Confidential Treatment Requested by Super League Gaming, Inc.
Pursuant to 17 C.F.R. Section 200.83
This Draft Registration Statement Has Not Been Publicly Filed with
the United States Securities and Exchange Commission, and All
Information Herein Remains Strictly Confidential.
As Confidentially Submitted to the Securities and Exchange
Commission on February 27,
2020
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
Company: (802) 294-2754; Investor Relations:
949-574-3860
(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
(802) 294-2754
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group,
A Professional Corporation
655 West Broadway, Suite 870
San Diego, California 92101
(619) 272-7050
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.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company
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☒
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Emerging
growth company
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☒
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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
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Title of Each Class of
Securities to be Registered
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Amount to be
Registered (1)
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Proposed Maximum Offering Price Per Share
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Proposed Maximum Aggregate Offering
Price (1)
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Amount of
Registration Fee
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Common
Stock, par value $0.001 per share
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[●]
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$
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[●]
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$
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[●]
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$
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[●]
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(1)
Estimated solely
for the purpose of calculating the registration fee in accordance
with Rule 457(a) under the Securities
Act of 1933, as amended.
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 FEBRUARY 27, 2020
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PRELIMINARY PROSPECTUS
[________] Shares
SUPER LEAGUE GAMING, INC.
Pursuant to this prospectus, we are offering [______] shares of our
common stock, par value $0.001 per share, at a price of $[______]
per share.
Our common stock is presently traded on the NASDAQ Capital Market
under the symbol “SLGG.” On February 26, 2020, the last
reported sale price of our common stock was $3.58 per
share.
We are an “emerging growth company” as the term is used
in the Jumpstart Our Business Startups Act of 2012 and, as such,
have elected to comply with certain reduced public company
reporting requirements for this prospectus and future filings. See
“Prospectus
Summary – Implications of Being an Emerging Growth
Company.”
Investing in our common stock involves
risks. See “Risk
Factors” beginning on
page 8 of this prospectus for a discussion of the risks that you
should consider in connection with an investment in our
securities.
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Public
offering price
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$
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$
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Underwriting discount (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)
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Please see the section titled “Underwriting”
beginning on page 101 of this prospectus for additional information
regarding the total compensation to be received by the
underwriter.
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The underwriter(s) expect to deliver the shares of common stock
against payment on or about [________], 2020.
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.
The date of this prospectus is [________],
2020
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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 may authorize to be
delivered or made available to you. We have not 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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PROSPECTUS SUMMARY
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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.
Super League Gaming,
Inc. (“Super League,” the
“Company,” “we” or
“our”) is a global leader in the mission to
bring live and digital esports entertainment and experiences
directly to everyday competitive gamers around the world. Utilizing
our proprietary technology platform, Super League operates physical
and digital experiences in partnership with publishers of top-tier
game titles and owners/operators of a distributed footprint of
venues, a network of digital social and viewing channels, and an
association/organization of city-based amateur gaming clubs and
teams. In addition to providing premium experiences by operating
city-vs-city amateur esports leagues and producing thousands of
social gaming experiences across North America and our
ever-expanding international footprint, the Super League
Network features multiple forms of content celebrating the
love of play via social media, live streaming and video-on-demand,
along with continuous gameplay and leaderboards. Inside our network
is Framerate, a large independent social video esports network
powered by user-generated highlight reels, and our exclusive proprietary
platform Minehut, providing a social and
gameplay forum for the avid Minecraft community. Through our
partnerships with high-profile venue owners such as Wanda Theatres
in China, Topgolf and Cinemark Theatres in North America, along
with ggCircuit, an
esports services company that provides
gaming center management software solutions and access to a global
network of gaming centers, Super League is committed to
supporting the development of local, grassroots player communities
all while providing a global, scalable infrastructure for esports
competition and engagement. We address not only a wide range of
gamers across game titles, ages and skill levels, but also a wide
range of content-capture beyond just gameplay. This positions Super
League as more than a tournament operator; we are a lifestyle and
media company focused on capturing, generating, aggregating and
distributing content across the genre of all things
esports.
We
believe
Super League is on the leading edge of the rapidly growing
competitive video gaming industry, which has become an established
and vital part of the entertainment landscape. According to Reuters
Plus, 2018, gaming is now the world’s favorite form of
entertainment, as the gaming industry generated more revenue in
2017 than television, movies and music. At the professional level,
thousands of professional players on hundreds of teams compete in
dozens of high stakes competitions that draw significant audiences,
both in person and online. In addition, the value of brand
sponsorships, media rights and prize money continue to rise, as are
professional team valuations and the purchase price for securing
franchises in professional leagues.
With
NewZoo reporting 2.6 billion gamers globally, we believe there is a
larger opportunity for the world of mainstream competitive players
who want their own esports experience. These amateur gamers are
players who enjoy the competition, the social interaction and
community, and the entertainment value associated with playing and
watching others play. According to Nielsen Esports Playbook, 2017,
competitive amateur gamers take part in over eight hours of
gameplay and watch up to nine hours of esports-related content each
week. We believe this is an under-served market that seeks their
own opportunities for team-based play on real playing
fields.
Super
League is a critically important component in providing the
infrastructure for mainstream esports that is synergistic and
accretive to the greater esports ecosystem. Over the past five
years, we believe we have become the preeminent brand for amateur
esports by providing a proprietary, software platform that allows
our gamers to compete, socialize and spectate premium amateur
esports gameplay and entertainment, both physically and digitally.
We celebrate everyday competitive gamers and provide a
differentiated way for players and spectators to unite around their
city clubs and hometown venues for a better, more inclusive social
experience not previously available. Not only do we offer premium
amateur esports leagues and community, but we are able to leverage
our derivative gameplay content to become a comprehensive amateur
esports content network. As we expand our city clubs, partner venue
network, breadth of game titles and reach into the home, we bring
new players into our customer funnel to drive audience growth and,
ultimately, consumer and content monetization.
The
fundamental drivers of our monetization are creating deep community
engagement through our highly contextualized, local experiences
that, when coupled with the critical mass of large digital
audiences, provides the depth and volume for premium content and
offer monetization differentiated from a more traditional,
commoditized advertising model. The powerful combination of our
physical venue network and digital programming channels, with Super
League’s platform as the hub, creates the opportunity for not
just a share of the player’s wallet, but also the
advertiser’s wallet. We do this by offering brand sponsors
and advertisers a premium marketing channel to reach elusive
Generation Z and Millennial gamers and offering players ways to
access exclusive tournaments, rewards and programming through our
Super League consumer subscription offer and other consumer
offerings.
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Selected Risks 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;
●
changes in consumer
demand for, and acceptance of, the game titles that we offer for
our tournaments and activities, as well as online multiplayer
competitive amateur gaming in general;
●
changes in the
competitive environment, including new entrants in the market for
online amateur competitive gaming, tournaments and competitions
that compete with our own;
●
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;
●
our ability to
generate consistent revenue;
●
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;
●
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;
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 most
recently completed 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 our
initial public offering, 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.
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Recent Developments
Acquisition of Framerate, Inc.
On June 3, 2019, the Company and SLG Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company
(“Merger Sub”), entered into an agreement and plan of
merger (the “Merger Agreement”) with Framerate, Inc., a
Delaware corporation (“Framerate”), pursuant to which
Framerate merged with and into Merger Sub, with Merger Sub
continuing as the surviving corporation (the
“Acquisition”).
Framerate is
a cross-platform esports social video network delivering the best
in gameplay highlights, news and entertainment to today’s
generation of video gamers. The company’s focus on user
generated content and social distribution changes the way
traditional esports video content is produced, distributed and
shared by millions of esports fans worldwide. The acquisition of
Framerate represents a strategic step in our audience-building
efforts with an average of approximately 15 million video views a
month during the second half of 2019, built around everyday gamers
uploading their personal esports highlight reels for recognition
across our wide audience.
Expanded Agreement with ggCircuit, LLC
On September 23, 2019, Super League
and ggCircuit, LLC (“ggCircuit”), an
esports services company that provides
gaming center management software solutions and other esports
offerings, entered into an
expanded commercial partnership agreement
(“Expanded Agreement”) pursuant to
which Super League became
the primary consumer-facing brand within
ggCircuit’s leading
gaming center software
platform, known as “ggLeap.” Under the terms of the
Expanded Agreement, commencing with the November 2019 ggLeap
software update release, the consumer facing components
of ggLeap, including its leaderboards, its competitive
seasons and its local loyalty programs, were rebranded as
“Super League Gaming,” and are managed by Super League.
ggLeap is a B2B software platform and B2C application created and
owned by ggCircuit. ggLeap is licensed and distributed to owners
and operators of video gaming centers throughout the world. It
helps gaming centers manage the PCs in their venue, administer
loyalty programs for local players, and provides the interface and
local operating system through which players log into computers and
launch all of their gameplay sessions within the gaming centers
where ggLeap is deployed. The December 2019 software release
included, the pilot launch of a consumer subscription offer,
“Super League Prime,” through which players in gaming
centers will be able to access special member benefits along with
an underpinning global loyalty program for all in players to earn
points and prizing for local
rewards.
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Wanda Cinemas Games Partnership
In
January 2020, we announced a new partnership
with Wanda Cinemas Games, a subsidiary of Chinese media
conglomerate Wanda Media. The new alliance will initially bring
live, competitive gaming experiences to Wanda’s 700+ owned
and operated theaters in multiple cities across China, with more
activations to be announced in the future. This new venture
provides Super League with the opportunity to greatly expand our
reach into the world’s largest market of 1.2 billion gamers,
more than the entire population of the United States.
In the
agreement, Wanda theatres will be transformed into esports venues
hosting live Super League events and tournaments throughout China,
driving an entirely new gaming experience for the massive Wanda
customer base. Passionate players will see their local movie
theatre serve as a competitive and social playing field for the
video games they love. The unique gaming experiences created by
Super League will propel Wanda venues to the center of the global
esports phenomena. The partnership will continue to fuel Super
League’s focus on the vast opportunity to monetize gamers and
the content they generate.
Reverse Stock Split
On
February 8, 2019, the Company filed an amendment to the
Company’s amended and restated certificate of incorporation
to effect a reverse split of shares of the Company’s common
stock on a one-for-three basis (the “Reverse Stock Split”). All
references to common stock, warrants to purchase common stock,
options to purchase common stock, early exercised options,
restricted stock, share data, per share data and related
information contained in the financial statements have been
retrospectively adjusted to reflect the effect of the Reverse Stock
Split for all periods presented.
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 Company
telephone number is (802)
294-2754, and our investor relations contact number is (949)
574-3860.
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.
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Common
stock to be outstanding after this offering
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[______] shares.
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Use of
proceeds
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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, assuming a public
offering price of $[______] per
share. 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.
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Risk
factors
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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.
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Proposed
listing
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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.
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Nasdaq
symbol
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Our
common stock is listed on The Nasdaq Capital Market under the
symbol “SLGG.”
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The number of shares of our common stock to be outstanding after
this offering is based on 8,573,922 shares of our common stock outstanding as of
February 11, 2020, and excludes:
●
2,516,152 shares of common stock issuable upon exercise of common
stock purchase warrants, with an average weighted exercise price of
$9.61 per share;
●
1,537,391 shares of common stock
issuable upon exercise of options outstanding; held and 321,939
shares of common stock reserved for issuance pursuant to our 2014
Plan (as defined herein); and
●
28,838 shares of common stock issuable upon vesting of nonvested
restricted stock units outstanding.
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Statements
of Operations Data:
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Revenues
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$1,084,000
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$1,046,000
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Cost of
revenues
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513,000
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684,000
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Gross
loss
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571,000
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362,000)
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Operating
expenses:
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Selling, marketing
and advertising
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4,421,000
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4,319,000
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Technology platform
and infrastructure
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4,463,000
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4,183,000
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General and
administrative
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12,457,000
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8,020,000
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Total operating
expenses
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21,341,000
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16,522,000
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Net Operating
Loss
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(20,770,000)
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(16,160,000)
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Other income
(expense), net
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(9,909,000)
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(4,467,000)
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Net
loss
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$(30,679,000)
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$(20,627,000)
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Net loss per share
attributable to common stockholders (1) (2)
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Basic
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$(3.89)
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$(4.48)
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Diluted
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$(3.89)
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$(4.48)
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Weighted average
shares outstanding used in computing net income (loss) per share
attributable to common stockholders (1) (2)
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Basic
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7,894,326
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4,606,961
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Diluted
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7,894,326
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4,606,961
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(1) See
Note 1 to our audited and unaudited financial statements 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.
(2)
All share and per share data has been retrospectively adjusted to
reflect the one-for-three Reverse Stock Split, which was effected
on February 8, 2019.
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Balance Sheet Data:
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Cash
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8,442,000
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2,774,000
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Working capital
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8,655,000
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(8,032,000)
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Total assets
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14,447,000
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4,987,000
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Accumulated deficit
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(85,812,000)
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(55,133,000)
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Total stockholders’ deficit
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13,443,000
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(6,794,000)
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(1)
The as adjusted balance sheet data
reflects our sale of [______] shares of common stock in this
offering at a public offering price of $[______] per share, after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. Each $1.00 increase or decrease in
the public offering price would increase or decrease 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. These unaudited
adjustments are based upon available information and certain
assumptions we believe are reasonable under the
circumstances.
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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 net losses of $30.7 million and $20.6 million during
the year ended December 31, 2019 and 2018, respectively.
Noncash expenses (excluding depreciation and amortization of fixed
and intangible assets) totaled $16.2 million and $8.9 million for
the year ended December 31, 2019 and 2018, respectively. As of
December 31, 2019, we had an accumulated deficit of $85.8 million.
Moreover, the report of our independent registered public
accounting firm to the financial statements for our fiscal year
ended December 31, 2019, included
elsewhere herein, contains an explanatory paragraph stating that
our recurring losses from operations, accumulated deficit and cash
used in operating activities raise substantial doubt about our
ability to continue as a going concern. On February 27, 2019,
we completed our IPO, pursuant to which we issued and sold an
aggregate of 2,272,727 shares of our common stock at a public
offering price of $11.00 per share. We raised net proceeds of
approximately $22,458,000 after underwriting discounts, commissions
and other offering costs of $2,542,000.
We cannot predict if we will achieve profitability soon or at all.
We expect to continue to expend substantial financial and other
resources on, among other things:
●
investments
to expand and enhance our esports technology platform and
technology infrastructure, make improvements to the scalability,
availability and security of our platform, and develop new
offerings;
●
sales
and marketing, including expanding our customer acquisition and
sales organization and marketing programs, and expanding our
programs directed at increasing our brand awareness among current
and new customers;
●
investments
in bandwidth to support our video streaming
functionality;
●
contract
labor 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;
●
hiring
additional employees;
●
expansion
of our operations and infrastructure, both domestically and
internationally; and
●
general
administration, including legal, accounting and other expenses
related to being a public company.
We may not generate sufficient revenue to offset such costs to
achieve or sustain profitability in the future. We expect to
continue to invest heavily in our operations, our online and in
person experiences, business development related to game
publishers, advertisers, sponsors and gamer acquisition, 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.
We expect operating losses to continue in the near term in order to
carry out our strategic objectives. We consider historical
operating results, capital resources and financial position, in
combination with current projections and estimates, as part of our
plan to fund operations over a reasonable period of
time.
We believe our current cash position, absent receipt of additional
capital either from operations or that may be available from future
issuance(s) of common stock or debt financings, is not sufficient
to fund our planned operations for the twelve months following the
date of this Report.
We are focused on expanding our service offerings and revenue
growth opportunities through internal development, collaborations,
and through strategic acquisitions. Management is currently
exploring several alternatives for raising capital to facilitate
our growth and execute our business strategy, including strategic
partnerships or other forms of equity or debt
financings.
We intend to continue implementing our business strategy with the
expectation that there will be no material adverse developments in
our business, liquidity or capital requirements. If one or more of
these factors do not occur as expected, it could have a material
adverse impact on our activities, including (i) reduction or delay
of our business activities, (ii) forced sales of material assets,
(iii) defaults on our obligations, or (iv) insolvency. Our planned
investments may not result in increased revenue or growth of our
business. We cannot assure you that we will be able to generate
revenue sufficient to offset our expected cost increases and
planned investments in our business and platform. As a result, we
may incur significant losses for the foreseeable future, and may
not be able to achieve and/or sustain profitability. If we fail to
achieve and sustain profitability, then we may not be able to
achieve our business plan, fund our business or continue as a going
concern. The financial statements included in this prospectus do
not contain any adjustments which might be necessary if we were
unable to continue as a going concern.
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 direct to consumer-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 direct to
consumer 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,
digital 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 direct to consumer model for
our expanding gamer base. Although our business has experienced
significant growth in recent years, there is no guarantee that our
direct to consumer 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.
The loss of or a substantial reduction in activity by one or more
of our largest customers and/or vendors could materially and
adversely affect our business, financial condition and results of
operations.
During the year ended December 31, 2019 and 2018, (i) five
customers accounted for 69% of our revenue and three customers
accounted for 74%, respectively, (ii) one customer accounted for
70% and three customers accounted for 96% of accounts receivable,
respectively, and (iii) one vendor accounted for 21% and three
vendors accounted for 43% of
accounts payable, respectively. The loss of or a substantial
reduction in activity by one or more of our largest customers could
materially and adversely affect our business, financial condition
and results of operations.
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, 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, direct to consumer
opportunities 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 certain
publishers, 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.
We have not entered into definitive license agreements with certain
game publishers that we currently have relationships with, and we
may never do so.
We currently do not have definitive license agreements in place
with game publishers for the use of certain of the game titled
played on our platform, as these publishers currently permit us to
integrate the specifications of the game title with our technology.
We may not ever enter into license agreements with these parties in
the future, instead continuing our relationship with these game
publishers without a license agreement. These game publishers may
unilaterally choose to discontinue their relationship with the
Company, thereby preventing us from offering experiences on our
platform using their game titles, as the case may be. Should those
game publishers choose not to allow us to offer experiences
involving their respective game titles to our users, 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.
If we fail to keep our existing gamers highly engaged, to acquire
new gamers, to successfully implement a direct to consumer 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 and participating in our in-person and
online tournaments and competitions, and using our gaming platform,
and keeping our gamers highly engaged. Of particular importance is
the successful deployment and expansion of our direct to consumer
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 direct to consumer-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 direct to
consumer-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 SLG.TV, 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
direct to consumer 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 system failures, outages and/or disruptions of
the functionality of our platform. Such failures, delays and other
problems could harm our reputation and business, cause us to lose
customers and expose us to customer liability.
We may experience system failures, outages and/or disruptions of
our infrastructure, including information technology system
failures and network disruptions, cloud hosting and broadband
availability at in person and online experiences. Our
operations could be interrupted or degraded by any damage to or
failure of:
●
our
computer software or hardware, or our customers’ or
suppliers’ computer software or hardware;
●
our
network, our customers’ networks or our suppliers’
networks; or
●
our
connections and outsourced service arrangements with third
parties.
●
Our
systems and operations are also vulnerable to damage or
interruption from:
●
power
loss, transmission cable cuts and other telecommunications and
utility failures;
●
hurricanes,
fires, earthquakes, floods and other natural
disasters;
●
a
terrorist attack in the U.S. or in another country in which we
operate;
●
interruption
of service arising from facility migrations, resulting from changes
in business operations including acquisitions and planned data
center migrations;
●
computer
viruses or software defects;
●
loss
or misuse of proprietary information or customer data that
compromises security, confidentiality or integrity; or
●
errors
by our employees or third-party service providers.
From time to time in the ordinary course of our business, our
network nodes and other systems experience temporary outages. As a
means of ensuring continuity in the services we provide to our
community and partners, we have invested in system
redundancies via partnerships with industry leading cloud service
providers, proactive alarm monitoring and other back-up
infrastructure, though we cannot assure you that we will be able to
re-route our services over our back-up facilities and provide
continuous service to customers in all circumstances without
material degradation. Because many of our services play a critical
role for our community and partners, any damage to or failure of
the infrastructure we rely on could disrupt or degrade the
operation of our network, our platform and the provision of our
services and result in the loss of current and potential community
members and/or partners and 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. Numerous federal, state and international laws address
privacy, data protection and the collection, storing, sharing, use,
disclosure and protection of personally identifiable information
and other user data. Numerous states already have, and are looking
to expand, data protection legislation requiring companies like
ours to consider solutions to meet differing needs and expectations
of creators and attendees. Outside the United States, personally
identifiable information and other user data is increasingly
subject to legislation and regulations in numerous jurisdictions
around the world, the intent of which is to protect the privacy of
information that is collected, processed and transmitted in or from
the governing jurisdiction. Foreign data protection, privacy,
information security, user protection and other laws and
regulations are often more restrictive than those in the United
States. In particular, the European Union and its member states
traditionally have taken broader views as to types of data that are
subject to privacy and data protection laws and regulations and
have imposed greater legal obligations on companies in this regard.
For example, in April 2016, European legislative bodies adopted the
General Data Protection Regulation (“GDPR”), which
became effective on May 25, 2018. The GDPR applies
to any company established in the European Union as well as to
those outside of the European Union if they collect and use
personal data in connection with the offering of goods or services
to individuals in the European Union or the monitoring of their
behavior. The GDPR enhances data protection obligations
for processors and controllers of personal data, including, for
example, expanded disclosures about how personal information is to
be used, limitations on retention of information, mandatory data
breach notification requirements and onerous new obligations on
service providers. Non-compliance with
the GDPR may result in monetary penalties of up to
€20 million or 4% of annual worldwide revenue, whichever
is higher. In addition, some countries are considering or have
passed legislation implementing data protection requirements or
requiring local storage and processing of data or similar
requirements that could increase the cost and complexity of
delivering our services. The GDPR and other changes in
laws or regulations associated with the enhanced protection of
certain types of personal data could greatly increase our cost of
providing our products and services or even prevent us from
offering certain services in jurisdictions in which we operate. The
European Commission is also currently negotiating a new ePrivacy
Regulation that would address various matters, including provisions
specifically aimed at the use of cookies to identify an
individual’s online behavior, and any such ePrivacy
Regulation may provide for new compliance obligations and
significant penalties. Any of these changes to European Union data
protection law or its interpretation could disrupt and/or harm our
business.
Further, following a referendum in June 2016 in which voters in the
United Kingdom approved an exit from the European Union, the United
Kingdom government has initiated a process to leave the European
Union, which has created uncertainty with regard to the regulation
of data protection in the United Kingdom. In particular, although a
Data Protection Bill designed to be consistent with
the GDPR is pending in the United Kingdom’s
legislative process, it is unclear whether the United Kingdom will
enact data protection laws or regulations designed to be consistent
with the GDPR and how data transfers to and from the
United Kingdom will be regulated. The interpretation and
application of many privacy and data protection laws are, and will
likely remain, uncertain, and it is possible that these laws may be
interpreted and applied in a manner that is inconsistent with our
existing data management practices or product features. Although
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/or harm our business.
In addition to government regulation, privacy advocacy and industry
groups may propose new and different self-regulatory standards that
either legally or contractually apply to us. Any inability to
adequately address privacy, data protection and data security
concerns or comply with applicable privacy, data protection or data
security laws, regulations, policies and other obligations could
result in additional cost and liability to us, damage our
reputation, inhibit sales and harm our business. Further, our
failure, and/or the failure by the various third-party service
providers and partners with which we do business, to comply with
applicable privacy policies or federal, state or similar
international laws and regulations or any other obligations
relating to privacy, data protection or information security, or
any compromise of security that results in the unauthorized release
of personally identifiable information or other user data, or the
perception that any such failure or compromise has occurred, could
damage our reputation, result in a loss of creators or attendees,
discourage potential creators and attendees from trying our
platform and/or result in fines and/or proceedings by governmental
agencies and/or users, any of which could have an adverse effect on
our business, results of operations and financial condition. In
addition, given the breadth and depth of changes in data protection
obligations, ongoing compliance with evolving interpretation of
the GDPR and other regulatory requirements requires time
and resources and a review of the technology and systems currently
in use against the requirements of GDPR and other
regulations.
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.
Our amended and restated bylaws designate a state or federal court
located within the State of Delaware as the exclusive forum for
certain litigation that may be initiated by our stockholders, which
could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us.
Pursuant to our amended and restated bylaws, unless we consent in
writing to the selection of an alternative forum, the sole and
exclusive forum for (i) any derivative action or proceeding
brought on our behalf, (ii) any action asserting a claim of
breach of a fiduciary duty owed by any of our directors, officers
or other employees to us or our stockholders, (iii) any action
asserting a claim against us arising pursuant to any provision of
the Delaware General Corporation Law, or (iv) any action
asserting a claim against us that is governed by the internal
affairs doctrine shall be a state or federal court located within
the State of Delaware, in all cases subject to the court’s
having personal jurisdiction over indispensable parties named as
defendants. Any person or entity purchasing or otherwise acquiring
any interest in shares of our capital stock shall be deemed to have
notice of and consented to this provision. The forum
selection clause in our amended and restated bylaws may have
the effect of discouraging lawsuits against us or our directors and
officers and may limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us.
Because the applicability of the exclusive forum provision is
limited to the extent permitted by law, we believe that the
exclusive forum provision would not apply to suits brought to
enforce any duty or liability created by the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), the
Securities Act of 1933, as amended (the “Securities
Act”), any other claim for which the federal courts have
exclusive jurisdiction or concurrent jurisdiction over all suits
brought to enforce any duty or liability created by the Securities
Act. We note that there is uncertainty as to whether a court would
enforce the provision and that investors cannot waive compliance
with the federal securities laws and the rules and regulations
thereunder. Although we believe this provision benefits us by
providing increased consistency in the application of Delaware law
in the types of lawsuits to which it applies, the provision may
have the effect of discouraging lawsuits against our directors and
officers.
