was due to the
growing visibility of our brand and platform. Brand and media
partnerships revenue for the six months ended June 30, 2018
included amounts from Logitech, Inc. (“Logitech”), Red Bull North
America, Inc. (“Red
Bull”), Tribeca Film Festival and Samsung, as compared
to brand and media partnerships revenue for the six months ended
June 30, 2017 solely from our partnership with Viacom Media
Networks’ Nickelodeon (“Nickelodeon”).
Cost of Sales
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Cost
of sales
|
$304,872
|
$744,188
|
$(439,316)
|
(59%)
|
|
|
|
|
|
Cost of
sales for the six months ended June 30, 2018 decreased $439,316, or
59%, compared to the same period in 2017. The change in cost of
sales was due to the following:
License Fees. License fees for the six months ended June 30,
2018 decreased $543,823, or 99%, compared to the same period in
2017. In June 2016, we entered into a gaming license agreement
whereby we issued 550,000 restricted stock units
(“License
RSUs”) upon the achievement of certain game related
service conditions. License fee expense included in cost of sales
for the six months ended June 30, 2017 related to License RSUs,
which was recognized over the contractual license term of 18-months
beginning June 2016 and ending December 31, 2017, totaled
$550,000.
Contract Services. Contract services costs for the six
months ended June 30, 2018 increased $71,070, or 89%, compared to
the same period in 2017, primarily due to an increase in the number
of experiences held in the six months ended June 30, 2018, compared
to the six months ended June 30, 2017. The change also reflects
higher contract services costs incurred for the League of Legends
City Champs season due to an increase in staffing required to
support the League of Legends in-person experiences.
Materials / Giveaways and
Prizing. Materials / Giveaways and Prizing costs for the six
months ended June 30, 2018 increased $93,177, or 247%, compared to
the same period in 2017, due to completion of a full league season
for Minecraft and a full league season for League of Legends during
the six months ended June 30, 2018, compared to the completion of
only one full season for Minecraft during the same period in 2017,
along with an increase in city league teams from 12 teams to 16
teams, respectively. There was also an expansion of our League of
Legends season with an All-Star experience, during which the top
League of Legends players from our city league teams compete
against one another, due to the participation of brand partners in
the 2018 period.
Operating Expenses
Selling, Marketing and Advertising
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Selling,
Marketing and Advertising
|
$668,648
|
$372,638
|
$296,010
|
79%
|
Selling, marketing and advertising expenses for the six months
ended June 30, 2018 increased $296,010, or 79%, compared to the
same period in 2017, primarily due to the amortization of in-kind
advertising costs which were initially capitalized pursuant to a
June 2017 third-party investment agreement, which included in-kind
advertising for use in future periods, valued at $1.0 million, as a
component of the consideration paid to us in exchange for equity in
the Company. The prepaid advertising is being amortized over 18
months, ending in December 2018. In addition, selling, marketing
and advertising costs for the six months ended June 30, 2018
included $86,341 of costs incurred in connection with the
development of a pilot program and related facilities for use in
the launch of SuperLeagueTV in April 2018.
Research and Development
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Research
and development
|
$7,670
|
$27,534
|
$(19,864)
|
(72%)
|
|
|
|
|
|
Research
and development expense for the six months ended June 30, 2018
decreased $19,864 or 72%, compared to the same period in 2017,
primarily due to a reduction in game testing and related technology
development activities. Research and development related game
testing expenses vary period to period based on the timing of the
acquisition and installation of new game properties and
modifications to the functionalities and features of existing game
properties on the platform.
General and Administrative
General
and Administrative expenses for the interim periods presented were
comprised of the following:
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Personnel
costs
|
$3,552,982
|
$2,335,094
|
$1,217,888
|
52%
|
Office
and facilities
|
245,034
|
233,999
|
11,035
|
5%
|
Professional
fees
|
361,107
|
217,032
|
144,075
|
66%
|
Stock-based
compensation
|
1,687,575
|
1,671,688
|
15,887
|
1%
|
Depreciation
and amortization
|
537,598
|
617,616
|
(80,018)
|
(13%)
|
Other
|
859,843
|
630,376
|
229,467
|
36%
|
Total
general and administrative expense
|
$7,244,139
|
$5,705,805
|
$1,538,334
|
27%
|
General
and administrative expenses for the six months ended June 30, 2018
increased $1,538,334, or 27%, compared to the same period in 2017.
A summary of the main drivers of the
change in general and administrative expenses is as
follows:
●
Increase
in personnel costs totaling $1,217,887, due to an increase in
headcount since the end of the prior year period in connection with
the expansion of our platform and continued establishment of our
brand, including additional resources across our technology,
product, operations, and commercial departments. As of June 30,
2018 and 2017, we had 41 and 31 full time equivalent employees,
respectively.
●
Increase
in professional fees totaling $144,075, primarily due to an
increase in consulting expenses related to the launch of
SuperLeagueTV and the development of our subscription offerings and
content series, as well as an increase in placement fees incurred
in connection with technology team contract positions that were
converted to full-time employee positions during the
period.
●
Increase
in other general and administrative expenses totaling $229,467,
primarily due to an increase in insurance, travel, broad-band,
software and subscription costs in connection with the expansion of
operations.
Other Income (expense)
Other
income (expense), net, was primarily comprised of interest expense,
as follows:
|
Six Months Ended
June 30, 2018
|
|
|
Amortization
of convertible debt discount
|
$269,705
|
Interest
expense on convertible debt
|
99,312
|
Amortization
of convertible debt issuance costs
|
28,034
|
|
$397,051
|
Interest Expense
Interest
expense for the six months ended June 30, 2018, totaled $397,051,
relating to the issuance of 9.00% secured convertible promissory
notes, with an aggregate principal amount of $4,963,798, during the
six months ended June 30, 2018, as described below under
Liquidity and Capital
Resources.
Comparisons of the Years Ended December 31, 2017 and
2016
The
following table sets forth a summary of our statements of
operations for the years ended December 31, 2017 and
2016:
|
|
|
|
|
SALES
|
$201,182
|
$269,892
|
COST OF SALES
|
1,487,905
|
1,460,438
|
GROSS LOSS
|
(1,286,723)
|
(1,190,546)
|
|
|
|
OPERATING EXPENSES
|
|
|
Selling,
marketing and advertising
|
1,155,506
|
1,295,016
|
Research
and development
|
61,543
|
142,380
|
General
and administrative
|
12,451,636
|
9,737,460
|
Total
operating expenses
|
13,668,685
|
11,174,856
|
|
|
|
NET LOSS
|
$(14,955,408)
|
$(12,365,402)
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Subscription
|
$87,480
|
$269,892
|
$(182,412)
|
(68%)
|
Brand
& Media Partnerships
|
113,702
|
-
|
113,702
|
100%
|
|
$201,182
|
$269,892
|
$(68,710)
|
(25%)
|
Revenue
for the year ended December 31, 2017 (“Fiscal 2017”) decreased $68,710,
or 25%, compared to the year ended December 31, 2016 (“Fiscal
2016”) . Revenues for the periods presented
were comprised of the following:
Subscription. Subscription revenue from season pass sales
for Fiscal 2017 decreased $182,412, or 68%, compared to Fiscal
2016. The decrease was primarily due to a decrease in the number of
season pass offers and number of participating venues per season
held during Fiscal 2017. Season pass offers for Fiscal 2017 and
Fiscal 2016 were three and five, respectively. Participating venues
per season for Fiscal 2017 and Fiscal 2016 were approximately 12
and 70, respectively. For Fiscal 2017, we completed three seasons
at 12 venues, which resulted in 250 unique experiences, compared to
almost 1,000 unique experiences during Fiscal 2016.
From our inception
in 2015 to mid-Fiscal 2016, our strategy was to establish and
promote our amateur esports brand via expansion into movie theatres
at scale to take advantage of the benefits of being a first mover
in the amateur esports ecosystem. Several factors led to our
strategy shift in mid-Fiscal 2016, including the addition of League
of Legends to our game line up which required broadband and
additional ongoing costs to theatre activation, along with higher
capital investment and operational expense associated with running
experiences across a widely distributed network of venues. We also
recognized an opportunity to establish an amateur esports league
based on geography and create intellectual property around
city-based U.S. amateur league. By the second quarter of Fiscal
2016, we had approximately 100 active theatres in approximately 50
markets, but with the launch of our city teams in November 2016, we
decreased our active footprint of theatres to four, with the intent
of gradual expansion in Fiscal 2017 and beyond. By the first
quarter of Fiscal 2017, we expanded to 12 cities. The smaller
footprint also allowed us to increase the quality of our premium
experiences and deepen player engagement, which, in turn,
facilitated the further building of our brand and our ability to
attract brand and media partners.
Brand and Media
Partnerships. Brand and media partnership revenues for the
year ended December 31, 2017 were $113,702, compared to $0 for the
year ended December 31, 2016. Brand and media partnerships revenues
for the year ended December 31, 2017 were primarily comprised of
revenues from partnerships with Advanced Micro Devices, Inc.,
Nickelodeon, Mattel, Inc. and DMG
Entertainment.
Cost of Sales
|
|
|
|
|
|
|
|
|
Cost
of sales
|
$1,487,905
|
$1,460,438
|
$27,467
|
2%
|
Cost of
sales for the year ended December 31, 2017 increased $27,467, or
2%, compared to the year ended December 31, 2016. The change was
primarily due to the following:
Contract Services. Contract services costs for the year
ended December 31, 2017 decreased $414,422, or 66%, compared to the
year ended December 31, 2016. The decrease was primarily due to the
reduction in the number of unique experiences held in 2017, as
compared to 2016, resulting from the establishment of our
city-based U.S. gamer league as described above,
which focused on holding fewer but higher quality premium
experiences at the local level. The decrease also reflects a
strategic shift to contract directly with our on-site contract
labor workforce instead of using higher-cost staffing agencies,
which provided greater control over the quality of experiences
along with cost savings.
License Fees. License fees included in costs of sales for
the year ended December 31, 2017 increased $457,869, or 76%,
compared to the year ended December 31, 2016. In June 2016, we
entered into a gaming license agreement whereby we agreed to issue
550,000 restricted stock units (“License RSUs”) upon the
achievement of certain game related service conditions. License
fees included in cost of sales related to License RSUs, which is
recognized over the contractual license term of 18-months beginning
June 2016 and ending December 31, 2017, totaled $1,054,167 and
$595,833 for the years ended December 31, 2017 and 2016,
respectively. License fees, excluding the License RSUs were not
material for the periods presented.
Operating Expenses
Selling, Marketing and Advertising
|
|
|
|
|
|
|
|
|
Selling,
Marketing and Advertising
|
$1,155,506
|
$1,295,016
|
$(139,510)
|
(11%)
|
Selling,
marketing and advertising expenses for the year ended December 31,
2017 decreased $139,510, or 11%, compared to the year ended
December 31, 2016. The decrease was primarily due to a reduction in
expense for third-party marketing agency costs totaling $350,377,
due to the transition of certain marketing functions from
third-party agencies to in-house resources. The decrease also
reflects a reduction in marketing expense totaling $79,521, due to
a decrease in influencer marketing costs and a decrease in theatre
promotion costs. This decrease was partially offset by $333,333 of
amortized prepaid advertising costs, which were initially
capitalized pursuant to a June 2017 third-party investment
agreement, which included in-kind advertising for future use by us,
valued at $1.0 million, as a component of the consideration paid by
the third-party in exchange for equity in the Company. The prepaid
advertising is being amortized over a period of 18-months, ending
in December 2018.
Research and Development
|
|
|
|
|
|
|
|
|
Research
and development
|
$61,543
|
$142,380
|
$(80,837)
|
(57%)
|
Research
and development expense for the year ended December 31, 2017
decreased, $80,837 or 57%, compared to the year ended December 31,
2016. Research and development expense decreased due to a reduction
in consulting costs associated with the development of in-theatre
gaming equipment and related technology utilized in connection with
our in-theatre experiences. Research and development expenses
related to game testing and related technology development
activities totaled $52,449 and $50,540, for the years ended
December 31, 2017 and 2016, respectively.
General and Administrative
General
and Administrative expense for the periods presented was comprised
of the following:
|
|
|
|
|
|
|
|
|
Personnel
costs
|
$5,184,986
|
$3,837,841
|
1,347,145
|
35%
|
Office
and facilities
|
267,290
|
194,440
|
72,850
|
37%
|
Professional
fees
|
469,965
|
664,989
|
(195,024)
|
(29%)
|
Stock-based
compensation
|
3,612,743
|
2,661,106
|
951,637
|
36%
|
Depreciation
and amortization
|
1,237,609
|
963,110
|
274,499
|
29%
|
Other
|
1,679,043
|
1,415,974
|
263,069
|
19%
|
Total
general and administrative expense
|
$12,451,636
|
$9,737,460
|
$2,714,176
|
28%
|
A summary of the main drivers of the change in general and
administrative expenses was as follows:
●
Increase
in personnel costs totaling $1,347,145, due to an increase in
headcount in connection with the expansion of our platform and
continued establishment of our brand, including additional
resources across our technology, product, operations, and
commercial departments. As of December 31, 2017 and 2016, we had 38
and 29 full-time equivalent employees, respectively.
●
Decrease
in professional fees totaling $195,024, due to a decrease in
consulting costs related to the development of the platform and
theatre related infrastructure and networking.
●
Increase
in office and facilities totaling $72,850, primarily due to the
increase in leased office space in June 2016 in connection with the
expansion of our operations.
●
Increase
in noncash stock compensation totaling $951,637, primarily due to
the increase in headcount described above.
●
Increase
in depreciation and amortization totaling $274,499, due to an
increase in furniture and fixtures and computer related hardware
associated with the expansion of operations.
●
Increase in other general and administrative
expense totaling $263,069, primarily due to an increase in
broadband costs totaling $200,726, primarily due to a full year of
expense for theatre installations occurring during the third and
fourth quarters of Fiscal 2017. The increase also reflects an increase in
AWS cloud-based computing service costs in connection
with the expansion of operations utilizing the
platform.
Liquidity and Capital Resources
General
Cash totaled $785,269 at June 30, 2018, compared to $1,709,473
at December 31, 2017 and
$2,870,546 at December 31, 2016.
We have experienced net losses and negative cash flows from
operations since our inception. As of June 30, 2018, we had cash of approximately
$785,269, negative working
capital of approximately $1,780,948, and sustained cumulative losses
attributable to common stockholders of approximately $42,640,103. Subsequent to June 30, 2018,
the Company issued additional 9.00% secured convertible promissory
notes in an aggregate principal amount of $8,036,204, in August
2018.
We
believe that our cash on hand, including the approximately $ in net
proceeds received from this
offering, will sustain operations until , 20 . We are dependent on obtaining, and
are continuing to pursue, the necessary funding from outside
sources, including obtaining additional funding from the sale of
securities in order to continue our operations. Without adequate
funding, we may not be able to meet our obligations. We believe
these conditions raise substantial doubt about our ability to
continue as a going concern.
To date, our principal sources of capital used to fund our
operations have been the net proceeds we received from private
sales of equity securities and proceeds received from the issuance
of convertible debt, as described below.
We
expect to incur substantial expenditures in the foreseeable future
for the development of our esports brand, community and technology
platform. We will require additional financing to further develop
and market our esports technology platform, fund operations, and
otherwise implement our business strategy. Our current financial
condition raises substantial doubt about our ability to continue as
a going concern. Our failure to raise capital as and when needed
would have a material adverse impact on our financial condition,
our ability to meet our obligations, and our ability to pursue our
business strategies. We will seek funds through additional equity
or debt financings, collaborative or other arrangements with
corporate sources, or through other sources of
financing.
We are
focused on expanding our service offering through internal
development, collaborations, and through strategic acquisitions. We
are continually evaluating potential asset acquisitions and
business combinations. To finance such acquisitions, we might raise
additional equity capital, incur additional debt, or
both.
Cash Flows for the Six Months Ended June 30, 2018 and
2017
The following table summarizes changes in cash for the six
months ended June 30, 2018 and 2017:
|
Six Months Ended June 30,
|
|
|
|
|
(Unaudited)
|
Net
cash used in operating activities
|
$(5,494,815)
|
$(3,858,290)
|
Net
cash used in investing activities
|
(241,686)
|
(237,211)
|
Net
cash provided by financing activities
|
4,812,297
|
3,618,901
|
Decrease
in cash
|
(924,204)
|
(476,600)
|
Cash
at beginning of period
|
1,709,473
|
2,870,546
|
Cash
at end of period
|
$785,269
|
$2,393,946
|
Cash Flows from Operating Activities. Net cash used in operating activities for the six
months ended June 30, 2018 was $5,494,815, which primarily
reflected our net loss of $8,133,445, net of adjustments to
reconcile net loss to net cash used in operating activities of
$2,638,630, which included $1,687,575 of noncash stock compensation
charges and $535,678 of noncash depreciation and amortization
charges. Changes in working capital primarily reflected increases
in receivables and the settlement of payables in the ordinary
course. Net cash used in operating activities for the six months
ended June 30, 2017 was $4,408,290 which primarily reflected our
net loss of $6,815,734, net of adjustments to reconcile net loss to
net cash used in operating activities of $2,407,444, which included
$1,671,688 of noncash stock compensation charges and $617,616 of
noncash depreciation and amortization charges. Changes in working
capital primary reflected the settlement of payables in the
ordinary course.
Cash Flows from Investing Activities. Cash flows from investing activities were
comprised of the following for the interim periods
presented:
|
Six Months Ended June 30,
|
|
|
|
|
(Unaudited)
|
Purchase
of property and equipment
|
(135,116)
|
(191,585)
|
Capitalization
of software development costs
|
(79,505)
|
(45,626)
|
Acquisition
of other intangible and other assets
|
(27,065)
|
–
|
Net cash used in investing activities
|
$(241,686)
|
$(237,211)
|
Cash Flows from Financing Activities. Cash flows from investing activities were
comprised of the following for the interim periods
presented:
|
Six Months Ended June 30,
|
|
|
|
|
(Unaudited)
|
Proceeds
from issuance of common stock, net of issuance costs
|
$-
|
$3,618,901
|
Proceeds
from convertible note payable, net of issuance cost
|
4,812,297
|
-
|
Net cash provided by financing activities
|
$4,812,297
|
$3,618,901
|
During
the six months ended June 30, 2017, the Company issued 2,087,079
shares of common stock at a price of $3.60 per share, raising
aggregate net proceeds of approximately $7.5 million. At June 30,
2017, $2.6 million of the proceeds were included in subscriptions
receivable and collected subsequent to June 30, 2017.
From May through June 2018, the Company issued 9.00% secured
convertible promissory notes (the “2018 Notes”) in the aggregate principal amount of
$4,963,798. The 2018 Notes (i) accrue simple interest at the rate
of 9.00% per annum, (ii) mature on the earlier of the closing of an
initial public offering (“IPO”) of the Company’s common stock on a
national securities exchange or April 30, 2019, and (iii) all
outstanding principal and accrued interest is automatically
convertible into shares of common stock upon the close of an IPO at
the lesser of (x) $3.60 per share or (y) a 15% discount to the
price per share of the IPO. In addition, the holders of the 2018
Notes were collectively issued 1,561,023 warrants to
purchase common stock equal to 100% of the principal amount of the
2018 Notes (including accrued interest as described below) divided
by $3.60 per share. The warrants are exercisable for a term of five
years, commencing on the close of an IPO, at an exercise price
equal to the lesser of (x) $3.60 per share or (y) a 15% discount to
the IPO price per share (the “2018 Warrants”). The 2018
Warrants have a term of five years, and are callable at the
election of the Company at any time following the closing of an
IPO.
From February through April 2018, the Company issued 9.00% secured
convertible promissory notes (the “Initial 2018
Notes”) in the aggregate
principal amount of $3,000,000. The Initial 2018 Notes (i) accrued
simple interest at the rate of 9.00% per annum, (ii) matured on the
earlier of December 31, 2018 or the close of a $15,000,000 equity
financing of the Company (a “Qualifying Equity
Financing”) by the
Company, and (iii) all outstanding principal and accrued interest
was automatically convertible into equity or equity-linked
securities sold in the Qualifying Equity Financing based upon a
conversion rate equal to (x) a 10% discount to the price per share
of the Qualifying Equity Financing, with (y) a floor of $3.60 per
share. In addition, the holders of the Initial 2018 Notes were
collectively issued warrants to purchase 166,667 shares of common
stock, with an exercise price of $3.60 per share and a term of five
years (the “Initial 2018
Warrants”).
In May 2018, all of the Initial 2018 Notes and related accrued
interest thereon in the aggregate amount of $3,055,886, were
converted into the 2018 Notes. The holders of the Initial 2018
Notes who converted into the 2018 Notes retained their respective
Initial 2018 Warrants. The totals for the 2018 Notes and 2018
Warrants disclosed above include amounts converted related to the
Initial 2018 Notes and Initial 2018 Warrants.
Cash Flows for the Years Ended December 31, 2017 and
2016
The following table summarizes changes in cash for the years
ended December 31, 2017 and 2016:
|
|
|
|
|
Net
cash used in operating activities
|
$(8,968,886)
|
$(8,314,450)
|
Net
cash used in investing activities
|
(437,069)
|
(1,591,950)
|
Net
cash provided by financing activities
|
8,244,882
|
10,413,645
|
(Decrease)
increase in cash
|
(1,161,073)
|
507,245
|
Cash
at beginning of period
|
2,870,546
|
2,363,301
|
Cash
at end of period
|
$1,709,473
|
$2,870,546
|
Cash Flows from Operating Activities. Net cash used in operating activities for the year
ended December 31, 2017 was $8,968,886, which primarily reflected
our net loss of $14,955,408, net of adjustments to reconcile net
loss to net cash used in operating activities of $5,986,522, which
included $4,666,910 of non-cash stock compensation charges and
$1,237,608 of non-cash depreciation and amortization charges.
Changes in working capital primarily reflected increases in
receivables and the settlement of payables in the ordinary course.
Net cash used in operating activities for the year ended December
31, 2016 was $8,314,450, which primarily reflected our net loss of
$12,365,402, net of adjustments to reconcile net loss to net cash
used in operating activities of $4,050,952, which included
$3,298,937 of noncash stock compensation charges and $963,049 of
non-cash depreciation and amortization charges. Changes in working
capital primary reflected the settlement of payables in the
ordinary course.
Cash Flows from Investing Activities. Cash flows from investing activities were
comprised of the following for the annual periods
presented:
|
|
|
|
|
Purchase of
property and equipment
|
$(327,351)
|
$(1,359,927)
|
Capitalization of
software development costs
|
(109,718)
|
(195,453)
|
Acquisition of
other intangible and other assets
|
–
|
(36,570)
|
Net
cash used in investing activities
|
$(437,069)
|
$(1,591,950)
|
Cash Flows from Financing Activities. Cash flows from investing activities were
comprised of the following for the annual periods
presented:
|
|
|
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
$8,244,882
|
$5,356,645
|
Proceeds from
exercise of stock options
|
–
|
7,000
|
Proceeds from
convertible note payable
|
–
|
5,350,000
|
Repayment on
convertible note payable
|
–
|
(300,000)
|
Net
cash provided by financing activities
|
$8,244,882
|
$10,413,645
|
Issuance of Common stock. During the year ended December 31,
2017, the Company issued 2,364,857 shares of common stock at $3.60
per share in private placement transactions, raising net proceeds
of $8,244,883. During the year ended December 31, 2016, the Company
issued 1,517,089 shares of common stock at $3.60 per share in
private placement transactions, raising net proceeds of
$5,356,645.
Convertible Debt. In April 2016, the Company issued
non-interest bearing, unsecured convertible notes in the aggregate
principal amount of $5,350,000 to investors (the
“2016 Notes”),
$5,050,000 of which were automatically converted into 1,551,484
shares of common stock in October 2016 upon the closing by the
Company of a qualified equity offering pursuant to the note
purchase agreement executed in connection with the issuance of the
2016 Notes. The remaining principal amount of $300,000 outstanding
under the 2016 Notes was repaid in full during the Company’s
fiscal year ended December 31, 2016.
Contractual Obligations
As of December 31, 2017, we had no significant commitments for
capital expenditures, nor do we have any committed lines of credit,
noncancelable operating leases obligations, other committed funding
or long-term debt, and no guarantees.
The
operating lease for our corporate headquarters expired on May 31,
2017 and was subsequently amended to operate on a month-to-month
basis.
Rent
expense for the years ended December 31, 2017 and 2016 were
approximately $238,000 and $184,000, respectively, and is included
in general and administrative expense in the accompanying
statements of operations included elsewhere in this
prospectus. Rental payments are expensed in the statements of
operations in the period to which they relate. Scheduled rent
increases, if any, are amortized on a straight-line basis over the
lease term.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any off-balance sheet financial
guarantees or other off-balance sheet commitments to
guarantee the payment obligations of any third parties. We have not
entered into any derivative contracts that are indexed to our
shares and classified as stockholder’s equity or that are not
reflected in our financial statements included elsewhere in this
prospectus. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity.
We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support
to us or engages in leasing, hedging or product development
services with us.
Quantitative and Qualitative Disclosures about Market
Risk
In the
ordinary course of our business, we are not currently exposed to
market risk of the sort that may arise from changes in interest
rates or foreign currency exchange rates, or that may otherwise
arise from transactions in derivatives.
The
preparation of financial statements in conformity with GAAP
requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The Company’s significant estimates and
assumptions include the fair value of the Company’s common
stock, stock-based compensation, the recoverability and useful
lives of long-lived assets, and the valuation allowance relating to
the Company’s deferred tax assets.
Recent Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”) issued an accounting
update requiring a company to recognize as revenue the amount of
consideration it expects to be entitled to in connection with the
transfer of promised goods or services to customers. The accounting
standard update will replace most of the exiting revenue
recognition guidance currently promulgated by GAAP. In August 2015,
the FASB decided to delay the effective date of new revenue
standard by one year. The new guidance is effective for emerging
growth companies for annual periods beginning after December 15,
2018, with early adoption permitted. We are in the process of
evaluating the impact, if any, of the update on our financial
position, results of operations and financial statement
disclosures.
In February 2016, the
FASB issued an accounting update that requires lessees to present
right-of-use assets and lease liabilities on the balance sheet. The
new guidance is to be applied using a modified retrospective
approach at the beginning of the earliest comparative periods in
the financial statements and is effective for fiscal years
beginning after December 15, 2019 and early adoption is permitted.
The Company is evaluating the impact that this guidance will have
on its financial position, results of operations and financial
statement disclosures.
Contingencies
Certain
conditions may exist as of the date the financial statements are
issued, which may result in a loss to the Company, but which will
only be resolved when one or more future events occur or fail to
occur. The Company’s management, in consultation with its
legal counsel as appropriate, assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in
such proceedings, the Company, in consultation with legal counsel,
evaluates the perceived merits of any legal proceedings or
unasserted claims, as well as the perceived merits of the amount of
relief sought or expected to be sought therein. If the assessment
of a contingency indicates it is probable that a material loss has
been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the
Company’s financial statements. If the assessment indicates a
potentially material loss contingency is not probable, but is
reasonably possible, or is probable, but cannot be estimated, then
the nature of the contingent liability, together with an estimate
of the range of possible loss, if determinable and material, would
be disclosed. Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the
guarantees would be disclosed.
Relaxed Ongoing Reporting Requirements
Upon
the completion of this offering, we expect to become a public
reporting company under the Exchange Act, and will be required to
publicly report on an ongoing basis. We expect to elect to report
as an “emerging growth company” (as defined in the JOBS
Act) under the reporting rules set forth under the Exchange Act.
For so long as we remain an “emerging growth company,”
we may take advantage of certain exemptions from various reporting
requirements that are applicable to other Exchange Act reporting
companies that are not “emerging growth companies,”
including but not limited to:
●
not being required
to comply with the auditor attestation requirements of Section 404
of SOX;
●
taking advantage of
extensions of time to comply with certain new or revised financial
accounting standards;
●
being permitted to
comply with reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements;
and
●
being exempt from
the requirement to hold a non-binding advisory vote on executive
compensation and stockholder approval of any golden parachute
payments not previously approved.
We will
be subject to ongoing public reporting requirements that are less
rigorous than Exchange Act rules for companies that are not
“emerging growth companies,” and our stockholders could
receive less information than they might expect to receive from
more mature public companies.
We
expect to take advantage of these reporting exemptions until we are
no longer an emerging growth company. We would remain an
“emerging growth company” for up to five years,
although if the market value of our Common Stock that is held by
non-affiliates exceeds $700 million as of any June 30 before that
time, we would cease to be an “emerging growth company”
as of the following December 31.
Overview
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. According
to the Electronic Software Association, the avid gamer sees
gameplay as central to their social life with 55% playing video
games to connect with friends and 46% to spend time with family
members. Through our proprietary, cloud-based technology platform,
we connect our network of gamers, venues and brand partners to
enable local, social and competitive esports that can be uniquely
broadcast through our platform. We offer daily and season-focused
offerings for which amateur competitive gamers establish meaningful
connections with each other while improving their
skills.
As a first-mover in defining the amateur esports category in 2015,
we believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft and Riot Games with titles including
Minecraft and League of Legends, respectively, to drive use among
our member base and further penetrate our target market. We deliver
enhanced gaming experiences to our members with these titles
through our platform, and we provide our venue and brand partners
access to our member network and platform technology. We believe
our members and the organizations that use our platform are only
beginning to leverage the power of the consumer experience,
commercial benefits, and data analytics our technology enables.
Targeting Generation Z and Millennials, members join through
accessible, free-to-play experiences allowing us to reach the
expansive amateur gaming market. We convert members into
subscribers by offering two tiers of competitive gameplay
engagement: (i) our monthly subscription for the more casual
competitive player, offering access to exclusive weekly online
tournaments, member benefits and our loyalty program; and (ii) our
semi-annual season pass for the more competitive player offering
access to our city leagues and advanced amateur esports offers
along with membership rewards.
The
Esports Player Pyramid
______________________
* Based on the average esports viewer, Nielsen
Esports Playbook, 2017
Our Vision
Our
vision is to make Super League Gaming the preeminent brand and
platform for amateur esports. We do this by providing a
proprietary, end-to-end platform that allows our members to
compete, socialize and spectate premium amateur esports gameplay
and enabling a wide ecosystem of partners to bring Super League
experiences at scale to gamers around the world.
