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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from           to           

 

Commission File Number 001-38819

 

SUPER LEAGUE ENTERPRISE, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware

 

47-1990734

(State or other jurisdiction of incorporation or

organization)

 

(IRS Employer Identification No.)

 

2856 Colorado Ave.,

Santa Monica, California 90404

(Address of principal executive offices)

 

Company: (213) 421-1920; Investor Relations: 203-741-8811

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically on its corporate web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which

registered

 
 

Common Stock, par value $0.001 per share

 

SLE

 

NASDAQ Capital Market

 

 

As of November 11, 2024, there were 12,952,601 shares of the registrant’s common stock, $0.001 par value, issued and outstanding.

 



 

 

 

 

TABLE OF CONTENTS

 

 

Page

   

PART I. FINANCIAL INFORMATION

 
     

Item 1.

Condensed Consolidated Financial Statements

1

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54

     

Item 4.

Controls and Procedures

54

   

PART II. OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

55

     

Item 1A.

Risk Factors

55

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

     

Item 3.

Defaults Upon Senior Securities

55

     

Item 4.

Mine Safety Disclosures

55

     

Item 5.

Other Information

55

     

Item 6.

Exhibits

55

 

 

 

 

PART I

 

FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

SUPER LEAGUE ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Rounded to the nearest thousands, except share and per share data)

 

 
   

September 30,

   

December 31,

 
   

2024

   

2023

 
   

(Unaudited)

         

ASSETS

               

Current Assets

               

Cash and cash equivalents

  $ 289,000     $ 7,609,000  

Accounts receivable

    4,515,000       8,287,000  

Prepaid expense and other current assets

    782,000       862,000  

Total current assets

    5,586,000       16,758,000  

Property and equipment, net

    37,000       70,000  

Intangible assets, net

    4,698,000       6,636,000  

Goodwill

    1,864,000       1,864,000  

Other receivable – noncurrent

    395,000       -  

Total assets

  $ 12,580,000     $ 25,328,000  
                 

LIABILITIES AND STOCKHOLDERS EQUITY

               

Current Liabilities

               

Accounts payable and accrued expenses

  $ 5,927,000     $ 10,420,000  

Accrued contingent consideration

    268,000       1,812,000  

Promissory note - contingent consideration

    1,765,000       -  

Contract liabilities

    154,000       339,000  

Secured loan – SLR Facility

    -       800,000  

Total current liabilities

    8,114,000       13,371,000  

Accrued contingent consideration – noncurrent

    -       396,000  

Warrant liability

    947,000       1,571,000  

Total liabilities

    9,061,000       15,338,000  
                 

Commitments and Contingencies

           
                 

Stockholders Equity

               

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; 20,592 and 23,656 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.

    -       -  

Common stock, par value $0.001 per share; 400,000,000 shares authorized; 11,714,087 and 4,774,116 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.

    89,000       81,000  

Additional paid-in capital

    267,081,000       258,923,000  

Accumulated deficit

    (263,651,000

)

    (249,014,000

)

Total stockholders’ equity

    3,519,000       9,990,000  

Total liabilities and stockholders’ equity

  $ 12,580,000     $ 25,328,000  

 

See accompanying notes to condensed consolidated financial statements 

 

-1-

 

SUPER LEAGUE ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Rounded to the nearest thousands, except share and per share data)

(Unaudited)

 

 
   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

REVENUE

  $ 4,431,000     $ 7,195,000     $ 12,756,000     $ 15,569,000  
                                 

COST OF REVENUE

    2,706,000       4,655,000       7,653,000       9,512,000  
                                 

GROSS PROFIT

    1,725,000       2,540,000       5,103,000       6,057,000  
                                 

OPERATING EXPENSE

                               

Selling, marketing and advertising

    2,397,000       3,161,000       7,306,000       8,767,000  

Engineering, technology and development

    914,000       2,066,000       3,405,000       7,268,000  

General and administrative

    1,935,000       2,271,000       6,558,000       7,094,000  

Contingent consideration

    (68,000 )     (462,000 )     (15,000 )     546,000  

Loss on intangible asset disposal

    -       -       -       2,284,000  

Total operating expense

    5,178,000       7,036,000       17,254,000       25,959,000  
                                 

NET OPERATING LOSS

    (3,453,000

)

    (4,496,000

)

    (12,151,000 )     (19,902,000 )
                                 