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.
Risks Related to our Common Stock and this Offering
Although out common stock is listed on the Nasdaq Capital Market,
our shares are likely to be thinly traded for some time and an
active market may never develop.
Although our common stock is listed 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.
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.
Upon expiration of lock-up agreements between the
underwriters of our IPO and our officers, directors and certain
holders of our common stock in late-August 2019, a substantial
number of shares of our common stock could be sold into the public
market, which could depress our stock price.
Our officers, directors and certain holders of our common stock,
options and warrants, which represents substantially all of our
outstanding shares of common stock immediately prior to completion
of our IPO, entered into lock-up agreements with the
underwriters of our IPO which prohibit, subject to certain limited
exceptions, the disposal or pledge of, or the hedging against, any
of their common stock or securities convertible into or
exchangeable for shares of common stock for a period through August
26, 2019, subject to extension in certain circumstances. The market
price of our common stock could decline as a result of sales by our
stockholders in the market after the expiration of
the lock-up period, or the perception that these sales
could occur. After these lock-up period expires, many of
our stockholders will have an opportunity to sell their stock for
the first time. These factors could also make it difficult for us
to raise additional capital by selling stock.
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 are an emerging growth company, and any decision on our
part to comply only with certain reduced reporting and disclosure
requirements applicable to emerging growth companies could make our
common stock less attractive to investors.
We are an emerging growth company, and, for as long as we
continue to be an emerging growth company, we may choose to
take advantage of exemptions from various reporting requirements
applicable to other public companies that are not “emerging
growth companies,” including:
●
not being required
to have our independent registered public accounting firm audit our
internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act;
●
reduced disclosure
obligations regarding executive compensation in our periodic
reports and annual report on Form 10-K; and
●
exemptions from the
requirements of holding a non-binding advisory vote on executive
compensation and stockholder approval of any golden parachute
payments not previously approved.
●
We
could be an emerging growth company for up to five years
following the completion of this offering. Our status as
an emerging growth company will end as soon as any of the
following takes place:
●
the last day of the
fiscal year in which we have more than $1.07 billion in annual
revenue;
●
the date we qualify
as a “large accelerated filer,” with at least $700
million of equity securities held by non-affiliates;
●
the date on which
we have issued, in any three-year period, more than $1.0 billion in
non-convertible debt securities; or
●
the last day of the
fiscal year ending after the fifth anniversary of the completion of
this offering.
We cannot predict if investors will find our common stock less
attractive if we choose to rely on the exemptions afforded emerging
growth companies. If some investors find our common stock less
attractive because we rely on any of these exemptions, there may be
a less active trading market for our common stock and the market
price of our common stock may be more volatile.
Under the JOBS Act, emerging growth companies can also delay
adopting new or revised accounting standards until such time as
those standards apply to private companies. We have elected to use
this extended transition period for complying with new or revised
accounting standards that have different effective dates for public
and private companies until the earlier of the date we (i) are no
longer an emerging growth company or
(ii) affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act. As a result, our
financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company
effective dates.
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.
The Sarbanes-Oxley Act, 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
the Sarbanes-Oxley Act and the other rules and
regulations of the SEC. For example, as a result of becoming a
public company, we will need to 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 the
Sarbanes-Oxley Act 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 the Sarbanes-Oxley
Act until such time that the Company becomes an
“accelerated filer,” as defined by the
SEC.
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 fiscal periods 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.
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-based awards 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, restricted share units to receive shares of common
stock and restricted shares of common stock. For the year ended
December 31, 2019 and 2018, we recorded share-based compensation
expense of $6.2 million and $3.9 million, respectively, primarily
related to issuances and vesting of awards under the 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.
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 public offering
price of $[_____] per share and our net tangible book value per
share as of December 31, 2019, 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.
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; 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, based on an offering price of $[______] per share, after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the 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 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. We currently intend to use the
net proceeds we receive from this offering for working capital and
general corporate purposes, including 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.
MARKET FOR OUR COMMON
STOCK
Our common stock is listed on the NASDAQ Capital Market under the
symbol “SLGG.”
Shown below is the range of high and low sales prices for our
common stock for the periods indicated as reported by the Nasdaq
Capital Market. Our common stock began trading on the Nasdaq
Capital Market on February 27, 2019, and the following table
reflects the high and low sales prices for our common stock
subsequent to that date:
|
|
|
|
|
Fiscal
Year Ending December 31, 2020
|
|
|
|
First quarter
ending March 31, 2020 (through February 26, 2020)
|
$5.45
|
$2.31
|
|
|
|
|
|
Fiscal
Year Ending December 31, 2019
|
|
|
|
First quarter
ending March 31, 2019 (beginning February 27, 2019)
|
$9.73
|
$6.27
|
|
Second quarter
ending June 30, 2019
|
$9.28
|
$6.05
|
|
Third quarter
ending September 30, 2019
|
$8.75
|
$3.90
|
|
Fourth quarter
ending December 31, 2019
|
$4.99
|
$1.85
|
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 December 31, 2019:
●
on an as adjusted basis to reflect the sale by us of [______]
shares of common stock in this offering at a public offering price
of $[______] per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by
us.
The as adjusted information below is illustrative only, and our
capitalization following the closing of this offering will be
adjusted based on the 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.
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$8,442,000
|
$
|
|
|
|
|
|
Common stock, par
value $0.001 per share, 100,000,000 shares authorized, 8,569,992
shares issued and outstanding, actual; [______] shares issued and outstanding, as
adjusted
|
18,000
|
|
|
Additional paid-in
capital
|
99,237,000
|
|
|
Accumulated
deficit
|
(85,812,000)
|
|
|
Total
stockholders’ equity
|
13,443,000
|
|
|
Total
capitalization
|
$13,443,000
|
$
|
_______________
(1)
Each
$1.00 increase (decrease) in the public offering price of
$[______] per share 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
public offering price remains the same, and after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us. The 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 8,573,802 shares of common stock
outstanding as of December 31, 2019, and excludes as of such
date:
●
2,516,152 shares of common stock issuable upon exercise of common
stock purchase warrants, with an average weighted exercise price of
$9.61 per share;
●
1,550,851
shares of common stock issuable upon
exercise of options outstanding; held and 308,479 shares of common
stock reserved for issuance pursuant to our 2014 Plan;
and
●
28,838
shares of common stock issuable upon the vesting of nonvested
restricted stock units outstanding.
If you
invest in our common stock, your ownership interest will be diluted
to the extent the public offering price per share of our common
stock exceeds the pro forma tangible book value per share of our
common stock immediately following this offering. As of December
31, 2019, the tangible book value of our common stock was
approximately $12.8 million, or $1.49 per share of common stock
based on 8,573,922 shares of our common stock issued and
outstanding. Tangible book value per share represents common equity
less intangible assets and goodwill, divided by the number of
shares of our common stock outstanding.
After
giving effect to our sale of [_____] shares of our common stock in this
offering at a public offering price of $[____] per share, and after deducting the
estimated offering expenses, the pro forma tangible book value of
our common stock at December 31, 2019 would have been approximately
$[___] million, or
$[____] per share. Therefore,
this offering will result in an immediate increase of $[____] in the tangible book value per share
of our common stock of existing shareholders and an immediate
dilution of [____] in the
tangible book value per share of our common stock to investors
purchasing shares in this offering, or approximately [____]% of the public offering price of
$[____] per share.
The
following table illustrates the calculation of the amount of
dilution per share that a new investor of our common stock in this
offering will incur given the assumptions above:
|
Public offering
price
|
|
|
Tangible book value
per share of common stock at December 31, 2019
|
$1.49
|
|
Increase in
tangible book value per share of common stock attributable to new
investors
|
|
|
Pro forma tangible
book value per share of common stock after this
offering
|
|
|
Dilution per share
of common stock to new investors in this offering
|
|
The
following table illustrates the differences between the number of
shares of common stock purchased from us, the total consideration
paid, and the average price per share paid by existing shareholders
and new investors purchasing shares of our common stock in this
offering based on a public offering price of $[______] per share and before deducting
estimated underwriting discounts and estimated offering expenses as
of December 31, 2019 on a pro forma basis.
The
table above excludes the following as of December 31,
2019:
●
2,516,152 shares of common stock issuable upon exercise of common
stock purchase warrants, with an average weighted exercise price of
$9.61 per share;
●
1,550,851
shares of common stock issuable upon
exercise of options outstanding; held and 308,479 shares of common
stock reserved for issuance pursuant to our 2014 Plan;
and
●
28,838
shares of common stock issuable upon the vesting of nonvested
restricted stock units outstanding.
To the
extent that any of the foregoing are exercised, investors
participating in the offering will experience further
dilution.
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. The following tables set forth the
selected financial data (i) as of and for the years ended December
31, 2019 and 2018. Selected financial data as of and for the years
ended December 31, 2019 and 2018 have been derived from our audited
financial statements included elsewhere in this prospectus. Our
historical results are not necessarily indicative of the results to
be expected in future periods.
|
|
|
|
|
|
|
|
Statement of Operations
Data:
|
|
|
|
Revenues
|
$1,084,000
|
$1,046,000
|
|
Cost of
revenues
|
513, 000
|
684, 000
|
|
Gross profit
(loss)
|
571, 000
|
362, 000)
|
|
|
|
|
|
Operating
expense:
|
|
|
|
Sales,
marketing and advertising
|
4,421,000
|
4,319,000
|
|
Technology
platform and infrastructure
|
4,463,000
|
4,183,000
|
|
General and
administrative
|
12,457,000
|
8,020,000
|
|
Total
operating expense
|
21,341,000
|
16,522,000
|
|
Net operating
loss
|
(20,770,000)
|
(16,160,000)
|
|
|
|
|
|
Other income
(expense), net
|
(9,909,000)
|
(4,467,000)
|
|
Net loss
|
$(30,679,000)
|
$(20,627,000)
|
|
|
|
|
|
Net loss per share:
|
|
|
|
Basic and diluted
|
$(3.89)
|
$(4.48)
|
|
Weighted
average common shares used to compute net loss per
share:
|
|
|
|
Basic and diluted
|
7,894,326
|
4,606,951
|
|
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 our audited financial statements 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
|
$8,442,000
|
$2,774,000
|
|
Accounts
receivable
|
293,000
|
488,000
|
|
Prepaid expenses
and other current assets
|
924,000
|
487,000
|
|
Property and
equipment, net
|
239,000
|
531,000
|
|
Intangible and
other assets, net
|
1,984,000
|
707,000
|
|
Goodwill
|
2,565,000
|
-
|
|
Accounts payable,
accrued expenses and deferred revenues
|
853,000
|
813,000
|
|
Deferred
revenue
|
151,000
|
45,000
|
|
Convertible debt
and accrued interest, net
|
-
|
10,923,000
|
|
Total
stockholders’ equity (deficit)
|
13,443,000
|
(6,794,000)
|
Factors Affecting Comparability:
●
Cash and Convertible Debt. Concurrent with the closing of our initial public
offering on February 27, 2019, in accordance with the underlying
agreements, all outstanding principal and interest for the
9.00% convertible notes outstanding, totaling $13,793,000, was
automatically converted into 1,475,164 shares of the
Company’s common stock at a conversion price of
$9.35.
●
Noncash Stock Compensation Expense. Noncash stock-based compensation expense for the
periods presented was comprised of the
following:
|
|
|
|
|
|
|
|
Stock
options
|
$3,573,000
|
$2,490,000
|
|
Warrants
|
2,182,000
|
1,400,000
|
|
Restricted
stock units
|
370,000
|
14,000
|
Earn-out
compensation expense
|
58,000
|
-
|
|
Other
|
34,000
|
39,000
|
|
Total
noncash stock compensation expense
|
$6,217,000
|
$3,943,000
|
Noncash stock-based compensation expense for the
periods presented was included in the following financial statement
line items:
|
|
|
|
|
|
|
|
Sales,
marketing and advertising
|
$635,000
|
$504,000
|
|
Technology
platform and infrastructure
|
129,000
|
200,000
|
|
General and
administrative
|
5,453,000
|
3,239,000
|
|
Total
noncash stock compensation expense
|
6,217,000
|
$3,943,000
|
Noncash
stock compensation expense increased during fiscal year 2019
primarily due to certain performance-based options and warrants
previously granted to certain executives, which vested upon the
achievement of certain performance-based milestones, pursuant to
October 2018 amended employee agreements and/or vesting conditions
in the underlying equity grant agreements. Performance-based
milestones included the completion of our IPO in February 2019 and
other operational performance targets. During fiscal year 2019,
325,000 of performance-based stock options and warrants vested,
resulting in noncash stock compensation expense of $2,766,000.
Refer to Note 8 to the financial statements included elsewhere
herein.
●
Convertible Debt Noncash Interest Expense. Interest expense
for the periods presented primarily relates to the issuance of
9.00% secured convertible promissory notes, described below.
As a result of the automatic
conversion of the 2018 Notes (defined below) and the application of
conversion accounting, the Company recorded an immediate charge to
interest expense of $1,384,000, representing the write-off of the
unamortized balance of debt discounts associated with the 2018
warrants and cash commissions and warrants issued to third parties.
Further, as described below, the non-detachable conversion feature
embedded in the 2018 Notes provided for a conversion rate that was
below market value at the commitment date, and therefore,
represented a beneficial conversion feature (defined below). The
intrinsic value of the beneficial conversion feature on the IPO
Closing Date, was approximately $7,067,000, and is reflected as
additional interest expense in the statement of operations for
fiscal year 2019.
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
Super League Gaming, Inc. (“Super League,”
the “Company,” “we” or
“our”) is a global leader in the mission to
bring live and digital esports entertainment and experiences
directly to everyday competitive gamers around the world. Utilizing
our proprietary technology platform, Super League operates physical
and digital experiences in partnership with publishers of top-tier
game titles and owners/operators of a distributed footprint of
venues, a network of digital social and viewing channels, and an
association/organization of city-based amateur gaming clubs and
teams. In addition to providing premium experiences by operating
city-vs-city amateur esports leagues and producing thousands of
social gaming experiences across North America and our
ever-expanding international footprint, the Super League
Network features multiple forms of content celebrating the
love of play via social media, live streaming and video-on-demand,
along with continuous gameplay and leaderboards. Inside our network
is Framerate, a large independent social video esports network
powered by user-generated highlight reels, and our exclusive proprietary
platform Minehut, providing a social and
gameplay forum for the avid Minecraft community. Through our
partnerships with high-profile venue owners such as Wanda Theatres
in China, Topgolf and Cinemark Theatres in North America, along
with ggCircuit, an
esports services company that provides
gaming center management software solutions and access to a global
network of gaming centers, Super League is committed to
supporting the development of local, grassroots player communities
all while providing a global, scalable infrastructure for esports
competition and engagement. We address not only a wide range of
gamers across game titles, ages and skill levels, but also a wide
range of content-capture beyond just gameplay. This positions Super
League as more than a tournament operator; we are a lifestyle and
media company focused on capturing, generating, aggregating and
distributing content across the genre of all things
esports.
We
believe Super League is on the leading edge of the rapidly growing
competitive video gaming industry, which has become an established
and vital part of the entertainment landscape. According to Reuters
Plus, 2018, gaming is now the world’s favorite form of
entertainment, as the gaming industry generated more revenue in
2017 than television, movies and music. At the professional level,
thousands of professional players on hundreds of teams compete in
dozens of high stakes competitions that draw significant audiences,
both in person and online. In addition, the value of brand
sponsorships, media rights and prize money continue to rise, as are
professional team valuations and the purchase price for securing
franchises in professional leagues.
With
NewZoo reporting 2.6 billion gamers globally, we believe there is a
larger opportunity for the world of mainstream competitive players
who want their own esports experience. These amateur gamers are
players who enjoy the competition, the social interaction and
community, and the entertainment value associated with playing and
watching others play. According to Nielsen Esports Playbook, 2017,
competitive amateur gamers take part in over eight hours of
gameplay and watch up to nine hours of esports-related content each
week. We believe this is an under-served market that seeks their
own opportunities for team-based play on real playing
fields.
Super
League is a critically important component in providing the
infrastructure for mainstream esports that is synergistic and
accretive to the greater esports ecosystem. Over the past five
years, we believe we have become the preeminent brand for amateur
esports by providing a proprietary, software platform that allows
our gamers to compete, socialize and spectate premium amateur
esports gameplay and entertainment both physically and digitally.
We celebrate everyday competitive gamers and provide a
differentiated way for players and spectators to unite around their
city clubs and hometown venues for a better, more inclusive social
experience not previously available. Not only do we offer premium
amateur esports leagues and community, but we are able to leverage
our derivative gameplay content to become a comprehensive amateur
esports content network. As we expand our city clubs, partner venue
network, breadth of game titles and reach into the home, we bring
new players into our customer funnel to drive audience growth and,
ultimately, consumer and content monetization.
Digital and Physical Experiences. We believe that we can monetize our digital and
physical experiences in two primary ways:
|
●
|
Traditionally, we have created our own gameplay experiences to
generate audience and content and attracted brand and sponsorship
dollars to those offers. This continues to be a core source of
revenue.
|
|
●
|
Our potential partners also include game publishers, retailers and
brands across various categories who engage us to develop their own
customized branded gameplay experiences, powered by our flexible
gaming and content technology platform for their own customers.
Platform-as-a- Service (“PaaS”) emerged as a revenue
stream for fiscal year 2019 and beyond, that can not only deliver
strong margin over time, but also adds to our audience and content
growth. This is most notably evidenced by: our first quarter 2019
activation with Samsung Retail, where Super League’s platform
powered a live retail experience, held in New York in March 2019,
built around Fortnite and the influencer Ninja, that drove traffic
to our website and viewership to our Twitch channel; our
partnerships with Capcom, Ltd. (“Capcom”) and their
Street Fighter® V: Arcade Edition title, Sony Pictures
Entertainment (“Sony”) related to certain build
competitions and related experiences, and Sprint, where we hosted a
large scale 5G mobile gaming tournament in Los Angeles as part of
Sprint’s 5G market launch; and our Tencent Games and OnePlus
Mobile Player Unknown’s Battlegrounds Mobile (“PUBG
Mobile”) premium content, competitive experiences and
sponsorship activation.
|
Gameplay and Viewing Content.
We also believe that we can monetize our content, comprised of
gameplay and viewing, in two primary ways:
|
●
|
We can monetize our content commercially through advertising
revenues on our own digital channels and by selling our content to
third-parties. We believe we have only begun to scratch the surface
on proprietary and third-party content distribution value that can
be derived from our platform.
|
|
●
|
The second way we monetize content is through direct-to-consumer
pay walls for access to premium digital and physical experiences
and viewing content. We have historically offered a freemium model
where consumers can join Super League for free-to-play, casual
competitive experiences and charged for access to premium gameplay
experiences. We intend to expand our breadth of consumer digital
offers in 2020 and have already launched a digital monthly
subscription offer for our youth demographic and our Super League
Prime Subscription offer, both of which were in beta as of the end
of fiscal year 2019.
|
To date, our revenues have been weighted towards experience
monetization, however we expect to see content monetization begin
to emerge as a revenue opportunity.
We focus on five key performance indicators (“KPIs”),
as outlined below, to assess our progress and drive revenue growth.
The number of game titles and number of retail partner venues drive
audience, introducing more players and spectators to Super
League’s gaming and content platform. Growth in physical and
digital experiences across a wider portfolio can increase the
number of registered users, including subscribers, and number of
gameplay hours which will have a significant impact on our content
library. This focus on audience and content generation ultimately
impacts our viewership, which has an amplification effect on
potential revenue streams and customer acquisition.
|
●
|
Game titles : We
ended fiscal 2018 with four game titles in our portfolio and
currently, as of the end of fiscal 2019, have over 20 game titles,
including the addition of Capcom's Street Fighter® V: Arcade
Edition during the second quarter of 2019 and Tencent America's
Player Unknown's Battlegrounds Mobile (“PUBG Mobile”),
during the third quarter of 2019. The increase in game titles
reflects the flexibility of our technology platform and our
platform’s ability to rapidly ingest game titles across a
wide spectrum of game genres. We continue to engage in discussions
with several other identified titles to further expand our reach
across various genres, ages of players and skill
levels.
|
|
●
|
Retail Partner Venues : While
we are just seeding the build out and monetization of our retail
footprint, our national-level announcements with Top golf and
ggCircuit LAN centers, as well as our expanded agreement with
ggCircuit which allows us to expand internationally, provides us
with access to hundreds of physical venue locations. We ended
fiscal 2018 with 46 active venues and grew to over 500 total active
venues as of December 31, 2019.
|
|
●
|
Registered Users : We ended
fiscal 2018 with approximately 300,000 registered users. During the
year ended December 31, 2019, we increased our registered users by
approximately 227%, to 980,000 registered
users.
|
|
●
|
Gameplay Hours: As of December
31, 2019, including our live gaming experiences and our expanding
digital gameplay channels, we generated approximately 15.0 million
hours of gameplay experiences, as compared to approximately 1.8
million full year 2018 gameplay hours.
|
|
●
|
Viewership : Proving that we
can attract viewers to our platform and leverage the audiences our
brand partners provide, we generated 120.0 million views during
fiscal year 2019, compared to our full-year 2018 views of 925,000,
leveraging our own programming and experiences and the significant
expansion of our audience reach in connection with the acquisition
of Framerate.
|
Initial
Public Offering
On February 27, 2019, we completed our IPO, pursuant to which we
issued and sold an aggregate of 2,272,727 shares of our common
stock at a public offering price of $11.00 per
share pursuant to a
registration statement on Form S-1, declared effective by the Securities and
Exchange Commission on February 25, 2019 (File No. 333-229144). We
raised net proceeds of approximately $22,458,000 after underwriting
discounts, commissions and other offering costs of
$2,542,000.
The principal purposes of the IPO were 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 have and continue to use the net proceeds received from
the offering for working capital and general corporate purposes,
including sales and marketing activities, product development and
capital expenditures. We have and may continue to use a portion of
the net proceeds for the acquisition of, or investment in,
technologies, solutions or businesses that may complement our
business and or accelerate our growth. The amounts and timing of
our actual expenditures, 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 our
Prospectus filed pursuant to Rule 424(b) under the Securities Act
with the SEC on February 27, 2019, as well as this prospectus. Our
management has 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 the
IPO.
Concurrent with the closing of the IPO on February 27, 2019, in
accordance with the underlying agreements, all outstanding
principal and interest for the 9.00% convertible notes outstanding,
totaling $13,793,000, was automatically converted into 1,475,164
shares of the Company’s common stock at a conversion price of
$9.35.
Acquisition of Framerate, Inc.
On June 3, 2019, the Company and SLG Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company
(“Merger Sub”), entered into an agreement and plan of
merger (the “Merger Agreement”) with Framerate, Inc., a
Delaware corporation (“Framerate”), pursuant to which
Framerate merged with and into Merger Sub, with Merger Sub
continuing as the surviving corporation (the
“Acquisition”).
Framerate is a cross-platform esports social video network
delivering the best in gameplay highlights, news and entertainment
to today’s generation of video gamers. The company’s
focus on user generated content and social distribution changes the
way traditional esports video content is produced, distributed and
shared by millions of esports fans worldwide. The acquisition of
Framerate represents a strategic step in our audience-building
efforts with an average of 15 million video views a month during
the second half of 2019, built around everyday gamers uploading
their personal esports highlight reels for recognition across our
wide audience.
The Acquisition was consummated on June 6, 2019 when the
certificate of merger of Merger Sub and Framerate was filed with
the Secretary of State of the State of Delaware (the
“Effective Date”). As consideration for the
Acquisition, we ratably paid and/or issued to the former
shareholders of Framerate an aggregate of $1.5 million in cash and
$1.0 million worth of shares of our common stock at a price per
share of $7.4395 (the “Closing Shares”).
In addition to the issuance of the Closing Shares, the Merger
Agreement provides for the issuance of up to an additional $980,000
worth of shares of our common stock at the same price per share as
the Closing Shares (the “Earn-Out Shares”) in the event
Framerate achieves certain performance-based milestones during the
two-year period following the closing of the Acquisition, or June
6, 2021. Upon achievement of the applicable performance-based
milestones, if any, one-half of the Earn-Out Shares will be
issuable on the one-year anniversary of the Effective Date, and the
remaining one-half will be issuable on the second anniversary of
the Effective Date.
The Acquisition was approved by the board of directors of each of
Super League Gaming, Inc. and Framerate, and was approved by the
stockholders of Framerate. Refer to Note 5 to our financial
statements included elsewhere herein for additional information
about the Acquisition.
Expanded Agreement with ggCircuit, LLC
On September 23, 2019, Super League and ggCircuit,
LLC (“ggCircuit”), an esports services company that provides gaming
center management software solutions and other esports
offerings, entered into an
expanded commercial partnership agreement
(“Expanded Agreement”) pursuant to
which Super League became
the primary consumer-facing brand within
ggCircuit’s leading
gaming center software
platform, known as “ggLeap.” Under the terms of the
Expanded Agreement, commencing with the November 2019 ggLeap
software update release, the consumer facing components
of ggLeap, including its leaderboards, its competitive
seasons and its local loyalty programs, were rebranded as
“Super League Gaming,” and are managed by Super League.
ggLeap is a B2B software platform and B2C application created and
owned by ggCircuit. ggLeap is licensed and distributed to owners
and operators of video gaming centers throughout the world. It
helps gaming centers manage the PCs in their venue, administer
loyalty programs for local players, and provides the interface and
local operating system through which players log into computers and
launch all of their gameplay sessions within the gaming centers
where ggLeap is deployed. The December 2019 software release
included, the pilot launch of a consumer subscription offer,
“Super League Prime,” through which players in gaming
centers will be able to access special member benefits along with
an underpinning global loyalty program for all in players to earn
points and prizing for local rewards.