After
securing strategic partnerships with the publishers of top-tier
game titles beginning in 2016, we became the first consumer of our
platform technology through the establishment of our city leagues,
consisting of 16 teams based in various U.S. cities built around
Minecraft, League of Legends and, most recently, Clash Royale. In
2017, we further differentiated our offering by migrating to a
cloud-based technology platform for scale while continuing to build
and establish the Super League Gaming brand. We also developed
intelligent technology that facilitates personalized experiences
and matchmaking for gamers, and audience-targeted gameplay
broadcasting content at scale.
Strategy and Milestones
|
2015 to 2017
|
2018
|
Theme
|
Technology and
Brand Foundation
|
Community and
Network Foundation
|
Core
Objectives
|
● Establish the
brand
● Build technology
platform
● Establish amateur
leagues
|
● Cultivate audience
and user base
● Enhance technology
platform for scale
● Establish nodes of
distributed network
|
Technology and
Web
|
● Develop automated
tournament operations, including ticketing, team formation and
leaderboards
● Create local
visualization from local hardware devices
|
● Develop cloud-based
streaming infrastructure for scale of local, custom
gameplay
● Complete automation
of API integration on our platform
● Enhance
standardized ticketing and gameplay launcher to streamline
operation of Super League experiences
● Create robust game
statistics management
● Provide
“always-on” offers, allowing members to play
anytime
|
Brand
|
● Super League Gaming
(master brand)
● 12 City
Clubs
● National tournament
(City Champs)
|
● SuperLeagueTV
● Establish four
additional City Clubs
● Introduction of
additional gameplay offers
|
Game
Titles
|
Execute
Microsoft and Riot licensing agreements
|
Addition of three
new, top-tier game titles to our platform
|
Network
|
● Theatres
● Action Squad, our
local, city-by-city contract workforce
|
● Retailers: local
area network (“LAN”) centers and
restaurants
● Pro Teams, local
organizers and ambassadors
● Brands: national
and local sponsors
|
Since
the launch of the Super League brand in 2015, we have continually
strengthened our brand and platform by:
●
developing our
proprietary, highly automated community, tournament and broadcast
system;
●
executing
multi-year agreements with top tier game titles;
●
creating a product
library of 10 unique game modes related to our licensed game titles
that are exclusive to Super League and utilized during our gaming
experiences;
●
launching our City
Club League consisting of 16 city-based teams across the U.S.
supported by a fleet of installed gaming auditoriums;
●
establishing a
flexible event-specific contract labor workforce, consisting of
over 150 trained and engaged individuals;
●
executing
multi-year, global brand sponsorship deals, such as Logitech, Red
Bull and Nickelodeon;
●
securing 38
protected logos and wordmarks domestically, collectively, and two
logos and wordmarks in China for our master brand and 16 of our
City Clubs; and
●
establishing three
patent families in the U.S. around multi-player gameplay and
visualization.
We are
now positioned to expand the utility of our platform for new game
titles and a distributed network of venue operators and gameplay
organizers to further develop a self-organizing marketplace for
online and in-person gaming experiences. This expansion of game
titles, across multiple hardware platforms, venue partners and
offerings will bring new audiences to Super League to increase the
breadth of our audience and depth of engagement through our
“always on” gameplay experiences.
Our Platform
Our
proprietary cloud- based platform provides amateur gamers a
modernized way to connect, play and view games in real-time. We
believe our platform will become central to the esports ecosystem
and allow us to capture a significant portion of our members’
gameplay hours and share-of-wallet for greater lifetime value. Our
platform aggregates a diverse audience of gamers across multiple
game titles and provides our members with access to online,
in-person and hybrid competitive experiences and broadcasts that
are accessible to a broad range of ages and demographics. Through
our platform, we have three core components that enable
differentiated and immersive gameplay at scale for both online and
in-person experiences:
(i)
Match-Making
allows members to create their
public-facing gamer persona and applies distinct criteria and
filters around team size, skill level and geography to
intelligently match our members for competitive gameplay and
facilitate rich online and in-person social
connections.
(ii)
Tournament Operations
supports all major components of
tournament operations and automation including, for example,
ticketing, user management, event management, event operations, API
integrations, data services, leaderboards and prize
fulfillment.
(iii)
Our Proprietary Visualization
and Broadcast System is capable
of capturing and live streaming gameplay across all digital
distribution platforms and delivering separate streams
simultaneously to multiple locations and channels, including
through our Player and Spectator Third-Person Experience and the
SuperLeagueTV digital network, as further described
below.
Our Player Interface, illustrated below, is the entry point of use for our
members that offers a user-friendly and engaging interaction from
profile creation to tournament operations, and provides our members
with real-time reporting of personal statistics, national
leaderboards and other individualized gaming
content.
Super League’s User Portal
Our
Player and Spectator Third-Person Experience, as illustrated below,
provides players and spectators with pre-gameplay content and a
unique “birds-eye” view during gameplay that is
captured by our platform and overlaid with additional interactive
content allowing us to introduce a new screen to the gameplay
experience beyond the traditional first-person and spectating
views. The end broadcast result is our customizable
Heads-up-Display (“HUD”), which complements gameplay
through dynamic visualization of player and team statistics,
competitive status updates and contextual content that can also be
uniquely displayed on a hyper-local level across venues. Before
gameplay begins, players entering our experiences are greeted with
a welcome screen that contains key information, including
experience start-time, team assignments, log-in status of
individual teams and players and other entertaining
content.
Super League’s HUD Pre-Gameplay View
Once
gameplay is launched, players and spectators enjoy a unique
third-person perspective of gameplay along with dynamic
leaderboards, statistics and other tournament-specific content
including brand sponsor integration, local team and player
statistics, instructional tips and other pertinent content, as
illustrated below. Dynamic leaderboards update in real-time during
gameplay and provide recaps of team and individual scoring
highlights at intermission and at the conclusion of
competition.
Super League’s HUD Gameplay
View
In
addition, our proprietary SuperLeagueTV digital network is the
first esports media property principally dedicated to amateur
players and teams. Currently, live stream gameplay and
video-on-demand (“VOD”) content is broadcast
through SuperLeagueTV on Twitch and
YouTube.
We believe that SuperLeagueTV’s digital broadcast
distribution is an essential way to drive viewership and membership
interest, along with new game title expansion and additional online
and in-person experiences through our distributed venue partner
network.
Industry Overview
The
consumer appetite for esports continues to grow at a rapid pace
with passionate fans across the globe. According to NewZoo, the
global gaming market will reach approximately $137.9 billion by the
end of 2018, representing a 13.3% increase from 2017. Key trends
fueling this growth include the rise of live streaming, real-time
social networking within games, and multi-generational and
lifestyle gaming.
In
particular, the professional esports industry is growing quickly,
evidenced through new leagues, teams and broadcast distribution
channels, and this growth is attracting high-profile esports
investments from brands, media organizations and traditional sports
rights holders. As professional esports player salaries and the
value of broadcast media rights have risen substantially, there is
large unmet demand at the amateur level for competitions and
viewing content, which, for esports fans, is predominantly consumed
through live streaming and over-the-top (“OTT”) channels. The following
data points illustrate the vast growth opportunity for global
esports:
Audience is already comparable to leading entertainment
platforms.
Gamers and viewers number in the hundreds of millions.
●
A portfolio of just
a few top tier game titles can bring access to hundreds of millions
of gamers, as the estimated monthly active users
(“MAU”) for
Fortnite, League of Legends and Minecraft is 125 million, 100
million and 74 million, respectively (Statista and Microsoft,
2018).
●
355 billion minutes
of esports are estimated to be live streamed on Twitch in 2018, and
by 2022, esports is on track to reach 300 million global viewers,
which is similar to the current global audience size of the
National Football League (“NFL”) (Goldman Sachs Esports
Equity Research, 2018).
Engagement is both broad and deep.
●
The average U.S. gaming household, or households
with more than one gamer, has 1.7 gamers (Electronic Software
Association, 2018)..
●
An
esports
viewer spends up to 9 hours per week watching esports-related
content in addition to over 8 hours of gameplay per week (Nielsen
Esports Playbook, 2017.
Demographics centered on the
highly sought after, younger segments.
Video games have a positive social impact.
●
70% of parents
believing gaming “has a positive influence on their
children’s lives” (Electronic Software Association,
2018).
●
Esports
enthusiasts, on average, have higher college graduation rates and
average household incomes, with 43% earning greater than $75,000
per year, relative to traditional sports fans (Mindshare, Esports
Fans: What Marketers Should Now, 2016).
Revenue potential is valued at billions of dollars and broad
based.
●
Recent reports show
a “$15 billion blue sky revenue opportunity” for
professional esports due to the highly engaged and untapped fanbase
(Merrill Lynch Interactive Report, 2018).
●
Gaming video
content is estimated to be a $4.6 billion market with more viewers
than HBO, Netflix, ESPN and Hulu combined (SuperData Research,
2017).
●
Currently, an
estimated 40% of professional esports revenues come from brand and
media sponsorships (endemic and non-endemic) and 19% from media
rights, with the latter expected to grow to 40% by 2022 (BofA
Merrill Lynch Global Research, 2018).
Revenue potential is not only very large, but also growing
rapidly.
Our Opportunity
We
believe our esports community platform will transform the way
amateur gamers connect, interact, socialize and compete. Our
premium, competitive gameplay experiences and elite amateur
broadcasts, coupled with the expansion of our game title portfolio,
our retail venue partner network and our strategic brand
sponsorships introduce new gamers into our customer funnel to drive
membership growth and subscription conversion. Esports is still in
its early stages and entering a new phase of growth, but top game
titles attract large, global audiences and just a few titles
provide us access to hundreds of millions of players. Examples
include:
Game Title Sample Set
TITLE
|
PUBLISHER
|
GENRE
|
TARGET
DEMOGRAPHIC
(AGE)
|
ESTIMATED
MAU/PLAYERS
|
League
of Legends
|
Riot
Games
|
Multiplayer Online
Battle Arena (“MOBA”)
|
14
–
34
|
100MM1
|
Minecraft
|
Microsoft
(Mojang)
|
Sandbox
|
6
–
14
|
74MM2
|
Clash
Royale
|
Supercell
|
Collectible Card
Game (“CCG”);
Tower Defense; Real Time Strategy (“RTS”); “MOBA”
|
14
– 50
|
100MM3
|
Fortnite
|
Epic
Games
|
Battle
Royale
|
8
– 34
|
125MM1
|
Rocket
League
|
Psyonix
|
Sports
|
8
– 34
|
40MM4
|
______________________
(1)
statista.com.
(2) popsugar.com,
“Minecraft Boss Helen Chiang on Her New Role, Breaking
Records, and What's in Store For 2018,” May 8,
2018.
(3) 100MM MAU
across all four of Supercell’s games announced via
twitter.com, March 7, 2016.
(4) twitter.com,
@rocketleague, January 2, 2018.
Despite
the significant growth potential outlined above, there are several
key challenges facing stakeholders in the esports
landscape:
●
Amateur Gamers are a highly fragmented,
often anonymous community with limited ways to find gamers of
similar skill-level and gaming interest online and locally. In
addition, the lack of amateur esports infrastructure results in few
experiences with no clear path to the professional esports level
for players who wish to develop and test their skills while forging
social connections.
●
Game Publishers must find alternative
methods to attract new gamer audiences to their game titles and
offer premium experiences that drive greater gamer retention. The
lack of diversity in gaming, along with increased competition
amongst titles, requires marketing partnerships to extend the
lifecycle and franchise value of their intellectual
property.
●
Venue Operators, including restaurants
and retailers, must grow same-store sales in order to capture new
sources of foot-traffic and deeper customer loyalty. Millennials
and Generation Z generally value experiences, but tend to purchase
more content and products online, making them an attractive
demographic to widen a venue’s customer base and improve
asset utilization.
●
Sponsors and Advertisers are limited in
their channels to reach the “cord cutting” Generation Z
and Millennials due to the increasing fragmentation of content
distribution and use of advertising-blocking technology. Given
these demographic groups consume most content online, brands are
challenged to target these audiences in an authentic way and
achieve efficient marketing spend.
●
Professional Esports Teams and Owners
have made significant investments in their teams and must
rapidly develop a fanbase to achieve franchise values similar to
traditional sports teams. However, there is no formal structure to
identify the next generation of esports professionals to build
their long-term rosters to support long-term fan
loyalty.
Super League’s Solution for Esports Ecosystem
Stakeholders
Our
platform offers the following solutions for these key
stakeholders:
●
For Amateur Gamers,
our platform enables online and
in-person player connections and a league-based structure that
provides participants and spectators with a unique lens on elite
and local amateur gameplay. Over time, we expect to have a volume
of broadcast content that allows us to build our own premium OTT
channel network on SuperLeagueTV and, ultimately, attract broadcast
rights revenue.
●
For Game Publishers,
our platform introduces their game
titles to new audiences and drives retention by providing an
immersive, premium way to play games, leading to deeper player
engagement. Through our data analytics, we believe we will become a
central component to new game development and launches, and will
have the ability to drive cross-game behavior across a wide
portfolio of game titles.
●
For Venue
Operators, we provide licenses to access our platform in
order to operate esports experiences that enable these enterprises
to attract new foot traffic, improve day-part utilization and drive
same store sales. In addition, we expect to provide venue operators
with predictive customer activity information for more targeted
offers to existing customers and our members.
●
For Sponsors and
Advertisers, our platform
provides a highly targeted marketing channel that offers a relevant
path for brands to build affinity with the hard to reach, yet
highly sought after, Generation Z and Millennial demographics.
Based on our member data, we will have the ability to target
audiences based on our members’ profile information for more
efficient marketing spend.
●
For Professional Esports Teams
and Owners, we cultivate the
future professional esports fanbase through amateur competitive
youth leagues, while providing an amateur feeder system as a path
to the professional leagues. Looking forward, we will have a
comprehensive set of data and tools to provide player analytics and
progress skill levels.
Our Amateur Esports Capabilities
Super
League is an “always-on” operation with scalable
technology and deep experiential capabilities to deliver premium
player experiences in the amateur esports space. Our value
propositions for all competitive amateur gamers, irrespective of
our game titles, are:
●
Public-facing gamer persona that connect our
members to their local community: Members can create a gamer
profile that provides key gamer information, such as their unique
game title identification, enabling us to manage player
matchmaking, tournament gameplay and statistics tracking. Member
results are dynamically updated on individual profile pages, along
with national and local leaderboards.
●
High-quality, immersive gameplay experiences
online and in-person: Members can initially join our
platform through accessible, free-to-play, online experiences and
then convert to our monthly subscription offers for a deeper
engagement through exclusive weekly online competitions across all
game titles. More competitive members can subscribe to our
semi-annual season pass, which includes access to our city league
for more heightened, immersive gameplay. In addition, our
distributed network of retail venues, will augment our subscription
offers and allow for event-specific, in-person experiences to drive
more members and gameplay hours to our platform.
●
Broadcasts of elite amateur gameplay
competitions from a unique perspective: Our cloud-based
platform allows anyone, anywhere to view gameplay with a birds-eye
perspective that is interactive and contextualized. Spectators can
view live gameplay and original story-driven content either
in-venue or through live stream and VOD on a wide network of
digital distribution channels such as Twitch and
YouTube.
●
Exclusive member benefits and player status
program: Members earn rewards through gameplay participation
to enhance their individual gamer profile and gain exposure on
national and local leaderboards on an annual and lifetime basis. In
the future, members will be rewarded for the quality and length of
gameplay through our platform and have access to additional member
benefits in the form of exclusive experiences, content and offers
available from our top consumer brand and retail
partners.
●
New way to make social gaming
connections: Members enjoy an easier way to meet new friends
and experience the games they are passionate about through their
engagement with a new social community. In addition to socializing
in our competitions, our members can communicate through our media
channels, including Facebook, Discord and SuperLeagueTV, as part of
a positive, inclusive community.
Subscriptions
Core to
our business is moving to a subscription-based model that allows
gamers of varying levels of gameplay across multiple titles to
engage in premium competition on our platform. Members join through
accessible, free-to-play experiences that act as an introduction to
our platform, and over time, convert into two tiers of consumer
subscriptions. We also offer specialized commercial subscriptions
for venue operators to drive new membership. Each of these
offerings are further described below:
(i)
Monthly Subscriptions target the more
casual competitive gamer and is set at an affordable price-point
with a 90-day free trial and a discounted price if purchased
annually. The monthly pass provides competitive amateur gamers with
access to exclusive weekly online tournaments across all active
game titles and member benefits unique to our loyalty program. At
the end of the trial period, members are enrolled as paying
subscribers and billed monthly thereafter. Current pricing is set
at $4.99 per month with the option to purchase an annual
subscription at the discounted price of $49.90 in effect offering
two months free, not inclusive of purchases of one-off experience
passes and merchandise from our website,
superleague.com.
(ii)
Semi-Annual Season Passes target the
more dedicated amateur gamer who has a greater share of gameplay
hours and share-of-wallet to commit to intensive competition. The
season pass provides access to our city leagues for a heightened
level of hybrid competition, both online and in-person, over an
extended number of weeks. Taking place each spring and fall, our
City Club League is a national tournament lasting between six to 12
weeks and can include pre-season qualifications and post-season
“All-Star” components. Current pricing for semi-annual
passes range from $40.00 to $60.00 per season, translating to
$80.00 to $120.00 of annual revenue for our recurring players, not
inclusive of one-off experience passes and merchandise from our
website, superleague.com.
(iii)
Commercial Subscriptions enable retail
venue partners to license our platform to host curated Super League
experiences for a monthly fee to introduce a wider reach of amateur
gamers to Super League experiences and drive more membership and
gameplay hours through our platform. This allows retail and
restaurant operators to attract new foot traffic and enhance
capacity utilization by creating interactive gaming experiences in
their locations, and we, in turn, benefit from their wide national
geographic reach and the leverage provided by their infrastructure,
marketing and operations, ultimately bringing Super League to a
wider community of amateur competitive gamers. We are exploring
monthly license subscription fees with our inaugural commercial
partners, with the understanding that the pilot period will provide more data
on increased foot traffic and same-store sales that could lead to
additional revenue sharing opportunities on food and beverage, door
entry fees, and merchandise.
A Sample of Super League Experiences on
superleague.com
City Club League
Our
City Club League is an integral part of our effort to connect
amateur gamers with one another. City Clubs not only enable our
seasonal competitions, but also allow us to aggregate our community
around our owned and operated clubs serving an unmet desire for
amateur players to connect on a local level and exhibit civic pride
for esports. Our City Clubs serve as a unifying umbrella across
game titles, age groups and skill levels in 16 major metropolitan
centers across
the U.S., including Chicago, Los Angeles and New York City, with an
intention to expand both domestically and internationally in the
foreseeable future.
Super League’s City Clubs
SuperLeagueTV
SuperLeagueTV content is a core component of our offer, as well as
a binding element connecting players within our local communities.
Whether promoting upcoming Super League experiences, engaging
players during an event, live streaming the competitive action,
producing original video series or recapping the results of a
tournament, SuperLeagueTV is dedicated to creating and showcasing
novel and intriguing stories that emerge during and in between the
over 300,000 hours of gameplay enjoyed by Super Leaguers this year.
As a primary distribution channel, SuperLeagueTV launched on Twitch
in April 2018, broadcasting from the Super League Gaming esports
desk. Following several months of additional testing and
development of creative concepts and production techniques enabled
by the Super League platform, SuperLeagueTV will feature over 150
hours of gameplay and entertainment programming across multiple
game titles per month beginning in October
2018.
Live Stream Remote Shout-Casting and Gameplay on
SuperLeagueTV
Brand and Media Partnerships
The
highly sought after Millennial and Generation Z audience is
increasingly difficult for brands to reach due to the proliferation
of new content distribution channels, ad-blocking technology and a
sentiment against overt marketing and promotion. This difficulty is
compounded by the limited ways to directly reach gamers, given game
publishers control of in-game content. Our ability to uniquely
aggregate a diverse membership base across age ranges, skill levels
and game titles and can direct authentic brand integrations to our
players in a targeted way. We believe that our brand is at the
forefront in the mainstreaming of esports, and we stand for
inclusive, positive gameplay by providing a positive access point
for both endemic and non-endemic brands to enter the
category.
Currently,
our largest revenue stream comes by way of brand sponsorships and
includes multi-year strategic partnerships with Red Bull, Logitech
and Nickelodeon. Over time, we expect to extract additional revenue
through the monetization of our large volume of distributed content
through advertising income. Our brand sponsorship opportunities
include:
●
Master brand
sponsorships covering all appropriate game titles and subscription
types, providing our brand partners with promotion opportunities
through our online and in-person offerings for targeted, deep
engagement along with member benefits specific to the
sponsors’ products and offers including discounts, free
trials, and exclusive content and experiences.
●
Tournament and game
specific sponsorships, allowing brands to more narrowly target
specific age ranges, game genres and other demographic
objectives.
●
City Club
sponsorships, allowing regional and local brands to participate in
geo-targeted promotion to cultivate unique gamer lifestyle brands
within our City Club metropolitan areas.
●
SuperLeagueTV
sponsorships enable brands to achieve wider reach through our
broadcast distribution channels, including Twitch, Facebook,
YouTube and in-venue channels, for both amateur esports players and
spectators.
●
Tailored
experience-specific sponsorships, providing brands with an
opportunity to design unique experiences and content for deeper
integration and wider media distribution.
It is
our intention to have brand and media partnerships across various
vertical categories, in order to attract both brands that are
already deeply committed to esports and brands just entering the
esports space and seeking a mainstream, safe brand partner and
entry point.
Marketing and Member Acquisition
Prospective
members and subscribers are introduced to Super League through
seven primary channels that feed our customer funnel, consisting
of:
(i)
top-tier games
titles that provide access to communities in the hundreds of
millions;
(ii)
continued press and
public relations that drives brand awareness;
(iii)
generation of
interest and audience development through
SuperLeagueTV;
(iv)
retail venue
partners that provide geographic coverage and access to built-in
customer bases;
(v)
brand sponsors who
amplify our sales and marketing through their own customer and
social reach;
(vi)
brand ambassadors
that drive local, organic word-of-mouth advertising for deeper
engagement and loyalty; and
(vii)
member referral
programs that round out the integral feedback loop for a network
effect.
Our Customer Funnel*
_______________
* Dollar amounts equal to annual revenue per
individual.
In
addition to these channels, we also market our community and
platform through in-game promotion, search engine optimization,
online advertising, social influencers and e-mail
marketing.
Members typically begin their relationship with Super League by
viewing content on SuperLeagueTV, registering an email address,
and/or by participating in our free-to-play experiences. Members
become more engaged by creating a profile to join our network of
amateur gamers where they can find and connect with other players
by gaming interest, geographic location and other attributes.
Membership is free, but we do monetize members as activity grows
with one-off paid experiences, merchandise sales, and brand and
media sponsorship revenues.
We
drive deeper member engagement by offering a 90-day free trial to
join our monthly subscription program, which offers frequent gaming
experiences, leaderboards, and prizing across all of our game
titles along with benefits and discounts from our brand partners.
Our monthly subscribers generate between $50.00 and $60.00 in
annual revenue per subscriber, and content from these experiences
is broadcast daily on SuperLeagueTV, which drives deeper engagement
among this player group and serves as a channel to attract new
members.
For our
most engaged players, we offer a semi-annual season pass
subscription for each game title. The format varies among game
titles, but our semi-annual season passes offer a combination of
online and in-person premium experiences organized around our City
Clubs. Due to the more formal team structure and length of season,
players often spend more time practicing and communicating with
each other, in addition to participating in our organized gaming
experiences. Our semi-annual season pass holders generate between
$80.00 and $120.00 per year per holder and produce our highest tier
of premium amateur gaming content which is featured on
SuperLeagueTV as well as brand partner channels. This content
attracts the largest viewership among our existing Super League
community and provides the
greatest exposure to new audiences. In addition, professional
esports teams can gain visibility to this pool of experienced
amateur players for recruiting purposes.
The key
performance indicators (“KPI”) driving our business model
are related to “always on,” scalable offers,
conversion, and engagement. Our significant growth in 2018 is a
function of the advancement of our technology platform, expansion
of our in-person and online offer catalogue, and select customer
acquisition accelerating our ability to reach and serve a larger
target audience with greater frequency.
Our Customer Key Performance
Indicators (“KPI”)
|
|
2015
|
2016
|
2017
|
2018 (Estimated)
|
Always
On
|
Seasons
|
2
|
5
|
3
|
5
|
Venues
|
0
|
4
|
20
|
>
100
|
Experiences
(online)
|
330
(0)
|
900
(0)
|
250
(20)
|
>
1,500
(> 200)
|
Conversion
|
Members
|
13,000
|
30,000
|
43,000
|
>
200,000
|
Engagement
|
Participations
|
9,000
|
21,000
|
20,000
|
>
150,000
|
Gameplay
Hours
|
19,000
|
43,000
|
61,000
|
>
300,000
|
Our Strengths
We
differentiate ourselves from potential competition through the
power of a pure horizontal platform and established partnerships
that enable experiences, community, content and commerce. Our core
strengths include the following:
●
Game Publisher Agreements provide access
to existing user bases via strategic partnerships with
some of the largest game publishers. These partnerships draw
subscription interest and provide a line of defense against our
competitors. Our ability to interact with this highly attractive,
engaged user base draws brands and sponsors to us to reach this
otherwise hard-to-reach demographic.
●
Proprietary and Curated Content provides
us with a unique perspective to amateur competitive gameplay
currently absent from the esports ecosystem and is highly
complementary and valuable to the needs of large video streaming
providers.
●
Patent-Pending Technology allows for
unique, intelligent content capture and visualization to facilitate
maximum scale of interactive, in-person gaming, broadcast
experience, and content monetization.
●
Over Three Years of Brand and Technology
Development provides us a strong, distinctive lead on
followers with no obvious competitors in the holistic community,
league operations and media platform category.
●
A Diverse Set of Enterprise and Commercial
Revenue Streams enabled by a pure platform play that
protects us from the risk of online-only offers subject to
commoditization and advertising revenue dependency.
●
A Growing Member Base coupled with
highly customized gaming and viewing experiences allows us to
capture a global, highly engaged, yet somewhat elusive community
that will provide many new ways to monetize over time.
●
Creation of Intangible Brand Value in
the quality of our offer, game titles, brand partners and investor
base that validates our trusted, premium brand and distinctive
positioning to drive value in the fragmented, burgeoning esports
landscape.
Our Growth Strategy
Our
core strategy is to pursue initiatives that promote the viral
growth of our member base, and in doing so drive subscription,
sponsorships and other new revenue streams. Our customer
acquisition and retention funnel provides the primary lens for
community growth, engagement and long-term brand
equity.
●
Member Growth and Network Effect is
driven organically through direct marketing, partner and influencer
promotion, and search engine optimization. We believe the most
efficient member acquisition will come through word of mouth and
referral programs leading to a declining customer acquisition cost
(“CAC”) and
accretive life time value (“LTV”) over time.
●
Mutually Beneficial Relationships with Game
Publishers, along with our game-agnostic platform interface,
allow us to access large, built-in customer bases from game titles
amassing access to hundreds of millions of MAU and offering
enhanced competitive gameplay experiences to deepen their
connection to the game titles.
●
Strategic Retail Venue Partnerships
allow us to reach domestic and international scale by leveraging
the infrastructure, operations and marketing efforts of our retail
venue partners to create daily, weekly and monthly in-person
experiences with amateur gamers to drive more membership and
competitive gameplay through our platform.
●
Brand and Media Partnerships extend the
utility of our platform by leveraging the broadcast, social and
customer loyalty programs of our brand and media partners to extend
our audience reach and drive more gamers and viewers into the top
of our funnel.
●
International Expansion, as we continue
to prove the model domestically, will enable us to access the massive global scale of
gamers worldwide and unlock greater brand partnership and media
rights revenue opportunities through global audience
development.
●
Key Stakeholder Tools including a game
publisher software development kit (“SDK”) and customer
marketplace portals for players, tournament organizers and venue
operators will scale and distribute Super League experiences in a
highly automated way with low marketing and operating
costs.
●
Opportunistic Acquisitions allow us to
add complementary users, revenues, and/or technology components to
accelerate our amateur esports member adoption and further enhance
our competitive gameplay experiences.
Technology Infrastructure
Early
in our inception, we utilized a local hardware solution to create
interactive physical spaces, allowing amateur competitive gamers a
new way to interact with their games, fellow players and our
distinctive and proprietary HUD for a unique entertainment and
spectating experience. We have since moved our platform to the
cloud for scale, and now offer a wide use of our platform to
operate Super League experiences, both online and in-person, by
leveraging the infrastructure, operations and marketing of an
established retail venue network. The following illustrates the
evolution of our platform and current cloud-based
state:
Our
technology platform represents an important intellectual property
asset for our Company. It consists of various custom
developed components that come together in uniquely configured ways
to deliver scalable competitions, experiences and content
opportunities.
The
components of our platform include, among other things, user
management, event management, event operations, data services,
streaming, ecommerce, and user statistics and leaderboards.
These components share several data sources and enables us to offer
a wide variety of gameplay experiences across multiple
environments, often simultaneously, with a vast array of resulting
content publishing opportunities. Our platform also provides
tools to distribute and leverage content, as well as tools around
platform administration. The following illustrates our
comprehensive cloud-based tournament and broadcast
toolset:
Our proprietary visualization and broadcast system, which provides
compelling live stream content delivery, automates and scales
various gameplay processes and functions that would otherwise need
to be accomplished manually. These processes and functions
primarily include ways to ensure that visualizations of gameplay
and other value-added data and graphics are both captured and
delivered efficiently and timely. For example, our
proprietary software is used during our experiences ensures that we
are showing the most interesting aspects of gameplay, as well as
switching to matches that are most relevant to the
competition. Further, we use computer vision to glean key
events, graphics or data from the game screen, especially when the
game publisher might not make such information available via an
application programming interface (“API”). We intend to
continue to invest in and improve upon our use of computer vision
in our technology platform, so that we can mitigate our dependency
on game publishers providing certain APIs and toolsets, and
continue to provide differentiated gameplay and spectating
experiences.