OTHER INCOME (EXPENSE)

                               

Gain on sale of intangible assets

    -       -       144,000       -  

Change in fair value of warrant liability

    198,000       1,512,000       1,104,000       2,552,000  

Loss on extinguishment of liability

    (336,000 )     -       (336,000 )     -  

Interest expense

    (45,000 )     -       (78,000 )     (43,000 )

Other

    4,000       -       (30,000 )     24,000  

Total other income (expense)

    (179,000 )     1,512,000       804,000       2,533,000  
                                 

Loss before benefit from income taxes

    (3,632,000

)

    (2,984,000

)

    (11,347,000 )     (17,369,000 )
                                 

Benefit from income taxes

    -       -       -       313,000  
                                 

NET LOSS

  $ (3,632,000

)

  $ (2,984,000

)

  $ (11,347,000 )   $ (17,056,000 )
                                 

Net loss attributable to common stockholders - basic and diluted

                               

Basic and diluted net loss per common share

  $ (0.54

)

  $ (3.19

)

  $ (2.00 )   $ (10.25 )

Weighted-average number of common shares outstanding, basic and diluted

    9,920,278       2,957,271       7,309,509       2,293,191  

 

See accompanying notes to condensed consolidated financial statements

 

-2-

 

SUPER LEAGUE ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(Rounded to the nearest thousands, except share and per share data)

(Unaudited)

 

 
   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Preferred stock (Shares):

                               

Balance, beginning of period

    22,858       19,892       23,656       10,323  

Issuance of Series A-5 preferred stock at $1,000 per share

    -       -       -       2,299  

Issuance of Series AA preferred stock at $1,000 per share

    -       -       -       7,680  

Issuance of Series AA-2 preferred stock at $1,000 per share

    -       -       -       1,500  

Issuance of Series AA-3 preferred stock at $1,000 per share

    -       -       -       1,025  

Issuance of Series AA-4 preferred stock at $1,000 per share

    -       -       -       1,026  

Issuance of Series AA-5 preferred stock at $1,000 per share

    -       -       -       550  

Issuance of Series AAA Junior preferred stock at $1,000 per share

    -       -       1,210       -  

Issuance of Series AAA-2 Junior preferred stock at $1,000 per share

    551       -       551       -  

Issuance of Series AAA-3 Junior preferred stock at $1,000 per share

    697       -       697       -  

Issuance of Series AAA-4 Junior preferred stock at $1,000 per share

    399       -       399       -  

Conversion of Series A preferred stock to common stock

    (96 )     (1,218 )     (571 )     (5,729 )

Conversion of Series AA preferred stock to common stock

    (1,573 )     (2,797 )     (1,936 )     (2,797 )

Conversion of Series AAA preferred stock to common stock

    (2,244 )     -       (3,414 )     -  

Balance, end of period

    20,592       15,877       20,592       15,877  
                                 

Preferred stock (Amount, at Par Value):

                               

Balance, beginning of period

  $ -     $ -     $ -     $ -  

Issuance of Series A-5 preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AA preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AA-2 preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AA-3 preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AA-4 preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AA-5 preferred stock, $0.001 par value, at $1,000 per share

    -       -       -       -  

Issuance of Series AAA Junior preferred stock at $1,000 per share

    -       -       -       -  

Issuance of Series AAA-2 Junior preferred stock at $1,000 per share

    -       -       -       -  

Issuance of Series AAA-3 Junior preferred stock at $1,000 per share

    -       -       -       -  

Issuance of Series AAA-4 Junior preferred stock at $1,000 per share

    -       -       -       -  

Conversion of Series A preferred stock to common stock

    -       -       -       -  

Conversion of Series AA preferred stock to common stock

    -       -       -       -  

Conversion of Series AAA preferred stock to common stock

    -       -       -       -  

Balance, end of period

  $ -     $ -     $ -     $ -  
                                 

Common stock (Shares):

                               

Balance, beginning of period

    7,242,978       2,416,741       4,774,116       1,880,299  

Issuance of common stock at $2.60 per share, net of issuance costs

    -       811,269       -       811,269  

Exercise of prefunded common stock warrants at $2.60 per share, net of issuance costs

    -       67,500       -       67,500  

Common stock issued for Melon Acquisition

    -       -       72,118       77,833  

Common stock issued for Bannerfy Acquisition

    -       8,984       -       8,984  
Common stock issued for Super Biz Acquisition     -       -       30,662       49,398  