In consideration for the rights granted by ggCircuit to Super
League, including the right to commercially exploit Super League
Prime and to feature the “Super League Gaming” brand on
the applicable ggCircuit customer platform, Super League paid an
upfront fee of $340,000 and, commencing in the first quarter of
2020, will pay quarterly fees over the term of the Expanded
Agreement ranging from $0 to $150,000, based on contractual revenue
levels. Pursuant to the terms and conditions of the Expanded
Agreement, revenues generated in connection with applicable
activities under the Agreement will be shared between Super League
and ggCircuit based on contractual revenue sharing percentages. The
initial term of the Expanded Agreement commences on the effective
date and concludes on the fifth anniversary of the effective date,
subject to certain automatic renewal provisions. The upfront fee is
included in intangible assets and other, net in the accompanying
balance sheet and is being amortized over the initial term of the
Expanded Agreement of five years, commencing October 1,
2019.
Prime Subscription Offer
In December 2019, we launched in beta, Super League Prime, our
consumer subscription offer, in North America, with an
international launch scheduled for 2020. Super League Prime is a
subscription offer that recognizes and rewards players, both
locally and globally, through ggCircuit-enabled gaming
centers. Players can earn rewards for both the length and
quality of their gameplay and gain exposure on national and local
leaderboards. All participating players can earn a basic level of
loyalty points for prizing redemption locally in-venue. Players who
upgrade to our paid monthly subscription offer enjoy additional
benefits including the ability to earn points faster, access to
exclusive competitions and the Super League global prize
vault, and added benefits from our
brand sponsors.
Wanda Cinemas Games Partnership
In
January 2020, we announced a new partnership
with Wanda Cinemas Games, a subsidiary of Chinese media
conglomerate Wanda Media. The new alliance will initially bring
live, competitive gaming experiences to Wanda’s 700+ owned
and operated theaters in multiple cities across China, with more
activations to be announced in the future. This new venture
provides Super League with the opportunity to greatly expand our
reach into the world’s largest market of 1.2 billion gamers,
more than the entire population of the United States.
In the
agreement, Wanda theatres will be transformed into esports venues
hosting live Super League events and tournaments throughout China,
driving an entirely new gaming experience for the massive Wanda
customer base. Passionate players will see their local movie
theatre serve as a competitive and social playing field for the
video games they love. The unique gaming experiences created by
Super League will propel Wanda venues to the center of the global
esports phenomena. The partnership will continue to fuel Super
League’s focus on the vast opportunity to monetize gamers and
the content they generate.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America. Preparation of our financial statements requires
management to make judgments and estimates. Some accounting
policies have a significant impact on amounts reported in these
financial statements. The SEC has defined a company’s
critical accounting policies as the ones that are most important to
the portrayal of a company’s financial condition and results
of operations, and which require a company to make its most
difficult and subjective judgments. A summary of significant
accounting policies and a description of accounting policies that
are considered critical may be found in the audited financial
statements and notes thereto included in our Prospectus filed
pursuant to Rule 424(b) under the Securities Act with the SEC on
February 27, 2019. In addition, refer to Note 2 to the financial
statements included in elsewhere in this prospectus. The following
accounting policies were identified during the current period,
based on activities occurring during the current period, as
critical and requiring significant judgments and
estimates.
Revenue Recognition
Revenue is recognized when we transfer promised goods or services
to customers in an amount that reflects the consideration to which
we expect to be entitled in exchange for those goods and services.
In this regard, revenue is recognized when: (i) the parties to the
contract have approved the contract (in writing, orally, or in
accordance with other customary business practices) and are
committed to perform their respective obligations; (ii) we can
identify each party’s rights regarding the goods or services
to be transferred; (iii) we can identify the payment terms for the
goods or services to be transferred; (iv) the contract has
commercial substance (that is, the risk, timing, or amount of the
entity’s future cash flows is expected to change as a result
of the contract); and (v) it is probable that the entity will
collect substantially all of the consideration to which we will be
entitled in exchange for the goods or services that will be
transferred to the customer.
Super League generates revenues and related cash flows from (i)
brand and media sponsorships, (ii) Platform-As-A-Service
arrangements, (iii) advertising and third-party content
and (iv) direct to consumer offers
including tournament fees for participation in our physical and
online multiplayer gaming experiences, digital subscriptions and
merchandise sales.
Brand and Media Sponsorships.
We generate brand and media sponsorship revenues
primarily from sales of various forms of sponsorships and
promotional campaigns for our online platforms and from sponsorship
at our in-person esports experiences. Brand and media sponsorship
revenue arrangements 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. Brand and media
sponsorship arrangements typically include contract terms for time
periods ranging from several weeks to multi-year
arrangements.
For
brand and media sponsorship arrangements that include performance
obligations satisfied over time, customers typically simultaneously
receive and consume the benefits under the arrangement as we
satisfy our performance obligations, over the applicable contract
term. As such, revenue is recognized over the contract term based
upon estimates of progress toward complete satisfaction of the
contract performance obligations (typically utilizing a time,
effort or delivery-based method of estimation).
Platform-As-A-Service. We
generate platform-as-a-service (“PaaS”) revenues pursuant to arrangements with
brand and media partners, retail venues, game publishers and
broadcasters that allow our partners to run amateur esports
experiences, and or capture specifically curated gameplay content
that is customized for our partners’ distribution channels,
leveraging the flexibility of, and powered by our Super League
gaming and content technology platform.
Revenue for PaaS arrangements for one-off branded experiences
and/or the development of content tailored specifically for our
partners’ distribution channels that provide for a
contractual delivery or performance date, is recognized when
performance is substantially complete and or delivery occurs.
Revenue for PaaS arrangements that include performance
obligations satisfied over time whereby customers simultaneously
receive and consume the benefits under the agreement as we satisfy
our performance obligations over the applicable contract term, is
recognized over the contract term based upon estimates of progress
toward complete satisfaction of the contract performance
obligations (typically utilizing a time, effort or delivery-based
method of estimation).
Advertising and Third-Party Content Revenue. We generate content through digital and physical
experiences that offer opportunities for generating advertising
revenue on our proprietary digital channels. In addition, we
license our content to third parties seeking esports content for
their own distribution channels.
For advertising and third-party content arrangements that include
performance obligations satisfied over time, customers typically
simultaneously receive and consume the benefits under the
arrangement as we satisfy our performance obligations, over the
applicable contract term. As such, revenue is recognized over the
contract term based upon estimates of progress toward complete
satisfaction of the contract performance obligations (typically
utilizing a time, effort or delivery-based method of
estimation).
Direct to Consumer Revenue. Direct to
consumer revenues include tournament fees, digital subscriptions
and merchandise. Direct to consumer revenues have primarily
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 comprised of multi-week packages and one-time, single
experience admissions. Digital subscription revenues include
revenues related to our Minehut asset acquisition in June 2018,
which provides various Minecraft server hosting services on a
subscription basis to the Minecraft gaming community, and Super
League Prime subscription offer which was launched in beta in the
fourth quarter of 2019.
Revenue from single experiences is recognized when the experience
occurs. Revenue from multi-week packages is recognized over time as
the multi-week experiences occur based on estimates of the progress
toward complete satisfaction of the applicable offer and related
performance obligations. Subscription revenue is recognized over
the applicable subscription term.
We make estimates and judgments when determining whether the
collectability of accounts receivable is reasonably assured. We
assess the collectability of receivables based on a number of
factors, including past transaction history and the
credit-worthiness of our customers. If it is determined that
collection is not reasonably assured, amounts due are recognized
when collectability becomes reasonably assured, assuming all other
revenue recognition criteria have been met, which is generally upon
receipt of cash for transactions where collectability may have been
an issue. Management’s estimates regarding collectability
impact the actual revenues recognized each period and the timing of
the recognition of revenues. Our assumptions and judgments
regarding future collectability could differ from actual events and
thus materially impact our financial position and results of
operations.
Depending on the complexity of the underlying revenue arrangement
and related terms and conditions, significant judgments,
assumptions and estimates may be required to determine each parties
rights regarding the goods or services to be transferred, each
parties performance obligations, whether performance obligations
are satisfied at a point in time or over time, the timing of
satisfaction of performance obligations, and the appropriate period
or periods in which, or during which, the completion of the
earnings process occurs. Depending on the magnitude of specific
revenue arrangements, if different judgments, assumptions and
estimates are made regarding revenue arrangements in any specific
period, our periodic financial results may be materially
affected.
Stock-Based Compensation Expense
Compensation
expense for 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.
Compensation expense for awards with
performance conditions that affect vesting is recorded only for
those awards expected to vest or when the performance criteria are
met. 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 option and common stock
purchase warrant awards is estimated on the date of grant utilizing
the Black-Scholes-Merton option pricing model. The Company accounts
for forfeitures of awards as they occur.
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.
Determining the fair value of stock-based awards at the grant date
requires significant estimates and judgments, including estimating
the market price volatility of our common stock, determination of
grant dates, future employee stock option exercise behavior and
requisite service periods.
Accounting for Business Combinations
In connection with the application of purchase accounting for the
acquisition of Framerate, as described above, we estimated the fair
values of the assets acquired and liabilities assumed. A fair
value measurement is determined as the price we would receive to
sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement date. In
the absence of active markets for the identical assets or
liabilities, such measurements involve developing assumptions based
on market observable data and, in the absence of such data,
internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs at
the measurement date. In the context of purchase accounting, the
determination of fair value often involves significant judgments
and estimates by management, including the selection of valuation
methodologies, estimates of future revenues, costs and cash flows,
discount rates, and selection of comparable
companies. The estimated fair values reflected in the
purchase accounting rely on management’s judgment and the
expertise of a third-party valuation firm engaged to assist in
concluding on the fair value measurements.
Results of Operations
Results of Operations for the Years Ended December 31, 2019 and
2018
The
following table sets forth a summary of our statements of
operations for the years ended December 31, 2019 and
2018:
|
|
|
|
|
|
|
|
REVENUES
|
$1,084,000
|
$1,046,000
|
|
COST OF REVENUES
|
513,000
|
684,000
|
|
GROSS PROFIT
|
571,000
|
362,000
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
Selling,
marketing and advertising
|
4,421,000
|
4,319,000
|
|
Technology
platform and infrastructure
|
4,463,000
|
4,183,000
|
|
General
and administrative
|
12,457,000
|
8,020,000
|
|
Total
operating expenses
|
21,341,000
|
16,522,000
|
|
|
|
|
|
NET LOSS FROM OPERATIONS
|
(20,770,000)
|
(16,160,000)
|
|
|
|
|
|
OTHER INCOME (EXPENSE), NET
|
(9,909,000)
|
(4,467,000)
|
|
|
|
|
|
NET LOSS
|
$(30,679,000)
|
$(20,627,000)
|
|
|
|
|
Comparison of the Results of Operations for Fiscal Years 2019 and
2018
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Brand and Media
Sponsorships
|
$351,000
|
$549,000
|
$(198,000)
|
(36)%
|
|
Platform-as-a-service
|
632,000
|
291,000
|
341,000
|
117%
|
|
Advertising and
content sales
|
68,000
|
69,000
|
(1,000)
|
(1)%
|
|
Direct to
Consumer
|
33,000
|
137,000
|
(104,000)
|
(76)%
|
|
|
$1,084,000
|
$1,046,000
|
$38,000
|
4%
|
Revenue
for fiscal year 2019 increased $38,000, or 4%, compared to fiscal
year 2018. Revenues for the periods presented was comprised of the
following:
|
●
|
Brand and Media Sponsorships. Period to period changes in
brand and media sponsorship revenues are attributable to
fluctuations in brand and media sponsorship activities period to
period, which is based on the specific partnership arrangements
with activities during a particular period, the related performance
obligations satisfied during the period and the contractual
consideration associated with the activities during the period.
Brand and media sponsorship revenues for fiscal year 2019 included
revenues for our Red Bull North America, Inc. (“Red
Bull”) brand partnership, Red Bull Allstars experience in
April 2019, Logitech G Challenge and Play/Train/Win online
tournaments, Sony related build competitions and related
experiences and our Red Games Lego Brawls live stream sponsorship
activation. Brand and media sponsorship revenues for fiscal year
2018 was primarily comprised of revenues from our Logitech, Inc.
and Red Bull brand sponsorships and our 2018 Red Bull Allstars
experience.
|
|
●
|
Platform-As-A-Service. We generate PaaS revenues pursuant to
arrangements with brand and media partners, retail venues, game
publishers and broadcasters that allow our partners to hold amateur
esports experiences, and or capture specifically curated gameplay
content that is customized for our partners’ distribution
channels, leveraging the flexibility of, and powered by our Super
League gaming and content technology platform. PaaS revenue for
fiscal year 2019 included revenues from our Samsung Fortnite event
held in New York in March 2019, Capcom, Inc. related to our Street
Fighter® V: Arcade Edition partnership, Sony related to
certain build competitions and related experiences, Sprint related
to our Sprint 5G LA activation, our Cox Paladins gameplay
experience and our Tencent Games and OnePlus Mobile Player
Unknown’s Battlegrounds Mobile, or PUBG Mobile, premium
content, competitive experiences and sponsorship
activation.
|
|
●
|
Advertising and Content Sales. Revenues
for fiscal year 2019 included revenues from campaigns launched
related to our Framerate acquisition and advertising revenues from
Snapchat related content sales and our Minehut digital property.
Revenues for fiscal year 2018 included revenues from the sale of
gameplay and other content generated
by us to Nickelodeon (third-party broadcaster) to supplement their
YouTube channel programming. We expect to continue to expand our
advertising revenue and revenue from the sale of our proprietary
and third-party content derived from our technology platform in
future periods, as we expand our advertising inventory, viewership
and related sales activities.
|
|
●
|
Direct to Consumer. The decrease in direct
to consumer revenue was primarily due to a decrease in the number
of paid events held during fiscal year 2019, as compared to the
prior year period. During fiscal year 2019, we held paid events and
events that were free to play, consistent with our strategic focus
on increasing the volume of new gamers and spectators introduced
into our customer funnel, to increase the number of registered
users on our platform, drive consumer conversion, and increase the
overall awareness of the Super League brand and technology platform
offerings. We intend to continue to offer a combination of paid and
free to play experiences going forward. Digital subscription
revenues included in direct to consumer revenues for fiscal year
2019 were primarily comprised of subscription revenues related to
our Minehut digital property acquired in June 2018, which provides
various Minecraft server hosting services on a subscription basis
to the Minecraft gaming community.
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
$513,000
|
$684,000
|
$(171,000)
|
25%
|
Cost of
revenue for fiscal year 2019 decreased $171,000 or 25% compared to
fiscal year 2018, as compared to a 4% increase in revenues for the
same periods. The trend in cost of sales for the periods presented
was primarily due to operational efficiencies and lower direct
costs incurred for fiscal year 2019 in connection with our physical
and digital experiences.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Selling,
Marketing and Advertising
|
$4,421,000
|
$4,319,000
|
$102,000
|
2%
|
|
Technology
Platform and Infrastructure
|
4,463,000
|
4,183,000
|
280,000
|
7%
|
|
General
and Administrative
|
12,457,000
|
8,020,000
|
4,437,000
|
55%
|
|
Total
operating expenses
|
$21,341,000
|
$16,522,000
|
$4,819,000
|
29%
|
Selling, Marketing and Advertising. The increase in selling,
marketing and advertising expense was primarily due to a 24%
increase in personnel costs associated with the continued expansion of our operations
requiring additional internal resources across our product,
creative, and commercial departments, and an increase in
marketing and promotional experiences focused on widening our
customer funnel and attracting increased numbers of registered
users to our platform. The increase included increased costs
related to contract labor, influencers, event operations, content
capture and other costs to execute various marketing and
promotional experiences during the period. The increase was
partially offset by a decrease in amortization of noncash in-kind
advertising costs, totaling $667,000, which were initially
capitalized pursuant to a June 2017 third-party investment
agreement. The investment agreement 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 cost was amortized over an
18-month period ending as of December 31, 2018.
Technology Platform and
Infrastructure. Technology
platform and infrastructure costs include (i) allocated personnel
costs, including salaries, noncash stock compensation, taxes and
benefits related to our internal software developers and engineers,
employed by Super League, engaged in the operation, maintenance,
management, administration, testing, development and enhancement of
our proprietary gaming and content technology platform, (ii)
third-party contract software development and engineering resources
engaged in developing and enhancing our proprietary gaming and
content technology platform (iii) the amortization of capitalized
internal use software costs, and (iv) technology platform
related cloud services and broadband costs. Capitalized internal use software development
costs are amortized on a straight-line basis over the
software’s estimated useful life. The period over period
increase primarily reflects an increase in engineering headcount
since the end of the prior year in connection with the expansion of
our engineering and internal use software development activities
and an increase in technology platform
related cloud services costs.
General and Administrative. General and administrative
expense for the periods presented was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
costs
|
$2,879,000
|
$1,902,000
|
$977,000
|
51%
|
|
Office
and facilities
|
403,000
|
367,000
|
36,000
|
10%
|
|
Professional
fees
|
911,000
|
816,000
|
95,000
|
12%
|
|
Stock-based
compensation
|
5,453,000
|
3,236,000
|
2,217,000
|
69%
|
|
Depreciation
and amortization
|
445,000
|
851,000
|
(406,000)
|
(48)%
|
|
Other
|
2,366,000
|
837,000
|
1,529,000
|
183%
|
|
Total
general and administrative expense
|
$12,457,000
|
$8,009,000
|
$4,448,000
|
56%
|
A summary of the main drivers of the net increase in general
and administrative expenses for the periods presented is as follows:
|
●
|
General and administrative personnel costs increased 51%, primarily
due to approximately $455,000 of management performance-based
bonuses paid in connection with the achievement of certain
performance-based milestones during fiscal year 2019, including the
closing of the IPO and other operational performance targets. The
increase in personnel costs also reflects an 11% net increase in
personnel expenses compared to the prior year period in connection
with the expansion of our operations. During fiscal year 2019 and
2018, across all departments, we had average full-time equivalent
employees of 51 and 44, respectively.
|
|
●
|
Office and facilities expense increased 9%, primarily due to an
increase in leased office space commencing in June 2018 in
connection with the expansion of our SLG.TV studio
operations.
|
|
●
|
Noncash
stock compensation expense included in general and administrative
expense increased 69%, primarily due to certain performance options
and warrants previously granted to certain executives, which vested
upon the achievement of certain performance-based milestones,
pursuant to October 2018 amended employee agreements and/or vesting
conditions in the underlying equity grant agreements. Performance
targets included the completion of our IPO in February 2019 and
other operational performance targets. During fiscal year 2019,
approximately 300,000 of performance-based stock options and
warrants vested with grant date fair values ranging from $8.28 to
$8.50, resulting in noncash stock compensation expense of
$2,617,000. The remaining increase also reflects $58,000 of
stock-based compensation expense related to our acquisition of
Framerate, as described at Note 8 to the financial statements
included elsewhere herein.
|
|
●
|
Depreciation and
amortization expense decreased 48% due primarily to a decrease in
scheduled amortization related to fully depreciated assets with
useful lives that expired during fiscal 2019 or prior, and the
acceleration of depreciation related to certain networking and
related equipment disposed of during fiscal 2019.
|
|
●
|
Professional
fees and other general and administrative expenses increased 12%
and 183%, respectively, primarily due to a significant increase in
directors and officer's insurance premiums in connection with our
February 2019 IPO and an increase in legal, audit and other
administrative public company costs.
|
Other Income (expense)
Other
income (expense), net, for fiscal year 2019 and 2018, totaling
$9,909,000 and $4,467,000, respectively, was primarily comprised of
interest expense related to the convertible notes outstanding
during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of discount on convertible notes
|
$2,475,000
|
$1,394,000
|
1,081,000
|
78%
|
|
Accrued
interest expense on convertible notes
|
187,000
|
311,000
|
(124,000)
|
(40)%
|
|
Accretion
of convertible note issuance costs
|
209,000
|
143,000
|
66,000
|
46%
|
|
Beneficial
conversion feature
|
7,067,000
|
-
|
7,067,000
|
100%
|
|
Total interest expense
|
$9,938,000
|
$1,848,000
|
$8,090,000
|
|
Interest Expense. Interest expense for the periods presented
primarily relates to the issuance of 9.00% secured convertible
promissory notes, commencing in February 2018 through August 2018,
as described below under Liquidity and Capital Resources. Principal
and interest as of February 27, 2019, the closing date of the IPO
and December 31, 2018 totaled $13,793,000 and $13,606,000,
respectively. Concurrent with the
closing of the IPO on February 27, 2019, in accordance with the
related agreements, all outstanding principal and interest
for the 9.00% convertible notes outstanding was automatically
converted into 1,475,164 shares of the Company’s common stock
at a conversion price of $9.35. As of and subsequent to February
27, 2019, we have no debt outstanding. As a result of the automatic conversion of the
2018 Notes (defined below) and the application of conversion
accounting, the Company recorded an immediate charge to interest
expense of $1,384,000, representing the write-off of the
unamortized balance of debt discounts associated with the 2018
warrants and cash commissions and warrants issued to third parties.
Unamortized debt discounts at December 31, 2018 totaled $2,684,000,
respectively.
The non-detachable conversion feature embedded in the 2018 Notes
provides for a conversion rate that was below market value at the
commitment date, and therefore, represented a beneficial conversion
feature (“BCF”). The BCF is generally recognized
separately at issuance by allocating a portion of the debt proceeds
equal to the intrinsic value of the BCF to additional paid-in
capital. The resulting convertible debt discount is recognized as
interest expense using the effective yield method. However, the
conversion feature associated with the 2018 Notes was not
exercisable until the consummation of an initial public offering by
the Company of its common stock, and therefore, was not required to
be recognized in earnings until the IPO related contingency was
resolved, which occurred on the IPO Closing Date. The commitment
date is the IPO Closing Date and the commitment date stock price
was $11.00 per share. The intrinsic value of the BCF on the IPO
Closing Date, which was limited to the net proceeds allocated to
the debt on a relative fair value basis, was approximately
$7,067,000, and is reflected as additional interest expense in the
statement of operations for the year ended December 31,
2019.
Liquidity and Capital Resources
General
Cash and cash equivalents totaled $8.4 million and $2.8
million at December 31, 2019 and 2018, respectively.
We have experienced net losses and negative cash flows from
operations since our inception. As of December 31, 2019 and 2018,
we had working capital of approximately $8.7 million and ($8.0)
million, respectively, and sustained cumulative losses since
inception attributable to common stockholders of approximately
$85.8 million. Total noncash charges included in accumulated
deficit since inception, primarily related to noncash stock
compensation, restricted stock units issued in connection with a
license agreement, amortization of the discount on the 2018 Notes
(defined below) and in-kind advertising expense, totaled
approximately $34.6 million. On February 27, 2019, we completed our
IPO, pursuant to which we issued and sold an aggregate of 2,272,727
shares of our common stock at a public offering price of $11.00 per
share pursuant to a
registration statement on Form S-1, declared effective by the Securities and
Exchange Commission on February 25, 2019 (File No. 333-229144). We
raised net proceeds of approximately $22,458,000 after underwriting
discounts, commissions and other offering costs of $2,542,000.
During Fiscal 2018, the Company issued 9.00% secured convertible
promissory notes, as described below, in an aggregate principal
amount of approximately $13,000,000. Concurrent with the
closing of the IPO on February 27, 2019, in accordance with the
related agreements, all outstanding principal and interest for the
9.00% convertible notes outstanding was automatically converted
into shares of the Company’s common stock as described below.
Approximately 1.3 million of the
warrants issued in conjunction with the 2018 Notes are callable at
the election of the Company at any time following the completion of
our IPO.
To date, our principal sources of capital used to fund our
operations have been the net proceeds we received from sales of
equity securities and proceeds received from the issuance of
convertible debt, as described herein. We have and will continue to use significant
capital for the growth and development of our business. Our
management team expects operating losses to continue in the near
term in connection with the pursuit of our strategic objectives. As
such, we believe our current cash position, absent receipt of
additional capital either from operations or that may be available
from future issuance(s) of common stock or debt financings, is not
sufficient to fund our planned operations for the next twelve
months. We believe these conditions raise substantial doubt about
our ability to continue as a going concern. In addition, we may
encounter unforeseen difficulties that may deplete our capital
resources more rapidly than anticipated, including those set forth
under the heading “Risk Factors” included in this
prospectus.
We are focused on expanding our service offerings and revenue
growth opportunities through internal development, collaborations,
and through strategic acquisitions. Management is currently
exploring several alternatives for raising capital to facilitate
our growth and execute our business strategy, including strategic
partnerships or other forms of equity or debt
financings.
We continue to evaluate potential asset acquisitions and/or
business combinations. To finance such acquisitions, we may find it
necessary to raise additional equity capital, incur additional
debt, or both. Any efforts to seek additional funding could be made
through issuances of equity or debt, or other external
financing. However, additional funding may not be
available on favorable terms, or at all. The capital and credit
markets have experienced extreme volatility and disruption
periodically and such volatility and disruption may occur in the
future. If we fail to obtain additional financing when needed,
we may not be able to execute our business plans which, in turn,
would have a material adverse impact on our financial condition,
our ability to meet our obligations, and our ability to pursue our
business strategies.