As we
evolve our technology, we will launch simultaneous gameplay that
will allow players and spectators to watch multiple live streams at
once, as illustrated below:
Intellectual Property and Patents
Similar
to other interactive entertainment and esports companies, our
business depends heavily on the creation, acquisition, licensing,
use and protection of intellectual property. We have developed and
own various intellectual properties, including pending and issued
trademarks, patents and copyrights. For example, each of our
City Clubs have pending trademarks related to naming and logo. We
also have obtained licenses to valuable intellectual property with
game publishers. We leverage these licenses and service
agreements to operate online and location-based competitions, and
in parallel, use them to generate a wide array of
content.
To
protect our intellectual property, we rely on a combination of
patent applications, copyrights, pending and issued trademarks,
confidentiality provisions and procedures, other contractual
provisions, trade secret laws and restrictions on disclosure. We
intend to vigorously protect our technology and proprietary rights;
however, no assurances can be given that our efforts will be
successful. Even if our efforts are successful, we may incur
significant costs in defending our rights. From time to time, third
parties may initiate litigation against us alleging infringement of
their proprietary rights or claiming they have not infringed our
intellectual property rights. See the section entitled
“Risk Factors”
for additional information regarding the risks we face with respect
to litigation related to intellectual property claims. As of
the date hereof, we have filed three patent applications, all of
which are currently pending, and various trademark applications,
some granted and most of which are currently pending, covering our
technologies and brands, as more specifically set forth below. We
intend to file additional applications for the grant of patents and
registration of our trademarks in the United States and foreign
jurisdictions as our business expands.
Our
patent applications relate to creating unique, place-based, visual
experiences. These experiences manifest via display by web
stream of gameplay in combination with related textual, graphical
and video content targeted for consumption by players and
spectators alike. In order to achieve visualization of
certain games, specifically Minecraft and Clash Royale, we have
developed technology that places a “managed” character
into these games solely for the purpose of sharing the first-person
perspective that is created. We also filed a provisional
patent protecting bleeding edge virtualization technologies that
allow us to heedlessly visualize from the cloud. Instead of
requiring complex and expensive local installation of hardware to
enable the place-based experience, we use this technology to create
web streams of all gameplay and supplementary content. The
effect of this capability is to dramatically reduce the barrier to
entry for venues of all types to participate in Super League
experiences.
Operations
With
over 2,000 experiences completed since 2015, we have a broad
understanding of the requirements to deliver online and in-person
competitions from an operations, technology and customer support
perspective. With our national venue fleet and contractor
network, we established training and protocols for new brand
ambassadors and venue operators for scale. Our operations
network includes the following:
●
Action Squad serves
as an extension of Super League’s experience team and is
responsible for managing logistics at local venues and facilitating
an engaging and fair player experience. The team, comprised of
approximately 150 contract-based members, has been interviewed and
trained by Super League. In addition, we manage staffing and
ongoing communication with Microsoft’s StaffHub, and have
developed a proprietary mobile app to manage logistics (including
player check-in) and communication to our Network Operations Center
(“NOC”) during
in-person experiences.
●
Our Customer Service
Team uses Zendesk to manage customer inquiries that come
from various channels including email, web forms, and Facebook. We
run a 24-hour email and ticketing escalation system and support
live chat during normal business hours and experiences. Our
customer service team includes on-site staff and remote contractors
that can scale based on the number of simultaneous gameplay
experiences.
●
The NOC is equipped
with tools to streamline issue resolution while accommodating a
large volume of simultaneous gameplay experiences. All locations
are set up with remote monitoring of the LAN and player device
performance alerting for real-time customer service and technical
escalations. The technicians are scaled on demand depending on the
number of experiences run simultaneously using remote, real-time
network and tournament monitoring.
Our Values and Company Culture
Super
League is a player-first company, a credo embraced by every
employee. We are committed to enhancing and celebrating the player
experience by providing gameplay formats, competitive frameworks,
technical stability, content, information and customer support that
exceed player expectations.
Having
produced more than 2,000 experiences over more than two years in
locations ranging from movie theatres to restaurants, and retail
stores to LAN centers to esports arenas, Super League specializes
in delivering positive experiences to a wide range of demographic
audiences that bring players and their families and friends a sense
of genuine belonging to a peer group that understands them and
shares their passions.
Employees and Labor Relations
As of
June 30, 2018, we had 38 full-time and full-time equivalent
employees. Additionally, we occasionally enter into agreements with
contractors, on an as-needed basis, to perform certain services. As
of June 30, 2018, two of our full-time employees were subject to
fixed-term employment agreements with us, and all other employees
served at-will pursuant to the terms set forth in their offer
letters.
We
believe that we maintain a good working relationship with our
employees, and we have not experienced any labor disputes. None of
our employees are represented by labor unions.
Governmental Regulation
Our
online gaming platforms, which target individuals ranging from
elementary school age children to adults, are subject to laws and
regulations relating to privacy and child protection. Through our
website, online platforms and in person gaming activities we may
monitor and collect certain information about child users of these
forums. A variety of laws and regulations have been adopted in
recent years aimed at protecting children using the internet, such
as COPPA. COPPA sets forth, among other things, a number of
restrictions related to what information may be collected with
respect to children under the age of 13, as the kinds of content
that website operators may present to children under such age.
There are also a variety of laws and regulations governing
individual privacy and the protection and use of information
collected from individuals, particularly in relation to an
individual’s personally identifiable information (e.g.,
credit card numbers).
We are
also subject to a number of other foreign and domestic laws and
regulations that affect companies conducting business on the
Internet. In addition, laws and regulations relating to data
collection, retention, electronic commerce, virtual items and
currency, consumer protection, content, advertising, localization
and information security have been adopted or are being considered
for adoption by many countries throughout the world, and such laws
may have an impact on our business.
Cost of Compliance with Environmental Laws
We have
not incurred any costs associated with compliance with
environmental regulations, nor do we anticipate any future costs
associated with environmental compliance; however, no assurances
can be given that we will not incur such costs in the
future.
Facilities
Our executive offices are located in approximately 4,965 square
feet of office space at 2906 Colorado Avenue, Santa Monica,
California 90404, which we occupy under a month-to-month lease
agreement at $19,734 per month. In addition, we have recently
leased an additional 1,650 square feet on a month-to-month basis in
the same complex to serve as a content studio at $5,197 per
month.
We
anticipate no difficulty in extending the leases of our facilities
or obtaining comparable facilities in suitable locations, as
needed, and we consider our facilities to be adequate for our
current needs.
Legal Proceedings
As of
the date hereof, we are not a party to any material legal or
administrative proceedings. There are no proceedings in which any
of our directors, executive officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a
material interest adverse to our interest. We may from time to time
be subject to various legal or administrative claims and
proceedings arising in the ordinary course of business. Litigation
or any other legal or administrative proceeding, regardless of the
outcome, is likely to result in substantial cost and diversion of
our resources, including our management’s time and
attention.
Executive Officers and Directors
The following table sets forth the names, ages, and positions of
our executive officers, directors and significant employees as of
the date of this prospectus.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Ann
Hand
|
|
49
|
|
Chief
Executive Officer, President, Chair of the Board
|
|
David
Steigelfest
|
|
51
|
|
Chief
Product and Technology Officer, Director
|
|
Clayton
Haynes
|
|
49
|
|
Chief
Financial Officer
|
|
Matt
Edelman
|
|
48
|
|
Chief
Commercial Officer
|
|
John
Miller
|
|
39
|
|
Director
|
|
Jeff
Gehl
|
|
50
|
|
Director
|
|
Robert
Stewart
|
|
51
|
|
Director
|
|
Marc
Cummins
|
|
59
|
|
Director
|
|
|
|
|
|
|
|
Significant Employees:
|
|
|
|
|
|
|
|
|
|
|
|
Andy
Babb
|
|
49
|
|
Executive
Vice President of Game Partnerships
|
|
Anne
Gailliot
|
|
41
|
|
Chief
of Staff, Vice President of Special Projects
|
|
There are no arrangements or understandings between our Company and
any other person pursuant to which he or she was or is to be
selected as a director, executive officer or nominee. Ms. Hand, our
President and Chief Executive Officer, is a first cousin of Mr.
Gehl, a member of our Board. There are no other family
relationships among any of our directors or executive officers. To
the best of our knowledge, none of our directors or executive
officers have, during the past ten years, been involved in any
legal proceedings described in subparagraph (f) of Item 401 of
Regulation S-K.
Executive Officers
Ann Hand
Chief Executive Officer, President, Chair of the Board
Ms.
Hand has served as our Chief Executive Officer, President and Chair
of our Board since June 2015. Over the past 20 years, Ms. Hand has
served as a market-facing executive with a track record in brand
creation and turn- around with notable delivery at the intersection
of social impact with consumer trends and technology to create bold
offers, drive consumer preference and deliver bottom line results.
Prior to joining the Company, from 2009 to 2015, Ms. Hand served as
Chief Executive Officer and as a director of Project Frog, a
venture-backed firm with a mission to democratize healthy, inspired
buildings that are better, faster, greener, and more affordable
than traditional construction. From 1998 through 2008, Ms. Hand
served in various senior executive positions with BP plc, including
Senior Vice President, Global Brand Marketing & Innovation from
2005 to 2008, during which time she lead many award-winning
integrated marketing campaigns and oversaw the entire brand
portfolio of B2C and B2B brands, including BP, Castrol, Arco, am/pm
and Aral. Additionally, she served as Chief Executive, Global
Liquefied Gas Business Unit with full P&L accountability across
15 countries and 3,000 staff, covering operations, logistics, sales
and marketing with over $3 billion in annual revenue. Ms. Hand was
recognized by Goldman Sachs - “100 Most Intriguing
Entrepreneurs” in 2014, by Fortune - “Top 10 Most
Powerful Women Entrepreneurs” in 2013, and Fast Company
– “100 Most Creative People” in 2011. Ms. Hand
earned a BA in Economics from DePauw University, an MBA from
Northwestern’s Kellogg School of Management, and completed
executive education at Cambridge, Harvard and Stanford
Universities.
David Steigelfest
Chief Product and Technology Officer, Director
Mr.
Steigelfest co-founded the Company in 2014, and has served as a
director on our Board since that time. In addition, Mr. Steigelfest
served has our Chief Product and Technology Officer since May 2018.
An attorney by education, David has served as an executive and
entrepreneur in the digital and technology space for more than 20
years. Prior to co-founding the Company in 2014, Mr. Steigelfest
founded rbidr LLC, a media and technology startup and a pioneer in
yield management and price optimization software, where he served
as Chief Executive Officer from 2008 to 2013. From 2013 to 2014,
Mr. Steigelfest worked for Cosi Consulting, where he provided
management consulting services ranging from complex project
management, PMO, software design, 3rd party software
integration and migration, enterprise content management, data
management and system-based regulatory compliance to various
Fortune 500 companies. From 2001 to 2008, Mr. Steigelfest worked on
Wall Street at Deutsche Bank, where he oversaw various
multi-million-dollar change management projects. In addition, Mr.
Steigelfest previously served as Vice President of eCommerce at
Starguide Digital Networks, where he had responsibility over the
streaming media portal, CoolCast. CoolCast utilized satellite
technology to distribute high quality streaming content into
multi-cast enabled networks bypassing Internet bottlenecks. Prior
to Starguide, Mr. Steigelfest served as the Director of Product
Management at Gateway Computers, where he oversaw Gateway.com and
Gateway’s business-to-business extranet system, eSource. In
addition, Mr. Steigelfest has consulted for companies of all sizes
throughout his career addressing a wide variety of IT and business
challenges, including complex business process change, software
implementation and e-commerce. Mr. Steigelfest received a BA
in International Relations and Psychology from Syracuse University,
and a JD with an emphasis in business transactions and business law
from Widener University School of Law.
Clayton Haynes
Chief Financial Officer
Mr. Haynes was appointed as our Chief
Financial Officer in August 2018. From 2001 to August 2018, Mr.
Haynes served as Chief Financial Officer, Senior Vice President of
Finance and Treasurer of Acacia Research Corporation
(NASDAQ: ACTG), an industry-leading
intellectual property licensing and enforcement and technology
investment company. Mr. Haynes is a party to a transition related
consulting agreement with Acacia Research Corporation that expires
on January 1, 2019. From 1992 to March 2001, Mr. Haynes was
employed by PricewaterhouseCoopers LLP, ultimately serving as a
Manager in the Audit and Business Advisory Services practice, where
he provided and managed full scope financial statement audit and
business advisory services for public and private company clients
with annual revenue ranging from $1 million to $1 billion in a
variety of sectors, including manufacturing, distribution, oil and
gas, engineering, aerospace and retail. Mr. Haynes received a
BA in Economics and Business/Accounting from the University of
California at Los Angeles, an MBA from the University of California
at Irvine Paul Merage School of Business, and is a Certified Public
Accountant (Inactive).
Matt Edelman
Chief Commercial Officer
Mr.
Edelman oversees the Company’s revenue, marketing, content,
creative services and business development activities, and has
served as our Chief Commercial Officer since July 2017. Mr. Edelman
is the owner of PickTheBrain, a leading digital self-improvement
business, a board member and marketing committee member of the
Epilepsy Foundation of Greater Los Angeles, and has over 20 years
of experience working in the digital and traditional media and
entertainment industries. Since 2001, he has served as an advisor
and consultant to numerous digital and media companies, including,
amongst others, Nike, Marvel, MTV, Sony Pictures, 20th Century Fox and TV
Guide. Prior to joining the Company, from 2014 to 2017, Mr. Edelman
served as the Head of Digital Operations and Marketing Solutions at
WME-IMG (now Endeavor), where he was responsible for several areas,
including digital audience and revenue growth through content,
social media and paid customer acquisition across the
company’s global live events business within sports, fashion
culinary and entertainment verticals; digital marketing services
for consumer brands, college athletics programs and talent; and
management of direct-to-consumer digital content businesses,
including both eSports and Fashion OTT properties. From 2010 to
2013, Mr. Edelman served as the Chief Executive Officer of Glossi
(previously ThisNext), an authoring platform enabling individuals
to create their own digital magazines. Previously, Mr. Edelman also
founded and/or served in executive positions at multiple early
stage digital media companies. Mr. Edelman earned a BA in Politics
from Princeton University.
Board of Directors
Ann Hand
Chief Executive Officer, President, Chair of the Board
Please
see Ms. Hand’s biography in the preceding section under the
heading “Executive
Officers”.
Ms. Hand’s extensive background in corporate leadership and
her practical experience in brand creation and turn- around
directly align with the Company’s focus, and ideally position
her to make substantial contributions to the Board, both as Chair
of the Board and as the leader of the Company’s executive
team.
David Steigelfest
Chief Product and Technology Officer, Director
Please
see Mr. Steigelfest’s biography in the preceding section
under the heading “Executive
Officers”.
As a co-founder of the Company and a lead developer of the
Company’s platform, Mr. Steigelfest provides the Board with
critical insight into the technological aspects of the
Company’s operations and the ongoing development of the
platform, attributes that make Mr. Steigelfest a particularly
valued member of the Board.
John Miller
Director
Mr. Miller co-founded the Company in 2014, and has served as a
director on the Company’s Bord since its inception. In
addition, Mr. Miller founded and has served as Chief Executive
Officer and Chairman of Cali Group, a holding company with
ownership positions in various companies focused on the development
of new technologies for the restaurant and retail industries and a
significant investor in the Company, since 2011. Prior to founding
Cali Group, Mr. Miller worked for Arrowhead Pharmaceuticals, Inc.
(NASDAQ: ARWR), where he was responsible for the formation, growth
and the ultimate sale of Arrowhead’s electronics business
unit. From 2005 to 2010, Mr. Miller served as Vice President of
Intellectual Property at Undiym, Inc. (formerly, Nanopolaris,
Inc.), which he also founded. Mr. Miller is an author of The
Handbook of Nanotechnology Business, Policy, and Intellectual
Property Law, as well as various other publications related to
nanomaterials and nanoscale electronics. He obtained a
undergraduate degree from University of Redlands and graduated
Order of the Coif from Stanford Law
School.
Mr.
Miller’s focus on the development of new technologies and his
involvement with the Company since inception has significantly
supported the Board’s perspective during the early stages of
the development of the Company’s platform, and are key assets
to the Board as the Company looks to scale the utilization of its
technology. In addition, as Director of CaliBurger, one of the
Company’s largest stockholders, also provides the perspective
of a significant investor in the Company. Mr. Miller serves as
chairman of the Nominating and Governance Committee, and a member
of the Compensation Committee.
Jeff Gehl
Independent Director
Mr.
Gehl has served as a Director of the Company since 2015. Mr. Gehl
is a Co-Owner at VLOC LLC. Since 2001, Mr. Gehl has been a Managing
Partner of RCP Advisors. Mr. Gehl is responsible for leading RCP's
client relations function and covering private equity fund managers
in the Western United States. He is a General Partner of BKM
Capital Partners, L.P. Previously, Mr. Gehl was an Advisor at
Troy Capital Partners till 2018. In addition, Mr. Gehl founded and
served as Chairman and Chief Executive Officer of MMI, a technical
staffing company, and acquired Big Ballot, Inc., a sports marketing
firm. He currently serves as a Director of P10 Industries, Inc., as
Directors of Veritone, Inc. (NASDAQ: VERI) and an Advisory Board
member of several of RCP’s underlying funds, as well as
Accel-KKR and Seidler Equity Partners. Mr. Gehl was the Manager of
VLOC. Mr. Gehl received the 1989 “Entrepreneur of the
Year” award from University of Southern California’s
Entrepreneur Program. He obtained a B.S. in Business Administration
from the University of Southern California's Entrepreneur
Program.
Mr. Gehl’s wide range of
experience in in financing,
developing and managing high-growth technology companies, as well
as his entrepreneurial experience, has
considerably broadened the Board’s perspective, particularly
as the Company engaged in capital raising activities to fund the
early stages of its development. Mr. Gehl also serves as our
Board-designated “audit committee financial expert” as
chairman of the Audit Committee. Mr. Gehl also serves as a member
of the Nominating and Governance
Committee.
Robert Stewart
Independent Director
Mr. Stewart has served as a director of on the Company’s
Board since October 2014. From 1997 to August 2018, Mr. Stewart
served in various executive officer roles with Acacia, including as
Vice-President of Corporate Finance and Senior Vice-President,
Corporate Finance and Investor Relations. Prior to joining Acacia,
Mr. Stewart served as President of Macallan, Dunhill &
Associates, a private investment fund. Mr. Stewart received a BS in
Economics from the University of Colorado at Boulder.
Mr. Stewart’s
11 years in various executive officer roles of a public company
brings extensive leadership experience and public company expertise
to our Board, experience that will be invaluable to the Board
following the Company becomes a public company following the
completion of its initial public offering.
Mr.
Stewart also serves as a member of our Audit Committee, chairman of
our Compensation Committee, and a member of our Nominating and
Governance Committee.
Marc Cummins
Independent Director
Mr.
Cummins has served as a Director of the Company since
2017. Mr. Cummins is
a managing partner of Prime Capital, LLC, a private investment firm
focused on consumer companies co-founded by Mr. Cummins. Prior to founding Prime
Capital, Mr. Cummins was managing partner of Catterton Partners, a
private equity investor in consumer products and service companies
with more than $1 billion of assets under management. Prior to
joining Catterton in 1998, Mr. Cummins spent fourteen years at
Donaldson, Lufkin & Jenrette Securities Corporation where he
was managing director of the Consumer Products and Specialty
Distribution Group, and was also involved in leveraged buyouts,
private equity and high yield financings. Mr. Cummins received a
B.A. in Economics, magna cum laude, from Middlebury College, where
he was honored as a Middlebury College Scholar and is a member of
Phi Beta Kappa. He also received an M.B.A. in Finance with honors
from The Wharton School at University of Pennsylvania.
Mr. Cummins’ long-standing background in investments and
private equity has considerably strengthened the Board. In
addition, his leadership, knowledge and experience have enhanced
the Board’s perspective.
Significant Employees
Andy Babb
Executive Vice President of Game Partnerships
Mr.
Babb overseas the Company’s game strategy and publisher and
developer relationships, and has served as our Executive Vice
President of Game Partnerships since September 2015. Prior to
joining the Company, from 2007 to 2015, Mr. Babb served as
President of Brandissimo, Inc., the company that created and
developed NFL RUSH, including NFL RUSH Zone, a multiplayer online
virtual game world, and over 100 NFL video games and apps. From
2006 to 2007, Mr. Babb served as the President of Infusio-NA, a
French mobile video game publisher, and for ten years prior to
that, he managed business development for Take Two Interactive, 2K
Games and SegaSoft. Throughout his career, Mr. Babb has published
over 200 video games across console, handheld, PC, online and
mobile platforms. He earned a BA in Communications Studies from the
University of California Los Angeles and an MBA from Stanford
University.
Anne Gailliot
Chief of Staff, Vice President of Special
Projects
Ms. Gailliot has served as our Chief of Staff since July 2015, as
well as our Vice President of Special Projects since 2016. She
provides oversight to strategic programs and partnerships, ranging
from theatre relationships, the development of a national
contracted workforce, our after school programs, and end-to-end
live event execution. Prior to joining the Company, Ms. Gailliot
served as Chief of Staff of Project Frog from 2007 to 2015, where
she led strategic and financial planning and supported supply chain
optimization. Before pursuing a graduate degree, Anne spent several
years at the National Trust for Historic Preservation managing
grant programs, community advocacy efforts, and local leadership
development initiatives for the western region. Ms. Gailliot earned
a BA in Art History from Princeton University and an MBA from
University of Pennsylvania – the Wharton
School.
Board Composition and Election of Directors
Board Composition
Our
Board currently consists of six members. Each of our directors
serve until the next annual meeting of stockholders, until his
successor is elected and duly qualified, or until his earlier
death, resignation or removal. Our Board is authorized to appoint
persons to the offices of Chair of the Board of Directors, Vice
Chair of the Board of Directors, Chief Executive Officer,
President, one or more Vice Presidents, Chief Financial Officer,
Treasurer, one or more Assistant Treasurers, Secretary, one or more
Assistant Secretaries, and such other officers as may be determined
by the Board. The Board may also empower the Chief Executive
Officer, or in absence of a Chief Executive Officer, the President,
to appoint such other officers and agents as our business may
require. Any number of offices can be held by the same
person.
Director Independence
Our
Board has determined that three of its directors qualify as
independent directors, as determined in accordance with the rules
of the Nasdaq Stock Market. Under the applicable listing
requirements of the Nasdaq Capital Market, we are permitted to
phase in our compliance with the majority independent board
requirement of the Nasdaq Stock Market rules within one year of our
listing on Nasdaq. The director independence definition under the
Nasdaq Stock Market rule includes a series of objective tests,
including that the director is not, and has not been for at least
three years, one of our employees and that neither the director nor
any of his family members has engaged in various types of business
dealings with us. In addition, as required by Nasdaq Stock Market
rules, our Board has made a subjective determination as to each
independent director that no relationships exist, which, in the
opinion of our Board, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director. In making these determinations, our Board reviewed and
discussed information provided by the directors and us with regard
to each director’s business and personal activities and
relationships as they may relate to us and our
management.
Ms. Hand, our President and Chief Executive Officer, is a first
cousin of Mr. Gehl, a member of our Board. There are no other
family relationships among any of our directors or executive
officers.
Role of Board in Risk Oversight Process
Our
Board has responsibility for the oversight of the Company’s
risk management processes and, either as a whole or through its
committees, regularly discusses with management our major risk
exposures, their potential impact on our business, and the steps we
take to manage them. The risk oversight process includes receiving
regular reports from Board committees and members of senior
management to enable our Board to understand our risk
identification, risk management and risk mitigation strategies with
respect to areas of potential material risk, including operations,
finance, legal, regulatory, strategic and reputational
risk.
Our
audit committee reviews information regarding liquidity and
operations, and oversees our management of financial risks.
Periodically, our audit committee reviews our policies with respect
to risk assessment, risk management, loss prevention and regulatory
compliance. Oversight by the audit committee includes direct
communication with our external auditors, and discussions with
management regarding significant risk exposures and the actions
management has taken to limit, monitor or control such exposures.
Our compensation committee is responsible for assessing whether any
of our compensation policies or programs has the potential to
encourage excessive risk-taking. Matters of significant strategic
risk are considered by our Board as a whole.
Board Committees and Independence
Our
Board has established the following three standing committees:
audit committee, compensation committee, and nominating and
governance committee. Our Board has adopted written charters for
each of these committees. Upon completion of this offering, we
intend to make each committee’s charter available under the
Corporate Governance section of our website at
www.superleague.com/corporategovernance. The reference to our
website address does not constitute incorporation by reference of
the information contained at or available through our website, and
you should not consider it to be a part of this
prospectus.
Audit Committee
Our
audit committee is comprised of Jeff Gehl, who serves as the
committee chair, and Robert Stewart. The audit committee’s
main function is to oversee our accounting and financial reporting
processes and the audits of our financial statements. Pursuant to
its charter, the audit committee’s responsibilities include,
among other things:
●
appointing,
compensating, retaining, evaluating, terminating, and overseeing
our independent registered public accounting
firm;
●
reviewing with our independent registered public accounting firm
the scope and results of their audit;
●
approving the audit
and non-audit services to be performed by our independent
registered public accounting firm;
●
evaluating the
qualifications, independence and performance of our independent
registered public accounting firm;
●
reviewing the
design, implementation, adequacy and effectiveness of our internal
accounting controls and our critical accounting
policies;
●
reviewing and
discussing our annual audited financial statements and quarterly
financial statements with management and the independent auditor,
including our disclosures under “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” prior to the release of such
information;
●
reviewing and
reassessing the adequacy of the audit committee’s charter, at
least annually;
●
reviewing,
overseeing and monitoring the integrity of our financial statements
and our compliance with legal and regulatory requirements as they
relate to financial statements or accounting matters;
●
reviewing on a
periodic basis, or as appropriate, our policies with respect to
risk assessment and management, and our plan to monitor, control
and minimize such risks and exposures, with the independent public
accountants, internal auditors, and management;
●
reviewing any
earnings announcements and other public announcements regarding our
results of operations;
●
preparing the
report that the SEC requires in our annual proxy statement, upon
becoming subject to the Exchange Act;
●
complying with all
preapproval requirements of Section 10A(i) of the Exchange Act and
all SEC rules relating to the administration by the audit committee
of the auditor engagement to the extent necessary to maintain the
independence of the auditor as set forth in 17 CFR Part
210.2-01(c)(7);
●
administering the
policies and procedures for the review, approval and/or
ratification of related party transactions involving the Company or
any of its subsidiaries; and
●
making such other
recommendations to the Board on such matters, within the scope of
its function, as may come to its attention and which in its
discretion warrant consideration by the Board.
Our
Board has affirmatively determined that all members of our audit
committee meet the requirements for independence and financial
literacy under the applicable rules and regulations of the SEC and
the Nasdaq. Our Board has determined that Mr. Gehl qualifies as an
“audit committee financial expert” as defined by
applicable SEC rules and has the requisite financial sophistication
as defined under the applicable Nasdaq rules and regulations. The
audit committee operates under a written charter that satisfies the
applicable standards of the SEC and Nasdaq.
Compensation Committee
Our compensation committee is comprised of Robert Stewart, who
serves as the committee chair, and John Miller. The
compensation committee’s main function is to assist our Board
in the discharge of its responsibilities related to the
compensation of our executive officers. Pursuant to its charter, the compensation
committee is primarily responsible for, among other
things:
●
reviewing
our compensation programs and arrangements applicable to our
executive officers, including all employment-related agreements or
arrangements under which compensatory benefits are awarded or paid
to, or earned or received by, our executive officers, and advising
management and the Board regarding such programs and
arrangements;
●
reviewing and recommending to the Board the goals
and objectives relevant to CEO compensation, evaluating CEO
performance in light of such goals and objectives, and determining
CEO compensation based on the evaluation;
●
retaining,
reviewing and assessing the independence of compensation
advisers;
●
monitoring issues
associated with CEO succession and management
development;
●
overseeing and
administering our equity incentive plans;
●
reviewing and
making recommendations to our Board with respect to compensation of
our executive officers and senior management;
●
reviewing and
making recommendations to our Board with respect to director
compensation;
●
endeavoring to ensure that our executive
compensation programs are reasonable and appropriate, meet their
stated purpose (which, among other things, includes rewarding and
creating incentives for individuals and Company performance), and
effectively serve the interests of the Company and our
stockholders; and
●
upon becoming
subject to the Exchange Act, preparing and approving an annual
report on executive compensation and such other statements to
stockholders which are required by the SEC and other governmental
bodies.
Nominating and Governance Committee
Our nominating and governance committee is comprised of John
Miller, who serves as the committee chair, Jeff Gehl, and Robert
Stewart. Pursuant to its
charter, the nominating and governance committee is primarily
responsible for, among other things:
●
assisting the Board
in identifying qualified candidates to become directors, and
recommending to our Board nominees for election at the next annual
meeting of stockholders;
●
leading the Board
in its annual review of the Board’s performance;
●
recommending to the
Board nominees for each Board committee and each committee
chair;
●
reviewing and
overseeing matters related to the independence of Board and
committee members, in light of independence requirement of Nasdaq
and the rules and regulations of the SEC;
●
overseeing the
process of succession planning of our CEO and other executive
officers; and
●
developing and
recommending to the Board corporate governance guidelines,
including our Code of Business Conduct, applicable to the
Company.
Board Diversity
Upon the closing of this offering, our nominating and governance
committee will be responsible for reviewing with the Board, on an
annual basis, the appropriate characteristics, skills and
experience required for the Board as a whole and its individual
members. In evaluating the suitability of individual candidates
(both new candidates and current members), the nominating and
governance committee, in recommending candidates for election, and
the Board, in approving (and, in the case of vacancies, appointing)
such candidates, will take into account many factors, including the
following:
●
personal
and professional integrity, ethics and values;
●
experience
in corporate management, such as serving as an officer or former
officer of a publicly-held company;
●
experience
as a board member or executive officer of another publicly-held
company;
●
strong
finance experience;
●
diversity
of expertise and experience in substantive matters pertaining to
our business relative to other board members;
●
diversity
of background and perspective, including, but not limited to, with
respect to age, gender, race, place of residence and specialized
experience;
●
experience
relevant to our business industry and with relevant social policy
concerns; and
●
relevant
academic expertise or other proficiency in an area of our business
operations.