Preferred stock dividends paid – common stock

    1,925,613       -       2,552,593       -  

Conversion of Series A preferred stock

    12,628       99,463       58,215       499,216  

Conversion of Series AA preferred stock

    803,482       766,128       995,958       766,128  

Conversion of Series AAA preferred stock

    1,312,743       -       2,010,674       -  

Stock-based compensation

    416,643       -       444,751       9,458  

Issuance of common stock in settlement of legal matter

    -       -       775,000       -  

Balance, end of period

    11,714,087       4,170,085       11,714,087       4,170,085  
                                 

Common stock (Amount):

                               

Balance, beginning of period

  $ 85,000     $ 57,000     $ 81,000     $ 47,000  

Issuance of common stock at $2.60 per share, net of issuance costs

    -       16,000       -       16,000  

Exercise of prefunded common stock warrants at $2.60 per share, net of issuance costs

    -       1,000       -       1,000  

Conversion of Series A, AA and AAA preferred stock

    2,000       7,000       4,000       15,000  

Preferred stock dividends paid – common stock

    2,000       -       3,000       -  

Common stock issued for Melon Acquisition

    -       -       -       1,000  

Common stock issued for Super Biz Acquisition

    -       -       -       1,000  

Issuance of common stock in settlement of legal matter

    -       -       1,000       -  

Balance, end of period

  $ 89,000     $ 81,000     $ 89,000     $ 81,000  
                                 

Additional paid-in-capital:

                               
Balance, beginning of period   $ 263,296,000     $ 241,833,000     $ 258,923,000     $ 229,900,000  

Issuance of Series A-5 preferred stock at $1,000 per share, net of issuance costs

    -       -       -       1,919,000  

Issuance of Series AA preferred stock at $1,000 per share, net of issuance costs

    -       -       -       5,330,000  

Issuance of Series AA-2 preferred stock at $1,000 per share, net of issuance costs

    -       -       -       1,278,000  

Issuance of Series AA-3 preferred stock at $1,000 per share, net of issuance costs

    -       -       -       690,000  

Issuance of Series AA-4 preferred stock at $1,000 per share, net of issuance costs

    -       -       -       681,000  

Issuance of Series AA-5 preferred stock at $1,000 per share, net of issuance costs

    -       -       -       379,000  
Series AA Preferred additional investment rights     -       -       -       1,794,000  

Issuance of common stock at $2.60 per share, net of issuance costs

    -       1,710,000       -       1,710,000  

Exercise of prefunded common stock warrants at $2.60 per share, net of issuance costs

    -       158,000       -       158,000  

Issuance of Series AAA Junior preferred stock at $1,000 per share, net of cash and noncash issuance costs

    -       -       751,000       -  

Issuance of Series AAA-2 Junior preferred stock at $1,000 per share, net of cash and noncash issuance costs

    453,000       -       453,000       -  

Issuance of Series AAA-3 Junior preferred stock at $1,000 per share, net of issuance costs

    529,000       -       529,000       -  

Issuance of Series AAA-4 Junior preferred stock at $1,000 per share, net of issuance costs, net of receivable from investor

    102,000       -       102,000       -  

Common stock purchase warrants issued – Series AAA-3 and Series AAA-4 Junior preferred stock

    (134,000 )     -       (134,000 )     -  

Series AAA Junior preferred stock noncash issuance costs – incremental fair value in connection with modifications to certain existing AIRs

    -       -       294,000       -  

Preferred stock dividends paid – common stock

    2,421,000       -       3,287,000       -  

Deemed dividend on Series AA Preferred Stock

    -       6,446,000       -       6,446,000  

Preferred stock conversions

    (2,000 )     -       (2,000 )     -  

Common stock purchase warrants issued to placement agent

    (346,000 )     -       (346,000 )     (2,804,000 )

Common stock issued for Melon Acquisition

    -       -       90,000       721,000  

Common stock issued for Super Biz Acquisition

    -       -       38,000       547,000  

Common stock issued for Bannerfy Acquisition

    -       70,000       -       70,000  

Stock-based compensation

    356,000       580,000       986,000       1,986,000  

Issuance of common stock and incremental fair value in connection with modifications to certain existing AIRs in settlement of legal matters

    70,000       -       1,553,000       -  

Other

    336,000       (18,000 )     557,000       (26,000 )