Cash Flows for Fiscal Years 2019 and 2018
The following table summarizes the change in cash balances
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
$(13,646,000)
|
$(10,680,000)
|
|
Net
cash used in investing activities
|
(3,164,000)
|
(866,000)
|
|
Net
cash provided by financing activities
|
22,478,000
|
12,611,000
|
|
Increase
in cash
|
5,668,000
|
1,065,000
|
|
Cash
and cash equivalents, at beginning of period
|
2,774,000
|
1,709,000
|
|
Cash
and cash equivalents, at end of period
|
$8,442,000
|
$2,774,000
|
Cash Flows from Operating Activities. Net cash used in operating activities during
fiscal year 2019 was $13,646,000, which primarily reflected
our net GAAP loss of $30,679,000, net of adjustments to
reconcile net GAAP loss to net cash used in operating activities
of $17,033,000, which included $6,217,000 of noncash stock
compensation charges, $2,871,000 of noncash accrued interest and
accretion of debt discount, $7,067,0000 of noncash interest expense
related to the recognition of the beneficial conversion feature
upon the automatic conversion of the 2018 Notes upon close of the
IPO, and depreciation and amortization of $862,000. Changes in
working capital primarily reflected the impact of the prepayment of
increased directors and officer’s insurance premiums in
connection with the consummation of our IPO and the settlement of
payables in the ordinary course. Net cash used in operating
activities during fiscal year 2018 was $10,680,000, which primarily
reflected our net loss of $20,627,000, net of adjustments to
reconcile net loss to net cash used in operating activities of
$9,947,000, which included $3,942,000 of non-cash stock
compensation, noncash amortization of prepaid in-kind advertising
totaling $667,000 and $1,106,000 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 of business during the
period.
Cash Flows from Investing Activities. Cash flows from investing activities were
comprised of the following for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for acquisition of Framerate, net
|
$(1,506,000)
|
$-
|
|
Purchase
of property and equipment
|
(73,000)
|
(255,000)
|
|
Capitalization
of software development costs
|
(1,079,000)
|
(519,000)
|
|
Acquisition
of other intangible and other assets
|
(506,000)
|
(92,000)
|
|
Net cash used in investing activities
|
$(3,164,000)
|
$(866,000)
|
Acquisition of Framerate, Inc. On June 3, 2019, the Company and
Merger Sub, entered into the
Merger Agreement with Framerate, pursuant to which Framerate merged
with and into Merger Sub, with Merger Sub continuing as the
surviving corporation. The Acquisition was consummated on the
Effective Date when the certificate of merger of Merger Sub and
Framerate was filed with the Secretary of State of the State of
Delaware. As consideration for the Acquisition, we ratably paid
and/or issued to the former shareholders of Framerate an aggregate
of $1.5 million in cash and $1.0 million worth of shares of our
common stock, at a price per share of $7.4395, which price was
equal to the volume weighted average price of our common stock over
the five trading days preceding the date of the Merger Agreement,
as reported on the Nasdaq Capital Market.
In addition to the issuance of the Closing Shares, the Merger
Agreement provides for the issuance of up to an additional $980,000
worth of shares of our common stock at the same price per share as
the Closing Shares in the event Framerate achieves certain
performance-based milestones during the two-year period following
the closing of the Acquisition, or June 6, 2021. One-half of the
Earn-Out Shares will be issuable on the one-year anniversary of the
Effective Date, and the remaining one-half will be issuable on the
second anniversary of the Effective Date.
Cash Flows from Financing Activities. Cash flows from financing activities were
comprised of the following for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock, net of issuance costs
|
$22,458,000
|
$-
|
|
Proceeds
from convertible notes payable, net of issuance cost
|
-
|
12,611,000
|
|
Proceeds
from common stock purchase warrant exercises
|
20,000
|
-
|
|
Net cash provided by financing activities
|
$22,478,000
|
$12,611,000
|
Initial Public Offering. On
February 27, 2019, we completed our IPO, pursuant to which we
issued and sold an aggregate of 2,272,727 shares of our common
stock at a public offering price of $11.00 per share. We raised net
proceeds of approximately $22,458,000 after deducting underwriting
discounts, commissions and other offering costs of $2,542,00. We
currently intend to use the net proceeds received from the offering
for working capital and general corporate purposes,
including 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 that may
compliment or business and or accelerate or growth. 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 our Prospectus filed pursuant to Rule 424(b)
under the Securities Act with the SEC on February 27, 2019, as well
as this prospectus. Our management has 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 the
IPO.
Pursuant to the related underwriting agreement, in connection with
the completion of the IPO, for the purchase price of $50.00, we
issued a warrant to purchase shares of our common stock equal to
3.0% of the shares sold in the IPO, or 68,182 shares, at an
exercise price of $11.00 per share (the “Underwriters’
Warrants”). The Underwriters’ Warrants are exercisable
during the period commencing from the date of the close of the IPO
and ending five years from the closing date of the IPO. The
Underwriters’ Warrants represent additional noncash offering
costs, with an estimated grant date fair value of $547,000, which
was reflected in additional-paid-in capital when issued and as a
corresponding offering cost in the statement of shareholders equity
for the year ended December 31, 2019.
Convertible Debt Issuances. In February and April 2018, we
issued 9.00% secured convertible promissory notes with a collective
face value of $3,000,000 (the “Initial 2018 Notes”).
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 us, and (iii) all outstanding principal
and accrued interest was automatically convertible into equity or
equity-linked securities sold in a Qualifying Equity Financing
based upon a conversion rate equal to (x) a 10% discount to the
price per share of a Qualifying Equity Financing, with (y) a floor
of $10.80 per share. In addition, the holders of the Initial 2018
Notes were collectively issued warrants to purchase approximately
55,559 shares of common stock, at an exercise price of $10.80 per
share and a term of five years (the “Initial 2018
Warrants”).
In May through August 2018, we issued additional 9.00% secured
convertible promissory notes with a collective face value of
$10,000,000 (the “Additional 2018 Notes”). In May 2018,
all of the Initial 2018 Notes and related accrued interest,
totaling $3,056,182, were converted into the Additional 2018 Notes,
resulting in an aggregate principal amount of $13,056,182
(hereinafter collectively, the “2018 Notes”). The
holders of the converted Initial 2018 Notes retained their
respective Initial 2018 Warrants
The 2018 Notes (i) accrued simple interest at the rate of 9.00% per
annum, (ii) matured on the earlier of the closing of an
IPO of our common stock on a national securities
exchange or April 30, 2019, and (iii) all outstanding principal and
accrued interest was automatically convertible into shares of
common stock upon the closing of the IPO at the lesser of (x)
$10.80 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 1,396,383 warrants to purchase common
stock equal to 100% of the aggregate principal amount of the 2018
Notes divided by $9.35 per share (the “2018 Warrants”).
The 2018 Warrants are exercisable for a term of five years,
commencing on the close of the IPO, at an exercise price equal to
the lesser of (x) $10.80 per share or (y) a 15% discount to the IPO
price per share and are callable at our election at any time
following the closing of an IPO.
Concurrent with the closing of the IPO
on February 27, 2019, in accordance with the related
agreements, all outstanding principal and interest for the
9.00% convertible notes outstanding, totaling $13,793,000, was
automatically converted into 1,475,164 shares of the
Company’s common stock at a conversion price of $9.35. As of
December 31, 2019, there is no debt outstanding. Refer to Note 6 to the accompany
financial statements elsewhere in this Prospectus for additional
information
As of December 31, 2019, except as described below, 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.
In consideration for the rights granted by ggCircuit to Super
League in connection with the Expanded Agreement described further
in the “Business”
section below, including the right to
commercially exploit Super League Prime and to feature the
“Super League Gaming” brand on the applicable ggCircuit
customer platform, Super League will pay an upfront fee of $340,000
and quarterly fees over the term of the Expanded Agreement ranging
from $0 to $150,000, based on contractual revenue
levels.
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
Recent Accounting Pronouncements - Recently Adopted.
In May 2014, the FASB issued a new accounting standard update
(“ASU”) addressing revenue from contracts with
customers, which clarifies existing accounting literature relating
to how and when a company recognizes revenue. Under the standard, a
company will recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those
goods and services. In doing so, the Company is required to use
more judgment and make more estimates in connection with the
accounting for revenue contracts with customers than under previous
guidance. Such areas may include: (i) identifying performance
obligations in the contract, (ii) estimating the timing of
satisfaction of performance obligations, (iii) determining whether
a promised good or service is distinct from other promised goods or
services, including whether the customer can benefit from the good
or service on its own and whether the promise to transfer a good or
service is separately identifiable from other promises in the
contract, (iv) evaluating whether performance obligations are
satisfied at a point in time or over time, (v) allocating the
transaction price to separate performance obligations, and (vi)
determining whether contracts contain a significant financing
component.
The Company used the modified retrospective method of adoption,
which would require the cumulative effect of initially applying the
new revenue standard as an adjustment to the opening balance of
retained earnings on January 1, 2019. Comparative prior year
periods would not be adjusted. The new accounting standard was
applied to all contracts at the date of initial application. There
was no cumulative effect of applying the new revenue standard to
contracts executed in prior periods. As such, the adoption of the
new accounting standard had no impact of on the balance sheet and
statement of operations in the current or prior
periods.
Recent Accounting Pronouncements – Not Yet
Adopted.
In January 2017, the FASB issued new guidance that eliminates Step
2 from the goodwill impairment test. Instead, if an entity forgoes
a Step 0 test, that entity will be required to perform its annual
or interim goodwill impairment test by comparing the fair value of
a reporting unit, as determined in Step 1 from the goodwill
impairment test, with its carrying amount and recognize an
impairment charge, if any, for the amount by which the carrying
amount exceeds the reporting unit’s fair value, not to exceed
the total amount of goodwill allocated to the reporting unit. The
new standard is effective for fiscal years beginning after
December 15, 2019, and should be applied prospectively. Early
adoption is permitted. The effect of adoption should be reflected
as of the beginning of the fiscal year of adoption. The Company
does not currently expect this new accounting guidance to have a
material impact on our financial statements upon
adoption.
In
February 2016, the FASB issued an ASU 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, 2020 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.
In June
2016, the FASB issued guidance on the measurement and recognition
of credit losses on most financial assets. For trade receivables,
loans, and held-to-maturity debt securities, the current probable
loss recognition methodology is being replaced by an expected
credit loss model. For available-for-sale debt securities, the
recognition model on credit losses is generally unchanged, except
the losses will be presented as an adjustable allowance. The
guidance will be applied retrospectively with the cumulative effect
recognized as of the date of adoption. The guidance will become
effective at the beginning of the Company’s first quarter of
the fiscal year ending December 31, 2021 but can be adopted as
early as the beginning of the first quarter of fiscal year ending
December 31, 2020. The Company is currently assessing the impact
that adopting this new accounting guidance will have on its
financial statements and footnote 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 our Initial Public Offering, we elected 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 the Sarbanes-Oxley Act;
●
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 are
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 will 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 2.6 billion gamers, as estimated by NewZoo. According
to the Electronic Software Association, the avid gamer,
identified as individuals who are
considered the most frequent gamers, 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. As
a first-mover in defining the esports category for the everyday
gamer in 2015, we believe gamers are seeking shared experiences.
Through independent, company-funded research conducted by
Interpret, 69% of competitive gamers polled indicated they would
like out-of-home opportunities to compete and socialize with other
gamers.
The
Esports Player Pyramid
______________________
* Based
on the average esports viewer, Nielsen Esports Playbook,
2017.
Through
our cloud-based, digital products platform, we offer our community
of gamers immersive, team-based esports leagues and competitions
supported by real-life playing fields through our connected network
of retail venue partners. In addition to the tools to facilitate
local, national and global tournaments and leaderboards, players
can socialize, share personal highlights, and view esports
entertainment content through our proprietary digital channels.
Anchored in our city club system which creates local connections
and belonging for gamers both at home and in hometown venues, we
enable and capture tens of millions of gameplay hours and
entertainment content annually, the
majority of which is user-generated content submitted to us by our
community. Our products range from offers that speak to a
wide market of competitive gamers through always on, highly
participatory and social gameplay, as well as offers that ladder to
our more heightened competitions through city-based leagues. We
work closely with top-tier game publishers and brands to bring
premium esports experiences and entertainment to this under-served
market of Generation X and Millennial gamers that are not just the
highly engaged player and content creator, but also the
viewer.
We
currently monetize in two distinct ways. First, we attract brand
sponsorship and advertising revenues by serving as a marketing
channel for brands to reach their target audiences across our
physical and digital network of esports leagues and experiences.
Second, as players come into our gameplay experiences, often
free-to-play, we introduce opportunities to monetize the gamer
through our recently launched consumer subscription offer and
tournament fees for advanced gameplay.
Our Vision
Our vision is to make Super League Gaming a vital brand in the
lives of everyday gamers. While the games are digital, our players
are human. In a world of increasing de-socialization, we believe
gamers are seeking new ways to deepen their bonds to each other and
their preferred form of entertainment. Our community platform
provides the tools to allow our players around the world to
compete, socialize, share and spectate amateur esports
gameplay.
Milestones and Key Performance Indicators
(“KPIs”)
We
have continually strengthened our brand and platform
by:
●
developing
our proprietary, highly automated community, tournament and
broadcast system;
●
launching
our City Club League consisting of 16 city-based teams across the
U.S. supported by a fleet of installed gaming
auditoriums;
●
expanding
our North American and international venue footprint through
strategic partnerships with TopGolf, Wanda Cinemas and
ggCircuit’s network of gaming center partners;
●
executing
brand partnerships with sponsors such as Logitech and game
publishers such as Tencent;
●
growing
our registered player base and deepening engagement through loyalty
and revenue generating subscription programs;
●
growing
audience through our branded digital channels of Framerate, Minehut
and SLG.TV to expand sponsorship and advertising inventory for
premium content monetization;
●
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.
The
KPIs driving our business
model are related to scalable offers across our scaling footprint
of destinations and access to players. The significant growth we
achieved in 2019 was a function of the advancement of our
technology platform, expansion of our venue networks and game title
library, and the acceleration of our audience growth through the
expansion of our digital network of online gameplay and viewing
channels.
Our Customer Key Performance
Indicators (“KPI”)
|
|
|
|
|
|
Venues(1)
|
20
|
34
|
500+
|
|
Game Titles(2)
|
2
|
4
|
10+
|
|
Registered Users(3)
|
43,000
|
300,000
|
950,000
|
|
Annual Views(4)
|
-
|
1,000,000
|
120,000,000
|
|
Engagement Hours(5)
|
61,000
|
175,000
|
15,000,000
|
____________________
|
(1) –
|
Venues represent unique venues
where a Super League experience has been activated and which
continue to be part of our current network of venues for future
activations.
|
|
(2) –
|
Game titles represent game titles
which have been incorporated into a Super League
experience.
|
|
(3) –
|
Registered users
represent individuals who have registered on our platform,
providing applicable identifying information, that have engaged
with our platform at some point.
|
|
(4) –
|
Annual views
represent number of views of our video content which is distributed
on several platforms.
|
|
(5) –
|
Engagement hours represent time
spent engaging with Super League in the form of participating in
our experiences, viewing our content, and/or spending time on our
website.
|
Our Platform
Our proprietary cloud-based platform provides amateur gamers a
modernized way to connect, play and view games in real-time and
on-demand. We believe our platform will become central to the
esports ecosystem and allow us to capture a significant portion of
our players' gameplay hours and share-of-wallet for greater
lifetime value. Our platform aggregates a diverse audience of
gamers across multiple game titles and provides users 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.
Super League’s Scalable Technology
Components
Industry Overview
The consumer appetite for esports continues to grow at a rapid pace
with passionate fans across the globe. According to Statista, the
overall value of the global gaming
market could reach approximately $180.0 billion by the end of 2021,
representing an estimated increase of 18.0%, or $27.9 billion from
2019. Key trends fueling this growth
include:
●
the rise of live
streaming and do-it-yourself content;
●
game design that is
inherently competitive;
●
increased
accessibility through cloud-based gaming and 5G
broadband;
●
the further
establishment of professional esports teams and leagues;
and
●
multi-generational
and mass participatory 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:
The esports audience is already comparable to leading entertainment
platforms, with gamers and viewer numbers in the hundreds of
millions.
Esports,
a term generally used to refer to competitive video game play by
professional players, have been around for as long as the video
game industry itself. However, recent growth in the gaming audience
and player engagement has elevated esports into mainstream culture
with a massive global following that, in some instances, exceeds
the monthly audience of large professional sports leagues. The
following chart reflects the monthly average audience size in 2017
for the four largest professional sports leagues, as compared to
the global monthly esports audience in 2017:
Source: Goldman
Sachs: The World of Games- esports- From Wild West to Mainstream,
June 26, 2018. Figures reflect global monthly average audience
sizes in 2017.
The esports
audience is also young, digital and global. Is it estimated that
more than half of esports viewers are in Asia and 79% of viewers
are under the age of 35 (Goldman Sachs Esports Equity Research,
2018). In addition, online video sites like YouTube Gaming and
Twitch have larger audiences than HBO, Netflix and ESPN combined,
as shown below:
Source:
Goldman Sachs: The World of Games- esports- From Wild West to
Mainstream, June 26, 2018. Amounts reported for each platform
represent annual audience figures data as of the end of
2016.
Moreover, there is
still a vast opportunity for audience growth in esports with the
introduction of new game titles and increasing popularity of online
gaming content.
|
●
|
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).
|
|
●
|
In 2018,
approximately 560 billion minutes of esports were viewed on Twitch , an increase of 58%
year-over-year (TwitchTracker.com).
|
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, is broad based
and growing rapidly.
|
●
|
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).
|
|
●
|
In
2017, gaming revenues eclipsed all other major entertainment
categories. Gaming revenues in 2017 totaled $116 billion, as
compared to television revenues of $105 billion, film box office
revenues of $41 billion and digital music revenues of $17 billion
(Newzoo forecast for gaming revenue, Statista for TV and global box
office revenue, IFPI actual data for global digital music revenue,
Reuters Plus June 2018).
|
|
●
|
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).
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Despite
the significant growth potential outlined above, there are several
key challenges facing stakeholders in the esports
landscape:
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Mainstream Competitive 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 a recreational 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.
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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.
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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.
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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.
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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.
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Super League’s Solution for Esports Ecosystem
Stakeholders
Our
platform offers the following solutions for these key
stakeholders:
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For Mainstream Competitive Gamers, our software platform enables online and in-person
player connections and a league-based structure that provides
participants and spectators with a unique lens on local,
recreational esports. We will continue to grow our digital network
to bring large audiences to view this derivative gameplay and
entertainment content through both our own proprietary network and
third-party content channels.
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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.
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For Venue Operators, we provide
access to 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
users.
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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 player data, we will have the
ability to target audiences based on our preferred game titles and
other profile information for more efficient marketing
spend.
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For Professional Esports Teams and Owners, we cultivate the future professional esports
fanbase through recreational competitive youth and young adult
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.
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Our Amateur Esports Capabilities
Super
League is an “always-on” operation with scalable
technology and deep experiential capabilities to deliver a unique
and differentiated player and spectator experience for the
competitive video gamer. The breadth and diversity of our offers
speak to a wide array of gamers, irrespective of game title. Our
value propositions are:
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Public-facing gamer persona that connects our players to our
community for rankings and recognition: Users 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. Player
results are dynamically updated on individual profile pages, along
with national and local leaderboards.
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Premium, immersive gameplay experiences online and
in-person: Players can join highly accessible, free-to-play,
online experiences on superleague.com and Minehut which offers both
social and gameplay elements. Players wanting a heightened social
and competitive experience can take their participation to one of
our retail partner venues for advanced gameplay.
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City Clubs enabling local community and connections: Through
our City Club footprint, we offer digitally native gamers an
opportunity to deepen social connections through in-person
experiences. City Clubs not only enable our seasonal competitions,
but also act as a unifying local umbrella across game titles, age
groups and skill levels. Available in 16 major U.S. cities and
expanding domestically and into Canada, Mexico and China, our owned
and operated City Clubs enable civic pride for esports which is
currently unavailable to everyday gamers.
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Esports viewing content from a unique perspective: Our
user-generated content platform coupled with our cloud-based
broadcast tools offer a variety of competitive and entertainment
content and across our digital video channel network. Additionally,
these automated tools allow for a real-time, in-venue livestream
which provides an interactive and contextualized birds-eye
perspective for a more immersive spectating experience. From
watching livestream gameplay and original story-driven content to
gamers sharing their highlight reels on our Framerate social
channels, players, their family and friends can engage in the full
competitive experience.
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Consumer subscription and exclusive member benefits: Players
can earn rewards for both the length and quality of their gameplay
and gain exposure on national and local leaderboards. All
participating players can earn a basic level of loyalty points for
prizing redemption locally in-venue. Players who upgrade to our
paid monthly subscription offer enjoy additional benefits including
the ability to earn points faster, access to exclusive competitions
and the Super League global prize vault, and added benefits from
our brand sponsors.
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A Sample of Super League Consumer Offers
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Super League Prime: Our beta consumer subscription offer
launched in December 2019 focuses on PC-players in our gaming
center venues network and offers accelerated loyalty benefits and
exclusive experiences for $5.00 per month. We intend to expand this
offer across new platforms including mobile and console games as
well as bring the offer into the home environment.
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Minehut: Attracting younger gamers, Minehut is an
‘always on” social and gaming portal for hundreds of
thousands of avid Minecraft players. The COPPA compliant platform
offers a way for parents to secure private spaces for their
children’s gameplay to control who they are playing with
along with offering a unique marketing channel for age-appropriate
content.
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Framerate: Targeting more competitive, young-adult gamers,
Framerate, a set of social channels, along with our superleague.com
video portal enable any gamer playing any game, anywhere to submit
their own user-generated highlight reel for recognition. Once
submitted, the content becomes ours to promote, repackage and
monetize across our digital and physical network. Combined with our
proprietary digital channels, we generate tens of millions of
monthly views providing a marketing channel for sponsors and
advertisers to authentically reach gamers.
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SLG.TV: Focused on the widest breadth of gamers across all
genres, ages and skill levels, SLG.TV offers esport competitions
and entertainment programming following the leagues, the teams, and
players. Content is available in both livestream and on-demand
video on superleague.com along with our branded Twitch, YouTube and
Facebook channels.
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City Champs: Built on the foundation of our owned and
operated City Clubs, our signature, elite league, City Champs, is
offered in seasonal formats across various game titles. Players
compete in intra-city competitions to earn the right to represent
their hometown in city versus city battles for the ultimate amateur
esports experience.
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Super League’s City Clubs
Our Scalable Technology Platform
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. Our platform is focused on the customer journey and
player discovery. Gamers are introduced to Super League through our
online digital channels and marketing or through our distributed
network of venue partners, at which point they are encouraged to
register for their profile and/or for an event through
superleague.com or through our direct interface on the gaming
screen at our gaming center partner venues. Once registered for an
experience, gamers have many touchpoints for further engagement.
First, they log back into superleague.com or their venue gaming
screen to get matched into teams, managed through tournaments and
initiate gameplay so we can capture relevant content including
statistics for leaderboard management. This as well leads to
livestream or on-demand broadcasts in-venue or digitally offering
integration of dynamic leaderboards, statistics and
tournament-specific content including brand sponsor integrations,
local team information, instructional tips and other pertinent
content. Next, they can continue to engage post-game through the
sharing of highlights and monitoring of their statistics on
persistent leaderboards along with participating in our social
forums.
Super League’s Consumer Portal Example
Early
in our inception, we utilized a local hardware solution to create
interactive physical spaces, to create in-person gaming experiences
for mainstream competitive gamers. We had two opportunities ahead
of us for both scale and differentiation. Firstly, we created a
second-screen perspective that would make the experience more
immersive for players and entertaining for spectators much like
professional sporting events resulting in our proprietary
Heads-Up-Display (“HUD”) for a stadium screen
experience. Secondly, we moved our platform to the cloud for scale,
and now offer a wide use of our platform to operate Super League
experiences by leveraging the infrastructure, operations and
marketing of an established retail venue network.
Super League’s HUD Experience
Our
proprietary visualization and broadcast system, which provides
compelling livestream 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 to ensure 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 API. We intend to improve upon
our use of computer vision in our automated technology to continue
to provide differentiated gameplay and spectating experiences. Our
virtual, intelligent and automated production booth for real-time,
high quality esports entertainment broadcasts is illustrated below:
Super League’s Virtual Production Booth
Capability
In addition to the
customer facing experience and broadcasting functionality, our
platform offers digital consumer features that allow us to
aggregate and serve communities of players across locations and
game titles with a common set of player features including
gameplay, matchmaking, leaderboards and statistics, personal
profiles, chat, loyalty and rewards, and video portal sharing and
viewing among others. More specifically, our proprietary
matchmaking software, “The
Arena,” extracts player and game data that allows us
to create a variety of competitive formats with deeper
stratification. The Arena
enables players to find and compete with others of a similar skill
level and/or geography in an automated way. Our competitions can
test certain skill levels, player positions or team pairings and
becomes a rating system that brings more depth to the overall
gaming experience.
Furthermore our platform enables digital tools for scale including,
but not limited to data services, event creation and management,
ecommerce, advertising technology, COPPA compliance, search engine
optimization, email and mobile marketing, and our HUD automated,
production and streaming technology. With respect to data services,
the platform ingests from multiple data sources, including game
publisher application programming interfaces (“API”),
and offer a wide variety of gameplay experiences across multiple
environments, often simultaneously, with a vast array of resulting
content publishing opportunities.