Currently, our Board evaluates, and following the closing of this
offering will evaluate, each individual in the context of the Board
as a whole, with the objective of assembling a group that can best
maximize the success of the business and represent stockholder
interests through the exercise of sound judgment using its
diversity of experience in these various areas.
Compensation Committee Interlocks and Insider
Participation
None of
the members of our Compensation Committee, at any time, have been
one of our officers or employees. None of our executive officers
currently serves, or in the past year has served, as a member of
the board of directors or compensation committee of any other
entity that has one or more executive officers on our Board of
Directors or compensation committee.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics applicable to
our employees, officers and directors. Upon completion
of this offering, we intend to make our Code of Business Conduct and Ethics
available under the Corporate Governance section of our website at
www.superleague.com/corporategovernance/. The
reference to our website address does not constitute incorporation
by reference of the information contained at or available through
our website, and you should not consider it to be a part of this
prospectus. We intend to
disclose any future amendments to certain provisions of our Code of
Business Conduct and Ethics, or waivers of these provisions, on our
website or in our filings with the SEC under the Exchange
Act.
Limitation of Liability and Indemnification
Our certificate of incorporation, as amended and restated
(“Charter”), and our amended and restated bylaws
(“Bylaws”) provide the indemnification of our
directors and officers to the fullest extent permitted under the
Delaware General Corporation Law (“DGCL”). In addition, the Charter
provides that our directors shall not be personally liable to us or
our shareholders for monetary damages for breach of fiduciary duty
as a director and that if the DGCL is amended to authorize
corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall
be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
As
permitted by the DGCL, we have entered into or plan to enter into
separate indemnification agreements with
each of our directors and certain of our officers that require us,
among other things, to indemnify them
against certain liabilities which may arise by reason of their
status as directors, officers or certain other
employees. We expect to obtain and maintain insurance policies
under which our directors and officers are insured, within the
limits and subject to the limitations of those policies, against
certain expenses in connection with the defense of, and certain
liabilities that might be imposed as a result of, actions, suits or
proceedings to which they are parties by reason of being or having
been directors or officers. The coverage provided by these policies
may apply whether or not we would have the power to indemnify such
person against such liability under the provisions of the
DGCL.
We
believe that these provisions and agreements are necessary to
attract and retain qualified persons as our officers and
directors. At present, there is no pending litigation or proceeding
involving our directors or officers for whom indemnification is
required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for
indemnification.
We are
an emerging growth company for purposes of the SEC’s
executive compensation disclosure rules. In accordance with such
rules, we are required to provide a Summary Compensation Table and
an Outstanding Equity Awards at Fiscal Year End Table, as well as
limited narrative disclosures regarding executive compensation for
our last two completed fiscal years. Further, our reporting
obligations extend only to our “named executive
officers,” who are those individuals serving as our principal
executive officer and our two other most highly compensated
executive officers who were serving as executive officers at the
end of the last completed fiscal year (the “Named Executive
Officers”).
We have
identified Ann Hand, David Steigelfest and Matt Edelman as our
Named Executive Officers. Our Named Executive Officers for our
fiscal year ending December 31, 2018 could change, as we may hire
or appoint new executive officers.
For the
fiscal years ended December 31, 2017 and 2016, compensation for our three highest-paid executive
officers was as follows:
Name
and principal position
|
|
Year
|
|
|
|
|
All
Other Compensation ($)
|
|
Ann
Hand
Chief Executive Officer, President
|
|
2017
|
$400,000
|
-
|
-
|
$1,571,000
|
-
|
$1,971,000
|
|
|
2016
|
$300,000
|
-
|
-
|
-
|
-
|
$300,000
|
David Steigelfest
Chief Products and Technology
Officer
|
|
2017
|
$300,000
|
$20,000
|
-
|
$567,000
|
-
|
$887,000
|
|
|
2016
|
$270,000
|
-
|
-
|
-
|
-
|
$270,000
|
Matt
Edelman
Chief Commercial Officer (2)
|
|
2017
|
$300,000
|
-
|
-
|
$574,000
|
|
$874,000
|
|
|
|
|
|
|
|
|
(1)
This column represents the
grant date fair value calculated in accordance with the
Financial Accounting Standards
Board’s Accounting Standards Codification Topic 718,
Compensation – Stock Compensation (“ASC 718”). These amounts do not
represent the actual value, if any, that may be realized by the
Named Executive Officers.
(2)
No compensation is
reported for Mr. Edelman in 2016, as he was appointed to serve as
the Company’s Chief Commercial Officer in July 2017 and did
not receive any compensation from the Company prior to that
time.
Elements of Compensation
Our
executive compensation program consisted of the following
components of compensation in 2017 and 2016:
Base Salary
Each of
our executive officers receives a base salary for the expertise,
skills, knowledge and experience he or she offers to our management
team. The base salary of each of our executive officers is
re-evaluated annually, and may be adjusted to reflect:
●
the nature,
responsibilities, and duties of the officer’s
position;
●
the officer’s
expertise, demonstrated leadership ability, and prior
performance;
●
the officer’s
salary history and total compensation, including annual equity
incentive awards; and
●
the competitiveness
of the officer’s base salary.
Equity Incentive Awards
We believe that to attract and retain management, key employees and
non-management directors, the compensation paid to these persons
should include, in addition to base salary, annual equity
incentives. Our compensation committee determines the amount
and terms of equity-based compensation granted to each individual.
In determining whether to grant certain equity awards to our
executive officers, the compensation committee assesses the level
of the executive officer’s achievement of meeting individual
goals, as well as the executive officer’s contribution
towards goals of the Company. Whenever possible, equity incentive
awards are granted under our stock option plan. However, due to a
prior lack of shares available for issuances under the 2014
Plan, we have granted certain
awards in the form of warrants to key executive officers in the
past.
Employment Agreements and Potential Payments upon Termination or
Change of Control
Ann Hand
On June
16, 2017, we entered into an employment agreement with Ms. Hand to
serve as our Chief Executive Officer, President and Chair of the
Board. The initial term of the agreement is three years (the
“Initial
Term”), and provided that neither party provides 30
days’ notice prior to the expiration of the Initial Term or a
Renewal Term of their intent to allow the agreement to expire and
thereby terminate, the agreement shall continue in effect for
successive periods of one year (each, a “Renewal Term”). The employment
agreement with Ms. Hand provides for a base annual salary of
$400,000, which amount may be
increased annually, at the sole discretion of the
Board. Additionally, Ms. Hand shall be entitled to (i) an
annual cash bonus, the amount of which shall be determined by our
compensation committee, (ii) health insurance for herself and her
dependents, for which the Company shall pay 90% of the premiums,
(iii) reimbursement for all reasonable business expenses, and (iv)
participate in the Company’s 401(k) Plan upon the Board
electing to institute it. As additional compensation, Ms.
Hand was issued a warrant to purchase 300,000 shares of Company
Common Stock at an exercise price of $3.60 per share (the
“Hand
Warrant”). The warrant has a ten-year term, and shall
vest at a rate of 1/36th per month, subject
to the acceleration of all unvested shares upon a Change of
Control, as defined in the employment agreement.
Ms.
Hand’s employment agreement is terminable by either party at
any time. In the event of termination by us without Cause or by Ms.
Hand for Good Reason, as those terms are defined in the agreement,
she shall receive a severance package consisting of the following:
(i) all accrued obligations as of the termination date; (ii) a cash
payment equal to the greater of (A) her base annual salary for 18
months, payable 50% upon termination, 25% 90 days after the
termination date and 25% 180 days after the termination date, or
(B) the remaining payments due for the term of the agreement; and
(iii) an additional 18 months’ vesting on the Hand Warrant.
In the event of termination by us with Cause or by Ms. Hand without
Good Reason, Ms. Hand shall be entitled to all salary and benefits
accrued prior to the termination date, and nothing else;
provided, however, that Ms.
Hand shall be entitled to exercise that portion of the Hand Warrant
that has vested as of the effective date of the termination until
the Hand Warrant’s expiration.
David Steigelfest
Effective
October 31, 2016, we entered into an employment agreement with Mr.
Steigelfest to serve as our Chief Technology Officer. The initial
term of the agreement is two years (the “Initial Term”), and provided that
neither party provides 30 days' notice prior to the expiration of
the Initial Term or a Renewal Term of their intent to allow the
agreement to expire and thereby terminate, the agreement shall
continue in effect for successive periods of one year (each, a
“Renewal
Term”). The employment agreement with Mr. Steigelfest
provides for a base annual salary of $270,000, which amount may be increased annually, at the
sole discretion of the Board and was increased to $300,000 by the
Board in the fourth quarter of 2017. Additionally, Mr.
Steigelfest shall be entitled to (i)
health insurance for himself and his dependents, for which the
Company shall pay 50% of the premiums, (ii) reimbursement for all
reasonable business expenses, and (iv) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it.
Mr.
Steigelfest’s employment agreement is terminable by either
party at any time. In the event of termination by us without Cause,
as defined in the agreement, he shall be entitled to all salary and
benefits accrued prior to the date of termination, as well as six
months of accelerated vesting of the Option from the date of
termination. In the event of termination by us with Cause, Mr.
Steigelfest shall be entitled to all salary accrued prior to the
termination date, and nothing else; provided, however, that Mr. Steigelfest
shall be entitled to exercise any stock options that have vested
prior to the date of termination.
Outstanding Equity Awards at Fiscal Year-End
The following table discloses outstanding stock option awards held
by each of the Named Executive Officers as of December 31,
2017:
|
|
Option/Warrant Awards
|
|
|
|
Number of
securities
underlying unexercised options/warrants (#)
exercisable
|
Number of
securities
underlying unexercised options/warrants (#)
unexercisable
|
Option/warrant
exercise
price ($)
|
|
Option/warrant
expiration
date
|
Ann
Hand
|
|
6/5/15
|
312,500
|
187,500(1)
|
$2.00
|
|
6/5/25
|
|
|
6/16/17
|
115,500
|
38,500(2)
|
$3.00
|
|
6/15/27
|
|
|
6/16/17
|
72,000
|
24,000(3)
|
$3.60
|
|
6/15/27
|
|
|
6/16/17
|
50,00
|
250,000(4)
|
$3.60
|
|
6/6/27
|
David
Steigelfest
|
|
10/16/14
|
316,667
|
33,333(5)
|
$0.10
|
|
10/15/24
|
|
|
6/16/17
|
78,000
|
26,000(6)
|
$3.00
|
|
6/15/27
|
|
|
6/16/17
|
72,000
|
24,000(7)
|
$3.60
|
|
6/15/27
|
Matt
Edelman
|
|
7/24/17
|
-
|
196,320(8)
|
$3.60
|
|
7/24/27
|
(1)
Represents
a warrant to purchase shares of our Common Stock, which warrant
vests at a rate of 10,417 shares per month, and becomes fully
vested on June 5, 2019. The warrant was issued in lieu of options
due to the lack of sufficient available shares authorized for
issuance under the 2014 Plan.
(2)
Represents an option to purchase shares of our
Common Stock, which option vests, 50% immediately upon grant, and
thereafter, at a rate of 6,417 shares per month, and becomes fully
vested on June 16, 2019.
(3)
Represents an option to purchase shares of our
Common Stock, which option vests, 50% immediately upon grant, and
thereafter, at a rate of 4,000 shares per month, and
becomes fully vested on June 16, 2019.
(4)
Represents
a warrant to purchase shares of our Common Stock, which warrant
vests 8,333 shares per month, and becomes
fully vested on June 6, 2020. The warrant was issued in lieu of
options due to the lack of sufficient available shares authorized
for issuance under the 2014 Plan.
(5)
Represents
an option to purchase shares of our Common Stock, which option
vests at a rate of 8,333 shares per month, and becomes fully vested
on April 16, 2018.
(6)
Represents an option to purchase shares of our
Common Stock, which option vests, 50% immediately upon grant, and
thereafter, at a rate of 4,333 shares per month, and
becomes fully vested on June 16, 2019.
(7)
Represents an option to purchase shares of our
Common Stock, which option vests, 50% immediately upon grant, and
thereafter, at a rate of 4,000 shares per month, and
becomes fully vested on June 16, 2019.
(8)
Represents an option to purchase shares of our
Common Stock, which option vested with respect to 49,080 shares on
July 24, 2018, and then at a rate of 4,090 shares per month, and
becomes fully vested on July 24, 2021.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table provides a summary of the securities authorized
for issuance under our equity compensation plans as of June 30,
2018.
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
|
Equity compensation
plans approved by security holders
|
|
|
|
2014
Plan
|
3,975,487
|
$2.97
|
454,513
|
Equity compensation
plans not approved by security holders
|
|
|
|
Total
|
3,975,487
|
$2.97
|
454,513
|
Stock Option and Incentive Plan
2014 Stock Option and Incentive Plan
Our Board unanimously approved the 2014 Plan on October 13, 2014. The 2014 Plan was
subsequently amended in May 2015, May 2016, July 2017 and August
2017. The maximum number of shares of Common Stock issuable under
the 2014 Plan is currently 5.5 million shares, subject to
adjustments for stock, stock dividends or other similar changes in
our common stock or our capital structure.
Our 2014 Plan provides for the grant of (a) Incentive Stock Options
(within the meaning of Section 422 of the Code) to our
full-time employees (“Employees”), subject to the requirements of Section
422(c)(6) where an Employee owns 10% or more of our voting stock
outstanding; (b) Non-Qualified Options (together with Incentive
Stock Options, “Options”); (c) stock awards; and (d) performance
shares to any individual who is (i) an Employee, (ii) a member of
our Board, or (iii) an independent contractor who provides services
for the Company.
Plan Administration
Pursuant to the 2014 Plan, our Board has delegated the authority to
administer the 2014 Plan to the Board’s compensation
committee (the “Committee”). Subject to the provisions of our 2014
Plan, the Committee has the power to determine the terms of the
awards, including the exercise price, the number of shares subject
to each award, the exercisability of the awards, and the form of
consideration, if any, payable upon exercise. The Committee also
has the authority to amend, modify, extend renew or terminate
outstanding Options, or may accept the cancellation of outstanding
Options, whether or not granted under the 2014 Plan, in return for
the grant of new Options at the same or a different price.
Additionally, the Committee may shorten the vesting period, extend
the exercise period, remove any or all restrictions or convert an
Incentive Option to a Non-Qualified Option, if, at its sole
discretion, it determines that such action is in the best interest
of the Company; provided, however,
that any modification made to
outstanding Options requires the prior consent of the holder(s) of
such Options, unless the Committee determines that the action would
not materially and adversely affect such
holder(s).
Incentive Stock Options
The exercise price of Incentive Stock Options granted under our
2014 Plan must at least be equal to 100% of the fair market value
of our common stock on the date of grant. The term of an Incentive
Stock Option may not exceed ten years, except that with respect to
any participant who owns more than 10% of the voting power of all
classes of our outstanding stock, the term must not exceed five
years and the exercise price must equal at least 110% of the fair
market value on the grant date.
Non-Qualified Stock Options
The exercise price of Non-Qualified Options granted under our 2014
Plan must at least be equal to 85% of the fair market value of our
common stock on the date of grant. The term of a Non-Qualified
Stock Option may not exceed ten years.
Stock Awards or Sales
Eligible individuals may be issued shares of common stock directly,
upon the attainment of performance milestones or the completion of
a specified period of service or as a bonus for past services. The
purchase price for the shares shall not be less than 100% of the
fair market value of the shares on the date of issuance, and
payment may be in the form of cash or past services rendered.
Eligible individuals shall have no stockholder rights with respect
to any unvested restricted shares or restricted share units issued
to them under the stock award or sales program, however, eligible
individuals shall have the right to receive any regular cash
dividends paid on such shares.
Termination of Relationship
Except as the Committee may otherwise determine with respect to a
Non-Qualified Stock Option, if the holder of an Option ceases to
have a Relationship (as defined in the 2014 Plan) with the Company
for any reason other than death or permanent disability, any
Options granted to him shall terminate 90 days from the date on
which such Relationship terminates; provided,
however, that no Option may be
exercised or claimed by the holder of an Option following the
termination of his Relationship for Cause (as defined in the 2014
Plan). In the event that the Relationship terminates as a result of
the death or permanent disability of the Option holder, any Options
granted to him shall terminate one year from the date of his death
or termination due to permanent disability. In no event may an
option be exercised later than the expiration of its
term.
Certain Adjustments
In the event of certain changes in our capitalization, to prevent
diminution or enlargement of the benefits or potential benefits
available under the 2014 Plan, the administrator will adjust the
number and class of shares available for future grants under the
2014 Plan, the exercise price of outstanding Options, the number of
shares covered by each outstanding award, or the purchase price of
each outstanding award.
Reorganization
In the event we are a party to a merger or other corporate
reorganization, all outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement may provide
for the assumption of the outstanding Options by the surviving
corporation or its parent or for their continuation by the Company
(if the Company is a surviving corporation); provided,
however, that if the assumption
or continuation is not provided by such agreement, then the
Committee, in its sole discretion, shall have the option of
offering the payment of a cash settlement equal to the difference
between the amount to be paid for one share under the agreement and
the exercise price.
Change of Control
Under the 2014 Plan, a Change of Control is generally defined as:
(i) the sale of all or substantially all of the assets of the
Company, or (ii) any merger, consolidation or acquisition of the
Company with, by or into another corporation, entity or third
party, the result of which is a change in the ownership of more
than 50% of the voting capital stock of the Company.
In the event of a Change of Control, all restrictions on all awards
or sales of shares will accelerate and vesting on all unexercised
and unvested Options will occur on the Change of Control
date.
Director Compensation
We have not yet adopted a formal compensation policy for our
non-employee directors.
The following table sets forth the compensation awarded to, earned
by, or paid to each person who served as a non-employee director
during the fiscal year ended December 31, 2017:
Name
|
Fees Earned
or
Paid
in Cash (1)
($)
|
Option/Warrant
Awards
(2) ($)
|
|
|
|
|
|
|
|
John
Miller
|
-
|
-
|
$75,000(3)
|
$75,000
|
Robert Stewart (4)
|
-
|
$224,000(4)(7)
|
-
|
$224,000
|
Jeff Gehl (5)
|
-
|
$421,500(5)(7)
|
-
|
$421,500
|
Marc Cummins(6)
|
-
|
-
|
-
|
-
|
(1)
Our
non-employee directors did not receive any cash payments as
compensation for their service on our Board for the year ended
December 31, 2017.
(2)
The
amounts in this column represent the aggregate grant date fair
value of options or warrants to purchase shares of our Common Stock
awarded during our fiscal year ended December 31, 2017, computed in
accordance ASC 718. The amounts in this column do not represent any
cash payments actually received with respect to any of such options
or warrant to purchase shares of our Common Stock. To date,
the recipients have not exercised such options or warrants to
purchase common stock, and there can be no assurance that any of
them will ever realize any of the ASC 718 grant date fair value
amounts presented in this column.
(3)
Represents
$75,000 paid to Mr. Miller in consideration for providing strategic
advisory services to the Company during the year ended December 31,
2017. Such payments were unrelated to those services he provided to
us as a director on our Board.
(4)
Represents warrants granted to Mr. Stewart, the
material terms of which are set forth below in footnote 7,
during the year ended December 31,
2017.
(5)
Represents warrants granted to Mr. Gehl, the
material terms of which are set forth below in footnote 7,
during the year ended December 31,
2017.
(6)
Mr.
Cummins was appointed to our Board effective August 22, 2017, and
did not receive any compensation from the Company in the year ended
December 31, 2017.
(7)
The
table below provides information regarding outstanding option and
warrant awards held by each of our non-employee directors as of
December 31, 2017.
Name
|
|
|
|
Number of
Options/Warrants
(#)
|
|
|
|
|
|
Robert
Stewart
|
10/16/14
|
10/15/24
|
$0.10
|
100,000
|
|
7/01/17
|
6/31/21
|
$3.60
|
4,000
|
|
7/01/17
|
6/31/21
|
$3.60
|
96,000
|
Jeff
Gehl
|
1/16/15
|
1/15/25
|
$2.00
|
25,000
|
|
5/12/15
|
5/11/25
|
$2.00
|
50,000
|
|
6/16/17
|
6/15/22
|
$3.00
|
29,000
|
|
6/16/17
|
6/15/22
|
$3.60
|
96,000
|
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
On
August 3, 2018, CaliBurger entered into a Note Purchase Agreement
for the purchase of a 2018 Note in the principal amount of $1.0
million, as well as corresponding 2018 Warrants. John Miller, one
of our co-founders and members of our Board, is also the founder
and serves on the board of directors of Caliburger.
On
February 21, 2018, the Company issued a 9.00% Senior Secured
Convertible Promissory Note with common stock purchase warrants in
the original principal amount of $1.0 million. The Caliburger Note.
1 was converted (all original principal and accrued interest) on
May 28, 2018 into a new 9.00% Senior Secured Convertible Promissory
Note with common stock purchase warrants. Subsequently, on August
2, 2018, Caliburger purchased an additional 9.00% Senior Secured
Convertible Promissory Note in the original principal amount of
$1,000,000 with common stock purchase warrant .
On June
30, 2017, Caliburger purchased 666,667 shares of our common stock
at a price of $3.60 per share, for a total aggregate proceeds to
the Company of $2.4 million.
In
October 2014, we entered into an asset purchase agreement (the
“APA”) with
Caliburger, pursuant to which the Company purchased certain assets
from Caliburger in exchange for 1,000,000 shares of our common
stock, then valued at $100,000 in the aggregate.
In May
2015, we entered into a consulting agreement with Mr. Miller,
pursuant to which Mr. Miller provides consulting services including
assistance with business and corporate strategies, for which Mr.
Miller receives a monthly consulting fee of $6,250. The term of the
agreement continues so long as a mutually agreed upon by the
parties.
Related Party Transaction Policy
Our
Board recognizes the fact that transactions with related persons
present a heightened risk of conflicts of interests and/or improper
valuation (or the perception thereof). Accordingly, our Board has
adopted a written policy addressing the approval of transactions
with related persons, in conformity with the requirements for
issuers having publicly held common stock listed on the Nasdaq
Capital Market. Pursuant to our Related Persons Transactions Policy
(the “Policy”),
any related-person transaction, and any material amendment or
modification of a related-person transaction, is required to be
reviewed and approved or ratified by the Board’s audit
committee, which shall be composed solely of independent directors
who are disinterested, or in the event that a member of the audit
committee is a Related Person, as defined below, then by the
disinterested members of the audit committee; provided, however, that in the event
that management determines that it is impractical or undesirable to
delay the consummation of a related person transaction until a
meeting of the audit committee, then the Chair of the audit
committee may approve such transaction in accordance with this
policy; such approval must be reported to the audit committee at
its next regularly scheduled meeting. In determining whether to
approve or ratify any related person transaction, the audit
committee must consider all of the relevant facts and circumstances
and shall approve only those transactions that are deemed to be in
the best interests of the Company.
Pursuant to our Policy and SEC rules, a “related person
transaction” includes any transaction, arrangement or
relationship which: (i) the Company is a participant; (ii) the
amount involved exceeds $120,000; and (iii) an executive officer,
director or director nominee, or any person who is known to be the
beneficial owner of more than 5% of our common stock, or any person
who is an immediate family member of an executive officer, director
or director nominee or beneficial owner of more than 5% of our
common stock, had or will have a direct or indirect material
interest (each a “Related
Person”).
In
connection with the review and approval or ratification of a
related person transaction:
●
Management shall be
responsible for determining whether a transaction constitutes a
related person transaction subject to the Policy, including whether
the Related Person has a material interest in the transaction,
based on a review of all of the facts and circumstances;
and
●
Should management
determine that a transaction is a related person transaction
subject to the Policy, it must disclose to the audit committee all
material facts concerning the transaction and the Related
Person’s interest in the transaction.
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The
following table sets forth certain information known to us
regarding beneficial ownership of our common stock as of
September 14, 2018 for (i) each
of our executive officers and directors individually, (ii) all of
our executive officers and directors as a group, and (iii) each
person, or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our capital stock. The
percentage of beneficial ownership in the table below is based on
13,830,487 shares of common
stock deemed to be outstanding as of September 14, 2018.
Name, address and
title of beneficial owner (1)
|
|
Total Number of
Shares Subject to Exercisable Options and Warrants
|
Total Number of
Shares Issuable Upon Conversion of Outstanding Promissory Notes
(2)
|
Total Number of
Shares Beneficially Owned
|
Percentage of Voting
Common Stock Outstanding (3)
|
Officers and Directors
|
Ann
Hand
Chief Executive Officer, President and Chair
|
220,124
|
782,291
|
-
|
1,002,415
|
6.9%
|
David
Steigelfest
Chief Products and Technology Officer
|
150,000
|
520,834
|
-
|
670,834
|
4.7%
|
Clayton
Haynes
Chief Financial Officer
|
-
|
60,000
|
-
|
60,000
|
*
|
Matt
Edelman
Chief Commercial Officer
|
-
|
61,350
|
-
|
61,350
|
*
|
John Miller (4)
Director
|
1,373,612
|
555,556
|
555,556
|
2,484,724
|
16.6%
|
Jeff Gehl (5)
Director
|
193,597
|
293,275
|
93,275
|
580,147
|
4.1%
|
Robert Stewart, Jr. (6)
Director
|
677,778
|
142,362
|
36,806
|
856,946
|
6.1%
|
Marc Cummins (7)
Director
|
62,772
|
-
|
-
|
62,772
|
*
|
Executive Officers and Directors as a
Group (8
persons)
|
2,677,883
|
2,415,668
|
685,637
|
5,779,188
|
34.1%
|
Greater than 5% Stockholders
|
CaliBurger (8)
Floor 4, Willow
House, Cricket Square
Grand Cayman,
Cayman Islands
KY1-1104
|
1,366,667
|
555,556
|
555,556
|
2,477,779
|
16.6%
|
Pu
Luo Chung VC Private Limited
37 Jalan
Pemimpin
#
06-12
Singapore
577177
|
1,413,387
|
-
|
-
|
1,413,387
|
10.2%
|
_______________________
* Less
than 1.0%
(1)
|
Unless
otherwise indicated, the business address for each of the executive
officers and directors is c/o Super League Gaming, Inc., 2906
Colorado Ave., Santa Monica, CA 90404.
|
(2)
|
Includes
shares issuable upon conversion of outstanding 2018 Notes issued by
the Company in connection with the 2018 Bridge Financing. Upon
closing of the offering described in this prospectus, all
outstanding principal and accrued interest will automatically
convert into shares of common stock at the lesser of (x) $3.60 per
share or (y) a 15% discount to the public offering price per share.
For purposes of this table, we have assumed the 2018 Notes held by
Mr. Gehl, the Robert B. Stewart, Jr. Sole and Separate Property
Trust and Caliburger will convert into shares of common stock at a
price of $3.60 per share, and have excluded any accrued but unpaid
interest.
For
additional information regarding the 2018 Notes held by Mr. Gehl,
the Robert B. Stewart, Jr. Sole and Separate Property Trust and
Caliburger, as well as the 2018 Warrants issued in connection with
the issuance of the 2018 Notes, see footnotes 5, 6 and 8, hereto,
respectively.
|
(3)
|
Beneficial
ownership is determined in accordance with the rules of the SEC. In
computing the number of shares beneficially owned by a person and
the percentage of ownership by that person, shares of voting common
stock subject to outstanding rights to acquire shares of voting
common stock held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares are
not deemed outstanding for the purpose of computing the percentage
of ownership by any other person.
|
(4)
|
Consists
of securities held by CaliBurger, as described in footnote 8 below,
and 6,945 shares held by the Miller-Lomelino
Partnership.
As a
Director of CaliBurger and a partner of the Miller-Lomelino
Partnership, Mr. Miller may be deemed to beneficially own the
securities held directly by each entity.
|
(5)
|
Includes
shares issuable upon conversion of 2018 Notes held by BigBoy, LLC
and BigBoy Investment Partnership, entities controlled by Mr. Gehl,
in the collective principal amount of $381,494, as well as shares
of common stock issuable upon exercise of the 2018 Warrants issued
to Mr. Gehl’s entities in connection with his purchase of the
2018 Notes. As noted in footnote 2 above, for purposes of this
table, we have assumed the 2018 Notes held by Mr. Gehl’s
entities will convert into shares of common stock at a price of
$3.60 per share, and accordingly will result in the issuance of
105,971 shares of common stock, and the 2018 Warrants issued to Mr.
Gehl’s entities will be exercisable for up to 105,971 shares
of common stock. The 2018 Warrants are callable, at the option of
the Company, at any time following the completion of the offering
described in this prospectus.
Also
includes 20,000 shares held by Jeff Gehl, 100,000 shares held by
BigBoy Investment Partnership, LLC and 73,597 shares held by
BigBoy, LLC. Mr. Gehl is the Managing Member of BigBoy Investment
Partnership and BigBoy, LLC, and, therefore, may be deemed to
beneficially own these shares.
The
business address for BigBoy Investment Partnership and BigBoy, LLC
is 111 Bayside Dr., Suite 270, Newport Beach, CA
92625.
|
(6)
|
Includes
shares issuable upon conversion of 2018 Notes held by the Robert B.
Stewart, Jr. Sole and Separate Property Trust (the
“Stewart
Trust”) in the principal amount of $132,500, as well
as shares of common stock issuable upon exercise of the 2018
Warrant issued to the Stewart Trust in connection with its purchase
of the 2018 Notes. As noted in footnote 2 above, for purposes of
this table, we have assumed the 2018 Notes held by the Stewart
Trust will convert into shares of common stock at a price of $3.60
per share, and accordingly will result in the issuance of 36,806
shares of common stock, and the 2018 Warrants held by the Stewart
Trust will be exercisable for up to 36,806 shares of common stock.
The 2018 Warrants are callable, at the option of the Company, at
any time following the completion of the offering described in this
prospectus.
Also
includes 277,778 shares held by the Stewart Trust, additional
warrants to purchase up to 5,556 shares of common stock held by the
Stewart Trust, and an option to purchase 100,000 shares of common
stock.
Mr.