Balance, end of period

  $ 267,081,000     $ 250,779,000     $ 267,081,000     $ 250,779,000  
                                 

Accumulated Deficit:

                               

Balance, beginning of period

  $ (258,325,000 )   $ (224,815,000 )   $ (249,014,000 )   $ (210,743,000 )

Preferred stock dividends – common stock (Note 2)

    (1,694,000 )     (6,446,000 )     (3,290,000 )     (6,446,000 )

Net Loss

    (3,632,000 )     (2,984,000 )     (11,347,000 )     (17,056,000 )

Balance, end of period

  $ (263,651,000 )   $ (234,245,000 )   $ (263,651,000 )   $ (234,245,000 )

Total stockholders equity

  $ 3,519,000     $ 16,615,000     $ 3,519,000     $ 16,615,000  

 

See accompanying notes to condensed consolidated financial statements

 

-3-

 

SUPER LEAGUE ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Rounded to the nearest thousands)

(Unaudited)

 

 
   

Nine Months

Ended September 30,

 
   

2024

   

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net loss

  $ (11,347,000

)

  $ (17,056,000

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    1,953,000       3,929,000  

Stock-based compensation

    986,000       2,175,000  

Change in fair value of warrant liability

    (1,104,000 )     (2,552,000 )

Change in fair value of contingent consideration

    (158,000 )     (527,000 )

Amortization of convertible notes discount

    -       40,000  

Gain on sale of intangible assets

    (144,000 )     -  

Loss on intangible asset disposal

    -       2,284,000  

Fair value of noncash legal settlement and other noncash charges

    794,000       -  

Loss on extinguishment of liability – contingent consideration

    336,000       -  

Changes in operating assets and liabilities:

               

Accounts receivable

    3,772,000       (1,661,000 )

Prepaid expense and other current assets

    263,000       (194,000 )

Accounts payable and accrued expense

    (3,309,000 )     1,542,000  

Accrued contingent consideration

    (17,000 )     (1,802,000 )

Contract liabilities

    (185,000 )     225,000  

Deferred taxes

    -       (313,000 )

Accrued interest on note payable

    -       (180,000 )

Net cash used in operating activities

    (8,160,000

)

    (14,090,000

)

                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Cash paid in connection with Melon Acquisition

    -       (150,000 )

Purchase of property and equipment

    (23,000 )     (8,000 )

Capitalization of software development costs

    (434,000 )     (483,000 )

Acquisition of other intangible assets

    -       (17,000 )

Net cash used in investing activities

    (457,000 )     (658,000 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from issuance of preferred stock, net of issuance costs

    2,129,000       12,060,000  

Proceeds from issuance of common stock, net of issuance costs

    -       1,885,000  

Payments on convertible notes

    -       (539,000 )

Accounts receivable facility advances

    1,033,000       -  

Payments on accounts receivable facility

    (1,833,000

)

    -  

Contingent consideration payments – Melon Acquisition

    (32,000 )     -  

Net cash provided by financing activities

    1,297,000       13,406,000  
                 

(DECREASE) INCREASE IN CASH

    (7,320,000

)

    (1,342,000 )

Cash and Cash Equivalents – beginning of period

    7,609,000       2,482,000  

Cash and Cash Equivalents – end of period

  $ 289,000     $ 1,140,000  
                 

SUPPLEMENTAL NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES

               

Issuance of common stock in connection with legal settlement

  $ 1,270,000     $ -  

Issuance of common stock in connection with Melon Acquisition

    90,000       722,000  

Issuance of common stock in connection with the payment of Super Biz Contingent Consideration

    38,000       548,000  

Series AAA Junior preferred stock noncash issuance costs – incremental fair value in connection with modifications to certain AIRs

    294,000       -  

Issuance of common stock in connection with Bannerfy Acquisition

    -       70,000  

Issuance of Super biz Note in connection with extinguishment of accrued contingent consideration liability

    1,765,000       -  

 

See accompanying notes to condensed consolidated financial statements

 

-4-

 

SUPER LEAGUE ENTERPRISE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

1.