Super League Monetization
The
fundamental drivers of our monetization are creating deep community
engagement through our highly contextualized, local experiences
that, when coupled with the critical mass of large digital
audiences, provides the depth
and volume for premium content and offer monetization that is differentiated from a more
traditional, commoditized advertising model. The powerful
combination of our physical venue network and digital programming
channels, with Super League’s platform as the hub, creates
the opportunity for not just a share of the player’s wallet,
but also the advertiser’s wallet.
Prospective
players and viewers are introduced to Super League through six
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 activities that drive brand
awareness;
(iii)
generation
of interest and audience development through SLG.TV, Framerate and
Minehut;
(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; and
(vi)
brand
ambassadors and user referrals that drive organic word-of-mouth
advertising for deeper engagement, and round out the integral
feedback loop for a network effect.
In
addition to these channels, we also market our community and
platform through in-game promotion, search engine optimization,
online advertising, social influencers, e-mail marketing and
established gamer chat forums such as Discord, to enhance customer
acquisition.
Gamer Monetization: Direct to Consumer Offers
Gamers typically begin their relationship with Super League by
viewing content on our digital network, registering an email
address, and/or by participating in a free-to-play experience.
Users become more engaged by creating a profile to join our network
of players and share more information about their gaming interests,
geographic location and other attributes. Joining Super League is
free, but we do monetize gamers as activity grows with paid
experiences in the form of tournament fees, merchandise sales, and
our newly introduced monthly subscription program.
For our pilot subscription offer, Super League Prime, we are
targeting PC gamers in our gaming center partner locations. This
segment not only represents our most competitive set of gamers, but
also provides a captive, highly engaged audience for which we can
fine tune the offer eventually extending it into alternative
venues, including the home, and across console and mobile gamers.
Players in these gaming centers can sign up for Super
League’s basic level of membership through a direct interface
between the local gaming screen and superleague.com. This free
offer entitles them to earn and redeem Super League Points
(“SP”) for local gaming rewards as well
as create a basic public-facing profile to track stats and align
with their City Club.
Players who wish to upgrade to our paid monthly subscription offer,
Super League Prime, will receive accelerated SP earning power for
redemption in our proprietary global rewards vault, access to
exclusive competitions and prizing, and discounts from brand
partners. Set at an affordable price-point with free trial, Super
League Prime is offered at $5.00 per month with an estimated value
of $50.00 and $60.00 in annual revenue per subscriber in the
future. As we continue to expand our City Club network, we will
create a more direct connection between the local our signature
City Champs league, and the growing set of hometown venues which
support our social and competitive experience.
Content Monetization: Brand Partnerships, Sponsorships and
Advertising
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 user base across age ranges, skill levels and
game titles can direct authentic brand integrations to our players
in a targeted way. We stand for inclusive, positive gameplay
and believe that our brand is at the forefront in the mainstreaming
of esports which provides a positive access point for both endemic
and non-endemic brands to enter the category.
Historically, our largest revenue stream comes by way of brand
sponsorship, and we have been able to monetize our content largely
through larger scale partnerships with brands and game publishers
by way of:
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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 user benefits specific to the
sponsors’ products and offers including discounts, free
trials, and exclusive content and experiences.
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Tournament and game specific sponsorships, allowing brands to more
narrowly target specific age ranges, game genres and other
demographic objectives.
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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.
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Digital programming sponsorships enable brands to achieve wider
reach through our broadcast distribution network, including our
proprietary channels of Minehut and Framerate along with our
in-venue screens, for both mainstream esports players and
spectators.
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Tailored experience-specific sponsorships, providing brands with an
opportunity to design unique experiences and content for deeper
integration and wider media distribution.
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Throughout 2019, we significantly increased our audience through
viewership and registered users creating a larger level of
advertising inventory we can now make available to brands and
advertisers. We have developed in-house capability to monetize this
added inventory and expect to extract additional revenue from this
large volume of distributed content through advertising income. We
expect to continue to grow 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. Our core differentiator is our ability to provide
sponsors and advertisers with very precisely targeted, high quality
and authentic brand integrations that deliver premium costs per
impressions (“CPM”) advertising rates.
Our Strengths
We differentiate ourselves from potential competition by being a
game and location agnostic software platform with a material
network of physical venues, digital programming channels and
established brand partnerships that ultimately aggregate a gaming
community, with whom we have a direct relationship, and their
content. 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 bring players into our customer funnel and draw
subscription interest. 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.
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Proprietary and Curated Content, reaching in the tens of millions of hours being
generated through our platform per year, provides us with a unique
perspective and library of recreational esports content. This
content is currently absent from the esports ecosystem and is
highly complementary and valuable to the needs of large on-demand
and streaming video providers. Furthermore, the majority of
this content is user-generated (UGC) with no production costs and
can be easily ingested into our library via tools on our
platform.
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Patent-Pending Technology allows for unique, intelligent content capture
enabling us to display the most relevant gameplay activity in real
time and broad visualization of active gameplay to facilitate
maximum scale of interactive, in-person gaming, broadcast
experience, and content monetization.
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Over Five 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 that also currently
and directly own the relationship with the
gamer.
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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 and
work-for-hire tournament operators.
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A Growing Player and Viewer Base approaching critical mass that when 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.
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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 audience and player base, and in doing so, drive
subscription, sponsorships, advertising and other new revenue
streams. Our customer acquisition and retention funnel provide the
primary lens for community growth, engagement and long-term brand
equity.
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Viewer Growth and Network Effect is driven organically
through compelling user-generated content supplemented by direct
marketing, partner and influencer promotion, and search engine
optimization. We believe the most efficient customer acquisition,
however, will come through organic word of mouth and other
customer-based referrals through the establishment of hometown
venue and city clubs. .
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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.
In
some cases, we offer integrated launches with game publishers where
they are paying us to create leagues and offering direct marketing
to their communities.
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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 and
persistent gameplay and leaderboards with competitive gamers to
drive more users and content through our platform.
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Brand and Media Partnerships, which often include
commitments to promote our brand events and content across their
social channels outside of our events and platform, have the
potential to extend the utilization of our platform by leveraging
the reach of our partners’ existing broadcast, social and
customer loyalty programs which, in turn, can extend our
audience reach and potentially drive more gamers
and viewers to our amateur esports gaming content and
technology platform.
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International Expansion will continue to enable us to access
the massive global scale of gamers worldwide and unlock greater
brand sponsorship and advertising revenue opportunities through
global audience development along with consumer
monetization.
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Opportunistic Acquisitions allow us to add complementary
users, revenues, and/or technology components to accelerate our
recreational esports offerings and viewer and player base and
further enhance our revenue growth.
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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
nonprovisional 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
streams 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 (e.g., Minecraft or Clash Royale), we have developed
technology that places a “managed” character into these
games for the purpose of capturing and sharing the first-person
perspective that is created. We also filed a patent
application for certain bleeding edge virtualization technologies
that allow us to generate visualizations 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 5,000 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:
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Action Squad serves as an extension of Super League’s
experience team on an as needed basis and is responsible for
logistics at some local venues and facilitating an engaging and
fair player experience. The team, comprised of approximately 175
contract-based members, has been interviewed and trained by Super
League.
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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.
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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.
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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 5,000 experiences over more than five
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
December 31, 2019, we had 55 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 December 31, 2019, four 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 employ a kick-out procedure during user
registration whereby anyone identifying themselves as being under
the age of 13 during the process is not allowed to register for a
player account on our website or participate in any of our online
experiences or tournaments without linking their account to that of
a parent or guardian.
In
addition, as a part of our experiences, we offer prizes and/or gifts as incentives to play. The
federal Deceptive Mail Prevention and Enforcement Act and
certain state prize, gift or sweepstakes statutes may apply to
certain experiences we run from time to time, and other federal and
state consumer protection laws applicable to online collection, use
and dissemination of data, and the presentation of website or other
electronic content, may require us to comply with certain standards
for notice, choice, security and access. We believe that we are in
compliance with any applicable law or regulation when we run these
experiences.
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
|
|
51
|
|
Chief
Executive Officer, President, Chair of the Board
|
|
|
David
Steigelfest
|
|
52
|
|
Chief
Product Officer, Director
|
|
|
Clayton
Haynes
|
|
50
|
|
Chief
Financial Officer
|
|
|
Matt
Edelman
|
|
50
|
|
Chief
Commercial Officer
|
|
|
Samir
Ahmed
|
|
42
|
|
Chief
Technology Officer
|
|
|
Jeff
Gehl
|
|
51
|
|
Director
|
|
|
Robert
Stewart
|
|
52
|
|
Director
|
|
|
Kristin
Patrick
|
|
49
|
|
Director
|
|
|
Michael
Keller
|
|
49
|
|
Director
|
|
|
Mark
Jung
|
|
57
|
|
Director
|
|
|
|
|
|
|
|
|
|
Significant Employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andy
Babb
|
|
51
|
|
Executive
Vice President of Game Partnerships
|
|
|
Anne
Gailliot
|
|
44
|
|
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 Item 401(f) 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 led 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 Bachelor of Arts 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 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 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 Bachelor of Arts 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. 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 revenues up to $1 billion in a variety of sectors, including
manufacturing, distribution, oil and gas, engineering, aerospace
and retail. Mr. Haynes received a Bachelor of Arts 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
Bachelor of Arts in Politics from Princeton
University.
Samir Ahmed
Chief Technology Officer
Mr. Ahmed was appointed as Chief Technology Officer in July 2019.
Mr. Ahmed served as Head of Consumer Technology from
February 2018 to July 2019 for IMDb, an Amazon company that is an
authoritative website about movies, television and celebrities. In
addition, from February 2016 to February 2018, Mr. Ahmed served as
Chief Architect and Vice President of Technology at Fandango, where
he led the acquisition transition and rebranding of M-GO to
FandangoNOW, and from August 2014 to February 2016, he served as
Chief Technology Officer of M-GO prior to its acquisition by
Fandango. Mr. Ahmed holds a master’s degree in computer
science applied to business services from the University of Rennes
1.
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 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.
Jeff Gehl
Independent Director
Mr.
Gehl has served as a director on our Board 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 until 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., a
Director 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 Bachelor of Science in Business
Administration from the University of Southern California's
Entrepreneur Program.
Mr. Gehl’s wide range of experience 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 the Chair of the Board’s Audit
Committee and as a member of the Nominating and Corporate
Governance Committee.
Robert Stewart
Independent Director
Mr. Stewart has served as a director on our 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 Bachelor of Science 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 the Board’s Audit Committee, and as
Chair of the Compensation
Committee.
Kristin Patrick
Independent Director
Ms.
Patrick has served as a director on our Board since November 2018,
and currently serves as Global Chief Marketing Officer of Soda
Brand at Pepsico, Inc., a position she has held since June 2013.
Prior to her time with Pepsico, Inc., Ms. Patrick served as Chief
Marketing Officer of Playboy Enterprises, Inc. from November 2011
to June 2013, and as Executive Vice President of Marketing Strategy
for William Morris Endeavor from January 2010 to November 2011. Ms.
Patrick has also held senior marketing positions at Liz
Claiborne's Lucky Brand, Walt Disney Company, Calvin Klein, Revlon
and NBC Universal and Gap, Inc. A Brandweek "Next Gen Marketer" and
Reggie Award recipient, Ms. Patrick received her Bachelor of Arts
from Emerson College and J.D. from Southwestern
University.
As we
continue to expand the visibility of our Brand, we believe Ms.
Patrick will provide instrumental input on our marketing efforts,
and will assist the Board and management with initiating marketing
programs to enable us to meet our short-term and long-term growth
objectives. Ms. Patrick also serves as a member of the
Board’s Compensation Committee and the Nominating and
Corporate Governance Committee.
Michael Keller
Independent Director
Mr.
Keller has served as a director on our Board since November 2018.
From July 2014 to February 2018, Mr. Keller served as an advisor
and board member for Cake Entertainment, an independent
entertainment company specializing in the production, distribution,
development, financing and brand development of kids’ and
family properties, as managing director of Tiedemann Wealth
Management from March 2008 to December 2013, as co-founder and
principal of Natrica USA, LLC from August 2006 to March 2008 and as
Senior Vice President of Brown Brothers Harriman Financial Services
from July 1996 to June 2006. Mr. Keller earned his Bachelors of
Arts in History from Colby College.
With
over 15 years of experience in asset and portfolio management, and
experience in helping companies gain exposure for their products
and services, including in the entertainment industry, we believe
Mr. Keller provides our Board with useful insight that will help us
as we allocate resources to expand the utility of our platform and
other technologies. Mr. Keller also serves as Chair of the
Board’s Nominating and Corporate Governance Committee and as
a member of the Audit Committee and the Compensation
Committee.
Mark Jung
Independent Director
Mr. Jung has served as a director on our Board since July
2019. Mr. Jung currently serves as an
independent consultant to multiple media and technology companies.
Previously, Mr. Jung served on the board of directors of Accela, a
leading provider of cloud-based productivity and civic engagement
solutions for government, from March 2016 to April 2019. During his
tenure on the board of Accel, Mr. Jung also held executive
management positions for Accela, including as Chairman and interim
Chief Executive Officer from August 2016 to March 2017 and from
April 2018 to October 2018, as well as serving as Executive
Chairman from March 2017 to April 2018. Prior to Accela, Mr. Jung
served as Executive Chairman of OL2, a leading cloud solutions
provider for gaming and graphics-rich applications, from May 2013
to March 2015. Currently, Mr. Jung serves as a member of the
board of directors of Millennium Trust Company, a leading financial
services company offering niche alternative custody solutions to
institutions, advisors and individuals; lnMar, a provider of
intelligent commerce network solutions; Samba Safety, a provider of
driver risk management solutions; and ReadyUp, a provider of an
esports platform for player networking and team management.
Mr. Jung graduated with a BS in engineering from Princeton
University and received his MBA from Stanford University Graduate
School of Business.
With over three decades of experience serving as a C-suite
executive at several prominent companies within the digital
entertainment and video game industries, and extensive public and
private board member experience, we believe Mr. Jung provides our
Board with invaluable knowledge and insight regarding key
strategies and best practices for building gaming communities and
creating a demand for gaming-related content in the market that can
accelerate our audience development and content monetization
strategies, and will also share key learnings with Super League
gained from his experience navigating the transition of companies
from private to public. Mr.
Jung also serves as Chair of the Board’s Compensation
Committee and as a member of the Audit
Committee.
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 Bachelor of Arts 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 Bachelor of Arts 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 seven members. Each of our continuing
directors will serve until our next annual meeting of stockholders
or until his or her successor is elected and duly qualified. 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 five of its directors qualify as
independent directors, as determined in accordance with the rules
of the Nasdaq Stock Market, consisting of Ms. Patrick and Messrs.
Gehl, Stewart, Keller and Jung. 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.
Cybersecurity risk is a key consideration in our operational risk
management capabilities. We are in the process of instituting a
formal information security management program, which will be
subject to oversight by, and reporting to, our Board. Given the
nature of our operations and business, cybersecurity risk may
manifest itself through various business activities and channels
and is thus considered an enterprise-wide risk which is subject to
control and monitoring at various levels of management throughout
the business. Our Board will oversee and review reports on
significant matters of corporate security, including cybersecurity.
In addition, we maintain specific cyber insurance through our
corporate insurance program, the adequacy of which is subject to
review and oversight by our Board.
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 currently comprised of Jeff Gehl, who serves as
the committee chair, Michael Keller and Mark Jung, each of whom are
independent directors as determined in accordance with the rules of
the Nasdaq Stock Market. 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 Stock Market. 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 Stock Market
rules and regulations. The audit committee operates under a written
charter that satisfies the applicable standards of the SEC and the
Nasdaq Stock Market.
Compensation Committee
Our compensation committee is currently comprised of Mark Jung, who
serves as the committee chair, Kristin Patrick and Robert Stewart,
each of whom are independent directors as determined in accordance
with the rules of the Nasdaq Stock Market. 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 currently comprised
of Michael Keller, who serves as the committee chair, Kristin
Patrick and Robert Stewart, each of whom are independent directors
as determined in accordance with the rules of the Nasdaq Stock
Market. 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 the
Nasdaq Stock Market 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. We provide
our Code of Business Conduct and
Ethics 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.
EXECUTIVE COMPENSATION
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
December 31, 2019, 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 for the year ended December 31, 2019. Our
Named Executive Officers for our fiscal year ending December 31,
2020 could change, as we may hire or appoint new executive
officers.
For the
fiscal years ended December 31, 2019 and 2018, compensation for our Named Executive Officers was
as follows:
|
Name
and principal position
|
|
|
|
|
|
All
Other Compensation ($)
|
|
|
Ann Hand
|
2019
|
$400,000
|
$350,000(2)
|
|
$-
|
|
$750,000
|
|
Chief Executive Officer,
President |
2018
|
$400,000
|
$100,000(2)
|
-
|
$3,526,000
|
-
|
$4,026,000
|
|
David
Steigelfest
|
2019
|
$300,000
|
$105,000
|
|
$-
|
|
$405,000
|
|
Chief Product
Officer
|
2018
|
$300,000
|
-
|
-
|
$833,000
|
-
|
$1,133,000
|
|
Matt Edelman
|
2019
|
$300,000
|
$-
|
|
$-
|
|
$300,000
|
|
Chief Commercial
Officer |
2018
|
$300,000
|
$-
|
-
|
$378,000
|
-
|
$678,000
|
(1)
This column represents
the grant date fair value calculated in accordance with the
FASB’s Accounting Standards Codification Topic 718,
Compensation – Stock Compensation (“ASC
718”). The methodology used to calculate the estimated value
of the equity awards granted is set forth under Note 2 and Note 8
to the audited Financial Statements as of and for the years ended
December 31, 2019 and 2018, included elsewhere in this prospectus.
These amounts do not represent the actual value, if any, that may
be realized by the Named Executive Officers.
(2)
Refer to
“Employment Agreements and Potential Payments upon
Termination or Change of Control” below for additional
information.
Elements of Compensation
Our
executive compensation program consisted of the following
components of compensation during the years ended December 31, 2019
and 2018:
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
“Hand Initial Term”), and provided that neither party
provides 30 days’ notice prior to the expiration of the Hand
Initial Term or a Renewal Term (defined below) 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 “Hand 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 100,000 shares of Company Common Stock at an
exercise price of $10.80 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.
Ms.
Hand’s employment agreement was amended and restated on
November 15, 2018, pursuant to which the Hand Initial Term of the
agreement was extended through December 31, 2021, with the terms of
the Hand Renewal Term remaining the same. In addition, under the
terms of the amended and restated employment agreement, Ms. Hand
shall be entitled to the following compensation: (i) a base annual
salary of $400,000, which amount may
be increased annually, at the sole discretion of the Board; (ii)
cash bonuses as follows: (a) $100,000 upon the close of a fully
subscribed $10.0 million private placement of 9.00% secured
convertible promissory notes, (b) $250,000 upon the consummation of
the Company’s IPO or a private financing of not less than
$15.0 million (a “Qualified Financing”), (c) $150,000,
payable in three increments of $50,000 upon achievement of certain
milestones, as determined by the compensation committee; (iii)
health insurance for herself and her dependents, for which the
Company shall pay 90% of the premiums; (iv) reimbursement for all
reasonable business expenses; and (v) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it. As additional compensation, Ms. Hand was also granted (i) a
ten-year common stock purchase warrant to purchase up to 250,000
shares of the Company’s common stock, exercisable at $10.80
per share, which vests as follows: (a) 25% immediately upon
issuance, (b) 50% upon the consummation of the Company’s IPO
or a Qualified Financing, and (c) 25% on the one-year anniversary
of the IPO or a Qualified Financing; and (ii) ten-year stock
options to purchase 166,667 shares of Common Stock, exercisable at
$10.80 per share, which shall vest as follows: (a) 50% upon
consummation of the Company’s IPO or a Qualified Financing,
(b) 25% upon achievement of 300,000 registered users, and (c) 25%
upon achievement of 400,000 registered users. Further, pursuant to
the terms of the amended and restated employment agreement, in the
event that Ms. Hand is terminated other than for Cause, Ms. Hand
shall be entitled to receive all of her severance benefits on the
effective date of termination.
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 “Steigelfest Initial
Term”), and provided that neither party provides 30 days'
notice prior to the expiration of the Steigelfest Initial Term or a
Steigelfest 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
“Steigelfest 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.
Mr.
Steigelfest’s employment agreement was amended and restated
on November 1, 2018, pursuant to which the Steigelfest Initial Term
of the agreement was extended to two years from November 1, 2018
and Mr. Steigelfest shall serve as both the Company’s Chief
Technology Officer and Chief Product Officer. Effective July 22,
2019, in connection with the hiring of Samir Ahmed, the
Company’s current Chief Technology Officer, Mr. Steigelfest
now serves as the Company’s Chief Product Officer. In
addition, under the terms of the amended and restated employment
agreement, Mr. Steigelfest shall be entitled to the following
compensation: (i) a base annual salary of $300,000, which amount may be increased annually, at the
sole discretion of the Board; (ii) cash bonuses as follows: (a)
$50,000 upon the consummation of the Company’s IPO or a
Qualified Financing, (b) $75,000, payable in five separate
increments of $15,000 upon achievement of certain milestones, as
determined by the compensation committee, and (c) $100,000, payable
in four separate increments of $25,000 upon achievement of certain
milestones on or before June 30, 2019; (iii) health insurance for
himself and his dependents, for which the Company shall pay 90% of
the premiums; (iv) reimbursement for all reasonable business
expenses; and (v) participate in the Company’s 401(k) Plan
upon the Board electing to institute it. As additional
compensation, Mr. Steigelfest was also granted ten-year stock
options to purchase 100,000 shares of Common Stock, exercisable at
the same price per share of the Company’s IPO, which shall
vest in accordance with the Company’s traditional vesting
schedule. Further, pursuant to the terms of the amended and
restated employment agreement, in the event that Mr. Steigelfest is
terminated other than for Cause, Mr. Steigelfest shall be entitled
to receive cash equal to his annual base salary for one year on the
effective date of termination.
Matt Edelman
Effective
November 1, 2018, we entered into an employment agreement with Mr.
Edelman to serve as our Chief Commercial Officer. The initial term
of Mr. Edelman’s employment agreement is two years (the
“Edelman Initial Term”), and provided that neither
party provides 30 days’ notice prior to the expiration of the
Edelman Initial Term or a an Edelman Renewal Term (defined below)
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, an “Edelman Renewal Term”).
The employment agreement with Mr. Edelman provides for a base
annual salary of $300,000, which
amount may be increased annually, at the sole discretion of the
Board. Additionally, Mr. Edelman shall be entitled to (i) health insurance for
himself and his dependents, for which the Company shall pay 90% of
the premiums, (ii) reimbursement for all reasonable business
expenses, and (iii) participate in the Company’s 401(k) Plan
upon the Board electing to institute it.
Mr.
Edelman’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 the following
severance payment based upon his length of employment with the
Company and his existing annual salary, which he shall receive 30
days after the final day of his employment: (i) from six to nine
months of employment, one month of severance pay; (ii) from nine
months to one year of employment, two months of severance pay;
(iii) from one year to two years of employment, three months of
severance pay; and (iv) for each additional year of employment
beyond one year, one additional month of severance pay;
provided, however, that in
the event of a change of control transaction involving the Company,
Mr. Edelman shall be entitled to six months of severance pay. In
the event of such termination, and in order to receive the
foregoing severance benefits, Mr. Edelman shall be required to
execute a mutually agreed upon Mutual Release agreement. In the
event of termination by us with Cause, Mr. Edelman shall be
entitled to all salary accrued prior to the termination date, and
nothing else; provided,
however, that Mr. Edelman 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,
2019:
|
|
|
|
|
Name
|
Grant
Date
|
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
|
166,667
|
-
|
$9.00
|
6/5/25
|
|
6/16/17
|
51,334
|
-
|
$9.00
|
6/15/27
|
|
6/16/17
|
32,000
|
-
|
$10.80
|
6/15/27
|
|
6/16/17
|
91,667
|
8,333(1)
|
$10.80
|
6/6/27
|
|
10/31/18
|
166,667
|
-(2)
|
$10.80
|
10/31/28
|
|
10/31/18
|
187,500
|
62,500(3)
|
$10.80
|
10/31/28
|
|
David
Steigelfest
|
10/16/14
|
116,667
|
-
|
$0.30
|
10/15/24
|
|
|
12/21/15
|
833
|
-
|
$9.00
|
12/21/25
|
|
6/16/17
|
34,669
|
|
$9.00
|
6/15/27
|
|
6/16/17
|
32,000
|
|
$10.80
|
6/15/27
|
|
10/31/18
|
29,166
|
70,834(4)
|
$10.80
|
10/31/28
|
|
Matt
Edelman
|
7/24/17
|
39,536
|
25,904
(5)
|
$10.80
|
7/24/27
|
|
6/29/18
|
6,250
|
10,417(6)
|
$10.80
|
6/29/28
|
|
10/31/18
|
25,000
|
-
|
$10.80
|
10/31/28
|
(1)
Represents
a warrant to purchase shares of our common stock, which warrant
vests 2,778 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.
(2)
Represents
an option to purchase shares of our common stock which 50% vested
upon consummation of the Company’s IPO, 25%, on April 30,
2019 upon achievement of target registered users, and 25%, on June
30, 2019, upon achievement of target registered users.
(3)
Represents
a warrant to purchase shares of our common stock, which warrant
vested 25% immediately upon issuance and 50% upon the consummation
of the Company’s IPO, and the remaining 25% vests on the
one-year anniversary of the IPO or a Qualified
Financing.
(4)
Represents
an option to purchase shares of our common stock, which option
vested with respect to 25,000 shares on October 31, 2019, and the
remainder vesting at a rate of 2,084 shares per month, and becomes
fully vested on October 30, 2022.