Stewart is the trustee for the Stewart Trust, and, therefore, may
be deemed to beneficially own these shares.
|
(7)
|
Includes
13,889 shares held by the Cummins Children’s Trust, and
21,105 shares held by the Cummins Family Trust. Mr. Cummins is the
trustee for both the Cummins Children’s Trust and the Cummins
Family Trust, and, therefore, may be deemed to beneficially own
these shares.
|
(8)
|
Includes
shares issuable upon conversion of 2018 Notes held by CaliBurger in
the principal amount of $2,000,000, as well as shares of common
stock issuable upon exercise of the 2018 Warrant issued to
CaliBurger in connection with its purchase of the 2018 Notes. As
noted in footnote 2 above, for purposes of this table, we have
assumed the 2018 Notes held by CaliBurger will convert into shares
of common stock at a price of $3.60 per share, and accordingly will
result in the issuance of 555,556 shares of common stock, and the
2018 Warrants held by CaliBurger will be exercisable for up to
555,556 shares of common stock. The 2018 Warrants are callable, at
the option of the Company, at any time following the completion of
the offering described in this prospectus.
As
noted in footnote 4 above, Mr. Miller, a member of our Board of
Directors, is a Director of CaliBurger, and may be deemed to
beneficially own these securities.
|
DESCRIPTION
OF SECURITIES
The following is a summary of the rights of our capital stock as
provided in our Charter and our Bylaws. For more detailed
information, please see our Charter and Bylaws that will be in
effect upon the completion of this offering, which have been filed
as exhibits to the Registration Statement of which this prospectus
is a part.
Summary of Securities
The
following description summarizes certain terms of our capital
stock, as in effect upon the completion of this offering. Our Board
of Directors and holders of a majority of our outstanding voting
securities have approved of a second amendment and restatement of
our Charter (the “Amended
and Restated Charter”), which will be effective upon
filing of the Amended and Restated Charter with the State of
Delaware, which we expect to complete before the completion of this
offering. The following description summarizes the provisions of
the Amended and Restated Charter, including the number of shares of
common stock that will be authorized for issuance under the Amended
and Restated Charter, and the authorization of shares of preferred
stock. Because the foregoing is only a summary, it does not contain
all the information that may be important to you. For a complete
description of the matters set forth in this section you should
refer to our Charter and Bylaws, which are included as exhibits to
this prospectus, and to the
applicable provisions of Delaware law.
Common Stock
Following the filing of the Amended and Restated Charter with the
State of Delaware, the Amended and Restated Charter will authorize
100.0 million shares of common stock, par value $0.001 per share,
for issuance. Currently, our current Charter authorizes 50.0
million shares of common stock for issuance. As of September
14, 2018, there were 13,830,487 shares of our common stock issued
and outstanding, which were held by approximately 120
stockholders of record, approximately 3,611,111
shares of common stock issuable pursuant to outstanding convertible
promissory notes (assuming the 2018 Notes are convertible into
shares of common stock at a price of $3.60 per share),
approximately 6,338,176 shares of common stock issuable upon
exercise of warrants to purchase our common stock (assuming the
2018 Notes are convertible into shares of common stock at a price
of $3.60 per share, resulting in the same number of 2018 Warrants),
3,975,487 shares of common stock issuable upon exercise of options
held and 1,454,513 shares of
common stock authorized and available for issuance pursuant to our
2014 Plan. Each holder of common stock is entitled to one vote for
each share of common stock held on all matters submitted to a vote
of the stockholders, including the election of directors. Neither
our Charter, our Bylaws or the Amended and Restated Charter do not
and will not provide for cumulative voting
rights.
In addition to the Amended and Restated Charter, in August 2018
holders of a majority of our issued and outstanding securities
authorized our Board of Directors, acting in its sole discretion
without further approval of our stockholders, to effect a reverse
split of our issued and outstanding common stock, at a ratio of not
less than one-for-two, but not more than one-for-five, at any time
on or before August 10, 2019 (the “Reverse
Split”). We expect our
Board of Directors will implement the Reverse Split before the
completion of this offering.
Holders of our common stock have no preemptive, conversion or
subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The rights, preferences
and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares
of any series of our preferred stock that we may designate and
issue in the future.
Preferred Stock
Our Charter currently does not authorize any shares of preferred
stock. Following the filing of the Amended and Restated Charter,
our Board of Directors will have the authority, without action by
our stockholders, to designate and issue up to 10.0 million shares
of preferred stock in one or more series and to designate the
rights, preferences and limitations of each series, which may be
greater than the rights of our common stock.
Registration Rights
In connection with the 2018 Bridge Financing, we provided each
holder of a 2018 Note with registration rights to register the
shares of common stock issuable upon conversion of the 2018 Notes
and upon exercise of the 2018 Warrants, subject to certain
limitations. In addition, the holders of the 2018 Notes and the
2018 Warrants agreed to certain lock-up restrictions on the shares
of common stock underlying the 2018 Notes and the 2018 Warrants
that limit the ability of each holder to freely trade such shares
during
the
-day period following the completion of the offering described in
this prospectus.
In addition, we granted certain registration rights to Riot Games
with respect to shares of common stock and shares of common stock
issuable upon exercise of certain warrants issued to Riot Games
pursuant to the Riot Licensing Agreement.
We have agreed to pay all of the expenses associated with each of
such registrations.
AntiTakeover Matters
Charter and Bylaw Provisions
The
provisions of Delaware law, our Charter, and our Bylaws include a
number of provisions that may have the effect of delaying,
deferring, or discouraging another person from acquiring control of
our company and discouraging takeover bids. These provisions may
also have the effect of encouraging persons considering unsolicited
tender offers or other unilateral takeover proposals to negotiate
with our Board rather than pursue non negotiated takeover
attempts. These provisions include the items described
below.
Board Composition and Filling Vacancies
Our
Bylaws provide that any vacancy on our Board may only be filled by
the affirmative vote of a majority of our directors then in office,
even if less than a quorum. Further, any directorship vacancy
resulting from an increase in the size of our Board of Directors,
may be filled by election of the Board of Directors, but only for a
term continuing until the next election of directors by our
stockholders.
No Cumulative Voting
The
DGCL provides that stockholders are not entitled to the right to
cumulate votes in the election of directors unless certificate of
incorporation of the Company in which they own stock provides
otherwise. Neither our Charter nor our Bylaws provide that our
stockholders shall be entitled to cumulative voting.
Delaware Anti-Takeover Statute
Upon
completion of this offering, we will be subject to the provisions
of Section 203 of the DGCL. In general, Section 203 prohibits
persons deemed to be “interested
stockholders” from engaging in a “business
combination” with a publicly held Delaware corporation for
three years following the date these persons become interested
stockholders unless the business combination is, or the transaction
in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies.
Generally, an “interested stockholder” is a person who,
together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status
did own, 15% or more of a corporation’s voting stock.
Generally, a “business combination” includes a merger,
asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. The existence of this
provision may have an anti-takeover effect with respect to
transactions not approved in advance by the Board. A Delaware
corporation may “opt out” of these provisions with an
express provision in its original certificate of incorporation or
an express provision in its certificate of incorporation or bylaws
resulting from an amendment approved by at least a majority of the
outstanding voting shares. We have not opted out of these
provisions. As a result, mergers or other takeover or change in
control attempts of us may be discouraged or
prevented.
Choice of Forum
Our
Bylaws provide that Delaware will be the exclusive forum for any
derivative action or proceeding brought on our behalf; any action
asserting a breach of fiduciary duty; any action asserting a claim
against us arising pursuant to the DGCL, our Charter or our Bylaws;
or any action asserting a claim against us that is governed by the
internal affairs doctrine. The enforceability of similar choice of
forum provisions in other companies’ certificates of
incorporation has been challenged in legal proceedings, and it is
possible that a court could find these types of provisions to be
inapplicable or unenforceable.
MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section summarizes the material U.S. federal income tax
considerations relating to the acquisition, ownership and
disposition of our common stock acquired by “non-U.S.
holders” (as defined below) pursuant to this offering. This
summary does not provide a complete analysis of all potential U.S.
federal income tax considerations relating thereto. The information
provided below is based upon provisions of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated
thereunder, administrative rulings and judicial decisions currently
in effect. These authorities may change at any time, possibly
retroactively, or the Internal Revenue Service (the
“IRS”), might interpret the existing authorities
differently. In either case, the tax considerations of owning or
disposing of our common stock could differ from those described
below. As a result, we cannot assure you that the tax consequences
described in this discussion will not be challenged by the IRS or
will be sustained by a court if challenged by the
IRS.
This summary does not address the tax considerations arising under
the laws of any non-U.S., state or local jurisdiction, or under
U.S. federal gift and estate tax laws, except to the limited extent
provided below. In addition, this discussion does not address tax
considerations applicable to an investor’s particular
circumstances or to investors that may be subject to special tax
rules, including, without limitation:
●
banks,
insurance companies or other financial institutions;
●
partnerships
or entities or arrangements treated as partnerships or other
pass-through entities for U.S. federal tax purposes (or investors
in such entities);
●
corporations
that accumulate earnings to avoid U.S. federal income tax;
●
persons
subject to the alternative minimum tax or Medicare contribution tax
on net investment income;
●
tax-exempt
organizations or tax-qualified retirement plans;
●
controlled
foreign corporations or passive foreign investment
companies;
●
dealers
in securities or currencies;
●
traders
in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
●
persons
that own, or are deemed to own, more than 5% of our capital stock
(except to the extent specifically set forth below);
●
certain
former citizens or former long-term residents of the United
States;
●
persons
who hold our common stock as a position in a hedging transaction,
“straddle,” “conversion transaction” or
other risk reduction transaction;
●
persons
who do not hold our common stock as a capital asset within the
meaning of Section 1221 of the Code (generally, for investment
purposes);or
●
persons
deemed to sell our common stock under the constructive sale
provisions of the Code.
In
addition, if a partnership or entity classified as a partnership
for U.S. federal income tax purposes is a beneficial owner of our
common stock, the tax treatment of a partner in the partnership or
an owner of the entity will depend upon the status of the partner
or other owner and the activities of the partnership or other
entity. Accordingly, this summary does not address tax
considerations applicable to partnerships that hold our common
stock, and partners in such partnerships should consult their tax
advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS,
AND TAX TREATIES.
Non-U.S. Holder Defined
For purposes of this summary, a “non-U.S. holder” is
any beneficial owner of our common stock, other than a partnership,
that is not:
●
an
individual who is a citizen or resident of the United
States;
●
a
corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized under the laws of
the United States,
●
any
state therein or the District of Columbia;
●
a
trust if it (i) is subject to the primary supervision of a U.S.
court and one of more U.S. persons have authority to control all
substantial decisions of the trust or (ii) has a valid election in
effect under applicable U.S. Treasury regulations to be treated as
a U.S. person; or
●
an
estate whose income is subject to U.S. income tax regardless of
source.
If
you are a non-U.S. citizen that is an individual, you may, in many
cases, be treated as a resident alien, as opposed to a nonresident
alien, by virtue of being present in the United States for at least
31 days in the calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar
year. For these purposes, all the days present in the current year,
one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year are
counted. Resident aliens are subject to U.S. federal income tax as
if they were U.S. citizens. Such an individual is urged to consult
his or her own tax advisor regarding the U.S. federal income tax
consequences of the ownership or disposition of our common
stock.
Dividends
We do not expect to declare or make any distributions on our common
stock in the foreseeable future. If we do make distributions on
shares of our common stock, however, such distributions will
constitute dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits,
as determined under U.S. federal income tax principles.
Distributions in excess of our current and accumulated earnings and
profits will constitute a return of capital that is applied against
and reduces, but not below zero, a non-U.S. holder’s adjusted
tax basis in shares of our common stock. Any remaining excess will
be treated as gain realized on the sale or other disposition of our
common stock. See “Sale of Common
Stock”
below.
Any dividend paid to a non-U.S. holder of our common stock that is
not effectively connected with the non-U.S. holder’s conduct
of a trade or business in the United States will generally be
subject to U.S. withholding tax at a 30% rate. The withholding tax
might apply at a reduced rate, however, under the terms of an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence. You should consult
your tax advisors regarding your entitlement to benefits under a
relevant income tax treaty. Generally, in order for us or our
paying agent to withhold tax at a lower treaty rate, a non-U.S.
holder must certify its entitlement to treaty benefits. A non-U.S.
holder generally can meet this certification requirement by
providing an IRS Form W-8BEN or Form W-8BEN-E (or any successor of
such forms) or appropriate substitute form to us or our paying
agent. If the non-U.S. holder holds the stock through a financial
institution or other agent acting on the holder’s behalf, the
holder will be required to provide appropriate documentation to the
agent. The holder’s agent will then be required to provide
certification to us or our paying agent, either directly or through
other intermediaries. If you are eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty, you may
obtain a refund or credit of any excess amounts withheld by filing
an appropriate claim for a refund with the IRS in a timely
manner.
Dividends received by a non-U.S. holder that are effectively
connected with a U.S. trade or business conducted by the non-U.S.
holder, and if required by an applicable income tax treaty between
the United States and the non-U.S. holder’s country of
residence, are attributable to a permanent establishment maintained
by the non-U.S. holder in the United States, are not subject to
U.S. withholding tax. To obtain this exemption, a non-U.S. holder
must provide us or our paying agent with an IRS Form W-8ECI
properly certifying such exemption. Such effectively connected
dividends, although not subject to withholding tax, are taxed at
the same graduated income tax rates applicable to U.S. persons, net
of certain deductions and credits. In addition to being taxed at
graduated tax rates, dividends received by corporate non-U.S.
holders that are effectively connected with a U.S. trade or
business of the corporate non-U.S. holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
Sale of Common Stock
Subject to the discussions below regarding backup withholding and
the Foreign Account Tax Compliance Act, non-U.S. holders will
generally not be subject to U.S. federal income tax on any gains
realized on the sale, exchange or other disposition of our common
stock unless:
●
the
gain (i) is effectively connected with the conduct by the non-U.S.
holder of a U.S. trade or business and (ii) if required by an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence, is attributable to a
permanent establishment maintained by the non-U.S. holder in the
United States (in which case the special rules described below
apply);
●
the
non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of the sale,
exchange or other disposition of our common stock, and certain
other requirements are met (in which case the gain would be subject
to a flat 30% tax, or such reduced rate as may be specified by an
applicable income tax treaty, which may be offset by certain U.S.
source capital losses, even though the individual is not considered
a resident of the United States); or
●
the rules of the Foreign Investment in Real
Property Tax Act (“FIRPTA”), treat the stock as a “U.S. real
property interest” as defined in Section 897 of the
Code.
The FIRPTA rules may apply to a sale, exchange or
other disposition of our common stock if we are, or were within the
shorter of the five-year period preceding the disposition and the
non-U.S. holder’s holding period, a “U.S. real property
holding corporation” (as defined in Section 897 of the Code)
(“USRPHC”). In general, we would be a USRPHC if
interests in U.S. real estate comprised at least half of the value
of our business assets. We do not believe that we are a USRPHC and
we do not anticipate becoming one in the future. Even if we become
a USRPHC, as long as our common stock is regularly traded on an
established securities market, such common stock will be treated as
U.S. real property interests only if beneficially owned by a
non-U.S. holder that actually or constructively owned more than 5%
of our outstanding common stock at sometime within the five-year
period preceding the disposition.
If any gain from the sale, exchange or other disposition of our
common stock, (1) is effectively connected with a U.S. trade or
business conducted by a non-U.S. holder and (2) if required by an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence, is attributable to a
permanent establishment maintained by such non-U.S. holder in the
United States, then the gain generally will be subject to U.S.
federal income tax at the same graduated rates applicable to U.S.
persons, net of certain deductions and credits. If the non-U.S.
holder is a corporation, under certain circumstances, that portion
of its earnings and profits that is effectively connected with its
U.S. trade or business, subject to certain adjustments, generally
would be subject also to a “branch profits tax.” The
branch profits tax rate is 30% unless reduced by applicable income
tax treaty.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject
to U.S. federal estate tax on property with a U.S. situs. Because
we are a U.S. corporation, our common stock will be U.S. situs
property and therefore will be included in the taxable estate of a
nonresident alien decedent, unless an applicable estate tax treaty
between the United States and the decedent’s country of
residence provides otherwise.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make
specified payments to report the payments to the IRS. Among the
specified payments are dividends and proceeds paid by brokers to
their customers. The required information returns enable the IRS to
determine whether the recipient properly included the payments in
income. This reporting regime is reinforced by “backup
withholding” rules. These rules require the payors to
withhold tax from payments subject to information reporting if the
recipient fails to cooperate with the reporting regime by failing
to provide his taxpayer identification number to the payor,
furnishing an incorrect identification number, or failing to report
interest or dividends on his returns. The backup withholding tax
rate is currently 28%. The backup withholding rules do not apply to
payments to corporations, whether domestic or foreign, provided
they establish such exemption.
Payments to non-U.S. holders of dividends on common stock generally
will not be subject to backup withholding, and payments of proceeds
made to non-U.S. holders by a broker upon a sale of common stock
will not be subject to information reporting or backup withholding,
in each case so long as the non-U.S. holder certifies its status as
a non-U.S. holder (and we or our paying agent do not have actual
knowledge or reason to know the holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied) or
otherwise establishes an exemption. The certification procedures to
claim treaty benefits described under “Dividends” will
generally satisfy the certification requirements necessary to avoid
the backup withholding tax. We must report annually to the IRS any
dividends paid to each non-U.S. holder and the tax withheld, if
any, with respect to these dividends. Copies of these reports may
be made available to tax authorities in the country where the
non-U.S. holder resides.
Under the Treasury regulations, the payment of proceeds from the
disposition of shares of our common stock by a non-U.S. holder made
to or through a U.S. office of a broker generally will be subject
to information reporting and backup withholding unless the
beneficial owner certifies, under penalties of perjury, among other
things, its status as a non-U.S. holder (and the broker does not
have actual knowledge or reason to know the holder is a U.S.
person) or otherwise establishes an exemption. The payment of
proceeds from the disposition of shares of our common stock by a
non-U.S. holder made to or through a non-U.S. office of a broker
generally will not be subject to backup withholding and information
reporting, except as noted below. Information reporting, but not
backup withholding, will apply to a payment of proceeds, even if
that payment is made outside of the United States, if you sell our
common stock through a non-U.S. office of a broker that
is:
●
a
U.S. person (including a foreign branch or office of such
person);
●
a
“controlled foreign corporation” for U.S. federal
income tax purposes;
●
a
foreign person 50% or more of whose gross income from certain
periods is effectively connected with a U.S. trade or business;
or
●
a
foreign partnership if at any time during its tax year (a) one or
more of its partners are U.S. persons who, in the aggregate, hold
more than 50% of the income or capital interests of the partnership
or (b) the foreign partnership is engaged in a U.S. trade or
business, unless the broker has documentary evidence that the
beneficial owner is a non-U.S. holder and certain other conditions
are satisfied, or the beneficial owner otherwise establishes an
exemption (and the broker has no actual knowledge or reason to know
to the contrary).
Backup withholding is not an additional tax. Any amounts withheld
from a payment to a holder of common stock under the backup
withholding rules can be credited against any U.S. federal income
tax liability of the holder and may entitle the holder to a refund,
provided that the required information is furnished to the IRS in a
timely manner.
Foreign Account Tax Compliance Act
A U.S. federal withholding tax of 30% may apply to dividends and
the gross proceeds of a disposition of our common stock paid to a
foreign financial institution (as specifically defined by the
applicable rules) unless such institution enters into an agreement
with the U.S. government to withhold on certain payments and to
collect and provide to the U.S. tax authorities substantial
information regarding U.S. account holders of such institution
(which includes certain equity holders of such institution, as well
as certain account holders that are foreign entities with U.S.
owners). This U.S. federal withholding tax of 30% will also apply
to dividends and the gross proceeds of a disposition of our common
stock paid to a non-financial foreign entity unless such entity
provides the withholding agent with either a certification that it
does not have any substantial direct or indirect U.S. owners or
provides information regarding direct and indirect U.S. owners of
the entity. The 30% federal withholding tax described in this
paragraph cannot be reduced under an income tax treaty with the
United States or by providing an IRS Form W-8BEN or similar
documentation. The withholding tax described above will not apply
if the foreign financial institution or non-financial foreign
entity otherwise qualifies for an exemption from the rules and
certifies as such on a Form W-8BEN-E (or any successor of such
form). Under certain circumstances, a non-U.S. holder might be
eligible for refunds or credits of such taxes. Holders should
consult with their own tax advisors regarding the possible
implications of the withholding described herein.
The withholding provisions described above generally apply to
proceeds from a sale or other disposition of common stock if such
sale or other disposition occurs on or after January 1, 2019
and to payments of dividends on our common stock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR
GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE
PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING
THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE
LAWS.
We are offering the shares of common stock described in this
prospectus through the underwriters listed below. Subject to the
terms of the underwriting agreement, the underwriters named below
have agreed to buy, severally and not jointly, the number of shares
of common stock listed opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment
option described below. Northland Securities, Inc. and Lake
Street Capital Markets LLC are acting as the joint book-running
managers of this offering and representatives of the
underwriters.
Underwriter
|
|
Number
of Shares
|
|
Northland
Securities, Inc.
|
|
|
|
Lake
Street Capital Markets LLC
|
|
|
|
|
|
|
|
Total
|
|
|
|
The
underwriters have advised us that they propose to initially offer
the shares of common stock to the public at a price of
$ per share. The
underwriters propose to offer the shares of common stock to certain
dealers at the same price less a concession of not more than
$ per share. After
the initial offering, these figures may be changed by the
underwriters.
The shares sold in this offering are expected to be ready for
delivery against payment in immediately available funds on or about
,
2018, subject to customary closing conditions. The underwriters may
reject all or part of any order.
We have granted to the underwriters an option to purchase up to an
additional
shares of common stock from us at the same price to the public, and
with the same underwriting discount, as set forth in the table
below. The underwriters may exercise this option any time during
the 30-day period after the date of this prospectus, but only to
cover over-allotments, if any. To the extent the underwriters
exercise the option, the underwriters will become obligated,
subject to certain conditions, to purchase the shares for which
they exercise the option.
Commissions and Discounts
The table below summarizes the underwriting discounts that we will
pay to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option. In
addition to the underwriting discount, we have agreed to pay up to
$
of the fees and expenses of the underwriters, which may include the
fees and expenses of counsel to the underwriters.
In connection with the successful completion of this
offering, for the price of $
, the underwriters may purchase a warrant to purchase
shares of our common stock equal to
% of the shares sold in this offering at an exercise price
that is
% of the public offering price per share in this offering; provided
further, that the underwriters will only receive such warrants
relating to the over-allotment option upon the closing (if any) of
the over-allotment option. The underwriters’ warrants are
exercisable during the period commencing from the date of the
prospectus and ending years from the date of this prospectus. The
underwriters’ warrants may not be sold during this offering,
or sold, transferred, assigned, pledged or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition
of the underwriters’ warrants, or the shares acquirable upon
exercise thereof, by any person for a period of 180 days
immediately following the effective date of this registration
statement, except as provided in paragraph (g)(2) of Rule 5110 of
FINRA. The fees and expenses of the underwriters that we have
agreed to reimburse are not included in the underwriting discounts
set forth in the table below.
Except as disclosed in this prospectus, the underwriters have not
received and will not receive from us any other item of
compensation or expense in connection with this offering considered
by FINRA to be underwriting compensation under FINRA Rule 5110. The
underwriting discount was determined through an arms’ length
negotiation between us and the underwriters.
|
|
Total with No
Over-Allotment
|
Total with
Over-Allotment
|
Underwriting
discount to be paid by us
|
$
|
$
|
$
|
We estimate that the total expenses of this offering, excluding
underwriting discounts, will be
$ .
This includes
$ of
fees and expenses of the underwriters. These expenses are payable
by us.
Indemnification
We also have agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act
of 1933, as amended, or to contribute to payments that the
underwriters may be required to make in respect of those
liabilities.
No Sales of Common Stock
We, each of our directors and officers and certain of our
significant stockholders have agreed not to offer, sell, agree to
sell, directly or indirectly, or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable for
shares of common stock without the prior written consent of
Northland Securities, Inc. and Lake Street Capital Markets LLC for
a period of days after the date of this prospectus. These lock-up
agreements provide limited exceptions and their restrictions may be
waived at any time by Northland Securities, Inc. and Lake Street
Capital Markets LLC.
Determination of Offering Price
The underwriters have advised us that they propose to offer the
shares of common stock directly to the public at the estimated
initial public offering price range set forth on the cover page of
this prospectus. That price range and the initial public offering
price are subject to change as a result of market conditions and
other factors. Prior to this offering, no public market exists for
our common stock. The initial public offering price of the shares
was determined by negotiation between us and the underwriters. The
principal factors considered in determining the initial public
offering price of the shares included:
●
the
information in this prospectus and otherwise available to the
underwriters, including our financial information;
●
the
history and the prospects for the industry in which we
compete;
●
the
ability and experience of our management;
●
the
prospects for our future earnings;
●
the
present state of our development and our current financial
condition;
●
the
general condition of the economy and the securities markets in the
United States at the time of this initial public
offering;
●
the
recent market prices of, and the demand for, publicly-traded
securities of generally comparable companies; and
●
other
factors as were deemed relevant.
We cannot be sure that the initial public offering price will
correspond to the price at which the shares of common stock will
trade in the public market following this offering or that an
active trading market for the shares of common stock will develop
or continue after this offering.
Price Stabilization, Short Positions and Penalty Bids
To facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price
of our common stock during and after the offering. Specifically,
the underwriters may create a short position in our common stock
for their own accounts by selling more shares of common stock than
we have sold to the underwriters. The underwriters may close out
any short position by purchasing shares in the open
market.
In addition, the underwriters may stabilize or maintain the price
of our common stock by bidding for or purchasing shares in the open
market and may impose penalty bids. If penalty bids are imposed,
selling concessions allowed to broker-dealers participating in this
offering are reclaimed if shares previously distributed in this
offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of our common stock at a
level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our
common stock to the extent that it discourages resales of our
common stock. The magnitude or effect of any stabilization or other
transactions is uncertain. These transactions may be effected on
the Nasdaq Capital Market or
otherwise and, if commenced, may be discontinued at any
time.
In connection with this offering, the underwriters and selling
group members may also engage in passive market making transactions
in our common stock on the Nasdaq Capital Market. Passive market making consists of
displaying bids on the Nasdaq Capital Market limited by the prices of
independent market makers and effecting purchases limited by those
prices in response to order flow. Rule 103 of Regulation M
promulgated by the SEC limits the amount of net purchases that each
passive market maker may make and the displayed size of each bid.
Passive market making may stabilize the market price of our common
stock at a level above that which might otherwise prevail in the
open market and, if commenced, may be discontinued at any
time.
Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of our common
stock. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in these
transactions or that any transaction, if commenced, will not be
discontinued without notice.
Electronic Offer, Sale and Distribution of Shares
The underwriters or syndicate members may facilitate the marketing
of this offering online directly or through one of their respective
affiliates. In those cases, prospective investors may view offering
terms and a prospectus online and place orders online or through
their financial advisors. Such websites and the information
contained on such websites, or connected to such sites, are not
incorporated into and are not a part of this
prospectus.
Other Relationships
The underwriters and their affiliates are full service financial
institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, investment research, principal
investment, hedging, financing and brokerage activities. The
underwriters have in the past, and may in the future, engage in
investment banking and other commercial dealings in the ordinary
course of business with us or our affiliates. The underwriters have
in the past, and may in the future, receive customary fees and
commissions for these transactions.
In the ordinary course of their various business activities, the
underwriters and their affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments (including
bank loans) for their own account and for the accounts of their
customers, and such investment and securities activities may
involve securities and/or instruments of the issuer. The
underwriters and their affiliates may also make investment
recommendations and/or publish or express independent research
views in respect of such securities or instruments and may at any
time hold, or recommend to clients that it acquires, long and/or
short positions in such securities and instruments.
Listing
In connection with this offering, we have applied to have our
common stock listed on the Nasdaq Capital Market under the symbol
“SLGG.” There is no assurance, however, that our common
stock will ever be listed on the Nasdaq Capital Market or any other
national securities exchange.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
.
Additional Information
Northland
Capital Markets is the trade name for certain capital markets and
investment banking services of Northland Securities, Inc., member
FINRA/SIPC.
Selling Restrictions
No action has been taken in any jurisdiction except the United
States that would permit a public offering of our common stock, or
the possession, circulation or distribution of this prospectus or
any other material relating to us or our common stock in any
jurisdiction where action for that purpose is required.
Accordingly, the shares may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering
material or advertisements in connection with the shares may be
distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations of
any such country or jurisdiction.
Canada
The securities may be sold in Canada only to purchasers purchasing,
or deemed to be purchasing, as principal that are accredited
investors, as defined in National Instrument 45
106 Prospectus
Exemptions or subsection
73.3(1) of the Securities Act (Ontario), and are permitted clients,
as defined in National Instrument 31 103 Registration Requirements,
Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in
accordance with an exemption from, or in a transaction not subject
to, the prospectus requirements of applicable securities
laws.
Securities legislation in certain provinces or territories of
Canada may provide a purchaser with remedies for rescission or
damages if this prospectus (including any amendment thereto)
contains a misrepresentation, provided that the remedies for
rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the
purchaser’s province or territory. The purchaser should refer
to any applicable provisions of the securities legislation of the
purchaser’s province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33
105 Underwriting
Conflicts (NI 33 105), the
underwriters are not required to comply with the disclosure
requirements of NI 33 105 regarding underwriter conflicts of
interest in connection with this offering.
United Kingdom
Each
of the underwriters has, separately and not jointly, represented
and agreed that:
●
it has
not made or will not make an offer of the securities to the public
in the United Kingdom within the meaning of section 102B of the
Financial Services and Markets Act 2000 (as amended), or the FSMA,
except to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities or otherwise in circumstances which do not require the
publication by us of a prospectus pursuant to the Prospectus Rules
of the Financial Services Authority, or FSA;
●
it has
only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement
to engage in investment activity (within the meaning of section 21
of FSMA) to persons who have professional experience in matters
relating to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005 or in circumstances in which section 21 of FSMA
does not apply to us; and
●
it has
complied with and will comply with all applicable provisions of
FSMA with respect to anything done by it in relation to the
securities in, from or otherwise involving the United
Kingdom.
Switzerland
The securities will not be offered, directly or indirectly, to the
public in Switzerland and this prospectus does not constitute a
public offering prospectus as that term is understood pursuant to
article 652a or 1156 of the Swiss Federal Code of
Obligations.
