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) 
 
 
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
7374
(Primary Standard Industrial
Classification Code Number)
 
47-1990734
(I.R.S. Employer
Identification Number)
 
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. 
 
Large accelerated filer 
 
Accelerated filer 
 
Non-accelerated filer 
 Smaller reporting company 
 
 
 
 
 
 
Emerging growth company 
 
           If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    
 

 
 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be Registered
 
Amount to be
Registered (1)
 
 
Proposed Maximum Offering Price Per Share
 
 
Proposed Maximum Aggregate Offering
Price (1)
 
 
Amount of
Registration Fee
 
Common Stock, par value $0.001 per share  
 
 
[●]
 
 
[●]
 
 
[●]
 
 
[●]
 
  
(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.
 
 
 
 
 
 

 
 
 
 
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.
 
 
 
 
 
 
SUBJECT TO COMPLETION, DATED  FEBRUARY 27, 2020
 
 
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.
 
 
 
Per Share
 
 
Total
 
Public offering price
 $  
 $  
Underwriting discount (1)
 $  
 $  
Proceeds, before expenses, to us
 $  
 $  
 
(1)
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.
 
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
 
 
 

 
 
TABLE OF CONTENTS
 
 
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F-1

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.
 
 
 
-i-
 
 
 
 
 
 
 
 
 
 
PROSPECTUS SUMMARY
 
 
 
 
 
 
 
 
 
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.
 
 
  
 
 
 
 
 
 
-1-
 
 
 
 
 
 
 
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;
 
●             
changes in the licensing fees charged by the publishers of the most popular online video games;
 
●             
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 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.
 
 
 
 
 
 
 

 
-2-
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
-3-
 
 
 
 
 
 
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.
 


 
 
 
 
 
 
-4-
 
 

 
 
 
 
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.
 
 
 
 
 
 

 
-5-
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
Issuer
Super League Gaming, Inc.
 
 
 
 
 
 
 
 
 
 
Common stock offered by us
  [______] shares.
 
 
 
 
 
 
 
 
 
 
Common stock to be outstanding after this offering
 
  [______] shares.
 
 
 
 
 
Use of proceeds
 
We estimate that the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $[______] million, 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.
 
 
 
 
 
Risk factors
 
You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
 
 
 
 
 
Proposed listing
We have applied to have our common stock listed on the Nasdaq Capital Market in connection with this offering. No assurance can be given that such listing will be approved.
 
 
 
 
 
 
 
 
 
 
Nasdaq symbol
 
Our common stock is listed on The Nasdaq Capital Market under the symbol “SLGG.”
 
 
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
-6-
 
   
 
 
   
 
               
 
 
 
   
 
Year Ended December 31,
 
 
 
   
 
2019  
 
 
2018  
 
 
 
Statements of Operations Data:  
 
 
 
 
 
 
 
 
Revenues
 $1,084,000 
 $1,046,000 
 
 
Cost of revenues
  513,000 
  684,000 
 
 
Gross loss
  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 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 attributable to common stockholders (1) (2)
    
    
 
 
Basic
 $(3.89)
 $(4.48)
 
 
Diluted
 $(3.89)
 $(4.48)
 
 
Weighted average shares outstanding used in computing net income (loss) per share attributable to common stockholders (1) (2)
    
    
 
 
Basic
  7,894,326 
  4,606,961 
 
 
Diluted
  7,894,326 
  4,606,961 
 
 
 
(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.
 
 
 
     
 
As of
 
 
As of December 31, 2018
 
 
 
     
 
  December 31, 2019
 
 
Actual 
 
 
As Adjusted (1)  
 
 
 
Balance Sheet Data:     
 
 
 
 
 
 
 
 
 
      Cash
  8,442,000 
  2,774,000 
 
 
 
      Working capital
  8,655,000 
  (8,032,000)
 
 
 
      Total assets
  14,447,000 
  4,987,000 
 
 
 
 
    
    
 
 
 
      Accumulated deficit
  (85,812,000)
  (55,133,000)
 
 
 
      Total stockholders’ deficit
  13,443,000 
  (6,794,000)
 
 
 
 
 
(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.
 


 
 
 
 
 
 
 
 
-7-
 
 
RISK FACTORS
 
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.
 
 
 
-8-
 
 
 
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.
 
 
 
 
 
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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.
  
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
  
 
 
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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.
 
 
 
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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.
 
 
 
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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. 
 
 
 
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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.
 
 
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
  
 
 
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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.
 
 
 
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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.
  
 
 
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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.
  
 
 
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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.
 
 
 
 
-25-
 
 
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.
  
 
 
-26-
 
 
 
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.
 
 
 
-27-
 
 
INDUSTRY AND MARKET DATA
 
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.”
 
 
 
 
 
 
-28-
 
 
USE OF PROCEEDS
 
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.
 
 
 
 
 
 
-29-
 
 
 
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: 
 

 
  High
 
 
  Low
 
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 
 
 
 
-30-
 
 
 
DIVIDEND POLICY
 
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.
 
  
 
 
-31-
 
 
CAPITALIZATION
 
The following table sets forth our cash and capitalization as of December 31, 2019:
 
on an actual basis;
  
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.
 
 
 
As of  December 31, 2019
 
 
 
Actual
 
 
As Adjusted (1)
 
 
 
 
 
 
 
 
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.
 
 
 
 
-32-
 
 
DILUTION  
 
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.
 