(5)
Represents
an option to purchase shares of our common stock, which option
vested with respect to 16,360 shares on July 24, 2018, and then at
a rate of 1,364 shares per month, and becomes fully vested on July
24, 2021.
(6)
Represents
an option to purchase shares of our common stock, which option
shall vest with respect to 4,167 shares on October 31, 2019, and
then at a rate of 348 shares per month, and becomes fully vested on
October 30, 2022.
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 December 31,
2019.
|
Plan
category
|
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
|
1,486,689
|
$8.94
|
308,479
|
|
Equity compensation
plans not approved by security holders
|
93,000
|
7.74
|
N/A
|
|
Total
|
1,579,689
|
$8.86
|
308,479
|
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 October
2018. The maximum number of shares of common stock issuable under
the 2014 Plan is currently 1,833,334 shares, subject to adjustments
for stock splits, 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. In connection with the
one-for-three Reverse Stock Split (defined below) of our common
stock that was effected on February 8, 2019, the terms of certain
awards granted under our 2014 Plan were equitably adjusted in
accordance with the provisions thereof.
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
On
January 31, 2019, and as amended on August 13, 2019, effective July
1, 2019, our Board adopted a director compensation plan for our
non-employee directors, the details of which are presented in the
table below. We do not provide deferred compensation or
retirement plans for non-employee directors.
Schedule of Director Fees
|
Compensation
Element
|
|
|
|
|
|
|
|
New Director
Payment
|
$-
|
$60,000(4)
|
|
Annual
Retainer
|
$25,000(3)
|
$60,000(5)
|
|
Audit Committee
Chair
|
$15,000
|
-
|
|
Compensation
Committee Chair
|
$10,000
|
-
|
|
Nominating and
Governance Committee Chair
|
$5,000
|
-
|
|
Audit and
Nominating and Governance Committee Member
|
$5,000
|
-
|
|
Compensation
Committee Member
|
$3,500
|
-
|
(1)
Cash
compensation is payable in equal installments on a quarterly
basis;provided,
however, that no monthly
cash retainer will be paid after any termination of service.
..
(2)
Equity
awards will be issuable in the form of restricted stock units
(“RSUs”), which RSUs will become fully vested on the
one-year anniversary of each respective initial grant
date.
(3)
Any new
non-employee director appointed to the Board will receive cash
compensation equal to a prorated portion of the annual retainer
amount.
(4)
Any new
non-employee director appointed to the Board will receive a RSU
having a grant date value equal to a prorated portion of annual RSU
award amount, which RSU will become fully vested on the earlier of
(i) the one year anniversary of the initial grant date or (ii) the
next annual meeting of the Company’s
stockholders.
(5)
On the
date of the Company’s annual meeting of stockholders, each
director will receive an RSU at a per share price equal to the
closing price of the Company’s common stock on the grant
date, which RSU will become fully vested on the one-year
anniversary of the initial grant date.
2019 Summary Table of Director Compensation
The following table sets forth the compensation awarded to, earned
by, or paid to each person who served as a non-employee director
during the fiscal year ended December 31, 2019:
|
Name
|
Fees Earned
or Paid
in Cash (1) ($)
|
|
|
|
|
|
|
|
|
|
|
Jeff
Gehl(1)
|
$28,571
|
$60,000
|
|
$88,571
|
|
Robert
Stewart(2)
|
$22,821
|
$60,000
|
|
$82,821
|
|
Kristian
Patrick(3)
|
$22,824
|
$60,000
|
|
$82,821
|
|
Michael
Keller(4)
|
$26,071
|
$60,000
|
|
$86,071
|
|
Mark
Jung(5)(6)
|
$22,630
|
$60,000
|
$60,000
|
$142,630
|
(1)
Reflects
prorated 2019 annual retainer and Audit Committee chair fees, as
described above.
(2)
Reflects
prorated 2019 annual retainer and Compensation Committee member
fees, as described above.
(3)
Reflects
prorated 2019 annual retainer and Compensation Committee member
fees, as described above.
(4)
Reflects
prorated 2019 annual retainer, Nominating and Governance Committee
chair fees and Audit Committee member fees, as described
above.
(5)
Reflects
prorated 2019 annual retainer, Compensation Committee chair fees,
and Audit Committee member fees, as described above.
(6)
In
connection with Mr. Jung’s appointment as a director on our
Board, the Company and Mr. Jung entered into a consulting agreement
(the “Consulting Agreement”), pursuant to which Mr.
Jung will provide the Company with strategic advice and planning
services for which Mr. Jung receives a cash payment of $7,500 per
month from the Company. The Consulting Agreement had an initial
term that extended to December 31, 2019, but may be extended upon
mutual agreement of Mr. Jung and the Company.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In
connection with Mr. Jung’s appointment as a director on our
Board, the Company and Mr. Jung entered into a consulting agreement
(the “Consulting Agreement”), pursuant to which Mr.
Jung will provide the Company with strategic advice and planning
services for which Mr. Jung will receive a cash payment of $7,500
per month from the Company. The Consulting Agreement has an initial
term that runs until December 31, 2019, but may be extended upon
mutual agreement of Mr. Jung and the Company.
John
Miller, one of our co-founders and former members of our Board, is
also the founder and serves on the board of directors of
CaliBurger. Although Mr. Miller resigned from the Board immediately
prior to the consummation of our IPO, he was an active member of
our Board at the time of each of the transactions with CaliBurger
described below:
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. Subsequent to
August 3, 2018, $200,000 of the 2018 Notes and related 2018
Warrants were transferred to unrelated third parties.
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, which note was
converted (including 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
warrants.
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
February 1, 2020 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. A person is
also deemed to be a beneficial owner of any securities of which
that person has a right to acquire beneficial ownership within 60
days. The percentage of beneficial ownership in the table below is
based on 8,573,922 shares of
common stock deemed to be outstanding as of February 1, 2020.
Name,
address and title of beneficial owner (1)
|
|
Total
Number of Shares Subject to Exercisable Options and
Warrants
|
Total
Number of Shares Beneficially Owned
|
Percentage
of Voting Common Stock Outstanding (2)
|
|
Officers and Directors
|
|
|
|
|
|
Ann
Hand
Chief Executive Officer, President and Chair
|
76,374
|
758,334
|
834,708
|
9.7%
|
|
David
Steigelfest
Chief Products and Technology Officer
|
50,000
|
219,584
|
269,584
|
3.1%
|
|
Clayton
Haynes
Chief Financial Officer
|
2,000
|
49,167
|
51,167
|
*
|
|
Matt
Edelman
Chief Commercial Officer
|
2,500
|
75,917
|
78,417
|
*
|
|
Jeff Gehl (3)
Director
|
127,205
|
112,100
|
239,305
|
2.8%
|
|
Robert Stewart, Jr. (4)
Director
|
244,459
|
79,3633
|
327,463
|
3.8%
|
|
Kristin
Patrick
Director
|
5,455
|
-
|
5,455
|
*
|
|
Michael Keller (5)
Director
|
106,009
|
100,839
|
206,848
|
2.4%
|
|
Mark
Jung
Director
|
43,592
|
-
|
43,592
|
*%
|
|
Executive Officers and Directors as a
Group (9 persons)
|
657,595
|
1,395,304
|
2,052,899
|
24%
|
|
|
|
|
|
|
|
Greater than 5%
Stockholders
|
|
|
|
|
|
Pu
Luo Chung VC Private Limited (6)
37 Jalan
Pemimpin
#
06-12
Singapore
577177
|
471,128
|
-
|
471,128
|
|
______________________
* 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)
|
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.
|
|
(3)
|
Includes
(i) 22,121 shares of
common stock, 25,000 shares of common stock issuable upon exercise
of stock options and 40,802 shares issuable upon conversion of
warrants held by Mr. Gehl, (ii) 80,553 shares of common stock held
by BigBoy Investment Partnership, LLC, and (iii) 24,532 shares of
common stock and 46,297 shares issuable upon conversion of warrants
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.
|
|
(4)
|
Includes
(i) 6,955 shares of common stock, 33,334 shares of common stock
issuable upon conversion of stock options and 44,177 shares of
common stock issuable upon conversion of warrants held by Mr.
Stewart, (ii) 104,170 shares of common stock, 1,852 shares of
common stock issuable upon conversion of warrants held by the
Robert B. Stewart, Jr. Trust, and (iii) 133,334 shares of common
stock held by the Robert Stewart Jr. ROTH IRA.
Mr.
Stewart is the trustee for the Stewart Trust, and, therefore, may
be deemed to beneficially own these shares.
|
|
(5)
|
Includes
(i) 100,301 shares of common stock and 95,491 shares of common
stock issuable upon conversion of warrants held by the Michael R.
Keller Trust, (ii) 2,854 shares of common stock and 2,674 shares of
common stock issuable upon conversion of warrants held by the
Keller 2004 IRR Trust FBO William, and (iii) 2,854 shares of common
stock and 2,674 shares of common stock issuable upon conversion of
warrants held by the Keller 2004 IRR Trust FBO
Charles.
|
|
(6)
|
Stuart
Hills, partner of Pu Luo Chung VC Private Limited has sole voting
and dispositive power over these shares 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. Our Board of Directors and holders of a majority of our
outstanding voting securities approved of a second amendment and
restatement of our Charter (the “Amended and Restated
Charter”), which was subsequently approved by our
stockholders and filed with the State of Delaware on November 19,
2018. The following description summarizes the provisions of the
Amended and Restated Charter, including the number of shares of
common stock that are 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
Our Amended and Restated Charter currently authorizes 100.0 million
shares of common stock for issuance. As of February 11, 2020, there
were 8,573,922 shares of our common stock issued and outstanding,
which were held by approximately 160 stockholders of record,
approximately 2,516,152 shares of common stock issuable upon
exercise of warrants to purchase our common stock, 1,537,391 shares
of common stock issuable upon exercise of options held, 28,828
shares of our common stock issuable upon the vesting of restricted
stock units held and 321,939 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 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 September 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 15, 2019 (the “Reverse Stock
Split”). On January 31, 2019, our Board of Directors
approved of a ratio of one-for three, and on February 8, 2019, we
filed a Certificate of Amendment to our Charter to implement the
Reverse Stock Split.
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
Under our Amended and Restated Charter, our Board of Directors has
the authority, without further action by our stockholders, to issue
up to 10.0 million shares of preferred stock in one or more series
and to fix the voting powers, designations, preferences and the
relative participating, optional or other special rights and
qualifications, limitations and restrictions of each series,
including, without limitation, dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any
series.
As of [______], 2020, no shares of our authorized preferred stock
are outstanding. Because our Board of Directors has the power to
establish the preferences and rights of the shares of any
additional series of preferred stock, it may afford holders of any
preferred stock preferences, powers and rights, including voting
and dividend rights, senior to the rights of holders of our common
stock, which could adversely affect the holders of the common stock
and could delay, discourage or prevent a takeover of us even if a
change of control of our company would be beneficial to the
interests of our stockholders.
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, 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.
Anti-Takeover Matters
Charter and Bylaw Provisions
The
provisions of Delaware law, our Amended and Restated 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 Amended and Restated 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 Amended and Restated
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.
Because the
applicability of the exclusive forum provision is limited to the
extent permitted by law, we believe that the exclusive forum
provision would not apply to suits brought to enforce any duty or
liability created by the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Securities Act of
1933, as amended (the “Securities Act”), any other
claim for which the federal courts have exclusive jurisdiction
or concurrent
jurisdiction over all suits
brought to enforce any duty or liability created by the Securities
Act. We note that there is uncertainty as to whether a court would
enforce the provision and that investors cannot waive compliance
with the federal securities laws and the rules and regulations
thereunder. Although we believe this provision benefits us by
providing increased consistency in the application of Delaware law
in the types of lawsuits to which it applies, the provision may
have the effect of discouraging lawsuits against our directors and
officers.
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.
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Underwriters
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Number
of Shares
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The
underwriters have advised us that they propose to 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 [_____], 2020, subject to
customary closing conditions. The underwriters may reject all or
part of any order.
Commissions and Discounts
The table below summarizes the underwriting discounts that we will
pay to the underwriters. 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.
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.
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Total with No
Over-Allotment
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Total with
Over-Allotment
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Underwriting
discount to be paid by us
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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 the
underwriters for a period of 180 days after the date of this
prospectus. These lock-up agreements provide limited exceptions and
their restrictions may be waived at any time by the
underwriters.
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
Our common stock is listed on the Nasdaq Capital Market under the
symbol “SLGG.”
Transfer Agent and Registrar
Our transfer agent is Issuer Direct whose address is 1981 E. Murray Holladay Rd
#100, Salt Lake City, Utah 84117 and its telephone number is (801)
272-9294.
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.
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.
EXPERTS
Our
financial statements as of and for the years ended December 31,
2019 and 2018, 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. The SEC 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 at the 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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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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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, 2019 and 2018,
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, 2019 and 2018, 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 Matters
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, 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.
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.
Irvine,
California
February
25, 2020
SUPER LEAGUE GAMING, INC.
DECEMBER 31, 2019 AND 2018
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ASSETS
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Current
Assets
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Cash and cash
equivalents
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$8,442,000
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$2,774,000
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Accounts
receivable
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293,000
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488,000
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Prepaid expenses
and other current assets
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924,000
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487,000
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Total current
assets
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9,659,000
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3,749,000
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Property and
Equipment, net
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239,000
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531,000
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Intangible and
Other Assets, net
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1,984,000
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707,000
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Goodwill
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2,565,000
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-
|
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Total
assets
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$14,447,000
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$4,987,000
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LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current
Liabilities
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Accounts payable
and accrued expenses
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$853,000
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$813,000
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Deferred
revenue
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151,000
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45,000
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Convertible
debt and accrued interest, net
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-
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10,923,000
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Total current
liabilities
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1,004,000
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11,781,000
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Commitments and
Contingencies (Note 10)
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Stockholders’
Equity (Deficit)
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Preferred stock,
par value $0.001 per share; 10,000,000 shares authorized; no shares
issued or outstanding
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-
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-
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Common stock, par
value $0.001 per share; 100,000,000 shares authorized; 8,573,922
and 4,610,109 shares issued and outstanding as of December 31, 2019
and 2018, respectively.
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18,000
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14,000
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Additional paid-in
capital
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99,237,000
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48,325,000
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Accumulated
deficit
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(85,812,000)
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(55,133,000)
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Total
stockholders’ equity (deficit)
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13,443,000
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(6,794,000)
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Total liabilities
and stockholders’ equity
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$14,447,000
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$4,987,000
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The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING,
INC.
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
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REVENUES
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$1,084,000
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$1,046,000
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COST
OF REVENUES
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513,000
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684,000
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GROSS
PROFIT
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571,000
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362,000
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OPERATING
EXPENSES
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Selling, marketing
and advertising
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4,421, 000
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4,319,000
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Technology platform
and infrastructure
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4,463, 000
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4,183,000
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General and
administrative
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12,457,000
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8,020,000
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Total operating
expenses
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21,341,000
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16,522,000
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NET
OPERATING LOSS
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(20,770,000)
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(16,160,000)
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OTHER
INCOME (EXPENSE)
|
|
|
|
Interest
expense
|
(9,938,000)
|
(4,469,000)
|
|
Other
|
29,000
|
2,000
|
|
Total
other income (expense)
|
(9,909,000)
|
(4,467,000)
|
|
|
|
|
|
NET
LOSS
|
$(30,679,000)
|
$(20,627,000)
|
|
|
|
|
|
Net
loss attributable to common stockholders - basic and
diluted
|
|
|
|
Basic and diluted
loss per common share
|
$(3.89)
|
$(4.48)
|
|
Weighted-average
number of shares outstanding, basic and diluted
|
7,894,326
|
4,606,961
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31,
2019 AND 2018
|
|
|
|
|
Common stock (Shares)
|
|
|
|
Balance,
beginning of period
|
4,610,109
|
4,603,443
|
|
Initial
public offering of common stock, net of issuance costs (Note
7)
|
2,272,727
|
-
|
|
Automatic
conversion of convertible debt to common stock (Note
6)
|
1,475,164
|
-
|
|
Common
stock issued for Framerate Acquisition
|
134,422
|
-
|
|
Stock-based
compensation
|
14,833
|
6,666
|
|
Warrant
Exercises
|
66,667
|
-
|
|
Balance, end of period
|
8,573,922
|
4,610,109
|
|
|
|
|
|
Common stock (Amount):
|
|
|
|
Balance,
beginning of period
|
$14,000
|
$14,000
|
|
Initial
public offering of common stock, net of issuance costs (Note
7)
|
2,000
|
-
|
|
Automatic
conversion of convertible debt to common stock (Note
6)
|
2,000
|
-
|
|
Common
stock issued for Framerate Acquisition
|
-
|
-
|
|
Balance, end of period
|
$18,000
|
$14,000
|
|
|
|
|
|
Additional paid-in-capital:
|
|
|
|
Balance,
beginning of period
|
$48,325,000
|
$38,191,000
|
|
Initial
public offering of common stock, net of issuance costs (Note
7)
|
22,456,000
|
-
|
|
Automatic
conversion of convertible debt to common stock (Note
6)
|
13,791,000
|
-
|
|
Issuance
of warrants with convertible notes (Note 6)
|
-
|
6,156,000
|
|
Beneficial
conversion feature (Note 6)
|
7,067,000
|
-
|
|
Common
stock issued for Framerate Acquisition (Note 5)
|
1,000,000
|
-
|
|
Framerate
Earn-Out (Note 5)
|
454,000
|
-
|
|
Stock-based
compensation
|
6,124,000
|
3,978,000
|
|
Warrant
exercises
|
20,000
|
-
|
|
Balance, end of period
|
$99,237,000
|
$48,325,000
|
|
|
|
|
|
Accumulated Deficit:
|
|
|
|
Balance,
beginning of period
|
$(55,133,000)
|
$(34,506,000)
|
|
Net
loss
|
(30,679,000)
|
(20,627,000)
|
|
Balance,
end of period
|
(85,812,000)
|
(55,133,000)
|
|
Total stockholders’ equity (deficit)
|
$13,443,000
|
$(6,794,000)
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING,
INC.
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$(30,679,000)
|
$(20,627,000)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
862,000
|
1,106,000
|
|
Stock-based
compensation
|
6,217,000
|
3,942,000
|
|
Amortization of
discount on convertible notes (Note 6)
|
2,684,000
|
-
|
|
Beneficial
conversion feature (Note 6)
|
7,067,000
|
3,863,000
|
|
In-kind
contribution of services
|
-
|
667,000
|
|
Changes in assets
and liabilities:
|
|
|
|
Accounts
receivable
|
199,000
|
(374,000)
|
|
Prepaid expenses
and other current assets
|
(329,000)
|
(340,000)
|
|
Accounts payable
and accrued expenses
|
40,000
|
432,000
|
|
Deferred
revenue
|
106,000
|
45,000
|
|
Accrued interest on
convertible notes
|
187,000
|
606,000
|
|
Net
cash used in operating activities
|
(13,646,000)
|
(10,680,000)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
Framerate
acquisition
|
(1,506,000)
|
-
|
|
Purchase of
property and equipment
|
(73,000)
|
(255,000)
|
|
Capitalization of
software development costs
|
(1,079,000)
|
(519,000)
|
|
Acquisition of
other intangible and other assets
|
(506,000)
|
(92,000)
|
|
Net
cash used in investing activities
|
(3,164,000)
|
(866,000)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
22,458,000
|
-
|
|
Proceeds from
convertible note payable, net of issuance costs
|
-
|
12,611,000
|
|
Proceeds from
warrant exercise
|
20,000
|
-
|
|
Net
cash provided by financing activities
|
22,478,000
|
12,611,000
|
|
|
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
5,668,000
|
1,065,000
|
|
|
|
|
|
CASH AND CASH EQUIVALIENTS –
beginning of year
|
2,774,000
|
1,709,000
|
|
|
|
|
|
CASH AND
CASH EQUIVALIENTS – end of year
|
$8,442,000
|
$2,774,000
|
|
|
|
|
|
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
|
|
|
|
Automatic
conversion of convertible debt to common stock (Note
6)
|
$13,793,000
|
$3,000,000
|
|
Issuance
of common stock for Framerate Acquisition (Note 5)
|
$1,000,000
|
$-
|
|
Common
stock purchase warrants – discount on convertible
debt
|
$-
|
$5,207,000
|
|
Common
stock issued for prepaid services
|
$18,000
|
$72,000
|
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 global leader in the mission to
bring live and digital esports entertainment and experiences
directly to everyday competitive gamers around the world. Utilizing
our proprietary technology platform, Super League operates physical
and digital experiences in partnership with publishers of top-tier
game titles and owners/operators of a distributed footprint of
venues, a network of digital social and viewing channels, and an
association/organization of city-based amateur gaming clubs and
teams. In addition to providing premium experiences by operating
city-vs-city amateur esports leagues and producing thousands of
social gaming experiences across North America and our
ever-expanding international footprint, the Super League
Network features multiple forms of content celebrating the
love of play via social media, live streaming and video-on-demand,
along with continuous gameplay and leaderboards. Inside our network
is Framerate, a large independent social video esports network
powered by user-generated highlight reels, and our exclusive proprietary
platform Minehut, providing a social and
gameplay forum for the avid Minecraft community. Through our
partnerships with high-profile venue owners such as Wanda Theatres
in China and Topgolf and Cinemark Theatres in North America, along
with ggCircuit, an
esports services company that provides
gaming center management software solutions and access to a global
network of gaming centers, Super League is committed to
supporting the development of local, grassroots player communities
all while providing a global, scalable infrastructure for esports
competition and engagement. We address not only a wide range
of gamers across game titles, ages and skill levels, but also a
wide range of content-capture beyond just gameplay. This positions
Super League as more than a tournament operator; we are a lifestyle
and media company focused on capturing, generating, aggregating and
distributing content across the genre of all things
esports.
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.
Initial Public Offering
On February 27, 2019, Super League completed its initial public
offering (“IPO”) of shares of its common stock,
pursuant to which an aggregate of 2,272,727 shares were offered and
sold at a public offering price of $11.00 per share, resulting in
net proceeds of $22,458,000 after deducting underwriting discounts,
commissions and offering costs of $2,542,000.
The principal purposes of the IPO were 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 have and continue to use the net proceeds received from
the IPO for working capital and general corporate purposes,
including sales and marketing activities, product development and
capital expenditures. We have and may continue to use a portion of
the net proceeds for the acquisition of, or investment in,
technologies, solutions or businesses that may complement our
business and or accelerate our growth. The amounts and timing of
our actual expenditures, 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.
Concurrent with the closing of the IPO on February 27, 2019 (the
“IPO Closing Date”), in accordance with the related
agreements, all outstanding principal and interest of the
9.00% convertible notes outstanding, totaling $13,793,000, was
automatically converted into 1,475,164 shares of the
Company’s common stock at a conversion price of
$9.35.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted 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. The Company believes that, of the significant accounting
policies described herein, the accounting policies associated with
revenue recognition, the valuation of convertible notes and related
common stock purchase warrants (hereinafter,
“warrants”) discussed at Note 6, stock-based
compensation expense, accounting for business combinations as
discussed at Note 5, income taxes and valuation allowances against
net deferred tax assets, require its most difficult, subjective or
complex judgments.
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 incurred net losses of $30.7 million and
$20.6 million during the years ended December 31, 2019 and 2018,
respectively, and had an accumulated deficit of $85.8 million as of
December 31, 2019. Noncash expenses (excluding depreciation and
amortization of fixed and intangible assets, respectively) included
in net loss, primarily comprised of noncash interest charges and
stock-based compensation, totaled $16.2 million and $8.4 million
for the years ended December 31, 2019 and 2018, respectively. Net
cash used in operating activities totaled $13.6 million and $10.7
million, for the years ended December 31, 2019 and 2018,
respectively.
As of December 31, 2019, the Company had cash and cash equivalents
of approximately $8.4 million. The Company has used 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. As such, management believes its
current cash position, absent receipt of additional capital either
from operations or that may be available from future issuance(s) of
common stock or debt financings, is not sufficient to fund our
planned operations for the twelve months following the issuance of
these financial statements. As a result, our current financial
condition raises substantial doubt about our ability to continue as
a going concern.
We are focused on expanding our service offerings and revenue
growth opportunities through internal development, collaborations,
and through strategic acquisitions. Management is currently
exploring several alternatives for raising capital to facilitate
our growth and execute our business strategy, including strategic
partnerships or other forms of equity or debt
financings.
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. Management's considerations assume, among
other things, that the Company will continue to be successful
implementing its business strategy, that there will be no material
adverse developments in the business, liquidity or capital
requirements and, if necessary, the Company will be able to raise
additional equity or debt financing on acceptable terms. If one or
more of these factors do not occur as expected, it could cause a
reduction or delay of its business activities, sales of material
assets, default on its obligations, or forced 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. 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.
Revenue Recognition
Revenue is recognized when the Company transfers promised goods or
services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those
goods and services. In this regard, revenue is recognized when: (i)
the parties to the contract have approved the contract (in writing,
orally, or in accordance with other customary business practices)
and are committed to perform their respective obligations; (ii) the
entity can identify each party’s rights regarding the goods
or services to be transferred; (iii) the entity can identify the
payment terms for the goods or services to be transferred; (iv) the
contract has commercial substance (that is, the risk, timing, or
amount of the entity’s future cash flows is expected to
change as a result of the contract);and (v) it is probable that the
entity will collect substantially all of the consideration to which
it will be entitled in exchange for the goods or services that will
be transferred to the customer.