Israel
In the State of Israel this prospectus shall not be regarded as an
offer to the public to purchase shares of common stock under the
Israeli Securities Law, 5728—1968, which requires a
prospectus to be published and authorized by the Israel Securities
Authority, if it complies with certain provisions of
Section 15 of the Israeli Securities Law, 5728—1968,
including, inter alia, if: (i) the offer is made, distributed or
directed to not more than 35 investors, subject to certain
conditions (the “Addressed
Investors”); or (ii) the offer is made,
distributed or directed to certain qualified investors defined in
the First Addendum of the Israeli Securities Law, 5728—1968,
subject to certain conditions (the “Qualified Investors”). The
Qualified Investors shall not be taken into account in the count of
the Addressed Investors and may be offered to purchase securities
in addition to the 35 Addressed Investors. The company has not and
will not take any action that would require it to publish a
prospectus in accordance with and subject to the Israeli Securities
Law, 5728—1968. We have not and will not distribute this
prospectus or make, distribute or direct an offer to subscribe for
our common stock to any person within the State of Israel, other
than to Qualified Investors and up to 35 Addressed
Investors.
Qualified Investors may have to submit written evidence that they
meet the definitions set out in of the First Addendum to the
Israeli Securities Law, 5728—1968. In particular, we may
request, as a condition to be offered common stock, that Qualified
Investors will each represent, warrant and certify to us and/or to
anyone acting on our behalf: (i) that it is an investor
falling within one of the categories listed in the First Addendum
to the Israeli Securities Law, 5728—1968; (ii) which of
the categories listed in the First Addendum to the Israeli
Securities Law, 5728—1968 regarding Qualified Investors is
applicable to it; (iii) that it will abide by all provisions
set forth in the Israeli Securities Law, 5728—1968 and the
regulations promulgated thereunder in connection with the offer to
be issued common stock; (iv) that the shares of common stock
that it will be issued are, subject to exemptions available under
the Israeli Securities Law, 5728—1968: (a) for its own
account; (b) for investment purposes only; and (c) not
issued with a view to resale within the State of Israel, other than
in accordance with the provisions of the Israeli Securities Law,
5728—1968; and (v) that it is willing to provide further
evidence of its Qualified Investor status. Addressed Investors may
have to submit written evidence in respect of their identity and
may have to sign and submit a declaration
containing, inter alia, the Addressed Investor’s name, address and
passport number or Israeli identification
number.
European Economic Area
In
relation to each Member State of the European Economic Area (each,
a “Relevant Member
State”), no offer of shares of common stock may be
made to the public in that Relevant Member State other
than:
(a)
to any legal entity
which is a “qualified investor” as defined in the
Prospectus Directive;
(b)
to fewer than 150
natural or legal persons (other than qualified investors as defined
in the Prospectus Directive), as permitted under the Prospectus
Directive, subject to obtaining the prior consent of the
representatives; or
(c)
in any other
circumstances falling within Article 3(2) of the Prospectus
Directive, provided that no such offer of shares shall require the
Company or the representatives to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a prospectus
pursuant to Article 16 of the Prospectus Directive,
Each
person in a Relevant Member State who initially acquires any shares
or to whom any offer is made will be deemed to have represented,
acknowledged and agreed to and with each of the representatives and
the Company that it is a “qualified investor” within
the meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive. In the case of any
shares being offered to a financial intermediary as that term is
used in Article 3(2) of the Prospectus Directive, each such
financial intermediary will be deemed to have represented,
acknowledged and agreed that the shares acquired by it in the offer
have not been acquired on a non-discretionary basis on behalf of,
nor have they been acquired with a view to their offer or resale
to, persons in circumstances which may give rise to an offer of any
shares to the public other than their offer or resale in a Relevant
Member State to qualified investors as so defined or in
circumstances in which the prior consent of the representatives has
been obtained to each such proposed offer or resale.
For the
purposes of this provision, the expression an “offer of
shares to the public” in relation to any shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and
the shares to be offered so as to enable an investor to decide to
purchase or subscribe the shares, as the same may be varied in the
Relevant Member State by any measure implementing the Prospectus
Directive in the Relevant Member State and the expression
“Prospectus Directive” means Directive 2003/71/EC (as
amended by Directive 2010/73/EU), and includes any relevant
implementing measure in the Relevant Member State.
Hong Kong
The contents of this document have not been reviewed or approved by
any regulatory authority in Hong Kong. This document does not
constitute an offer or invitation to the public in Hong Kong to
acquire shares. Accordingly, unless permitted by the securities
laws of Hong Kong, no person may issue or have in its possession
for the purposes of issue, this document or any advertisement,
invitation or document relating to the shares, whether in Hong Kong
or elsewhere, which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong other
than in relation to shares which are intended to be disposed of
only to persons outside Hong Kong or only to “professional
investors” (as such term is defined in the Securities and
Futures Ordinance (Cap. 571, Laws of Hong Kong)
(“SFO”) and the
subsidiary legislation made thereunder); or in circumstances which
do not result in this document being a “prospectus” as
defined in the Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Cap. 32, Laws of Hong Kong) (“CO”); or which do not constitute
an offer or an invitation to the public for the purposes of the SFO
or the CO. The offer of the shares is personal to the person
to whom this document has been delivered, and a subscription for
shares will only be accepted from such person. No person to whom a
copy of this document is issued may issue, circulate or distribute
this document in Hong Kong, or make or give a copy of this document
to any other person. You are advised to exercise caution in
relation to the offer. If you are in any doubt about any of the
contents of this document, you should obtain independent
professional advice.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus and
any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of the shares may
not be circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in Singapore
other than (i) to an institutional investor pursuant to
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (“SFA”), (ii) to a relevant
person (as defined in Section 275(2) of the SFA), or any
person pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA, or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the
SFA.
Where the shares are subscribed or purchased pursuant to an offer
made in reliance on Section 275 of the SFA by a relevant
person which is:
(a)
a corporation
(which is not an accredited investor) the sole business of which is
to hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited investor;
or
(b)
a
trust (where the trustee is not an accredited investor) whose sole
purpose is to hold investments and each beneficiary is an
accredited investor;
shares, debentures and units of shares, and debentures of that
corporation, or the beneficiaries’ rights and interest
(howsoever described) in that trust shall not be transferable for
six months after that corporation or that trust has acquired the
shares under Section 275 except:
(1)
to an
institutional investor or to a relevant person (as defined in
Section 275(2) of the SFA), or any person pursuant to Section
275(1A) of the SFA (in the case of that corporation) or
Section 276(4)(i)(B) of the SFA (in the case of that
trust);
(2)
where
no consideration is or will be given for the transfer;
or
(3)
where
the transfer is by operation of law.
SHARES ELIGIBLE
FOR FUTURE SALE
The shares of our common stock sold in this offering will be freely
tradable in the public market, except to the extent they are
acquired by an “affiliate” of ours, as such term is
defined in Rule 405 under the Securities Act. Under Rule 405, an
affiliate of a specified person is a person that directly, or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified
person. Any affiliate of ours that acquires our common stock can
only further transact in such common stock in compliance with Rule
144 under the Securities Act, which imposes sales volume
limitations and other restrictions on such further transactions.
See “Rule 144,” below.
Rule 144
In general, a person who has beneficially owned restricted shares
of our common stock for at least twelve months, at least six
months, in the event we have been a reporting company under the
Exchange Act for at least 90 days before the sale, would be
entitled to sell such securities, provided that such person is not
deemed to be an affiliate of ours at the time of sale or to have
been an affiliate of ours at any time during the 90 days preceding
the sale. A person who is an affiliate of ours at such time would
be subject to additional restrictions, by which such person would
be entitled to sell within any three-month period only a number of
shares that does not exceed the greater of the
following:
●
1% of
the number of shares of our common stock then outstanding;
or
●
the
average weekly trading volume of our common stock during the four
calendar weeks preceding the filing by such person of a notice on
Form 144 with respect to the sale;
provided that, in each case, we are subject to the periodic
reporting requirements of the Exchange Act for at least 90 days
before the sale. Rule 144 trades must also comply with the manner
of sale, notice and other provisions of Rule 144, to the extent
applicable.
Lock-Up Agreements
We and our officers, directors, and current stockholders have
agreed, or will agree, with the underwriters, subject to certain
exceptions, that, without the prior written consent of the
underwriters, we and they will not, directly or indirectly, during
the period
ending
days after the date of the prospectus:
●
offer,
pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of
or transfer any shares of the common stock or any securities
convertible into or exchangeable or exercisable for the common
stock, whether now owned or hereafter acquired by the
aforementioned or with respect to which any of the aforementioned
has or hereafter acquires the power of disposition; or
●
enter
into any swap or any other agreement or any transaction that
transfers, in whole or in part, the economic consequence of
ownership of the common stock, whether any such swap or transaction
is to be settled by delivery of the common stock or other
securities, in cash or otherwise.
The
validity of our shares of our common stock offered by this
prospectus will be passed upon for us by Disclosure Law Group, a
Professional Corporation of San Diego, California. The underwriters
are being represented by Faegre Baker Daniels LLP, Minneapolis,
Minnesota, in connection with the offering.
EXPERTS
Our financial statements as of and for the years ended December 31,
2017 and 2016, have been included herein in reliance upon the
report of Squar Milner LLP, an independent registered public
accounting firm, appearing elsewhere herein, and given upon the
authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to this offering of our common stock.
This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement, some items of which are contained in
exhibits to the registration statement as permitted by the rules
and regulations of the SEC. For further information with respect to
us and our common stock, we refer you to the registration
statement, including the exhibits and the financial statements and
notes filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any
contract, or any other document, are not necessarily complete. If a
contract or document has been filed as an exhibit to the
registration statement, please see the copy of the contract or
document that has been filed. Each statement is this prospectus
relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit. The exhibits to the
registration statement should be referenced for the complete
contents of these contracts and documents. You may obtain copies of
this information by mail from the Public Reference Section of the
SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website that contains reports,
proxy statements and other information about issuers, like us, that
file electronically with the SEC. The address of the SEC’s
website is www.sec.gov.
In
connection with this offering and before this registration
statement becomes effective, we will register our common stock with
the SEC under Section 12 of the Exchange Act and, upon such
registration, we will become subject to the information and
periodic reporting requirements of the Exchange Act, and we will
file periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the
public reference room and website of the SEC referred to above. We
maintain a website at http://www.superleague.com. You may access
our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports, proxy
statements and other information filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act with the SEC free of
charge at our website as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC.
The information contained in, or that can be accessed through, our
website is not part of this prospectus.
INDEX TO FINANCIAL
STATEMENTS
SUPER LEAGUE GAMING, INC.
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|
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|
|
Page
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|
|
Report
of Independent Registered Public Accounting Firm
|
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F-2
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|
|
Financial Statements for the Years Ended December 31, 2017 and
2016
|
|
|
|
|
|
Balance
Sheets as of December 31, 2017 and 2016
|
|
F-3
|
Statements
of Operations for the years ended December 31, 2017 and
2016
|
|
F-4
|
Statements
of Stockholders’ Equity for the years ended December 31, 2017
and 2016
|
|
F-5
|
Statements
of Cash Flows for the years ended December 31, 2017 and
2016
|
|
F-6
|
Notes
to Financial Statements
|
|
F-7
|
|
|
Unaudited Interim Condensed Financial Statements for the Six Months
Ended June 30, 2018 and 2017
|
|
|
|
|
|
Interim
Condensed Balance Sheet as of June 30, 2018
(unaudited)
|
|
F-22
|
Interim
Condensed Statements of Operations for the six months ended June
30, 2018 and 2017 (unaudited)
|
|
F-23
|
Interim
Condensed Statements of Cash Flows for the six months ended June
30, 2018 and 2017 (unaudited)
|
|
F-24
|
Notes
to Interim Condensed Financial Statements (unaudited)
|
|
F-25
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors
Super League Gaming, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Super League
Gaming, Inc. (the “Company”) as of December 31, 2017
and 2016, the related statements of operations, stockholders'
equity and cash flows for the years then ended, and the related
notes to the financial statements (collectively, the financial
statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Other Matter
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has suffered
recurring losses from operations, has negative operating cash flows
from operations, and has a significant accumulated deficit that
raise substantial doubt about its ability to continue as a going
concern. Management’s plans regarding those matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our opinion is not modified with respect to that
matter.
Basis for Opinion
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ SQUAR MILNER LLP
We have served as the Company’s auditor since
2016.
Newport
Beach, California
September 14, 2018
SUPER LEAGUE GAMING, INC.
BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
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|
|
|
|
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|
Current
Assets
|
|
|
Cash
|
$1,709,473
|
$2,870,546
|
Accounts
receivable
|
113,702
|
–
|
Prepaid expenses
and other current assets
|
780,111
|
41,224
|
Total current
assets
|
2,603,286
|
2,911,770
|
|
|
|
Property
and Equipment, net
|
1,137,817
|
1,804,353
|
Intangible
and Other Assets, net
|
340,998
|
475,001
|
|
|
|
Total
assets
|
$4,082,101
|
$5,191,124
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
Liabilities
|
|
|
Accounts payable
and accrued expenses
|
$383,814
|
$449,221
|
Total current
liabilities
|
383,814
|
449,221
|
|
|
|
Commitments
and Contingencies (Note 10)
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
Common stock, par
value $0.001 per share; 50,000,000 shares authorized; 13,810,487
and 11,167,852 shares issued and outstanding as of December 31,
2017 and 2016, respectively.
|
13,811
|
11,168
|
Additional paid-in
capital
|
38,191,133
|
24,281,984
|
Accumulated
deficit
|
(34,506,657)
|
(19,551,249)
|
Total
stockholders’ equity
|
3,698,287
|
4,741,903
|
|
|
|
Total liabilities
and stockholders’ equity
|
$4,082,101
|
$5,191,124
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
|
SALES
|
$201,182
|
$269,892
|
|
|
|
COST
OF SALES
|
1,487,905
|
1,460,438
|
|
|
|
GROSS
LOSS
|
(1,286,723)
|
(1,190,546)
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling, marketing
and advertising
|
1,155,506
|
1,295,016
|
Research and
development
|
61,543
|
142,380
|
General and
administrative
|
12,451,636
|
9,737,460
|
Total operating
expenses
|
13,668,685
|
11,174,856
|
|
|
|
NET
LOSS
|
$(14,955,408)
|
$(12,365,402)
|
|
|
|
Net
loss attributable to common stockholders - basic and
diluted
|
|
|
Basic and diluted
loss per common share
|
$(1.17)
|
$(1.53)
|
Weighted-average
number of shares outstanding, basic and diluted
|
12,740,023
|
8,066,901
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
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|
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|
|
|
|
|
|
|
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|
|
BALANCE
– December 31, 2015
|
5,685,892
|
$5,686
|
$7,324,884
|
$(7,185,847)
|
$144,723
|
|
|
|
|
|
|
Conversion of notes
payable
|
2,714,871
|
2,715
|
8,297,285
|
–
|
8,300,000
|
Issuance of common
stock for cash at $3.60 per share, net of issuance
costs
|
1,517,089
|
1,517
|
5,355,128
|
–
|
5,356,645
|
Stock options
exercised
|
70,000
|
70
|
6,930
|
–
|
7,000
|
Stock-based
compensation
|
1,180,000
|
1,180
|
3,297,757
|
–
|
3,298,937
|
Net
loss
|
–
|
–
|
–
|
(12,365,402)
|
(12,365,402)
|
|
|
|
|
|
|
BALANCE
– December 31, 2016
|
11,167,852
|
11,168
|
24,281,984
|
(19,551,249)
|
4,741,903
|
|
|
|
|
|
|
Issuance of common
stock for cash at $3.60 per share, net of issuance
costs
|
2,364,857
|
2,365
|
8,242,517
|
–
|
8,244,882
|
Stock-based
compensation
|
–
|
–
|
4,666,910
|
–
|
4,666,910
|
In-kind
contribution of services (Note 7)
|
277,778
|
278
|
999,722
|
–
|
1,000,000
|
Net
loss
|
–
|
–
|
–
|
(14,955,408)
|
(14,955,408)
|
|
|
|
|
|
|
BALANCE
– December 31, 2017
|
13,810,487
|
$13,811
|
$38,191,133
|
$(34,506,657)
|
$3,698,287
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(14,955,408)
|
$(12,365,402)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation and
amortization
|
1,237,608
|
963,049
|
Stock-based
compensation
|
4,666,910
|
3,298,937
|
In-kind
contribution of services
|
333,333
|
–
|
Changes in assets
and liabilities:
|
|
|
Accounts
receivable
|
(113,702)
|
–
|
Prepaid expenses
and other current assets
|
(72,220)
|
(4,692)
|
Accounts payable
and accrued expenses
|
(65,407)
|
(206,342)
|
Net
cash used in operating activities
|
(8,968,886)
|
(8,314,450)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase of
property and equipment
|
(327,351)
|
(1,359,927)
|
Capitalization of
software development costs
|
(109,718)
|
(195,453)
|
Acquisition of
other intangible and other assets
|
–
|
(36,570)
|
Net
cash used in investing activities
|
(437,069)
|
(1,591,950)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds from issuance of common
stock
|
8,513,480
|
5,431,520
|
Common stock issuance
costs
|
(268,598)
|
(74,875)
|
Proceeds from exercise of stock
options
|
–
|
7,000
|
Proceeds from
convertible note payable
|
–
|
5,350,000
|
Repayment on
convertible note payable
|
–
|
(300,000)
|
Net
cash provided by financing activities
|
8,244,882
|
10,413,645
|
|
|
|
(DECREASE)
INCREASE IN CASH
|
(1,161,073)
|
507,245
|
|
|
|
CASH – beginning of
year
|
2,870,546
|
2,363,301
|
|
|
|
CASH – end of year
|
$1,709,473
|
$2,870,546
|
|
|
|
SUPPLEMENTAL
NONCASH FINANCING ACTIVITIES
|
|
|
Conversion of note
payable to common stock
|
$–
|
$8,300,000
|
In-kind
contributions (Note 7)
|
$1,000,000
|
$–
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
Income taxes
paid
|
$800
|
$800
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
NOTES TO FINANCIAL
STATEMENTS
1.
DESCRIPTION
OF BUSINESS
Super
League Gaming, Inc. (“Super League,” the
“Company,” “we” or “our”) is a
leading amateur esports community and content platform offering a
personalized experience to gamers. Through our proprietary,
cloud-based technology platform, we connect our network of gamers,
venues and brand partners to enable local, social and competitive
esports that can be uniquely broadcast through our platform. We
offer daily and season-focused offerings for which amateur
competitive gamers establish meaningful connections with each other
while improving their skills. We have multi-year strategic
partnerships with leading game publishers such as Microsoft and
Riot Games with titles including Minecraft and League of Legends,
respectively, to drive use among our member base and further
penetrate our target market. We deliver enhanced gaming experiences
to our members with these titles through our platform, and we
provide our venue and brand partners access to our member network
and platform technology.
Super
League was incorporated on October 1, 2014 as Nth Games, Inc. under
the laws of the State of Delaware and changed its name to Super
League Gaming, Inc. on June 15, 2015.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
financial statements and accompanying notes are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles in the United States of America (“U.S.
GAAP”).
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
Going Concern
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. As presented in the financial statements, the
Company has incurred a net loss of $14.9 million and $12.4 million
during the years ended December 31, 2017 and 2016, respectively,
and had an accumulated deficit of $34.5 million as of December 31,
2017. Noncash expenses and allowances were significant during the
years ended December 31, 2017 and December 31, 2016, and the net
cash used in operating activities were $8.9 million and $8.3
million, respectively.
The
Company has and will continue to use significant capital for the
growth and development of its business. The Company’s
management expects operating losses to continue in the near term in
order to carry out its strategic objectives. The Company considers
historical operating results, capital resources and financial
position, in combination with current projections and estimates, as
part of its plan to fund operations over a reasonable period of
time.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Going Concern (continued)
The
Company intends to use the proceeds from the issuance of the debt
instruments for business expansion, merger and/or acquisitions,
game licensing, and working capital. In addition, the Company
remains in active discussions for additional funds primarily
through the issuance of additional common stock. No assurance can
be given that any future financing will be available or, if
available, that it will be on terms that are satisfactory to the
Company.
The
Company’s management believes its current cash, net proceeds
from debt issuances and the amount available from the issuance of
common stock will be sufficient to fund working capital
requirements beyond the next 12 months. This belief assumes, among
other things, that the Company will be able to raise additional
equity financing, will continue to be successful implementing its
business strategy and that there will be no material adverse
development in the business, liquidity or capital requirements. If
one or more of these factors do not occur as expected, it could
cause reduction or delay of its business activities, sales of
material assets, default on its obligations, or forced into
insolvency. The accompanying financial statements do not contain
any adjustments which might be necessary if the Company were unable
to continue as a going concern.
Revenue Recognition
The
Company recognizes revenue when (i) persuasive evidence of an
arrangement exists, (ii) delivery of the products and/or services
has occurred, (iii) the selling price is fixed or determinable, and
(iv) the collectability of amounts is reasonably
assured.
Super
League generates revenues and related cash flows
from (i) the sale of season passes to
gamers for participation in Super League’s
in-person and online multiplayer
gaming experiences, (ii) brand and media
partnerships and (iii) sales
of merchandise. Sponsorship and season pass sales
revenues are recognized as the events occur. Revenue collected in
advance is recorded as deferred revenue until the event occurs.
Deferred revenues were not material for the periods presented
herein.
Cost of Sales
Cost of
sales includes direct costs incurred in connection with the
production of Super League’s in-theater and online gaming
events, including theater rental, theater entertainment, licenses,
and contract services.
Advertising
In-theater
gaming event and Super League brand related advertising costs
include the cost of ad production, social media, print media,
marketing, promotions, and merchandising. The Company expenses
advertising costs as incurred. Total advertising expenses for the
years ended December 31, 2017 and 2016 were $493,536 and $477,744,
respectively, and are included in selling, marketing and
advertising expenses in the accompanying statements of
operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and Cash Equivalents
Super
League considers all highly liquid, short-term investments with
original maturities of three months or less when purchased to be
cash equivalents. As of December 31, 2017 and 2016, the Company did
not have any cash equivalents.
Accounts Receivable
Accounts
receivable are recorded at the original invoice amount, less an
estimate made for doubtful accounts, if any. The Company provides
an allowance for potential credit losses based on its evaluation of
the collectability and the customers’ creditworthiness.
Accounts receivable are written off when they are determined to be
uncollectible. As of December 31, 2017 and 2016, no allowance for
doubtful accounts was considered necessary.
Fair Value Measurements
The
Company did not have any assets or liabilities that were measured
at fair value on a recurring basis or non-recurring basis as of
December 31, 2017 and 2016.
Concentration of Credit Risks
The
Company maintains its cash on deposit with a bank that is insured
by the Federal Deposit Insurance Corporation. At various times, the
Company maintained balances in excess of insured amounts. The
Company has not experienced any significant losses on its cash held
in banks.
Property and Equipment
Property
and equipment are recorded at cost. Major additions and
improvements that materially extend useful lives of property and
equipment are capitalized. Maintenance and repairs are charged
against the results of operations as incurred. When these assets
are sold or otherwise disposed of, the asset and related
depreciation are relieved, and any gain or loss is included in the
statements of operations for the period of sale or disposal.
Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives of the assets, typically over a
three to five-year period.
Intangible Assets
Intangible assets
primarily consist of software development costs, domain names,
copyrights and other intangible assets which are recorded at cost
and amortized using the straight-line method over the estimated
useful lives of the assets, ranging from three to ten years.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Intangible Assets (continued)
Software
development costs incurred to develop internal-use software during
the application development stage are capitalized and amortized on
a straight-line basis over the software’s estimated useful
life, which is generally three years. Software development costs
incurred during the preliminary stages of development are charged
to expense as incurred. Maintenance and training costs are charged
to expense as incurred. Upgrades or enhancements to existing
internal-use software that result in additional functionality are
capitalized.
Research and Development Costs
Research and development costs represent costs incurred to develop
the Company’s technology and primarily include payments to outside consultants and
contractors. Research and development costs are expensed as
incurred.
Impairment of Long-Lived Assets
The
Company assesses the recoverability of long-lived assets whenever
events or changes in circumstances indicate that their carrying
value may not be recoverable. If the cost basis of a long-lived
asset is greater than the projected future undiscounted net cash
flows from such asset, an impairment loss is recognized. Impairment
losses are calculated as the difference between the cost basis of
an asset and its estimated fair value. Management believes that
there was no impairment of long-lived assets as of and for the
years ended December 31, 2017 and 2016. There can be no assurance,
however, that market conditions or demand for the Company’s
products or services will not change, which could result in
long-lived asset impairment charges in the future.
Stock-Based Compensation
The
compensation cost for all stock-based awards is measured at the
grant date, based on the estimated fair value of the award, and is
recognized as an expense, generally on a straight-line basis over
the employee’s requisite service period (generally the
vesting period of the equity award) which is typically two to four
years. The fair value of restricted stock and restricted stock unit
awards is determined by the product of the number of shares or
units granted and the grant date market price of the underlying
common stock. The fair value of option awards and common stock
purchase warrants is estimated on the date of grant using the
Black-Scholes-Merton option pricing model. Stock-based compensation
expense is recorded only for those awards expected to vest using an
estimated forfeiture rate.
Grants of equity-based awards (including warrants) to non-employees
in exchange for consulting or other services are accounted for
using the fair value of the consideration received (i.e., the value
of the goods or services) or the fair value of the equity
instruments issued, whichever is more reliably
measurable.
Segment Information
The
Company operates in one segment.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing the income or
loss by the weighted-average number of outstanding shares of common
stock for the applicable period. Diluted earnings per share is
computed by dividing the income or loss by the weighted-average
number of outstanding shares of common stock for the applicable
period, including the dilutive effect of common stock equivalents.
Potentially dilutive common stock equivalents primarily consist of
employee stock options, common stock purchase warrants issued to
employee and non-employees in exchange for services and common
stock purchase warrants issued in connection with financings. All
outstanding stock options, and common stock purchase warrants for
the periods presented have been excluded from the computation of
diluted loss per share because the effect of inclusion would have
been anti-dilutive.
Income Taxes
Income
taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company’s financial statements or income
tax returns. A valuation allowance is established to reduce
deferred tax assets if all, or some portion, of such assets will
more than likely not be realized, or if it is determined that there
is uncertainty regarding future realizability of such
assets.
Under
U.S. GAAP, a tax position is a position in a previously filed tax
return or a position expected to be taken in a future tax filing
that is reflected in measuring current or deferred income tax
assets and liabilities. Tax positions are recognized only when it
is more likely than not, based on technical merits, that the
position will be sustained upon examination. Tax positions that
meet the more likely than not thresholds are measured using a
probability weighted approach as the largest amount of tax benefit
being realized upon settlement. The Company considers many factors
when evaluating and estimating its tax positions and tax benefits,
which may require periodic adjustments, and which may not
accurately forecast actual outcomes. Management believes the
Company has no uncertain tax positions for the years ended December
31, 2017 and 2016.
The
Company has elected to include interest and penalties related to
its tax contingences as a component of income tax expense. There
were no accruals for interest and penalties related to uncertain
tax positions for the periods presented. Income tax returns remain
open for examination by applicable authorities, generally three
years from filing for federal and four years for state. The Company
is not currently under examination by any taxing authority nor has
it been notified of an impending examination.
Recent Accounting Guidance
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued an accounting update requiring a company to recognize as
revenue the amount of consideration it expects to be entitled to in
connection with the transfer of promised goods or services to
customers. The accounting standard update will replace the existing
revenue recognition guidance currently promulgated by U.S. GAAP.
The new guidance is effective for annual periods beginning after
December 15, 2018, with early adoption permitted. The Company is in
the process of evaluating the impact, if any, of the update on its
financial position, results of operations and financial statement
disclosures.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Recent Accounting Guidance (continued)
In
February 2016, the FASB issued an accounting update that requires
lessees to present right-of-use assets and lease liabilities on the
balance sheet. The new guidance is to be applied using a modified
retrospective approach at the beginning of the earliest comparative
periods in the financial statements and is effective for fiscal
years beginning after December 15, 2019 and early adoption is
permitted. The Company is evaluating the impact that this guidance
will have on its financial position, results of operations and
financial statement disclosures.
3.
PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2017 and
2016:
|
|
|
|
|
|
Furniture
and fixtures
|
$76,156
|
$48,793
|
Computer
hardware
|
3,073,319
|
2,773,331
|
|
3,149,475
|
2,822,124
|
Less:
accumulated depreciation and amortization
|
(2,011,658)
|
(1,017,771)
|
|
$1,137,817
|
$1,804,353
|
Depreciation
and amortization expense was $993,887 and $769,045 for the years
ended December 31, 2017 and 2016, respectively.
4.
INTANGIBLE
AND OTHER ASSETS
Intangible
and other assets consisted of the following as of December 31, 2017
and 2016:
|
|
|
|
|
|
Capitalized
software development costs
|
$762,572
|
$652,854
|
Domain
|
65,579
|
65,579
|
Copyrights and
other
|
36,570
|
36,570
|
|
864,721
|
755,003
|
Less:
accumulated amortization
|
(523,723)
|
(280,002)
|
|
$340,998
|
$475,001
|
Amortization
expense totaled $243,721 and $194,004 for the years ended December
31, 2017 and 2016, respectively.
4.
INTANGIBLE AND OTHER ASSETS
(continued)
Future
amortization expense of intangible and other assets is expected as
follows:
For the years
ending December 31:
|
|
2018
|
$196,126
|
2019
|
76,630
|
2020
|
35,887
|
2021
|
11,003
|
2022
|
6,558
|
Thereafter
|
14,794
|
|
$340,998
|
5.
GAMING
LICENSE AGREEMENT
In June
2016, the Company entered into a gaming license agreement whereby
the Company agreed to issue 500,000 shares of common stock purchase
warrants (“License Warrants”) and 550,000 shares of
restricted stock units (“License RSUs”) when the
following performance or service conditions are met:
Vesting Conditions for License Warrant
|
|
Number of License Warrants
|
Achievement
of:
|
|
|
Greater
than $5.0 million game related net revenues
|
Performance
|
125,000
|
Greater
than $15.0 million game related net revenues
|
Performance
|
175,000
|
Greater
than $35.0 million game related net revenues
|
Performance
|
200,000
|
|
500,000
|
Vesting Conditions for License RSUs
|
|
|
|
|
|
Execution
of the gaming license agreement
|
Service
|
137,500
|
9-month
anniversary
|
Service
|
137,500
|
18-month
anniversary
|
Service
|
275,000
|
|
550,000
|
The License Warrants have a five-year contractual term with an
exercise price of $3.00 per share, with vesting upon satisfactory
performance under the gaming license agreement. The value of the
License Warrants would be measured when any of vesting conditions
are satisfied. As of December 31, 2017, it was not probable that
the vesting conditions would be met. Accordingly, no expense for
the License Warrants was recognized during the years ended December
31, 2017 and 2016.