DESCRIPTION OF BUSINESS

 

Super League Enterprise, Inc. (Nasdaq: SLE), (“Super League,” the “Company,” “we,” “us” or “our”) is redefining the gaming industry as a media channel for global brands. As a leading end-to-end immersive content partner, Super League enables marketers, advertisers, and IP owners to reach massive audiences through creativity, innovation, and gameplay within the world’s largest immersive platforms. Boasting an award-winning development studio, a vast community of native creators, and a proprietary suite of tools that maximize user engagement, Super League is a one-of-a-kind holistic solutions provider. Whether a partner is focused on building a world-class creative experience, achieving lift in brand awareness, inspiring deeper customer loyalty, or finding new sources of revenue, Super League is at the forefront - always pioneering within immersive worlds.

 

Super League was incorporated on October 1, 2014 as Nth Games, Inc. under the laws of the State of Delaware and changed its name to Super League Gaming, Inc. on June 15, 2015, and to Super League Enterprise, Inc. on September 11, 2023. We are an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012, as amended.

 

On September 7, 2023, the Company filed a Certificate of Amendment (the “2023 Second Amendment”) to the Charter, which Second Amendment became effective as of September 11, 2023, to change the name of the Company from Super League Gaming, Inc. to Super League Enterprise, Inc. (the “Name Change”) and to effect a reverse stock split of the Company’s issued and outstanding shares of common stock at a ratio of 1-for-20 (the “Reverse Split”). The Name Change and the Reverse Split were approved by the Company’s Board on July 5, 2023, and approved by the stockholders of the Company on September 7, 2023. Refer to Note 6 below for additional information regarding the Reverse Split. In connection with the Name Change, the Company also changed its Nasdaq ticker symbol to “SLE” from “SLGG.”

 

All references to common stock, warrants to purchase common stock and other rights, options to purchase common stock, restricted stock, share data, per share data and related information contained in the condensed consolidated financial statements (hereinafter, “consolidated financial statements”) have been retroactively adjusted to reflect the effect of the Reverse Split for all periods presented.

 

All references to “Note,” followed by a number reference herein, refer to the applicable corresponding numbered footnotes to these consolidated financial statements.

 

Infinite Reality Transaction

 

On September 30, 2024, the Company entered into a binding term sheet (the “iR Term Sheet”) with Infinite Reality, Inc. (“Infinite Reality”), whereby, subject to the satisfaction of certain conditions as more specifically set forth in the iR Term Sheet (including receipt of the approval of the Company’s stockholders), and the entry into definitive documentation, the Company will:

 

(i)

acquire from Infinite Reality, (a) a perpetual, royalty free license to name and to create and host events for Drone Racing League, Inc., (b) to be determined esports assets and all related intellectual property, (c) cash in the amount of up to $20 million to come from divestiture of certain assets to be determined and/or other sources of capital, (d) TalentX and all related intellectual property, (e) Fearless Media and all related intellectual property, and (f) Thunder Studios and all related intellectual property (each an “Asset” and, collectively, the “Purchased Assets”)(the “Asset Acquisition”), in exchange for the Company issuing that number of shares of a to-be designated class of its preferred stock equal in priority to existing Series A, AA and AAA preferred shares (the “Consideration Shares”), which Consideration Shares will be convertible into 75% of the then issued and outstanding shares of Super League’s common stock, par value $0.001 per share (“Common Stock”), calculated at the time of the consummation of the Asset Acquisition;

         

(ii)

issue to Infinite Reality 2,499,090 shares of the Company’s Common Stock, in exchange for 139,592 shares of Infinite Reality’s common stock (the “Share Exchange”), pursuant to an Equity Exchange Agreement, and to appoint a designee of Infinite Reality to the Company’s Board of Directors (the “Board”) upon the consummation of the Share Exchange (the “Closing”); and

 

(iii)

 receive a credit facility in the amount of $30,000,000 from Infinite Reality, to be established in January 2025 (the “Credit Facility”, and the Asset Acquisition, Share Exchange, and Credit Facility are collectively, the “iR Transaction”).

 

The Term Sheet contemplates that, subject to the satisfaction of the conditions contained therein (including approval of the iR Transaction by the Company’s stockholders), upon the consummation of the iR Transaction, Infinite Reality will beneficially own 84.9% of the issued and outstanding shares of the Company as of the Closing.

 

 

Equity Exchange Agreement. On September 30, 2024, in connection with the Term Sheet and the Share Exchange, the Company entered into an Equity Exchange Agreement with Infinite Reality (the “Exchange Agreement”), pursuant to which the Company agreed, subject to the receipt of the approval of the Company’s stockholders and other customary closing conditions, to issue 2,499,090 shares of Common Stock (the “Exchange Shares”) in exchange for 139,592 shares of Infinite Reality common stock of equal value, based on the Company’s Common Stock being valued at $1.30 per share. The Exchange Agreement contains representations, warranties, and covenants of the Company and Infinite Reality that are customary for a transaction of this nature. Refer to Note 8 for information on the Amended and Restated Equity Exchange Agreement.