 
 
 
-33-
 
 
SELECTED FINANCIAL DATA  
 
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.
 
 
 
Year Ended December 31,
 
 
 
2019
 
 
2018
 
 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.
 
 
 
As of December 31, 
 
 
 
2019
 
 
2018
 
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:
 
 
 
Fiscal Year
 
 
 
2019
 
 
2018
 
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:
 
 
 
Fiscal Year
 
 
 
2019
 
 
2018
 
 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.
 
 
 
-34-
 
 
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.
 
 
 
-35-
 
 
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.
   
 
 
-36-
 
 
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.
 
 
 
-37-
 
 
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.
  

 
 
-38-
 
 
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.
 
 
-39-
 
 
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.
 
 
 
-40-
 
 
 
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.
  
 
 
-41-
 
 
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:
 
 
 
Fiscal Year
 
 
 
2019
 
 
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)
 
    
    
 
 
 
-42-
 
 
Comparison of the Results of Operations for Fiscal Years 2019 and 2018
 
Revenue
 
 
 
Fiscal Year
 
 
 
 
 
 
 
 
 
2019
 
 
2018
 
 
 $ Change
 
 
% Change
 
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
 
 
 
Fiscal Year
 
 
 
 
 
 
2019
 
 
2018
 
 
 $ Change
 
 
% Change
 
Cost of revenue
 $513,000 
 $684,000 
 $(171,000)
  25%
 
 

 
-43-
 
 
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 
 
 
 
Fiscal Year
 
 
 
 
 
 
2019
 
 
2018
 
 
 $ Change
 
 
% Change
 
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:
 
 
 
Fiscal Year
 
 
 
 
 
 
 
 
 
2019
 
 
2018
 
 
 $ Change
 
 
% Change
 
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%
 
 
-44-
 
 
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:
 
 
 
Fiscal Year
 
 
 
 
 
 
 
 
 
2019
 
 
2018
 
 
 $ Change
 
 
% Change
 
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 
  
>300
 
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.
 
 
-45-
 
 
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.  
 
 
 
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Cash Flows for Fiscal Years 2019 and 2018
 
The following table summarizes the change in cash balances for the periods presented:
 
 
 
Fiscal Year
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
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:
 
 
 
Fiscal Year
 
 
 
2019
 
 
2018
 
 
 
    
 
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.
 
 
 
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Cash Flows from Financing Activities. Cash flows from financing activities were comprised of the following for the periods presented:
 
 
 
Fiscal Year
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
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.
 
 
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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.
  
 
 
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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.
 
 
 
 
 
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OUR BUSINESS
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.
 
 
 
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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”)
 
 
 
2017
 
 
2018
 
 
2019
 
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.
 
 
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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
 
 
 
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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.

 
 
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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).
 
 
 
 
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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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Our Opportunity
 
Despite the significant growth potential outlined above, there are several key challenges facing stakeholders in the esports landscape:
 
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.
 
Game Publishers must find alternative methods to attract new gamer audiences to their game titles and offer premium experiences that drive greater gamer retention. The lack of diversity in gaming, along with increased competition amongst titles, requires marketing partnerships to extend the lifecycle and franchise value of their intellectual property.
 
Venue Operators, including restaurants and retailers, must grow same-store sales in order to capture new sources of foot-traffic and deeper customer loyalty. Millennials and Generation Z generally value experiences, but tend to purchase more content and products online, making them an attractive demographic to widen a venue’s customer base and improve asset utilization.
 
Sponsors and Advertisers are limited in their channels to reach the “cord cutting” Generation Z and Millennials due to the increasing fragmentation of content distribution and use of advertising-blocking technology. Given these demographic groups consume most content online, brands are challenged to target these audiences in an authentic way and achieve efficient marketing spend.
 
Professional Esports Teams and Owners have made significant investments in their teams and must rapidly develop a fanbase to achieve franchise values similar to traditional sports teams. However, there is no formal structure to identify the next generation of esports professionals to build their long-term rosters to support long-term fan loyalty.
  
 
 
 
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Super League’s Solution for Esports Ecosystem Stakeholders 
 
 
 
Our platform offers the following solutions for these key stakeholders:
 
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.
 
For Game Publishers, our platform introduces their game titles to new audiences and drives retention by providing an immersive, premium way to play games, leading to deeper player engagement. Through our data analytics, we believe we will become a central component to new game development and launches, and will have the ability to drive cross-game behavior across a wide portfolio of game titles.
 
For Venue Operators, we provide 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.
 
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.

 
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:
  
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.
 
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.
 
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.
 
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.
 
 
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
 
 
  
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.
 
 ●
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.
 
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.
 
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.
 
 
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:
 

 
 
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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.
 
 
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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.
 
 
 
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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:
 
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.
 
Tournament and game specific sponsorships, allowing brands to more narrowly target specific age ranges, game genres and other demographic objectives.
 
City Club sponsorships, allowing regional and local brands to participate in geo-targeted promotion to cultivate unique gamer lifestyle brands within our City Club metropolitan areas.
 
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.
 
Tailored experience-specific sponsorships, providing brands with an opportunity to design unique experiences and content for deeper integration and wider media distribution.
   
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:
 
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.
 
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.
 
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.
 
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.
 
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.
 
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.
 
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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Table of Contents
 
 
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.
 
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. .
 
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.
 
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.
 
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.