Super League generates revenues and related cash flows from (i)
brand and media sponsorships, (ii) Platform-As-A-Service
arrangements, (iii) advertising and third-party content
and (iv) direct to consumer offers
including tournament fees for participation in our physical and
online multiplayer gaming experiences, digital subscriptions and
merchandise sales.
Brand and Media Sponsorships. The Company generates brand and media
sponsorship revenues primarily from sales of various forms of
sponsorships and promotional campaigns for its online platforms and
from sponsorship at its in-person esports experiences. Brand and
media sponsorship revenue arrangements 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. Brand and media
sponsorship arrangements typically include contract terms for time
periods ranging from several weeks to multi-year
arrangements.
For
brand and media sponsorship arrangements that include performance
obligations satisfied over time, customers typically simultaneously
receive and consume the benefits under the agreement as the Company
satisfies its performance obligations, over the applicable contract
term. As such, revenue is recognized over the contract term based
upon estimates of progress toward complete satisfaction of the
contract performance obligations (typically utilizing a time,
effort or delivery-based method of estimation). Payments are typically due from customers during
the term of the arrangement.
Platform-As-A-Service. The
Company generates Platform-as-a-Service (“PaaS”)
revenues pursuant to arrangements with brand and media partners,
retail venues, game publishers and broadcasters that allow its
partners to run amateur esports experiences, and or capture
specifically curated gameplay content that is customized for its
partners’ distribution channels, leveraging the flexibility
of, and powered by the Super League gaming and content technology
platform.
Revenue for PaaS arrangements for one-off branded experiences
and/or the development of content tailored specifically for the
Company’s partners’ distribution channels that provide
for a contractual delivery or performance date, is recognized when
performance is substantially complete and or delivery occurs.
Revenue for PaaS arrangements that include performance
obligations satisfied over time whereby customers simultaneously
receive and consume the benefits under the agreement as the Company
satisfies its performance obligations over the applicable contract
term, is recognized over the contract term based upon estimates of
progress toward complete satisfaction of the contract performance
obligations (typically utilizing a time, effort or delivery-based
method of estimation). Payments are
typically due from customers during the term of the
arrangement.
Advertising and Third-Party Content Revenue. We generate
content through digital and physical experiences that offer
opportunities for generating advertising revenue on our proprietary
digital channels. In addition, we license our content to third
parties seeking esports content for their own distribution
channels.
For
advertising and third-party content arrangements that include
performance obligations satisfied over time, customers typically
simultaneously receive and consume the benefits under the
arrangement as we satisfy our performance obligations, over the
applicable contract term. As such, revenue is recognized over the
contract term based upon estimates of progress toward complete
satisfaction of the contract performance obligations (typically
utilizing a time, effort or delivery-based method of estimation).
Payments are typically due from
customers during the term of the arrangement for longer-term
campaigns, and once delivery is complete for shorter-term
campaigns.
Direct to Consumer
Revenue. Direct to consumer
revenues include tournament fees, digital subscriptions and
merchandise. Direct to consumer revenues have primarily consisted
of the sale of season passes to gamers for participation in Super
League’s in-person and or online multiplayer gaming
experiences. For the applicable periods presented herein, season
passes for gaming experiences were primarily comprised of
multi-week packages and one-time, single experience admissions. For
the year ended December 31, 2019, digital subscription revenues
included revenues related to the Company’s Minehut asset
acquisition in June 2018, which provides various Minecraft server
hosting services on a subscription basis to the Minecraft gaming
community, and Super League Prime subscription offer which was
launched in beta in the fourth quarter of 2019. Payments are
typically due from customers at the point of
sale.
Revenue
billed or collected in advance is recorded as deferred revenue
until the event occurs or until applicable performance obligations
are satisfied as described above.
Revenue
was comprised of the following for the periods
presented:
|
|
|
|
|
Brand and Media
Sponsorships
|
$351,000
|
$549,000
|
|
Platform-as-a-service
|
632,000
|
291,000
|
|
Advertising and
content sales
|
68,000
|
69,000
|
|
Direct to
Consumer
|
33,000
|
137,000
|
|
|
$1,084,000
|
$1,046,000
|
For the
years ended December 31, 2019 and 2018, 33% and 39% of revenues
were recognized at a single point in time, and 67% and 61% of
revenues were recognized over time, respectively.
Cost of Revenues
Cost of
sales includes direct costs incurred in connection with the
production of Super League’s in-person and online gaming
events, including venue rental, venue entertainment, licenses,
direct marketing, prizing, talent and contract
services.
Advertising
Gaming
experience 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 years ended
December 31, 2019 and 2018 were $409,000 and $614,000,
respectively, and are included in selling, marketing and
advertising expenses in the accompanying statements of
operations.
Technology Platform and Infrastructure Costs
Technology
platform and infrastructure costs include (i) allocated personnel
costs, including salaries, noncash stock compensation, taxes and
benefits related to our internal software developers and engineers,
employed by Super League, engaged in the operation, maintenance,
management, administration, testing and enhancement of our
proprietary gaming and content technology platform, (ii) third-party contract software development and
engineering resources engaged in developing and enhancing our
proprietary gaming and content technology platform (iii) the
amortization of capitalized internal use software costs, and
(iv) technology platform related cloud services and broadband
costs.
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, 2019, the Company’s cash
equivalents consisted of investments in AAA rated money market
funds. As of December 31, 2018, 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 doubtful accounts 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, 2019 and 2018, no allowance for doubtful accounts was
considered necessary.
Fair Value Measurements
Fair value is defined as the exchange price that would be received
from selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. The Company measures financial assets and
liabilities at fair value at each reporting period using a fair
value hierarchy which requires the Company to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. A financial instrument’s classification
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. Three
levels of inputs may be used to measure fair value:
Level 1. Quoted prices in active markets for identical
assets or liabilities.
Level 2
. Quoted prices for similar assets and
liabilities in active markets or inputs other than quoted prices
which are observable for the assets or liabilities, either directly
or indirectly through market corroboration, for substantially the
full term of the financial instruments.
Level 3.
Unobservable inputs which are
supported by little or no market activity and which are significant
to the fair value of the assets or liabilities.
The Company does not have any instruments that are measured at fair
value on a recurring basis. However, the Company measured certain
acquired intangible assets and the Earn-Out using Level 3 inputs on
a nonrecurring basis.
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.
Deferred Equity Financing Costs
Specific
incremental costs directly attributable to a proposed or actual
offering of securities or debt are deferred and charged against the
gross proceeds of the financing. In the event that the proposed or
actual financing is not completed, or is deemed not likely to be
completed, such costs are expensed in the period that such
determination is made. Deferred costs related to proposed offerings
of securities totaled $0 and $154,354 at December 31, 2019 and
2018, respectively. Deferred financing costs, if any, are included
in other current assets in the accompanying balance sheet. Total
financing costs charged against gross proceeds in connection with
the close of the Company’s IPO totaled $517,000.
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 (i) internal-use software development
costs, (ii) domain name, copyright and patent registration costs,
(iii) commercial licenses and branding rights and (iv) 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 10 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 and amortized on a straight-line basis over the
applicable estimated useful life.
Goodwill
Goodwill
represents the excess of the purchase price of the acquired
business over the acquisition date fair value of the net assets
acquired. Goodwill is tested for impairment at the reporting unit
level (operating segment or one level below an operating segment)
on an annual basis (December 31) and between annual tests if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
value. The Company considers its market capitalization and the
carrying value of its assets and liabilities, including goodwill,
when performing its goodwill impairment test. When conducting its
annual goodwill impairment assessment, the Company initially
performs a qualitative evaluation of whether it is more likely than
not that goodwill is impaired. If it is determined by a qualitative
evaluation that it is more likely than not that goodwill is
impaired, the Company then applies a two-step impairment test. The
two-step impairment test first compares the fair value of the
Company’s reporting unit to its carrying or book value. If
the fair value of the reporting unit exceeds its carrying value,
goodwill is not impaired, and the Company is not required to
perform further testing. If the carrying value of the reporting
unit exceeds its fair value, the Company determines the implied
fair value of the reporting unit’s goodwill and if the
carrying value of the reporting unit’s goodwill exceeds its
implied fair value, then an impairment loss equal to the difference
is recorded in the statement of operations. The Company operates in
one reporting segment.
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
Compensation
expense for 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.
Compensation expense for awards with
performance conditions that affect vesting is recorded only for
those awards expected to vest or when the performance criteria are
met. 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 option and common stock
purchase warrant awards is estimated on the date of grant utilizing
the Black-Scholes-Merton option pricing model. The Company utilizes
the simplified method for estimating the expected term for options
granted to employees due to the lack of available or sufficient
historical exercise data for the Company for the applicable options
terms. The Company accounts for forfeitures of awards as they
occur.
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.
Risks and Uncertainties
Concentrations. The Company had certain customers whose revenue
individually represented 10% or more of the Company’s total
revenue, or whose accounts receivable balances individually
represented 10% or more of the Company’s total accounts
receivable, and vendors whose accounts payable balances
individually represented 10% or more of the Company’s total
accounts payable, as follows:
For the years ended December 31, 2019 and 2018, 5 customers
accounted for 69% and four customers accounted for 82% of revenue,
respectively. At December 31,
2019, one customer accounted for 70% of accounts receivable. At
December 31, 2018, three customers accounted for 96% of
accounts receivable. At December 31, 2019, one vendor accounted for 21% of accounts payable. At December 31,
2018, three vendors accounted for 43% of accounts
payable.
Segment Information
The
Company operates in one segment.
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, warrants issued to employees and
non-employees in exchange for services and warrants issued in
connection with financings. All
outstanding stock options, restricted stock units and warrants,
totaling 4,096,000 and 4,117,000 at December 31, 2019 and 2018,
respectively, 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 realization 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, 2019 and 2018.
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
Recent Accounting Pronouncements - Recently Adopted.
In May 2014, the FASB issued a new accounting standard update
(“ASU”) addressing revenue from contracts with
customers, which clarifies existing accounting literature relating
to how and when a company recognizes revenue. Under the standard, a
company will recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those
goods and services. In doing so, the Company is required to use
more judgment and make more estimates in connection with the
accounting for revenue contracts with customers than under previous
guidance. Such areas may include: (i) identifying performance
obligations in the contract, (ii) estimating the timing of
satisfaction of performance obligations, (iii) determining whether
a promised good or service is distinct from other promised goods or
services, including whether the customer can benefit from the good
or service on its own and whether the promise to transfer a good or
service is separately identifiable from other promises in the
contract, (iv) evaluating whether performance obligations are
satisfied at a point in time or over time, (v) allocating the
transaction price to separate performance obligations, and (vi)
determining whether contracts contain a significant financing
component.
The Company used the modified retrospective method of adoption,
which would require the cumulative effect of initially applying the
new revenue standard as an adjustment to the opening balance of
retained earnings on January 1, 2019. Comparative prior year
periods would not be adjusted. The new accounting standard was
applied to all contracts at the date of initial application. There
was no cumulative effect of applying the new revenue standard to
contracts executed in prior periods. As such, the adoption of the
new accounting standard had no impact on the balance sheet and
statement of operations in the current or prior
periods.
Recent Accounting Pronouncements – Not Yet
Adopted.
In January 2017, the FASB issued new guidance that eliminates Step
2 from the goodwill impairment test. Instead, if an entity forgoes
a Step 0 test, that entity will be required to perform its annual
or interim goodwill impairment test by comparing the fair value of
a reporting unit, as determined in Step 1 from the goodwill
impairment test, with its carrying amount and recognize an
impairment charge, if any, for the amount by which the carrying
amount exceeds the reporting unit’s fair value, not to exceed
the total amount of goodwill allocated to the reporting unit. The
new standard is effective for fiscal years beginning after
December 15, 2019, and should be applied prospectively. Early
adoption is permitted. The effect of adoption should be reflected
as of the beginning of the fiscal year of adoption. The Company
does not currently expect this new accounting guidance to have a
material impact on our financial statements upon
adoption.
In
February 2016, the FASB issued an ASU 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, 2020 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.
In June
2016, the FASB issued guidance on the measurement and recognition
of credit losses on most financial assets. For trade receivables,
loans, and held-to-maturity debt securities, the current probable
loss recognition methodology is being replaced by an expected
credit loss model. For available-for-sale debt securities, the
recognition model on credit losses is generally unchanged, except
the losses will be presented as an adjustable allowance. The
guidance will be applied retrospectively with the cumulative effect
recognized as of the date of adoption. The guidance will become
effective at the beginning of the Company’s first quarter of
the fiscal year ending December 31, 2021 but can be adopted as
early as the beginning of the first quarter of fiscal year ending
December 31, 2020. The Company is currently assessing the impact
that adopting this new accounting guidance will have on its
financial statements and footnote disclosures.
3.
PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2019 and
2018:
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
$334,000
|
$207,000
|
|
Computer
hardware
|
3,141,000
|
3,195,000
|
|
|
3,475,000
|
3,402,000
|
|
Less:
accumulated depreciation and amortization
|
(3,236,000)
|
(2,871,000)
|
|
|
$239,000
|
$531,000
|
Depreciation
and amortization expense for property and equipment was $365,000
and $861,214 for the years ended December 31, 2019 and 2018,
respectively.
4.
INTANGIBLE
AND OTHER ASSETS
Intangible
and other assets consisted of the following at December 31, 2019
and 2018:
|
|
|
|
|
|
|
|
|
Capitalized
software development costs
|
$2,363,000
|
$1,281,000
|
|
Licenses
|
340,000
|
-
|
|
Tradename
|
189,000
|
-
|
|
Domain
|
68,000
|
67,000
|
|
Copyrights and
other
|
289,000
|
127,000
|
|
|
3,249,000
|
1,475,000
|
|
Less:
accumulated amortization
|
(1,265,000)
|
(768,000)
|
|
|
$1,984,000
|
$707,000
|
Amortization
expense totaled $497,000 and $245,000 for the years ended December
31, 2019 and 2018, respectively.
Future
amortization expense of intangible and other assets is expected to
be as follows:
|
For the years
ending December 31:
|
|
|
2020
|
$711,000
|
|
2021
|
643, 000
|
|
2022
|
328, 000
|
|
2023
|
149, 000
|
|
2024
|
105, 000
|
|
Thereafter
|
48, 000
|
|
|
$1,984,000
|
On September 23, 2019, the Company and ggCircuit,
LLC (“ggCircuit”), an esports services company that provides gaming
center management software solutions and other esports
offerings, entered into an
expanded commercial partnership agreement (the
“Expanded Agreement”) pursuant to
which Super League became
the primary consumer-facing brand within
ggCircuit’s B2B
gaming center software
platform. ggCircuit’s
software platform is a B2B platform and B2C application created and
owned by ggCircuit, which is licensed and distributed to owners and
operators of video gaming centers throughout the
world.
In consideration for the rights granted by ggCircuit to Super
League, Super League paid an upfront fee of $340,000 and will pay
quarterly fees over the term of the Agreement, commencing with the
first quarter of 2020, ranging from $0 to $150,000, based on
predetermined contractual revenue levels. Pursuant to the terms and
conditions of the Expanded Agreement, revenues generated in
connection with applicable activities under the Expanded Agreement
will be shared between Super League and ggCircuit based on
contractual revenue sharing percentages. The initial term of the
Expanded Agreement commences on October 1, 2019, the effective date
and concludes on the fifth anniversary of the effective date,
subject to certain automatic renewal provisions. The upfront fee is
included as "Licenses" in intangible assets and other assets, net
in the accompanying balance sheet and will be amortized over the
initial term of the Expanded Agreement of five years, commencing
October 1, 2019.
5.
ACQUISITION
OF FRAMERATE, INC.
On June 3, 2019, Super League and SLG Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company
(“Merger Sub”), entered into an agreement and plan of
merger (the “Merger Agreement”) with Framerate, Inc., a
Delaware corporation (“Framerate”), pursuant to which
Framerate merged with and into Merger Sub, with Merger Sub
continuing as the surviving corporation (the
“Acquisition”). The Acquisition was consummated on June
6, 2019 when the certificate of merger of Merger Sub and Framerate
was filed with the Secretary of State of the State of Delaware (the
“Effective Date”). As consideration for the
Acquisition, the Company ratably paid and/or issued to the former
shareholders of Framerate an aggregate of (i) $1.5 million paid in
cash and (ii) $1.0 million paid by the issuance of a total of
134,422 shares of the Company’s common stock, at a price per
share of $7.4395 (the “Closing Shares”). The
Merger Sub was dissolved subsequent to the consummation of the
Acquisition.
The Acquisition was approved by the board of directors of each of
the Company and Framerate, and was approved by the stockholders of
Framerate. Transaction costs incurred relating to this acquisition
were not material. The acquisition of Framerate expands the
Company’s digital programming footprint and enhances the
Company’s ability to provide value to its gaming and
spectator communities through multiple forms of
engagement.
In addition to the issuance of the Closing Shares, the Merger
Agreement provides for the issuance of up to an additional $980,000
worth of shares of the Company’s common stock at the same
price per share as the Closing Shares (the “Earn-Out
Shares”) in the event Framerate achieves certain
performance-based milestones during the two-year period following
the closing of the Acquisition, or June 6, 2021 (the
“Earn-Out”). One-half of the Earn-Out Shares will be
issuable on the one-year anniversary of the Effective Date, and the
remaining one-half will be issuable on the second anniversary of
the Effective Date. The fair value of the Earn-Out on the Effective
Date was estimated to be $454,000.
The Company has determined that the Acquisition constitutes a
business acquisition as defined by Accounting Standards
Codification (“ASC”) 805, Business
Combinations. Accordingly, the
assets acquired and liabilities assumed in the transaction were
recorded at their estimated acquisition date fair values, while
transaction costs associated with the acquisition were expensed as
incurred pursuant to the purchase method of accounting in
accordance with ASC 805. Super League’s preliminary
purchase price allocation was based on an evaluation of the
appropriate fair values and represents management’s best
estimate based on available data. Fair values are determined based
on the requirements of ASC 820, Fair Value Measurements and
Disclosures (“ASC
820”).
The Company hired the former Chief Executive of Framerate
(“Framerate Executive”), who was also a selling
shareholder of Framerate. Pursuant to the provisions of the
Earn-Out included in the Merger Agreement, in the event that the
Framerate Executive is terminated for cause or resigns from his
employment with the Company at any time on or before the second
anniversary of the Effective Date, and any such resignation is
without “Good Reason” as such term is defined in his
employment agreement, then the maximum amount of any portion of the
Earn-Out that has not yet been earned as of the date of resignation
shall be reduced by 44.0164%. Under ASC 805, a contingent
consideration arrangement in which the payments are automatically
forfeited if employment terminates is considered to be compensation
for post-combination services, and not acquisition consideration.
As such approximately 44% of the estimated fair value of the
Earn-Out, or $200,000, is accounted for as deferred compensation
expense and being amortized in the statement of operations over the
two-year period ending on the second anniversary of the Effective
date. Noncash compensation expense related to the portion of the
Earn-Out treated as compensation for the year ended December 31,
2019 was $58,000. The portion of the Earn-Out included as purchase
consideration was $254,000.
The
Earn-Out arrangement does not meet the liability classification
criteria outlined in ASC 480, “Distinguishing Liabilities
from Equity,” and is both (i) indexed to the Company’s
own shares and (ii) classified in shareholders’ equity in the
accompanying balance sheet. Equity-classified contingent
consideration is measured initially at fair value on the
acquisition date and is not remeasured subsequent to initial
recognition. As such, the initial value recognized for the Earn-Out
on the acquisition date is not adjusted for changes in the fair
value of the Earn-Out as of any future settlement date. Subsequent
differences between the estimated fair value of the Earn-Out
recorded at the acquisition date and the actual amount of Earn-Out
paid based on actual performance will be reflected as a charge or
credit, as applicable, in the statement of operations.
The following table summarizes the fair value of purchase price
consideration paid to acquire Framerate:
|
|
|
|
|
|
|
Cash
consideration at closing
|
$1,515,000
|
|
Equity
consideration at closing
|
1,000,000
|
|
Fair value of
Earn-Out shares
|
254,000
|
|
Total
|
$2,769,000
|
The preliminary purchase price allocation was based upon an
estimate of the fair value of the assets acquired and the
liabilities assumed by the Company in connection with the
acquisition of Framerate, as follows:
|
|
|
|
|
|
|
Accounts
receivable
|
$15,000
|
|
Intangible assets -
trade name
|
189,000
|
|
Goodwill
|
2,565,000
|
|
Total
purchase price
|
$2,769,000
|
The identifiable intangible asset acquired, totaling $189,000, was
comprised of Framerate’s trade name with an estimated useful
life of approximately five years, and is included in intangible and
other assets, net in the accompanying balance sheet. The trade name
intangible asset is being amortized over the estimated useful life
on a straight-line basis. Amortization expense for the year ended
December 31, 2019 was $22,000. Goodwill recognized primarily
reflects anticipated cost and growth synergies associated with the
combined operations.
Management is responsible for determining the fair value of the
identifiable intangible assets acquired as of the Effective Date.
Management considered a number of factors, including reference to
an analysis under ASC 805 solely for the purpose of allocating the
purchase price to the assets acquired. The fair values of the acquired intangible asset,
as described above, was determined using the following
methods:
|
Description
|
|
Valuation Method
|
|
Valuation Method Description
|
|
Assumptions
|
|
Trade Name
|
|
Relief-from-Royalty method under the income approach
|
|
Under the Relief-from-Royalty method, the royalty savings is
calculated by estimating a reasonable royalty rate that a third
party would negotiate in a licensing agreement. Such royalties are
most commonly expressed as a percentage of total revenue involving
a trade name.
|
|
Useful life: 5 years; Royalty Rate: 05%; Discount Rate:
50%
|
|
|
|
|
|
|
|
|
|
Earn-Out
|
|
Scenario Based Model
|
|
The payoff structure was determined to be linear and the Earn-Out
is payable within two years. Revenue scenarios were estimated and a
probability for each scenario based on the likelihood of achieving
the forecasted revenues was estimated. The estimated payments from
the scenarios were then discounted based on the Company's credit
risk and the related risk-free rate. The value per share was then
adjusted for the time period through the payout date. The option
methodology employed was the Black-Scholes Option
Model.
|
|
Volatility: 75% - 100%; Term 1 -2 years; Risk Free Rate 2.21% -
1.95%;
|
The Acquisition was treated for tax purposes as a nontaxable
transaction and as such, the historical tax bases of the acquired
assets, net operating losses, and other tax attributes of Framerate
will carryover. As a result, no new goodwill for tax purposes was
be created in connection with the Acquisition as there is no
step-up to fair value of the underlying tax bases of the acquired
net assets.
The historical balance sheets and statements of operations of
Framerate were not material.
6.
CONVERTIBLE
NOTE PAYABLE
In
February through April 2018, the Company issued 9.00% secured
convertible promissory notes with a collective face value of
$3,000,000 (the “Initial 2018 Notes”). 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 a Qualifying Equity
Financing based upon a conversion rate equal to (x) a 10% discount
to the price per share of a Qualifying Equity Financing, with (y) a
floor of $10.80 per share. In addition, the holders of the Initial
2018 Notes were collectively issued warrants to purchase
approximately 55,559 shares of common stock, at an exercise price
of $10.80 per share and a term of five years (the “Initial
2018 Warrants”).
In May
through August 2018, the Company issued additional 9.00% secured
convertible promissory notes with a collective face value of
$10,000,000 (the “Additional 2018 Notes”). In May 2018,
all of the Initial 2018 Notes and related accrued interest,
totaling $3,056,000, were converted into the Additional 2018 Notes,
resulting in an aggregate principal amount of $13,056,000
(hereinafter collectively, the “2018 Notes”). The
holders of the converted Initial 2018 Notes retained their
respective Initial 2018 Warrants.
The
2018 Notes (i) accrued simple interest at the rate of 9.00% per
annum, (ii) matured on the earlier of the closing of an initial
public offering of the Company’s common stock on a national
securities exchange or April 30, 2019, and (iii) all outstanding
principal and accrued interest was automatically convertible into
shares of common stock upon the closing of an IPO at the lesser of
(x) $10.80 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 1,396,420 warrants to purchase common stock
equal to 100% of the aggregate principal amount of the 2018 Notes
divided by $9.35 per share (the “2018 Warrants”). The
2018 Warrants are exercisable for a term of five years, commencing
on the close of an IPO, at an exercise price of $9.35 and are
callable at the election of the Company at any time following the
closing of an IPO. The 2018 Notes were secured by a security
interest in all of the assets, tangible and intangible, of the
Company.
The
proceeds from the sale of the 2018 Notes, the 2018 Warrants and the
Initial 2018 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 $5,933,000
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 amortized over the period from issuance to April 30,
2019, the stated maturity date of the debt.
Debt
issuance costs were comprised of $389,000 of cash commissions and
warrants with a fair value of $223,000, paid and issued,
respectively, to third-parties in connection with the debt
financing, and are reflected as a discount to the debt instrument,
net of accumulated amortization, in the December 31, 2018 balance
sheet. Debt issuance costs are amortized over the term of the debt
as interest expense in the statement of operations.
Concurrent
with the closing of the IPO on February 27, 2019, all outstanding
principal and accrued interest outstanding under the 2018 Notes
totaling $13,793,000 was automatically converted into 1,475,164
shares of the Company’s common stock at a conversion price
per share of $9.35. As a result of the automatic conversion of the
2018 Notes and the application of conversion accounting, the
Company recorded an immediate charge to interest expense of
$1,384,000 for the year ended December 31, 2019, representing
the write-off of the unamortized balance of debt
discounts associated with the 2018 Warrants and cash commissions
and warrants issued to third parties. Unamortized debt discounts at
December 31, 2019 and 2018 totaled $0 and $2,684,000,
respectively.