5.
GAMING LICENSE AGREEMENT
(continued)
The
License RSUs were expensed on a straight-line basis over the
contractual license term of 18-months beginning June
2016 and ending December 31, 2017. Total expense
included in cost of sales related to License RSUs for the years
ended December 31, 2017 and 2016 totaled $1,054,167 and $595,833,
respectively.
6.
CONVERTIBLE
NOTE PAYABLE TO A RELATED PARTY
In
October 2015, the Company entered into a non-interest bearing,
unsecured convertible note in the principal amount of $3,250,000
(the “2015 Note”) with a stockholder of the Company. In
April 2016, the 2015 Note automatically converted into 1,163,387
shares of common stock pursuant to the terms of the 2015
Note.
In
April 2016, the Company entered into non-interest bearing,
unsecured convertible notes with an aggregate principal amount of
$5,350,000 (the “2016 Notes”) with certain stockholders
of the Company, $5,050,000 of such principal amount was
automatically converted into 1,551,484 shares of common stock in
October 2016 upon closing of a “qualified equity
offering” (as such term is defined in the 2016 Notes)
pursuant to the terms of the 2016 Notes. The remaining principal
amount of $300,000 was fully repaid by the Company during the year
ended December 31, 2016.
Preferred Stock
The
Company’s initial certificate of incorporation authorized
5,000,000 shares of preferred stock, par value $0.001 per share. No
preferred stock had been issued and outstanding since inception of
the Company. In October 2016, the Company’s Board of
Directors and a majority of the holders of the Company’s
common stock approved an amendment and restatement of the
certificate of incorporation which, in part, eliminated the
authorized preferred stock. All references in the accompanying
financial statements to preferred stock have been restated to
reflect the amended and restated certificate of
incorporation.
Common Stock
Each
holder of common stock is entitled to one vote for each share of
common stock held at all meetings of stockholders.
7.
STOCKHOLDERS’ EQUITY
(continued)
Common Stock Purchase Warrants
The Company issued common stock purchase warrants to certain employees and non-employees in exchange
for services performed, subject to certain vesting conditions. The
warrants have expiration dates ranging from five to 10 years from
the date of grant and exercise prices ranging from $0.10 to $3.60
per share. A summary of warrant activity for the year ended
December 31, 2017 is as follows:
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
Outstanding
at December 31, 2016
|
1,778,125
|
$2.63
|
3.85
|
$1,725,000
|
Granted
|
1,016,750
|
$3.57
|
|
|
Forfeited
or cancelled
|
(250,000)
|
$3.17
|
|
|
Outstanding
at December 31, 2017
|
2,544,875
|
$2.97
|
5.76
|
$1,609,800
|
Vested
and exercisable as of December 31, 2017
|
1,191,375
|
$2.70
|
|
$1,077,300
|
Compensation
expense related to common stock purchase warrants was $1,664,563
and $1,188,046 for the years ended December 31, 2017 and 2016,
respectively. The weighted-average grant date fair value of
warrants granted during the years ended December 31, 2017 and 2016
was $2.59 and $2.43, respectively. The aggregate fair value of
warrants that vested during the years ended December 31, 2017 and
2016 was $1,651,891 and $1,146,046, respectively.
As of
December 31, 2017, the total unrecognized compensation expense
related to warrants was $3,599,282, which is expected to be
recognized over a weighted-average term of approximately 2.94
years.
In-Kind Contribution of Services
For the
year ended December 31, 2017, the Company recorded $1,000,000 as
in-kind contributions of media services provided by a major media
network, in
exchange for 277,778 shares of common stock,of which
$333,333 was expensed for usage and the remaining $666,667 was
included in prepaid expenses and other current assets in the
accompanying balance sheet as of December 31, 2017.
8.
STOCK-BASED
INCENTIVE PLANS
The
Super League 2014 Stock Option and Incentive Plan (the
“Plan” or “SOP”) was approved by the Board
of Directors and the stockholders of Super League in October 2014.
The Plan allows grants of stock options, stock awards and
performance shares with respect to common stock of the Company to
eligible individuals, which generally includes directors, officers,
employees, advisors and consultants. The Plan provides for both the
direct award and sale of shares of common stock and for the grant
of options to purchase shares of common stock. Options granted
under the Plan include non-statutory options as well as incentive
options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
The
Board of Directors administers the Plan and determines which
eligible individuals are to receive option grants or stock
issuances under the Plan, the times when the grants or issuances
are to be made, the number of shares of common stock subject to
each grant or issuance, the status of any granted option as either
an incentive stock option or a non-statutory stock option under the
federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The exercise price of
options is generally equal to the fair market value of common stock
of the Company on the date of grant. Options generally begin
to be exercisable six months to one year after grant and typically
expire 10 years after grant. Stock options and restricted
shares generally vest over two to four years (generally
representing the requisite service period). The Plan terminates no
later than the tenth anniversary of the approval of the Plan by
stockholders of the Company (October 2024). The Plan provides for
the following programs:
Option Grants
Under
the discretionary option grant program, Super League’s
compensation committee may grant (1) non-statutory options to
purchase shares of common stock to eligible individuals in the
employ or service of Super League or its affiliates (including
employees, non-employee members of the Board of Directors and
consultants) at
an
exercise price not less than 85% of the fair market value of such
shares on the grant date, and (2) incentive stock options to
purchase shares of common stock to eligible employees at an
exercise price not less than 100% of the fair market value of such
shares on the grant date (not less than 110% of fair market value
if such employee actually or constructively owns more than 10% of
Super League’s voting stock or the voting stock of any of its
subsidiaries).
Stock Awards or Sales
Under
the stock award or sales program, eligible individuals may be
issued shares of common stock of the Company directly, upon the
attainment of performance milestones or the completion of a
specified period of service or as a bonus for past services. Under
this program, the purchase price for the shares will not be less
than 100% of the fair market value of the shares on the date of
issuance, and payment may be in the form of cash or past services
rendered. Eligible individuals will have no stockholder rights with
respect to any unvested restricted shares or restricted stock units
issued to them under the stock award or sales program; however,
eligible individuals will have the right to receive any regular
cash dividends paid on such shares.
8.
STOCK-BASED INCENTIVE PLANS
(continued)
Stock Awards or Sales (continued)
The
initial reserve under the Plan was 1,750,000 shares of common stock
and subsequently increased to 3,000,000 shares upon
stockholders’ approval in May 2016. In July 2017, the Company
amended and restated the SOP to increase the number of shares of
common stock reserved thereunder from 3,000,000 shares to 4,500,000
shares.
Super
League issues new shares of common stock upon the exercise of stock
options, the grant of restricted stock, or the delivery of shares
pursuant to vested restricted stock units. The Board of Directors
may amend or modify the Plan at any time, subject to any required
approval by the stockholders of the Company, pursuant to the terms
therein.
Stock Options
The
fair value of stock options granted were estimated on their
respective grant dates using the Black-Scholes-Merton option
pricing model and the following assumptions for the years ended
December 31, 2017 and 2016:
|
2017
|
|
2016
|
|
Volatility
|
104%
|
|
122%
|
|
Risk–free
interest rate
|
1.75% to
2.24%
|
|
1.43% to
2.45%
|
|
Dividend
yield
|
0%
|
|
0%
|
|
Expected life of
options (in years)
|
5.00 to
6.81
|
|
5.50 to
6.25
|
|
Weighted-average
fair value of common stock
|
$3.60
|
|
$3.10
|
|
A
summary of stock option activity for the year ended December 31,
2017 as follows:
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
Outstanding
at December 31, 2016
|
2,414,500
|
$2.38
|
7.86
|
$2,942,700
|
Granted
|
1,914,320
|
$3.49
|
9.52
|
$217,200
|
Exercised
|
|
|
|
|
Canceled
/ forfeited
|
(1,003,646)
|
$2.98
|
8.36
|
$619,000
|
Outstanding
at December 31, 2017
|
3,325,174
|
$2.84
|
8.66
|
$2,540,900
|
Vested
and exercisable at December 31, 2017
|
1,603,385
|
$2.30
|
8.17
|
$2,088,456
|
Compensation
expense related to stock options was $1,948,179 and $915,058 for
the years ended December 31, 2017 and 2016, respectively. The
weighted-average grant date fair value of stock options granted
during the years ended December 31, 2017 and 2016 was $2.87 and
$2.66, respectively. The aggregate fair value of stock options that
vested during the years ended December 31, 2017 and 2016 was
$2,601,477 and $915,058, respectively.
8.
STOCK-BASED INCENTIVE PLANS
(continued)
Stock Options (continued)
As of
December 31, 2017, the total unrecognized compensation expense
related to non-vested stock option awards was $5,442,097, which is
expected to be recognized over a weighted-average term of
approximately 2.66 years.
Restricted Stock Units
The
following table summarizes non-vested restricted stock unit
activity for the year ended December 31, 2017:
|
Restricted Stock Units (#)
|
Weighted Average Grant Date Fair Value ($)
|
Non-vested
restricted stock units at December 31, 2016
|
437,500
|
$2.91
|
|
|
|
Granted
|
–
|
|
Vested
|
(412,500)
|
|
Canceled
|
–
|
|
Non-vested
restricted stock units at December 31, 2017
|
25,000
|
$2.00
|
Compensation
expense related to restricted stock units, including the License
RSUs described in Note 5, was $1,054,167 and $1,195,833 during the
years ended December 31, 2017 and 2016, respectively. As of
December 31, 2017, the total unrecognized compensation expenses
related to non-vested restricted stock units was $16,040, which
will be recognized during the Company’s fiscal year ending
December 31, 2018
Super
League’s provision for income taxes consisted of the
following for the years ended December 31, 2017 and
2016:
|
|
|
Current:
|
|
|
Federal
taxes
|
$–
|
$–
|
State
taxes
|
800
|
800
|
Total
current
|
800
|
800
|
|
|
|
9.
INCOME TAXES (continued)
|
|
|
Deferred:
|
|
|
Federal
taxes
|
675,668
|
3,830,923
|
State
taxes
|
1,390,658
|
995,873
|
Subtotal
|
2,066,326
|
4,826,796
|
Change
in valuation allowance
|
(2,066,326)
|
(4,826,796)
|
Total
deferred
|
–
|
–
|
|
|
|
Provision
for income taxes
|
$800
|
$800
|
The tax
effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and liabilities
consist of the following as of December 31, 2017 and 2016.
|
|
|
Deferred
tax assets (liabilities):
|
|
|
Net
operating loss and credits
|
$8,400,379
|
$6,904,131
|
Stock
compensation
|
1,807,452
|
1,188,748
|
Fixed
assets and intangibles
|
(257,538)
|
(288,201)
|
Accrued
liabilities and other
|
(26,730)
|
52,392
|
Total
deferred tax assets
|
9,923,563
|
7,857,070
|
Valuation
allowance
|
(9,923,563)
|
(7,857,070)
|
Total
deferred tax assets, net of valuation allowance
|
$-
|
$-
|
|
|
|
A
reconciliation of the federal statutory income tax rate and the
effective income tax rate is as follows:
|
2017
|
|
2016
|
|
|
|
|
Statutory
federal tax rate - (benefit) expense
|
35
%
|
|
35%
|
Non-deductible
permanent items
|
(1)
|
|
(1)
|
Change
in tax rate
|
(29)
|
|
-
|
Valuation
allowance
|
(5)
|
|
(34)
|
|
- %
|
|
- %
|
|
|
|
|
For the
years ended December 31, 2017 and 2016, the Company recorded full
valuation allowances against its net deferred tax assets due to
uncertainty regarding future realizability pursuant to guidance set
forth in the FASB’s Accounting Standards Codification Topic
No. 740, Income Taxes. In
future periods, if the Company determines it will more likely than
not be able to realize these amounts, the applicable portion of the
benefit from the release of the valuation allowance will generally
be recognized in the statements of operations in the period the
determination is made.
At
December 31, 2017, the Company had U.S. federal and state
income tax net operating loss carryforwards approximating
$27,800,000, expiring through 2037. Utilization of the net
operating loss carryforwards may be subject to a substantial annual
limitation due to ownership change limitations that may have
occurred or that could occur in the future, as required by
Section 382 of the Internal Revenue Code of 1986, as amended,
as well as similar state provisions. The Company has not completed
a study to assess whether an ownership change has occurred or
whether there have been multiple ownership changes since the
Company’s formation due to the complexity and cost associated
with such a study, and the fact that there may be additional such
ownership changes in the future.
On December 22, 2017, new U.S. federal tax legislation was enacted
that significantly changed the U.S. federal income taxation of U.S.
corporations, including by reducing the U.S. corporate income tax
rate from 35% to 21%, revising the rules governing net operating
losses and foreign tax credits, and introducing new anti-base
erosion provisions. Many of the changes were effective immediately,
without any transition periods or grandfathering for existing
transactions. The legislation is unclear in many respects and could
be subject to potential amendments and technical corrections, as
well as interpretations and implementing regulations by the U.S.
Department of the Treasury and the Internal Revenue Service
(“IRS”), any of which could decrease or increase
certain adverse impacts of the legislation. In addition, it is
unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a
starting point for computing state and local tax
liabilities.
9.
INCOME TAXES (continued)
The new legislation reduced the corporate income tax rate from 35%
to 21% effective January 1, 2018. As a result, all deferred income
tax assets and liabilities, including NOL’s, have been
measured using the new rate under and are reflected in the
valuation of these assets as of December 31, 2017. The value of our
deferred tax assets has decreased by $4,278,626 and the related
valuation allowance has been reduced by the same amount. Our
analysis and interpretation of this legislation is ongoing. Given
the full valuation allowance provided for net deferred tax assets
for the periods presented herein, the change in tax law did not
have a material impact on the Company’s financial statements
provided herein. There may be additional tax impacts identified in
subsequent periods throughout the Company’s fiscal year
ending December 31,2018 in accordance with subsequent interpretive
guidance issued by the SEC or the IRS. Further, there may be other
material adverse effects resulting from the legislation that we
have not yet identified. No estimated tax provision has been
recorded for tax attributes that are incomplete or subject to
change.
10.
COMMITMENTS
AND CONTINGENCIES
Operating Leases
The
Company leases office space under an operating lease agreement
which expired on May 31, 2017 and was amended to a month-to-month
lease.
Rent
expense for the years ended December 31, 2017 and 2016 were
approximately $238,000 and $184,000, respectively, and is included
in general and administrative expenses in the accompanying
statements of operations. Rental payments are expensed in the
statements of operations in the period to which they relate.
Scheduled rent increases, if any, are amortized on a straight-line
basis over the lease term.
The
Company evaluated subsequent events for their potential impact on
the financial statements and disclosures through the date the
annual audited financial statements were available to be
issued.
In May
through June 2018, the Company issued 9.00% secured convertible
promissory notes (the “2018 Notes”) in the aggregate
principal amount of $4,964,000. The 2018 Notes (i) accrue simple
interest at the rate of 9.00% per annum, (ii) mature on the earlier
of the closing of an initial public offering (“IPO”) of
the Company’s common stock on a national securities exchange
or April 30, 2019, and (iii) all outstanding principal and accrued
interest is automatically convertible into shares of common stock
upon the close of an IPO at the lesser of (x) $3.60 per share or
(y) a 15% discount to the price per share of the IPO. In addition,
the holders of the 2018 Notes were collectively issued 1,561,023
warrants to purchase common stock equal to 100% of the principal
amount of the 2018 Notes (including accrued interest as described
below) divided by $3.60 per share. The warrants are exercisable for
a term of five years, commencing on the close of an IPO, at an
exercise price equal to the lesser of (x) $3.60 per share or (y) a
15% discount to the IPO price per share (the “2018
Warrants”). The 2018 Warrants have a term of five years and
are callable at the election of the Company at any time following
the closing of an IPO.
11.
SUBSEQUENT EVENTS
(continued)
In
February through April 2018, the Company issued 9.00% secured
convertible promissory notes (the “Initial 2018 Notes”)
with a collective face value of $3,000,000. The Initial 2018 Notes
(i) accrued simple interest at the rate of 9.00% per annum, (ii)
matured on the earlier of December 31, 2018 or the close of a
$15,000,000 equity financing (“Qualifying Equity
Financing”) by the Company, and (iii) all outstanding
principal and accrued interest was automatically convertible into
equity or equity-linked securities sold in the Qualifying Equity
Financing based upon a conversion rate equal to (x) a 10% discount
to the price per share of the Qualifying Equity Financing, with (y)
a floor of $3.60 per share. In addition, the holders of the Initial
2018 Notes were collectively issued warrants to purchase
approximately 166,667 shares of common stock, with an exercise
price of $3.60 per share and a term of five years (the
“Initial 2018 Warrants”).
In May
2018, all of the Initial 2018 Notes and related accrued interest,
totaling $3,055,886, were converted into the 2018 Notes. The
holders of the Initial 2018 Notes who converted into the 2018 Notes
retained their respective Initial 2018 Warrants. The totals for the
2018 Notes and 2018 Warrants disclosed above include amounts
converted related to the Initial 2018 Notes and Initial 2018
Warrants.
Subsequent
to June 30, 2018, the Company issued additional 9.00% secured
convertible promissory notes in the aggregate principal amount of
$8,036,204, in connection with the 2018 Notes financing round,
which closed in August 2018. In connection with the additional 2018
Notes issued, the Company issued 2,232,278 common stock purchase
warrants to such holders.
In
August 2018, the Company’s Board of Directors approved a
second amendment and restatement of the Company’s amended and
restated certificate of incorporation (the “Amended and
Restated Charter”) to (i) increase the Company’s
authorized capital to a total of 110.0 million shares, consisting
of 100.0 million shares of common stock and 10.0 million shares of
newly created preferred stock, par value $0.001 per share
(“Preferred Stock”); (ii) authorize the Company’s
Board of Directors to fix the designation and number of each series
of Preferred Stock, and to determine or change the designation,
relative rights, preferences, and limitations of any series of
Preferred Stock; and (iii) remove the deemed liquidation provision,
as such term is defined in the Amended and Restated Charter. The
Amended and Restated Charter was approved by a majority of the
Company’s stockholders in September 2018, and will become
effective upon filing with the State of Delaware.
SUPER LEAGUE GAMING, INC.
INTERIM CONDENSED BALANCE SHEET
JUNE 30, 2018
(UNAUDITED)
ASSETS
|
|
|
|
Current Assets
|
|
Cash
|
$785,269
|
Accounts
receivable
|
310,900
|
Prepaid
expenses and other current assets
|
468,083
|
Total
current assets
|
1,564,252
|
|
|
Property and Equipment, net
|
844,009
|
Intangible and Other Assets, net
|
340,814
|
|
|
Total
assets
|
$2,749,075
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
Current Liabilities
|
|
Accounts
payable and accrued expenses
|
$287,349
|
Convertible
debt and accrued interest, net
|
3,057,851
|
Total
current liabilities
|
3,345,200
|
|
|
Commitments and Contingencies (Note 8)
|
|
|
|
Stockholders’ deficit
|
|
Common
stock, par value $0.001 per share; 50,000,000 shares authorized;
13,810,487 shares issued and outstanding
|
13,811
|
Additional
paid-in capital
|
42,030,167
|
Accumulated
deficit
|
(42,640,103)
|
Total
stockholders’ deficit
|
(596,125)
|
|
|
Total
liabilities and stockholders’ deficit
|
$2,749,075
|
The accompanying notes are an integral part of these interim
condensed financial statements.
SUPER LEAGUE GAMING, INC.
INTERIM CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
SALES
|
$486,859
|
$34,042
|
|
|
|
COST
OF SALES
|
304,872
|
744,188
|
|
|
|
GROSS
PROFIT (LOSS)
|
181,987
|
(710,146)
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling, marketing
and advertising
|
668,648
|
372,638
|
Research and
development
|
7,670
|
27,534
|
General and
administrative
|
7,244,139
|
5,705,805
|
Total operating
expenses
|
7,920,457
|
6,105,977
|
|
|
|
Net operating
loss
|
(7,738,470)
|
(6,816,123)
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
Interest
expense
|
(397,051)
|
(11)
|
Other
|
2,076
|
400
|
Total other income
(expense)
|
(394,975)
|
389
|
|
|
|
NET
LOSS
|
$(8,133,445)
|
$(6,815,734)
|
|
|
|
Net
loss attributable to common stockholders - basic and
diluted
|
|
|
Basic
and diluted loss per common share
|
$(0.59)
|
$(0.58)
|
Weighted-average
number of shares outstanding, basic and diluted
|
13,810,487
|
11,667,164
|
The accompanying notes are an integral part of these interim
condensed financial statements.
SUPER LEAGUE GAMING, INC.
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(8,133,445)
|
$(6,815,734)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation and
amortization
|
535,678
|
617,616
|
Stock-based
compensation
|
1,687,575
|
1,671,688
|
Amortized license
fees – restricted stock units (Note 5)
|
-
|
550,000
|
Amortization of
discount on convertible notes (Note 6)
|
297,739
|
–
|
In-kind
contribution of services (Note 7)
|
294,667
|
–
|
Changes in assets
and liabilities:
|
|
|
Accounts
receivable
|
(289,400)
|
–
|
Prepaid expenses
and other current assets
|
109,562
|
(14,986)
|
Accounts payable
and accrued expenses
|
(96,466)
|
133,126
|
Accrued interest on
convertible notes
|
99,275
|
–
|
Net
cash used in operating activities
|
(5,494,815)
|
(3,858,290)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase of
property and equipment
|
(135,116)
|
(191,585)
|
Capitalization of
software development costs
|
(79,505)
|
(45,626)
|
Acquisition of
other intangible and other assets
|
(27,065)
|
–
|
Net
cash used in investing activities
|
(241,686)
|
(237,211)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
-
|
3,618,901
|
Proceeds from
convertible note payable, net of issuance costs
|
4,812,297
|
-
|
Net
cash provided by financing activities
|
4,812,297
|
3,618,901
|
|
|
|
DECREASE
IN CASH
|
(924,204)
|
(476,600)
|
|
|
|
CASH – beginning of
period
|
1,709,473
|
2,870,546
|
|
|
|
CASH – end of period
|
$785,269
|
$2,393,946
|
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
|
|
|
Conversion
of convertible debt (Note 6)
|
$3,000,000
|
$–
|
In-kind
contributions (Note 7)
|
$–
|
$1,000,000
|
Common
stock purchase warrants – discount on convertible
debt
|
$2,151,459
|
$–
|
Common
stock subscription receivable
|
$–
|
$2,625,979
|
The accompanying notes are an integral part of these interim
condensed
financial statements.
SUPER LEAGUE GAMING, INC.
NOTES TO INTERIM
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION
OF BUSINESS
Super
League Gaming, Inc. (“Super League,” the
“Company,” “we” or “our”) is a
leading amateur esports community and content platform offering a
personalized experience to gamers. Through our proprietary,
cloud-based technology platform, we connect our network of gamers,
venues and brand partners to enable local, social and competitive
esports that can be uniquely broadcast through our platform. We
offer daily and season-focused offerings for which amateur
competitive gamers establish meaningful connections with each other
while improving their skills. We have multi-year strategic
partnerships with leading game publishers such as Microsoft and
Riot Games, with titles including Minecraft and League of Legends,
respectively, to drive use among our member base and further
penetrate our target market. We deliver enhanced gaming experiences
to our members with these titles through our platform, and we
provide our venue and brand partners access to our member network
and platform technology.
Super
League was incorporated on October 1, 2014 as Nth Games, Inc. under
the laws of the State of Delaware and changed its name to Super
League Gaming, Inc. on June 15, 2015. We are an “emerging
growth company” as defined by the Jumpstart Our Business
Startups Act of 2012, as amended.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
accompanying interim condensed financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”)
for interim financial information. Accordingly, certain
information and footnotes required by U.S. GAAP in annual financial
statements have been omitted or condensed in accordance with
quarterly reporting requirements of the Securities and Exchange
Commission (“SEC”). These interim condensed
financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended
December 31, 2017.
The
interim condensed financial statements of the Company include all
adjustments of a normal recurring nature which, in the opinion of
management, are necessary for a fair statement of the
Company’s financial position as of June 30, 2018, and
results of its operations and its cash flows for the interim
periods presented. The results of operations for the six
months ended June 30, 2018 are not necessarily indicative of
the results to be expected for the entire fiscal year.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
Going Concern
The
accompanying interim condensed financial statements have been
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As presented in the
interim condensed financial statements, the Company incurred net
losses of $8.1 million and $6.8 million during the six months ended
June 30, 2018 and 2017, respectively, and had an accumulated
deficit of $42.6 million as of June 30, 2018. Noncash expenses
totaled $2,2815,659 and $2,839,304 for the six months ended June
30, 2018 and June 30, 2017, respectively. Net cash used in
operating activities totaled $5.5 million and $3.9 million, for the
six months ended June 30, 2018 and June 30, 2017,
respectively.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
Company has and will continue to use significant capital for the
growth and development of its business.
The
Company’s management expects operating losses to continue in
the near term in connection with the pursuit of its strategic
objectives. The Company considers historical operating results,
capital resources and financial position, in combination with
current projections and estimates, as part of its plan to fund
operations over a reasonable period.
Subsequent
to June 30, 2018, the Company completed its convertible debt
financing round raising additional gross proceeds totaling
approximately $8,036,204. The Company intends to use the proceeds
from the sale of the notes for business expansion, merger and/or
acquisitions, game licensing, and working capital. In addition, the
Company remains in active discussions for additional funds
primarily through the issuance of additional common stock. No
assurance can be given that any future financing will be available
or, if available, that it will be on terms that are satisfactory to
the Company.
The
Company’s management believes its current cash, net proceeds
from debt issuances and the amount available from the issuance of
common stock will be sufficient to fund working capital
requirements beyond the next 12 months. This belief assumes, among
other things, that the Company will be able to raise additional
equity financing, will continue to be successful implementing its
business strategy and that there will be no material adverse
development in the business, liquidity or capital requirements. If
one or more of these factors do not occur as expected, it could
cause reduction or delay of its business activities, sales of
material assets, default on its obligations, or forced into
insolvency. The accompanying financial statements do not contain
any adjustments which might be necessary if the Company were unable
to continue as a going concern.
Revenue Recognition
The
Company recognizes revenue when (i) persuasive evidence of an
arrangement exists, (ii) delivery of the products and/or services
has occurred, (iii) the selling price is fixed or determinable, and
(iv) the collectability of amounts is reasonably
assured.
Super
League generates revenues and related cash flows
from (i) the sale of subscriptions to gamers
for participation in Super League’s
in-person and online multiplayer
gaming experiences, (ii) brand and media
partnerships and (iii) sales
of merchandise.
To
date, subscription revenues have consisted of the sale of season
passes to gamers for participation in our in-person and or online
multiplayer gaming experiences. For the periods presented herein,
season passes for gaming experiences were primarily comprised of
multi-week packages and include one-time, single experience
admissions.
Subscription
and sponsorship revenues are recognized as the events occur.
Revenue collected in advance is recorded as deferred revenue until
the event occurs. Deferred revenues were not material for the
periods presented herein.
Cost of Sales
Cost of
sales includes direct costs incurred in connection with the
production of Super League’s in-person and online gaming
events, including theater rental, theater entertainment, licenses,
and contract services.
Advertising
In-theater
gaming event and Super League brand related advertising costs
include the cost of ad production, social media, print media,
marketing, promotions, and merchandising. The Company expenses
advertising costs as incurred. Advertising expenses for the six
months ended June 30, 2018 and 2017 were $199,424 and $158,889,
respectively, and are included in selling, marketing and
advertising expenses in the accompanying statements of
operations.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents
Super
League considers all highly liquid, short-term investments with
original maturities of three months or less when purchased to be
cash equivalents. As of June 30, 2018, the Company did not have any
cash equivalents.
Accounts Receivable
Accounts
receivable are carried at the original invoice amount, less an
estimate made for doubtful accounts, if any. The Company provides
an allowance for doubtful account for potential credit losses based
on its evaluation of collectability and the customers’
creditworthiness. Accounts receivable are written off when they are
determined to be uncollectible. As of June 30, 2018, no allowance
for doubtful account was provided.
Fair Value Measurements
The
Company did not have any assets or liabilities that were measured
at fair value on a recurring basis or non-recurring basis as of
June 30, 2018.
Concentration of Credit Risks
The
Company maintains its cash on deposit with a bank that is insured
by the Federal Deposit Insurance Corporation. At various times, the
Company maintained balances in excess of insured amounts. The
Company has not experienced any significant losses on its cash held
in banks.
Property and Equipment
Property
and equipment are recorded at cost. Major additions and
improvements that materially extend useful lives of property and
equipment are capitalized. Maintenance and repairs are charged
against the results of operations as incurred. When these assets
are sold or otherwise disposed of, the asset and related
depreciation are relieved, and any gain or loss is included in the
statements of operations for the period of sale or disposal.
Depreciation and amortization are computed on a straight-line basis
over the estimated useful lives of the assets, typically over a
three to five-year period.
Intangible Assets
Intangible
assets primarily consist of software development costs, domain
names, copyrights and other intangible assets which are recorded at
cost and amortized using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten
years.
Software
development costs incurred to develop internal-use software during
the application development stage are capitalized and amortized on
a straight-line basis over the software’s estimated useful
life, which is generally three years. Software development costs
incurred during the preliminary stages of development are charged
to expense as incurred. Maintenance and training costs are charged
to expense as incurred. Upgrades or enhancements to existing
internal-use software that result in additional functionality are
capitalized.