 

Sale of Minehut

 

On February 29, 2024, the Company sold its Minehut related assets (“Minehut Assets”) to GamerSafer, Inc. (“GamerSafer”), in a transaction approved by the Board of Directors of the Company. Pursuant to the Asset Purchase Agreement entered into by and between GamerSafer and the Company on February 26, 2024 (the “GS Agreement”), the Company will receive $1.0 million of purchase consideration (“Purchase Consideration”) for the Minehut Assets, which amount will be paid by GamerSafer in revenue and royalty sharing over a multiple year period, as described in the GS Agreement (the “Minehut Sale”). Other than with respect to the GS Agreement, there is no relationship between the Company or its affiliates with GamerSafer or its affiliates.

 

The transaction allows Super League to streamline its position in partnering with major brands to build, market, and operate 3D experiences across multiple immersive platforms, including open gaming powerhouses like Minecraft, and aligns with the Company’s cost improvement initiatives. Super League and GamerSafer will maintain a commercial relationship which ensures that Minehut can remain an ongoing destination available to Super League’s partners. 

 

Bylaw Amendment

 

On June 4, 2024, the Board of Directors (the “Board”) of the Company approved an amendment (the “Amendment”) to the Company’s Second Amended and Restated Bylaws, effective June 4, 2024, to reduce the number of shares that are required to be present at a meeting of the Company’s stockholders (a “Meeting”) for purposes of establishing a quorum. Prior to the Amendment, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock was required to establish a quorum for the transaction of business at a Meeting. As approved in the Amendment, the presence, in person or by proxy duly authorized, of the holders of not less than one-third (1/3) of the outstanding shares of stock entitled to vote will constitute a quorum for the transaction of business at a Meeting.

 

The Board adopted the Amendment to more practically obtain a quorum and conduct business at a Meeting. The Board based its decision on the increasing prevalence of brokerage firms opting to forgo discretionary or proportionate voting of the shares held by them in street name, which is making it increasingly difficult for companies with a large retail stockholder base to obtain a quorum of the majority. The change to the quorum requirement was made to improve the Company’s ability to hold Meetings when called. 

 

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and footnotes required by U.S. GAAP in annual financial statements have been omitted or condensed in accordance with quarterly reporting requirements of the Securities and Exchange Commission (“SEC”). These interim condensed consolidated financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 15, 2024.

 

The December 31, 2023 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The condensed consolidated interim financial statements of Super League include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of Super League’s financial position as of September 30, 2024, and results of its operations and its cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the entire fiscal year, or any future period.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

 

Reclassifications

 

Certain reclassifications to operating expense line items and revenue detail line items have been made to prior year amounts for consistency and comparability with the current year’s condensed consolidated financial statement presentation. These reclassifications had no effect on the reported total revenue, operating expense, total assets, total liabilities, total stockholders' equity, or net loss for the prior periods presented.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from these estimates. The Company believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, impairment of intangibles, stock-based compensation expense, capitalized internal-use-software costs, accounting for business combinations and related contingent consideration, derecognition of assets, accounting for convertible debt, including estimates and assumptions used to calculate the fair value of debt instruments, accounting for convertible preferred stock, including modifications and exchanges of equity and equity-linked instruments, accounting for warrant liabilities and accounting for income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective, or complex judgments.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company incurred net losses for the periods presented herein as reflected in the accompanying condensed consolidated statement of operations, and had an accumulated deficit of $263.7 million as of September 30, 2024. For the nine months ended September 30, 2024 and 2023, net cash used in operating activities totaled $8.2 million and $14.1 million, respectively.

 

The Company had cash and cash equivalents of $0.3 million and $7.6 million as of September 30, 2024 and December 31, 2023, respectively. To date, our principal sources of capital used to fund our operations and growth have been the net proceeds received from equity and debt financings. We have and will continue to use significant capital for the growth and development of our business, and, as such, we expect to seek additional capital either from operations, or that may be available from future issuance(s) of common stock, preferred stock and / or debt financings, to fund our planned operations. Accordingly, our results of operations and the implementati