The
non-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 BCF is generally recognized
separately at issuance by allocating a portion of the debt proceeds
equal to the intrinsic value of the BCF to additional paid-in
capital. The resulting convertible debt discount is recognized as
interest expense using the effective yield method. The BCF is
measured using the commitment date stock price. However, the
conversion feature associated with the 2018 Notes was not
exercisable until the consummation of an initial public offering by
the Company of its common stock, and therefore, was not required to
be recognized in earnings until the IPO related contingency was
resolved, which occurred on the IPO Closing Date. The commitment
date is the IPO Closing Date and the commitment date stock price
was $11.00 per share. The intrinsic value of the BCF on the IPO
Closing Date, which was limited to the net proceeds allocated to
the debt on a relative fair value basis, was approximately
$7,067,000, and is reflected as additional interest expense in the
statement of operations for the year ended December 31,
2019.
The
weighted-average grant date fair value of 2018 Warrants issued during the year ended
December 31, 2018 was $7.98. The aggregate fair value of
2018 Warrants that vested
during the year ended December 31, 2018 was $10,296,926.
The weighted-average exercise price
and weighted-average remaining contractual term for the 2018
Warrants was $9.41 and 4.5 years. At December 31, 2019 the
aggregate intrinsic value of the 2018 Warrants totaled
$(10,230,000).
The
fair value of Debt Warrants issued was estimated on their
respective issue dates using the Black Scholes-Merton option
pricing model and the following weighted-average
assumptions:
|
Volatility
|
96%
|
|
Risk–free
interest rate
|
2.75
|
|
Dividend
yield
|
-%
|
|
Expected life of
options (in years)
|
5
|
|
Weighted-average
fair value of common stock
|
$9.41
|
7.
STOCKHOLDERS’
EQUITY
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. 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,
in part, increase the Company’s authorized capital to a total
of 110.0 million shares, including 10.0 million shares of newly
created preferred stock, par value $0.001 per share
(“Preferred Stock”), 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. The Amended and Restated Charter was approved by a
majority of the Company’s stockholders in September
2018, and was filed with the State of Delaware in November
2018. All references in the accompanying financial statements to
Preferred Stock have been restated to reflect the Amended and
Restated Charter.
Common Stock
The
Amended and Restated Charter also increased the Company’s
authorized capital to include 100.0 million shares of common stock,
par value $0.001, and removed the deemed liquidation provision, as
such term is defined in the Amended and Restated Charter. Each
holder of common stock is entitled to one vote for each share of
common stock held at all meetings of stockholders.
Initial Public Offering
On February 27, 2019, Super League completed its IPO of its common
stock, pursuant to which the Company issued and sold an aggregate
of 2,272,727 shares of common stock at $11.00 per share, raising
aggregate net proceeds of $22,458,000 after deducting underwriting
discounts, commissions and offering costs of $2,542,000. Concurrent
with the closing of the IPO on February 27, 2019 (the “IPO
Closing Date”), in accordance with the related
agreements, all outstanding principal and interest for the
9.00% convertible notes outstanding, totaling $13,793,000, was
automatically converted into 1,475,164 shares of the
Company’s common stock at a conversion price of
$9.35.
Super League has and continues to use the net proceeds received
from the offering for working capital and general corporate
purposes, including sales and
marketing activities, product development and capital expenditures.
Super League may also use a portion of the net proceeds for the
acquisition of, or investment in, technologies, solutions or
businesses that may compliment the Company’s business and or
accelerate the Company’s growth.
Upon closing of the IPO, 83,333 options and 125,000 warrants
previously granted to the CEO (with an average grant date fair
value of $8.50) became fully vested. As a result, the
Company recorded an additional $1,770,000 of stock-based
compensation during the year ended December 31, 2019.
Pursuant to the related underwriting agreement, in connection with
the completion of the IPO, for the purchase price of $50.00, the
Company issued a warrant to purchase shares of our common stock
equal to 3.0% of the shares sold in the IPO, or 68,182 shares, at
an exercise price of $11.00 per share (the
“Underwriters’ Warrants”). The
Underwriters’ Warrants are exercisable during the period
commencing from the date of the close of the IPO and ending five
years from the closing date of the IPO. The Underwriters’
Warrants represent additional noncash offering costs, with an
estimated grant date fair value of $547,000, which was reflected in
additional-paid-in capital when issued and as a corresponding
offering cost in the statement of shareholders equity for the year
ended December 31, 2019. The fair value of the
Underwriters’ Warrant was estimated on February 27, 2019, the
grant date, using the Black Scholes-Merton option pricing model and
the following weighted-average assumptions: (i) volatility of 95%,
(ii) risk-free interest rate of 2.5%, and (iii) expected term of
five years.
Reverse Stock Split
On
February 8, 2019, the Company filed an amendment to the
Company’s amended and restated certificate of incorporation
to effect a reverse split of shares of the Company’s common
stock on a one-for-three basis (the “Reverse Stock
Split”). All references to common stock, warrants to purchase
common stock, options to purchase common stock, early exercised
options, restricted stock, share data, per share data and related
information contained in the financial statements have been
retrospectively adjusted to reflect the effect of the Reverse Stock
Split for all periods presented. No fractional shares were issued
in connection with the Reverse Stock Split. Any fractional shares
resulting from the Reverse Stock Split will be rounded down to a
whole share, and any effected stockholders will receive a cash
payment equal to the value of such fractional shares.
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 was subsequently amended in
May 2015, May 2016, July 2017 and October 2018. 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
automatically on July 1, 2027. 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.
The
initial reserve under the Plan was 583,334 shares of common stock,
which reserve was subsequently increased to 1,000,000 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 from1,000,000 shares to 1,500,000
shares. In October 2018, the Company amended and restated the SOP
to increase the number of shares of common stock reserved
thereunder from 1,500,000 shares to 1,833,334 shares. As of
December 31, 2019, 308,479 shares remained available for issuance
under the Plan.
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 compensation
committee of 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 weighted-average assumptions for
the years ended December 31, 2019 and 2018:
|
|
|
|
|
Volatility
|
95%
|
96%
|
|
Risk–free
interest rate
|
1.99%
|
2.82%
|
|
Dividend
yield
|
-%
|
-%
|
|
Expected life of
options (in years)
|
6.08
|
5.78
|
|
Weighted-average
fair value of common stock
|
$7.45
|
$10.80
|
A
summary of stock option activity for the year ended December 31,
2019 is as follows:
|
|
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2018
|
1,524,000
|
$9.18
|
7.34
|
$(10,327,000)
|
|
Granted
|
165,000
|
$7.45
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Canceled
/ forfeited
|
(138,000)
|
$10.60
|
|
|
|
Outstanding
at December 31, 2019
|
1,551,000
|
$8.86
|
7.51
|
$(10,088,000)
|
|
Vested
and exercisable at December 31, 2019
|
1,153,000
|
$8.66
|
7.04
|
$(7,259,000)
|
The
weighted-average grant date fair value of stock options granted
during the years ended December 31, 2019 and 2018 was $5.76 and
$8.85, respectively. The aggregate fair value of stock options that
vested during the years ended December 31, 2019 and 2018 was
$3,989,000 and $4,720,000, respectively. As of December 31, 2019,
the total unrecognized compensation expense related to non-vested
stock option awards was $2,840,000, which is expected to be
recognized over a weighted-average term of approximately 2.83
years.
Restricted Stock Units
The
following table summarizes non-vested restricted stock unit
activity for the year ended December 31, 2019:
|
|
Restricted
Stock
Units (#)
|
Weighted Average
Grant Date
Fair Value ($)
|
|
Non-vested
restricted stock units at December 31, 2018
|
10,000
|
$7.11
|
|
Granted
|
33,000
|
$9.68
|
|
Vested
|
(14,000)
|
$6.13
|
|
Canceled
|
–
|
|
Non-vested
restricted stock units at December 31, 2019
|
29,000
|
$10.40
|
As of
December 31, 2019, the total unrecognized compensation expenses
related to non-vested restricted stock units was $52,000 which will
be recognized over a weighted-average term of approximately 0.12
years.
Warrants Issued to Employees and Nonemployees for
Services
During
the year ended December 31, 2018, the Company issued common stock
purchase warrants to certain employees
in exchange for services performed, subject to certain vesting
conditions. The warrants have expiration dates of 10 years from the
date of grant and an exercise price of $10.80 per share. A summary
of employee and nonemployee warrant activity for the year ended
December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2018
|
1,098,000
|
$9.33
|
2.66
|
|
|
Exercised
|
(67,000)
|
$0.17
|
|
$137,000
|
|
Outstanding
at December 31, 2019
|
1,031,000
|
$9.92
|
2.83
|
$(7,797,000)
|
|
Vested
and exercisable as of December 31, 2019
|
763,000
|
$10.16
|
3.34
|
$(5,952,000)
|
Compensation
expense related to common stock purchase warrants was $2,182,000
and $1,400,000 for the years ended December 31, 2019 and 2018,
respectively. The weighted-average grant date fair value of
warrants granted during the year ended December 31, 2018 was $7.80.
No warrants were granted to employees
or non-employees in exchange for services performed during
the year ended December 31, 2019. The aggregate fair value of
warrants that vested during the years ended December 31, 2019 and
2018 was $2,092,000 and $1,401,000, respectively.
As of
December 31, 2019, the total unrecognized compensation expense
related to warrants was $275,000, which is expected to be
recognized over a weighted-average term of approximately 0.4
years.
Noncash Stock Compensation Expense
Noncash stock-based compensation expense for the periods presented
was comprised of the following:
|
|
For the Year Ended December 31,
|
|
|
|
|
|
Stock
options
|
$3,573,000
|
$2,490,000
|
|
Warrants
|
2,182,000
|
1,400,000
|
|
Restricted
stock units
|
370,000
|
14,000
|
Earn-out
compensation expense (Note
5)
|
58,000
|
-
|
|
Other
|
34,000
|
39,000
|
|
Total
noncash stock compensation expense
|
$6,217,000
|
$3,943,000
|
Noncash stock-based compensation expense for the periods presented
was included in the following financial statement line
items:
|
|
|
|
|
|
|
|
Sales,
marketing and advertising
|
$635,000
|
$504,000
|
|
Technology
platform and infrastructure
|
129,000
|
200,000
|
General
and administrative
|
5,453,000
|
3,239,000
|
Total
noncash stock compensation expense
|
6,217,000
|
$3,943,000
|
Noncash stock-based compensation expense for the year ended
December 31, 2019 included compensation expense resulting from the
vesting of certain performance-based options and warrants
previously granted to certain
executives, which vested upon the achievement of certain
performance-based milestones, pursuant to vesting conditions in the
underlying equity grant agreements. Performance targets included
the completion of our IPO in February 2019 and other operational
performance-based milestones. During fiscal year 2019, 325,000 of
performance-based stock options and warrants vested with grant date
fair values ranging from $8.28 to $8.50, resulting in noncash stock
compensation expense of $2,766,000 during fiscal year 2019.
The fair
value of these equity awards was estimated on October 31, 2018,
their original grant date, using the Black Scholes-Merton option
pricing model and the following weighted-average assumptions: (i)
volatility of 93%, (ii) risk-free interest rate of 3.0%,
and (iii) expected term of 6.5 years.
9.
INCOME
TAXES
Super
League’s provision for income taxes consisted of the
following for the years ended December 31, 2019 and
2018:
|
|
|
|
|
Current:
|
|
|
|
Federal
taxes
|
$-
|
$-
|
|
State
taxes
|
|
|
|
Total
current
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
taxes
|
$4,098,000
|
$4,073,000
|
|
State
taxes
|
1,374,000
|
1,609,000
|
|
Subtotal
|
5,472,000
|
5,682,000
|
|
Change
in valuation allowance
|
(5,472,000)
|
(5,682,000)
|
|
Total
deferred
|
–
|
–
|
|
|
|
|
|
Provision
for income taxes
|
$-
|
$-
|
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, 2019 and 2018.
|
|
|
|
|
Deferred
tax assets (liabilities):
|
|
|
|
Net
operating loss and credits
|
$14,456,000
|
$11,129,000
|
|
Stock
compensation
|
3,992,000
|
3,452,000
|
|
Accrued
interest expense
|
1,541,000
|
938,000
|
Fixed
assets and intangibles
|
118,000
|
87,000
|
|
Total
deferred tax assets
|
20,107,000
|
15,606,000
|
|
Valuation
allowance
|
(20,107,000)
|
(15,606,000)
|
|
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:
|
|
|
|
|
|
|
|
|
Statutory
federal tax rate - (benefit) expense
|
21%
|
35%
|
|
Non-deductible
permanent items
|
(6)
|
(1)
|
|
Change
in tax rate
|
-
|
(29)
|
|
Valuation
allowance
|
(15)
|
(5)
|
|
|
-%
|
-%
|
For the
years ended December 31, 2019 and 2018, 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, 2019, the Company had U.S. federal and state
income tax net operating loss carryforwards of approximating
$49,795,000 and $52,665,000, respectively, expiring through 2039.
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.
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, 2019 and 2018. As a
result, as of December 31, 2017, the value of our deferred tax
assets was reduced by $4,279,000 and the related valuation
allowance was reduced by the same amount. Given the full valuation
allowance provided for net deferred tax assets, the change in tax
law did not have a material impact on the Company’s financial
statements.
[______] Shares
Super League Gaming, Inc.
PROSPECTUS
The date of this prospectus is ,
2020
Until
,
2020 (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
|
|
|
Transfer
Agent’s fees and expenses
|
|
|
Printing and
engraving expenses
|
|
|
Underwriters
reimbursable expenses
|
|
|
Miscellaneous
|
|
|
|
|
|
Total
expenses
|
$
|
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 Amended and Restated 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 505,696 shares of
common stock at a price of $10.80 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 788,280 shares of
common stock at a price of $10.80 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 183,333 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 166,667 shares
of common stock with an exercise price of $9.00 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.
From
January 1, 2016 to December 31, 2018, we granted five and ten year
warrants to purchase an aggregate of 355,584 shares of our common
stock at an average exercise price of $10.17 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 Directors, as
consideration for their previous and future services to the
Company.
On
November 15, 2018, we granted an employee a ten-year common stock
purchase warrant to purchase up to 250,000 shares of the
Company’s common stock, at an exercise price of $10.80,
pursuant to an amended employment agreement, subject to the
following vesting schedule: (i) 25% upon issuance; (ii) 50% upon
close of an IPO or an additional private financing (occurring
subsequent to September 1, 2018) of not less than $15,000,000; and
(iii) 25% on the one-year anniversary of an IPO or the one-year
anniversary of an additional private equity financing of not less
than $15,000,000 (occurring subsequent to September 1,
2018).
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 387,795
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 517,161 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
February through April 2018, we issued 9.00% secured convertible
promissory notes with a collective face value of $3,000,000 (the
“Initial 2018
Notes”). 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 us, and (iii) all outstanding principal and
accrued interest was automatically convertible into equity or
equity-linked securities sold in a Qualifying Equity Financing
based upon a conversion rate equal to (x) a 10% discount to the
price per share of a Qualifying Equity Financing, with (y) a floor
of $10.80 per share. In addition, the holders of the Initial 2018
Notes were collectively issued warrants to purchase approximately
55,559 shares of common stock, at an exercise price of $10.80 per
share and a term of five years (the “Initial 2018
Warrants”).
In May
through August 2018, we issued additional 9.00% secured convertible
promissory notes with a collective face value of $10,000,000 (the
“Additional 2018 Notes”). In May 2018, all of the
Initial 2018 Notes and related accrued interest, totaling
$3,056,182, were converted into the Additional 2018 Notes,
resulting in an aggregate principal amount of $13,056,182
(hereinafter collectively, the “2018 Notes”). The
holders of the converted Initial 2018 Notes retained their
respective Initial 2018 Warrants.
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) $10.80 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 1,396,383 warrants to purchase common stock equal to
100% of the aggregate principal amount of the 2018 Notes divided by
$9.35 per share (assuming an initial
public offering price of $11.00, the midpoint of the price range
set forth on the cover page of this prospectus, and a conversion
price of $9.35) (the
“2018 Warrants”). The number of 2018 Warrants
ultimately issued is subject to adjustment upon the closing of an
IPO and will be determined by dividing 100% of the face value of
the 2018 Notes by the lesser of (x) $10.80 per share or (y) a 15%
discount to the price per share of the IPO. The 2018 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) $10.80 per
share or (y) a 15% discount to the IPO price per share and are
callable at our election at any time following the closing of an
IPO.
Grants of Restricted Common Stock
On
January 15, 2016, we issued 140,000 shares of our common stock to
an employee upon the exercise of certain previously issued warrants
at an exercise price of $0.30 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. The share and per share
information in this Item 15 reflects the one-for-three reverse
stock split of our common stock that was consummated on February 8,
2019.
Item 16. Exhibits and Financial Statement
Schedules.
(a) Exhibits. The list of exhibits is set forth below and is
incorporated by reference herein.
|
Exhibit No.
|
Name
|
|
Incorporation by Reference
|
|
1.1*
|
Form of
Underwriting Agreement.
|
|
|
|
|
Agreement
and Plan of Merger Agreement and Plan of Merger by and among Super
League Gaming, Inc., SLG Merger Sub, Inc. and Framerate,
Inc.
|
|
Exhibit
2.1 to the Current Report on Form 8-K, filed on June 7,
2019.
|
|
|
Second
Amended and Restated Certificate of Incorporation of Super League
Gaming, Inc., dated November 19, 2018.
|
|
Exhibit
3.1 to the Registration
Statement, filed on January 4, 2019
|
|
|
Second
Amended and Restated Bylaws of Super League Gaming,
Inc.
|
|
Exhibit
3.2 to the Registration
Statement, filed on January 4, 2019
|
|
|
Certificate
of Amendment to the Second Amended and Restated Certificate of
Incorporation of Super League Gaming, Inc., dated February 8,
2019.
|
|
Exhibit
3.3 to
the Amendment No. 2 to the Registration
Statement,
filed on February 12, 2019
|
|
|
Form of
Common Stock Certificate.
|
|
Exhibit
4.1 to
the Amendment No. 2 to the Registration
Statement,
filed on February 12, 2019
|
|
|
Form of
Registration Rights Agreement, among Super League Gaming, Inc. and
certain accredited investors.
|
|
Exhibit
4.2 to the Registration
Statement on Form S-1,
filed on January 4, 2019
|
|
|
Common
Stock Purchase Warrant dated June 16, 2017 issued to Ann
Hand.
|
|
Exhibit
4.3 to the Registration
Statement on Form
S-1, filed on January 4, 2019
|
|
|
Form of
9.00% Secured Convertible Promissory Note.
|
|
Exhibit
4.4 to the Registration
Statement on Form
S-1, filed on January 4, 2019
|
|
|
Form of
Callable Common Stock Purchase Warrant, issued to certain
accredited investors.
|
|
Exhibit
4.5 to the Registration
Statement on Form
S-1, filed on January 4, 2019
|
|
|
Form of
Representative’s Warrant.
|
|
Exhibit
4.6 to the Amendment No. 2 to the Registration
Statement on Form
S-1, filed on February 12, 2019
|
|
5.1*
|
Opinion
of Disclosure Law Group, a Professional Corporation.
|
|
|
|
|
Super
League Gaming, Inc. Amended and Restated 2014 Stock Option and
Incentive Plan.
|
|
Exhibit
10.1 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Form of
Stock Option Agreement under 2014 Stock Option and Incentive
Plan.
|
|
Exhibit
10.2 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Subscription
Agreement, among Nth Games, Inc. and certain accredited
investors.
|
|
Exhibit
10.3 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Subscription
Agreement, among Super League Gaming, Inc. and certain accredited
investors.
|
|
Exhibit
10.4 to the Registration
Statement, filed on January 4, 2019
|
|
|
Form of
Theater Agreement, filed herewith.
|
|
Exhibit
10.5 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Lease
between Super League Gaming, Inc. and Roberts Business Park Santa
Monica LLC, dated June 1, 2016.
|
|
Exhibit
10.6 to the Registration
Statement, filed on January 4, 2019
|
|
|
License
Agreement between Super League Gaming, Inc. and Riot Games, Inc.,
dated June 22, 2016.
|
|
Exhibit
10.7 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Amended
and Restated License Agreement between Super League Gaming, Inc.
and Mojang AB, dated August 1, 2016.
|
|
Exhibit
10.8 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Master
Agreement between Super League Gaming, Inc. and Viacom Media
Networks, dated June 9, 2017.
|
|
Exhibit
10.9 to the Registration
Statement, filed on January 4, 2019
|
|
|
Form of
Common Stock Purchase Agreement, among Super League Gaming, Inc.
and certain accredited investors.
|
|
Exhibit
10.10 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Form of
Investors’ Rights Agreement, among Super League Gaming, Inc.
and certain accredited investors.
|
|
Exhibit
10.11 to the Registration
Statement, filed on January 4, 2019
|
|
|
Employment
Agreement, between Super League Gaming, Inc. and Ann Hand, dated
June 16, 2017.
|
|
Exhibit
10.12 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Employment
Agreement, between Super League Gaming, Inc. and David Steigelfest,
dated October 31, 2017.
|
|
Exhibit
10.13 to the Registration
Statement, filed on January 4, 2019
|
|
|
Riot
Games, Inc. Extension Letter, dated November 21, 2017.
|
|
Exhibit
10.14 to the Registration
Statement, filed on January 4, 2019
|
|
|
Form of
Note Purchase Agreement, among Super League Gaming, Inc. and
certain accredited investors.
|
|
Exhibit
10.15 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Form of
Security Agreement, between Super League Gaming, Inc. and certain
accredited investors.
|
|
Exhibit
10.16 to the Registration
Statement, filed on January 4, 2019
|
|
|
Form of
Intercreditor and Collateral Agent Agreement, among Super League
Gaming, Inc. and certain accredited investors.
|
|
Exhibit
10.17 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Form of
Investors’ Rights Agreement (9% Secured Convertible
Promissory Notes), among Super League Gaming, Inc. and certain
accredited investors.
|
|
Exhibit
10.18 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Master
Service Agreement and Initial Statement of Work between Super
League Gaming, Inc. and Logitech Inc., dated March 1,
2018.
|
|
Exhibit
10.19 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Asset
Purchase Agreement, between Super League Gaming, Inc. and Minehut,
dated June 22, 2018.
|
|
Exhibit
10.20 to the Registration
Statement, filed on January 4, 2019
|
|
|
Amended
and Restated Employment Agreement, between Super League Gaming,
Inc. and Ann Hand, dated November 15, 2018.
|
|
Exhibit
10.21 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Amended
and Restated Employment Agreement, between Super League Gaming,
Inc. and David Steigelfest, dated November 1, 2018.
|
|
Exhibit
10.22 to the Registration
Statement, filed on January 4, 2019
|
|
|
Employment
Agreement, between Super League Gaming, Inc. and Matt Edelman,
dated November 1, 2018.
|
|
Exhibit
10.23 to the Registration
Statement, filed on January 4, 2019
|
|
|
Employment
Agreement, between Super League Gaming, Inc. and Clayton Haynes,
dated November 1, 2018.
|
|
Exhibit
10.24 to the Registration
Statement,
filed on January 4, 2019
|
|
|
Commercial
Partnership Agreement between Super League Gaming, Inc., and
ggCircuit, LLC, dated September 23, 2019.
|
|
Exhibit
10.1 to the Quarterly Report on Form 10-Q for the period ended
September 30, 2019, filed November 14, 2019.
|
|
|
Super
League Gaming, Inc. Code of Business Conduct and
Ethics.
|
|
Exhibit
14.1 to the Registration
Statement,
filed on January 4, 2019
|
|
23.1*
|
Consent
of Squar Milner LLP.
|
|
|
|
23.2*
|
Consent
of Disclosure Law Group, a Professional Corporation (included in
Exhibit 5.1).
|
|
|
|
24.1*
|
Power
of attorney
|
|
|
|
*
|
To be
filed by amendment.
|
|
†
|
Identifies
exhibits that consist of a management contract or compensatory plan
or arrangement.
|
|
+
|
Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities
Act of 1933, as amended, and Rule 24b-2 under the Securities
Exchange Act of 1934, as amended (together, the
“Rules”). In accordance with the Rules, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange
Commission.
|
|
++
|
Certain
portions of this exhibit (indicated by “[*****]”) have
been omitted as the Company has determined (i) the omitted
information is not material and (ii) the omitted information would
likely cause harm to the Company if publicly
disclosed.
|
(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 [_____],
2020.
|
|
Super League Gaming, Inc.
|
|
|
|
|
|
|
By:
|
|
|
|
|
Ann
Hand
Chief Executive Officer, President and
Chair of the Board
|
|
Signature
|
Title
|
Date
|
|
|
|
|
|
|
Chief
Executive Officer,
|
[_____],
2020
|
|
Ann
Hand
|
President,
Chair of the Board
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
[_____],
2020
|
|
Clayton
Haynes
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
Director
|
[_____],
2020
|
|
David
Steigelfest
|
|
|
|
|
|
|
|
|
Director
|
[_____],
2020
|
|
Jeff
Gehl
|
|
|
|
|
|
|
|
|
Director
|
[_____],
2020
|
|
Robert
Stewart
|
|
|
|
|
|
|
|
|
Director
|
[_____],
2020
|
|
Kristin
Patrick
|
|
|
|
|
|
|
|
|
Director
|
[_____],
2020
|
|
Michael
Keller
|
|
|
|
|
Director
|
[_____],
2020
|
|
Mark
Jung
|
|
|
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.