Research and Development Costs
Research
and development costs represent costs incurred to develop the
Company’s technology and primarily include payments to
outside consultants and contractors. Research and development costs
are expensed as incurred.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Impairment of Long-Lived Assets
The
Company assesses the recoverability of long-lived assets whenever
events or changes in circumstances indicate that their carrying
value may not be recoverable. If the cost basis of a long-lived
asset is greater than the projected future undiscounted net cash
flows from such asset, an impairment loss is recognized. Impairment
losses are calculated as the difference between the cost basis of
an asset and its estimated fair value. Management believes that
there was no impairment of long-lived assets for the periods
presented herein. There can be no assurance, however, that market
conditions or demand for the Company’s products or services
will not change, which could result in long-lived asset impairment
charges in the future.
Stock-Based Compensation
The
compensation cost for all stock-based awards is measured at the
grant date, based on the estimated fair value of the award, and is
recognized as an expense, typically on a straight-line basis over
the employee’s requisite service period (generally the
vesting period of the equity award) which is generally two to four
years. The fair value of restricted stock and restricted stock unit
awards is determined by the product of the number of shares or
units granted and the grant date market price of the underlying
common stock. The fair value of stock options and common stock
purchase warrants is estimated on the date of grant utilizing the
Black-Scholes-Merton option pricing model. The fair values of stock
options and common stock purchase warrants granted during the
periods presented were estimated using the following
weighted-average assumptions:
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Volatility
|
101%
|
|
104%
|
Risk–free
interest rate
|
2.73%
to 2.83%
|
|
1.46%
to 2.21%
|
Dividend
yield
|
0%
|
|
0%
|
Expected
life of options (in years)
|
5.0-6.11
|
|
2.50 to
6.08
|
Weighted-average
fair value of common stock
|
$3.60
|
|
$3.60
|
Stock-based
compensation expense is recorded only for those awards expected to
vest using an estimated forfeiture rate.
Grants
of equity-based awards (including warrants) to non-employees in
exchange for consulting or other services are accounted for using
the fair value of the consideration received (i.e., the value of
the goods or services) or the fair value of the equity instruments
issued, whichever is more reliably measurable.
Compensation
expense related to stock options was $1,229,068 and $776,722 for
the six months ended June 30, 2018 and 2017, respectively.
Compensation expense related to restricted stock was $5,718 and $0
for the six months ended June 30, 2018 and 2017, respectively.
Refer to Note 7 for common stock purchase warrant expense for the
interim periods presented.
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing the income or
loss by the weighted-average number of outstanding shares of common
stock for the applicable period. Diluted earnings per share is
computed by dividing the income or loss by the weighted-average
number of outstanding shares of common stock for the applicable
period, including the dilutive effect of common stock equivalents.
Potentially dilutive common stock equivalents primarily consist of
employee stock options, common stock purchase warrants issued to
employee and non-employees in exchange for services and common
stock purchase warrants issued in connection with financings. All
outstanding stock options, and common stock purchase warrants for
the periods presented have been excluded from the computation of
diluted loss per share because the effect of inclusion would have
been anti-dilutive.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income
Taxes
Income
taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company’s interim condensed financial
statements or income tax returns. A valuation allowance is
established to reduce deferred tax assets if all, or some portion,
of such assets will more than likely not be realized, or if it is
determined that there is uncertainty regarding future realization
of such assets.
The
provision for income taxes for interim periods is determined using
an estimate of the Company’s annual effective tax rate,
adjusted for discrete items in the applicable period, if any. Each
interim period, the Company updates the estimate of the annual
effective tax rate, and if the estimated tax rate changes, a
cumulative adjustment is recorded.
On
December 22, 2017, new U.S. federal tax legislation was enacted
that significantly changed the U.S. federal income taxation of U.S.
corporations, including by reducing the U.S. corporate income tax
rate from 35% to 21%, revising the rules governing net operating
losses and foreign tax credits, and introducing new anti-base
erosion provisions. Many of the changes were effective immediately,
without any transition periods or grandfathering for existing
transactions. The legislation is unclear in many respects and could
be subject to potential amendments and technical corrections, as
well as interpretations and implementing regulations by the U.S.
Department of the Treasury and the Internal Revenue Service
(“IRS”), any of which could decrease or increase
certain adverse impacts of the legislation. In addition, it is
unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a
starting point for computing state and local tax
liabilities.
The new
legislation reduced the corporate income tax rate from 35% to 21%
effective January 1, 2018. As a result, all deferred income tax
assets and liabilities, including NOL’s, have been measured
using the new rate under and are reflected in the valuation of
these assets as of December 31, 2017. As a result, the value of our
deferred tax assets were reduced by approximately $4.3 million and
the related valuation allowance has been reduced by the same
amount. Our analysis and interpretation of this legislation is
ongoing. Given the full valuation allowance provided for net
deferred tax assets for the periods presented herein, the change in
tax law did not have a material impact on the Company’s
financial statements provided herein. There may be additional tax
impacts identified in subsequent periods throughout the
Company’s fiscal year ending December 31,2018 in accordance
with subsequent interpretive guidance issued by the SEC or the IRS.
Further, there may be other material adverse effects resulting from
the legislation that we have not yet identified. No estimated tax
provision has been recorded for tax attributes that are incomplete
or subject to change.
Recent Accounting Guidance
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued an accounting update requiring a company to recognize as
revenue the amount of consideration it expects to be entitled to in
connection with the transfer of promised goods or services to
customers. The accounting standard update will replace most of the
exiting revenue recognition guidance currently promulgated by U.S.
GAAP. In August 2015, the FASB decided to delay the effective date
of new revenue standard by one year. The new guidance is effective
for emerging growth companies for annual periods beginning after
December 15, 2018, with certain early adoption variations
permitted. The Company is in the process of evaluating the impact,
if any, of the update on its financial position, results of
operations and financial statement disclosures.
In
February 2016, the FASB issued an accounting update that requires
lessees to present right-of-use assets and lease liabilities on the
balance sheet. The new guidance is to be applied using a modified
retrospective approach at the beginning of the earliest comparative
periods in the financial statements and is effective for fiscal
years beginning after December 15, 2019 and early adoption is
permitted. The Company is evaluating the impact that this guidance
will have on its financial position, results of operations and
financial statement disclosures.
3.
PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following at June 30,
2018:
Furniture and
fixtures
|
$123,189
|
Computer
hardware
|
3,161,402
|
|
3,284,591
|
Less: accumulated
depreciation and amortization
|
(2,440,582)
|
|
$844,009
|
Depreciation
and amortization expense for property and equipment was $428,924
and $496,944 for the six months ended June 30, 2018 and 2017,
respectively.
4.
INTANGIBLE
AND OTHER ASSETS
Intangible
and other assets consisted of the following as of June 30,
2018:
Capitalized
software development costs
|
$842,077
|
Domain
|
67,644
|
Copyrights and
other
|
61,570
|
|
971,291
|
Less: accumulated
amortization
|
(630,477)
|
|
$340,814
|
Intangible
and other asset related amortization expense totaled $106,754 and
$120,672 for the six months ended June 30, 2018 and 2017,
respectively.
Future
amortization expense of intangible and other assets is expected as
follows:
For the years
ending December 31:
|
|
2018
Remaining
|
$109,353
|
2019
|
104,839
|
2020
|
65,175
|
2021
|
21,626
|
2022
|
9,264
|
Thereafter
|
30,557
|
|
$340,814
|
5.
GAMING
LICENSE AGREEMENT
In June
2016, the Company entered into a gaming license agreement whereby
the Company agreed to issue 500,000 shares of common stock purchase
warrants (“License Warrants”) and 550,000 shares of
restricted stock units (“License RSUs”) when the
following performance or service conditions are met by the
Company:
Vesting
Conditions for License Warrant
|
Category
|
Number
of License Warrants
|
Achievement
of:
|
|
|
Greater than $5.0
million game related net revenues
|
Performance
|
125,000
|
Greater than $15.0
million game related net revenues
|
Performance
|
175,000
|
Greater than $35.0
million game related net revenues
|
Performance
|
200,000
|
|
500,000
|
Vesting
Conditions for License RSUs
|
Category
|
|
Execution of the
gaming license agreement
|
Service
|
137,500
|
9-month
anniversary
|
Service
|
137,500
|
18-month
anniversary
|
Service
|
275,000
|
|
550,000
|
The
License Warrants have a five-year contractual term with an exercise
price of $3 per share, with vesting upon satisfactory performance
under the gaming license agreement. The value of the License
Warrants would be measured when any of vesting conditions are
satisfied. As of June 30, 2018, it was not probable that the
vesting conditions would be met. Accordingly, no expense for the
License Warrants was recognized during the periods
presented.
The
License RSUs were expensed on a straight-line basis over the
contractual license term of 18-months beginning June
2016 and ending December 31, 2017. Total expense
included in cost of sales related to License RSUs for the six
months ended June 30, 2017 totaled $550,000.
6.
CONVERTIBLE
NOTES PAYABLE
In May
through June 2018, the Company issued 9.00% secured convertible
promissory notes (the “2018 Notes”) in the aggregate
principal amount of $4,963,798. The 2018 Notes (i) accrue simple
interest at the rate of 9.00% per annum, (ii) mature on the earlier
of the closing of an initial public offering (“IPO”) of
the Company’s common stock on a national securities exchange
or April 30, 2019, and (iii) all outstanding principal and accrued
interest is automatically convertible into shares of common stock
upon the closing of an IPO at the lesser of (x) $3.60 per share or
(y) a 15% discount to the price per share of the IPO. In addition,
the holders of the 2018 Notes were collectively issued 1,561,023
warrants to purchase common stock equal to one hundred percent of
the face value of the 2018 Notes (including accrued interest as
described below) divided by $3.60 per share. The warrants are
exercisable for a term of five years, commencing on the close of an
IPO, at an exercise price equal to the lesser of (x) $3.60 per
share or (y) a 15% discount to the IPO price per share (the
“2018 Warrants”). The warrants are callable at the
election of the Company at any time following the close of an
IPO.
In
February through April 2018, the Company issued 9.00% secured
convertible promissory notes (the “Initial 2018 Notes”)
with a collective face value of $3,000,000. The Initial 2018 Notes
(i) accrued simple interest at the rate of 9.00% per annum, (ii)
matured on the earlier of December 31, 2018 or the close of a
$15,000,000 equity financing (“Qualifying Equity
Financing”) by the Company, and (iii) all outstanding
principal and accrued interest was automatically convertible into
equity or equity-linked securities sold in the Qualifying Equity
Financing based upon a conversion rate equal to (x) a 10% discount
to the price per share of the Qualifying Equity Financing, with (y)
a floor of $3.60 per share. In addition, the holders of the Initial
2018 Notes were collectively issued warrants to purchase
approximately 166,667 shares of common stock, at an exercise price
of $3.60 per share and a term of five years (the “Initial
2018 Warrants”).
6.
CONVERTIBLE
NOTES PAYABLE (continued)
In May
2018, all of the Initial 2018 Notes and related accrued interest,
totaling $3,055,886, were converted into the 2018 Notes. The
holders of the Initial 2018 Notes who converted into the 2018 Notes
retained their respective Initial 2018 Warrants. The totals for the
2018 Notes and 2018 Warrants disclosed above include amounts
converted related to the Initial 2018 Notes and Initial 2018
Warrants.
The
proceeds from the sale of the 2018 Notes and 2018 Warrants, as well
as the 2018 Initial Notes and 2018 Initial Warrants, were allocated
to the instruments based on the relative fair values of the
convertible debt instrument without the warrants and of the
warrants themselves at the time of issuance. The portion of the
proceeds, totaling $2,151,459 allocated to the 2018
Warrants, was accounted for as
a discount to the debt, with the offsetting credit to additional
paid-in capital. The remainder of the proceeds were allocated to
the convertible debt instrument portion of the transaction. The
resulting debt discount is being amortized over the period from
issuance to April 30, 2019, the stated maturity date of the
debt.
The
nondetachablenon-detachable
conversion feature embedded in the 2018 Notes provides for a
conversion rate that is below market value at the commitment date,
and therefore, represents a beneficial conversion feature
(“BCF”). The beneficial conversion featureBCF is generally recognized separately at
issuance by allocating a portion of the debt proceeds equal to the
intrinsic value of the beneficial conversion featureBCF to additional paid-in capital. The
resulting convertible debt discount is recognized as interest
expense using the effective yield method. The
beneficial conversion featureBCF is measured using the commitment date
stock price. However, the conversion feature associated with the
2018 Notes is not exercisable until the consummation of an initial
public offering by the Company. of its
common stock. As such, the beneficial conversion
featureBCF is not recognized in
earnings until the contingency is resolved in future periods. The
intrinsic value of the beneficial conversion featureBCF at the commitment date, which was
limited to the net proceeds allocated to the debt on a relative
fair value basis, was approximately $2,832,762.
Debt
issuance costs, primarily
comprised of commissions and finder’s fees, totaled $123,468 as of June 30, 2018 and were reflected as a discount to the debt
instrument. Debt issuance costs are amortized over the term of the
debt as interest expense.
Amounts
related to the convertible notes as of and for the six months ended
June 30, 2018 were as follows:
|
|
|
|
Six
Months Ended June 30, 2018
|
9.00% Convertible
notes
|
$4,963,798
|
|
Amortization of
debt discount
|
$269,705
|
Accrued
interest
|
99,275
|
|
Amortization of
debt issuance costs
|
28,034
|
Unamortized debt
discount
|
(1,881,754)
|
|
Accrued interest
expense
|
99,312
|
Unamortized debt
issuance costs
|
(123,468)
|
|
Total interest
expense
|
$397,051
|
|
$3,057,851
|
|
|
|
Common Stock Purchase Warrants Issued in Exchange for
Services
The
Company issued common stock purchase warrants to certain employees
and non-employees in exchange for services performed, subject to
certain vesting conditions. The warrants issued for services have
expiration dates ranging from five to 10 years from the date of
grant and exercise prices ranging from $0.10 to $3.60 per
share.
Compensation
expense related to common stock purchase warrants issued for
services was $452,789 and $894,965 for the six months ended June
30, 2018 and 2017, respectively. No common stock purchase warrants
were issued in exchange for services during the six months ended
June 30, 2018.
In-Kind Contribution of Services
In June
2017, the Company recorded $1,000,000 as in-kind contributions of
media services provided by a major media network, of which $294,667
was expensed, based on estimates of usage, during the six months
ended June 30, 2018. The contributed media services are being
amortized over the 18-month contractual term ending on
December 31, 2018 and are included in selling, marketing and
advertising expense in the statement of operations.
8.
COMMITMENTS
AND CONTINGENCIES
The
Company leases office space under an operating lease agreement
which expired on May 31, 2017 and was amended to a month-to-month
lease. Rent expense for the six months ended June 30, 2018 and 2017
was $146,864 and $117,322, respectively, and is included in general
and administrative expenses in the accompanying interim condensed
statements of operations. Rental payments are expensed in the
statements of operations in the period to which they relate.
Scheduled rent increases, if any, are amortized on a straight-line
basis over the lease term.
The
Company evaluated subsequent events for their potential impact on
the financial statements and disclosures through September 14,
2018, which is the date the unaudited interim condensed financial
statements were available to be issued.
Subsequent
to June 30, 2018, the Company issued additional 9% secured
convertible promissory notes with a collective face value of
$8,036,204, in connection with the 2018 Notes financing round, with
the same terms as the 2018 Notes. In connection with the issuance
of the additional 2018 Notes, the Company issued 2,232,278
additional common stock purchase warrants.
In
August 2018, the Company’s Board of Directors approved a
second amendment and restatement to the of the Company’s
amended and restated certificate of incorporation (the
“Amended and Restated Charter”) to (i) increase the
Company’s authorized capital to a total of 110.0 million
shares, consisting of 100.0 million shares of common stock and 10.0
million shares of newly created preferred stock, par value $0.001
per share (“Preferred Stock”); (ii) authorize the
Company’s Board of Directors to fix the designation and
number of each series of Preferred Stock, and to determine or
change the designation, relative rights, preferences, and
limitations of any series of Preferred Stock; and (iii) remove the
deemed liquidation provision, as such term is defined in the
Amended and Restated Charter. The Amended and Restated Charter was
approved by a majority of the Company’s stockholders in
September 2018, and will become effective upon filing with the
State of Delaware.
Shares
Super League Gaming, Inc.
PROSPECTUS
Joint Book-Running Managers
Northland Capital
Markets
|
Lake Street
Capital Markets
|
The date of this prospectus is ,
2018
Until
,
2018 (25 days after the date of this prospectus), all dealers that
buy, sell or trade shares of our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Part II - INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The
following table indicates the expenses to be incurred in connection
with the offering described in this registration statement, other
than underwriting discounts and commissions, all of which will be
paid by us. All amounts are estimated except the Securities and
Exchange Commission (the “SEC”) registration fee, the
Financial Industry Regulatory Authority, Inc. (“FINRA”) filing fee and the Nasdaq
Capital Market listing fee.
|
|
SEC registration
fee
|
$*
|
FINRA filing
fee
|
*
|
Nasdaq Capital
Stock Market listing fee
|
*
|
Accountants’
fees and expenses
|
*
|
Legal fees and
expenses
|
*
|
Blue Sky fees and
expenses
|
*
|
Transfer
Agent’s fees and expenses
|
*
|
Printing and
engraving expenses
|
*
|
Miscellaneous
|
*
|
|
|
Total
expenses
|
$*
|
*
|
To be
provided by amendment.
|
Item 14. Indemnification of Directors and
Officers.
Section
145(a) of the Delaware General Corporation Law
(“DGCL”)
provides, in general, that a Delaware corporation may indemnify any
person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) because that
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or
other enterprise. The indemnity may include expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, so long as the person acted in good
faith and in a manner he or she reasonably believed was in or not
opposed to the corporation’s best interests, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was
unlawful.
Section 145(b) of the DGCL provides, in general, that a Delaware
corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation to
obtain a judgment in its favor because the person is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or other
enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action,
so long as the person acted in good faith and in a manner the
person reasonably believed was in or not opposed to the
corporation’s best interests, except that no indemnification
shall be permitted without judicial approval if a court has
determined that the person is to be liable to the corporation with
respect to such claim. Section 145(c) of the DGCL provides that, if
a present or former director or officer has been successful in
defense of any action referred to in Sections 145(a) and (b) of the
DGCL, the corporation must indemnify such officer or director
against the expenses (including attorneys’ fees) he or she
actually and reasonably incurred in connection with such
action.
Section 145(g) of the DGCL provides, in general, that a corporation
may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or
other enterprise against any liability asserted against and
incurred by such person, in any such capacity, or arising out of
his or her status as such, whether or not the corporation could
indemnify the person against such liability under Section 145 of
the DGCL.
Our certificate of incorporation, as amended and restated
(“Charter”), and our amended and restated bylaws
(“Bylaws”) provide for the indemnification of our
directors and officers to the fullest extent permitted under the
DGCL.
We also expect to enter into separate indemnification agreements
with our directors and officers in addition to the indemnification
provided for in our Charter and Bylaws. These indemnification
agreements will provide, among other things, that we will indemnify
our directors and officers for certain expenses, including damages,
judgments, fines, penalties, settlements and costs and
attorneys’ fees and disbursements, incurred by a director or
officer in any claim, action or proceeding arising in his or her
capacity as a director or officer of the company or in connection
with service at our request for another corporation or entity. The
indemnification agreements also provide for procedures that will
apply in the event that a director or officer makes a claim for
indemnification.
We also maintain a directors’ and officers’ insurance
policy pursuant to which our directors and officers are insured
against liability for actions taken in their capacities as
directors and officers.
We have entered into an underwriting agreement in connection with
this offering, which provides for indemnification by the
underwriter of us, our officers and directors, for certain
liabilities, including liabilities arising under the Securities
Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
Item 15. Recent Sales of Unregistered Securities.
Set
forth below is information regarding all securities sold by us
within the last three years which were not registered under the
Securities Act. Also included is the consideration received by us
for such securities and information relating to the section of the
Securities Act, or rule of the SEC, under which exemption from
registration was claimed.
(a)
Issuances of Capital Stock:
During
the year ended December 31, 2016, we issued 1,517,089 shares of
common stock at a price of $3.60 per share to certain accredited
investors in private placement transactions, resulting in aggregate
net proceeds of $5,356,645.
During
the year ended December 31, 2017, we issued 2,364,857 shares of
common stock at a price of $3.60 per share to certain accredited
investors in private placement transactions, resulting in aggregate
net proceeds of $8,244,883.
In
connection with these issuances of common stock, we granted the
investors certain demand and piggyback registration rights for the
shares purchased in these transactions. In addition, the investors
were provided with the right to participate on a pro-rata basis in
any future financings, subject to certain exceptions including the
issuance of securities in connection with the closing of our
initial public offering, to maintain their respective ownership
interest in the Company.
In June
2016, we entered into a gaming license agreement whereby we agreed
to issue 550,000 shares of restricted stock upon the achievement of
certain game related service conditions.
Issuances of Warrants to Purchase Common Stock
On June
22, 2016, we granted a ten-year warrant to purchase 500,000 shares
of common stock with an exercise price of $3.00 per share to a
third-party as partial consideration for the execution of a license
agreement. Pursuant to its terms, the warrant will vest in
increments of 25%, 35% and 40%, respectively, upon the occurrence
of certain performance-based achievements.
Since
January 1, 2016, we have granted five and ten year warrants to
purchase an aggregate of 1,066,750 shares of our common stock at an
average exercise price of $3.39 per share, to certain employees,
consultants and directors of the Company, including our Chief
Executive Officer Ann Hand, and Robert Stewart and Jeff Gehl, each
of whom serve as a member of our Board of Driectors, as
consideration for their previous and future services to the
Company.
Sale of Convertible Promissory Notes in Private
Placements
In
October 2015, we entered into a non-interest bearing, unsecured
convertible note in the principal amount of $3,250,000 (the
“2015 Note”)
with a stockholder of the Company. In April 2016, the 2015 Note
automatically converted into 1,163,387 shares of common stock
pursuant to the terms of the 2015 Note.
In
April 2016, we entered into non-interest bearing, unsecured
convertible notes with an aggregate principal amount of $5,350,000
(the “2016
Notes”) with certain stockholders of the Company,
$5,050,000 of such principal amount was automatically converted
into 1,551,484 shares of common stock in October 2016 upon closing
of a “qualified equity offering” (as such term is
defined in the 2016 Notes) pursuant to the terms of the 2016 Notes.
The remaining principal amount of $300,000 was fully repaid by us
during the year ended December 31, 2016.
In May
through June 2018, we issued 9.00% secured convertible promissory
notes (the “2018
Notes”) in the aggregate principal amount of
$4,963,798. The 2018 Notes (i) accrue simple interest at the rate
of 9.00% per annum, (ii) mature on the earlier of the closing of an
initial public offering (“IPO”) of our common stock on a
national securities exchange or April 30, 2019, and (iii) all
outstanding principal and accrued interest is automatically
convertible into shares of common stock upon the closing of an IPO
at the lesser of (x) $3.60 per share or (y) a 15% discount to the
price per share of the IPO. In addition, the holders of the 2018
Notes were collectively issued 1,561,023 warrants to purchase
common stock equal to one hundred percent of the face value of the
2018 Notes (including accrued interest as described below) divided
by $3.60 per share. The warrants are exercisable for a term of five
years, commencing on the close of an IPO, at an exercise price
equal to the lesser of (x) $3.60 per share or (y) a 15% discount to
the IPO price per share (the “2018 Warrants”). The warrants are
callable at our election at any time following the close of an
IPO.
In
February through April 2018, we issued 9.00% secured convertible
promissory notes (the “Initial 2018 Notes”) with a
collective face value of $3,000,000. The Initial 2018 Notes (i)
accrued simple interest at the rate of 9.00% per annum, (ii)
matured on the earlier of December 31, 2018 or the close of a
$15,000,000 equity financing (“Qualifying Equity Financing”) by
the Company, and (iii) all outstanding principal and accrued
interest was automatically convertible into equity or equity-linked
securities sold in the Qualifying Equity Financing based upon a
conversion rate equal to (x) a 10% discount to the price per share
of the Qualifying Equity Financing, with (y) a floor of $3.60 per
share. In addition, the holders of the Initial 2018 Notes were
collectively issued warrants to purchase approximately 166,667
shares of common stock, at an exercise price of $3.60 per share and
a term of five years (the “Initial 2018
Warrants”).
In May
2018, all of the Initial 2018 Notes and related accrued interest,
totaling $3,055,886, were converted into the 2018 Notes. The
holders of the Initial 2018 Notes who converted into the 2018 Notes
retained their respective Initial 2018 Warrants. The totals for the
2018 Notes and 2018 Warrants disclosed above include amounts
converted related to the Initial 2018 Notes and Initial 2018
Warrants.
Grants of Restricted Common Stock
On
January 15, 2016, we issued 420,000 shares of our common stock to
an employee upon the exercise of certain previously issued warrants
at an exercise price of $0.10 per share.
The
offers, sales and issuances of the securities described in
Item 15 were deemed to be exempt from registration under the
Securities Act under either (i) Rule 701 promulgated
under the Securities Act as offers and sale of securities pursuant
to certain compensatory benefit plans and contracts relating to
compensation in compliance with Rule 701 or
(ii) Section 4(a)(2) of the Securities Act as
transactions by an issuer not involving any public offering. The
recipients of securities in each of these transactions represented
their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the stock
certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with
us, to information about us.
Item 16. Exhibits and Financial Statement
Schedules.
(a) Exhibits. The list of exhibits is set forth below and is
incorporated by reference herein.
1.1*
|
Form of
Underwriting Agreement.
|
|
Amended
and Restated Certificate of Incorporation of Super League Gaming,
Inc.
|
|
Second
Amended and Restated Bylaws of Super League Gaming,
Inc.
|
4.1*
|
Form of
Common Stock Certificate.
|
|
Form of
Registration Rights Agreement, among Super League Gaming, Inc. and
certain accredited investors.
|
|
Common
Stock Purchase Warrant dated June 16, 2017 issued to Ann
Hand.
|
|
Form of 9.00%
Secured Convertible Promissory Note |
|
Form of
Callable Common Stock Purchase Warrant, issued to certain
accredited investors.
|
4.6*
|
Form of
Underwriter Warrant.
|
5.1*
|
Opinion
of Disclosure Law Group, a Professional Corporation.
|
|
Super
League Gaming, Inc. 2014 Stock Option and Incentive Plan, as
amended July 10, 2017.
|
|
Form of
Stock Option Agreement under 2014 Stock Option and Incentive
Plan.
|
|
Subscription
Agreement, among Nth Games, Inc. and certain accredited
investors.
|
|
Subscription
Agreement, among Super League Gaming, Inc. and certain accredited
investors.
|
|
Form of
Theater Agreement.
|
|
Lease
between Super League Gaming, Inc. and Roberts Business Park Santa
Monica LLC, dated June 1, 2016.
|
10.7*
|
License
Agreement between Super League Gaming, Inc. and Riot Games, Inc.,
dated June 22, 2016.
|
10.8*
|
License
Agreement between Super League Gaming, Inc. and Mojang AB, dated
August 1, 2016.
|
10.9*
|
Master
Agreement between Super League Gaming, Inc. and Viacom Media
Networks, dated June 9, 2017.
|
10.10*
|
Master
Joint Promotion Agreement between Super League Gaming, Inc. and
Viacom Media Networks, dated June 9, 2017.
|
|
Form of
Common Stock Purchase Agreement, among Super League Gaming, Inc.
and certain accredited investors.
|
|
Form of
Investors’ Rights Agreement, among Super League Gaming, Inc.
and certain accredited investors.
|
|
Employment
Agreement, between Super League Gaming, Inc. and Ann Hand, dated
June 16, 2017.
|
|
Employment
Agreement, between Super League Gaming, Inc. and David Steigelfest,
dated October 31, 2017.
|
10.15*
|
Riot
Games, Inc. Extension Letter, dated November 21, 2017.
|
|
Form of
Note Purchase Agreement, among Super League Gaming, Inc. and
certain accredited investors.
|
|
Form of
Security Agreement, between Super League Gaming, Inc. and certain
accredited investors
|
|
Form of
Intercreditor and Collateral Agent Agreement, among Super League
Gaming, Inc. and certain accredited investors.
|
|
Form of
Investors’ Rights Agreement (9% Secured
Convertible Promissory Notes), among Super League Gaming,
Inc. and certain accredited investors.
|
10.20*
|
Master
Service Agreement and Initial Statement of Work between Super
League Gaming, Inc. and Logitech Inc., dated March 1,
2018.
|
10.21*
|
Sponsorship
Agreement between Super League Gaming, Inc. and Red Bull North
America, Inc., dated June 20, 2018.
|
|
Asset
Purchase Agreement, between Super League Gaming, Inc. and Minehut,
dated June 22, 2018.
|
|
Super
League Gaming, Inc. Code of Business Conduct and
Ethics.
|
23.1*
|
Consents
of Squar Milner LLP.
|
23.2*
|
Consent
of Disclosure Law Group, a Professional Corporation (included in
Exhibit 5.1).
|
|
Power
of attorney (included on signature page to this Registration
Statement).
|
*
|
To be
filed by amendment.
|
†
|
Identifies
exhibits that consist of a management contract or compensatory plan
or arrangement.
|
|
|
(b)
Financial Statement Schedules. Schedules not listed above
have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements
or notes thereto.
Item 17. Undertakings.
The
undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each
purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The
registrant hereby further undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For
purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on
this day
of ,
2018.
|
Super League Gaming, Inc.
|
|
|
|
|
By:
|
|
|
|
Ann
Hand
Chief Executive Officer, President and
Chair of the Board
|
SIGNATURES AND POWER OF
ATTORNEY
We, the
undersigned officers and directors of Super League Gaming, Inc.,
hereby severally constitute and appoint Ann Hand and Clayton
Haynes, and each of them singly (with full power to each of them to
act alone), our true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution in each of them for
him or her and in his or her name, place and stead, and in any and
all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement (or any
other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to be
done in and about the premises, as full to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or
their, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities held on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
|
Chief
Executive Officer,
|
,
2018
|
Ann
Hand
|
President,
Chair of the Board
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
Chief
Financial Officer
|
,
2018
|
Clayton
Haynes
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
Director
|
,
2018
|
John
Miller
|
|
|
|
|
|
|
Director
|
,
2018
|
Jeff
Gehl
|
|
|
|
|
|
|
Director
|
,
2018
|
Robert
Stewart
|
|
|
|
|
|
|
Director
|
,
2018
|
Marc
Cummins
|
|
|