2912 Colorado
Ave, Suite #203, Santa Monica, California 90404
VIA EDGAR
Mses. Aamira
Chaudhry and Theresa Brilliant
United States
Securities and Exchange Commission
Division of
Corporation Finance
Office of Trade
& Services
100 F Street,
NE
Washington,
D.C. 20549
Re:
Super
League Gaming, Inc.
Form
10-K for the Fiscal Year Ended December 31, 2020
Filed
March 19, 2021
File No.
001-38819
Ladies and
Gentlemen:
This letter is
submitted on behalf of Super League Gaming, Inc. (the
“Company”) in
response to the additional comment from the staff of the Division
of Corporation Finance, Office of Trade & Services (the
“Staff”) of the
Securities and Exchange Commission (the “Commission”) in a letter to the
Company dated October 5, 2021 with respect to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2020, filed with the Commission on March 19, 2021 (the
“Form 10-K”).
In this letter, the Staff’s additional comment is indicated
in italics, followed by the Company’s response
thereto.
1.
We note your response to prior comment 2. It appears that the
information provided in the response on costs included in cost of
revenues is the same description provided on page F-9 for costs
included in technology platform and infrastructure costs. Please
advise. Additionally, we note that you are a leading gaming
community and content platform powered by patented, proprietary
technology systems. Based on the nature of your operations, it
appears that technology platform and infrastructure costs are
essential to your business and without them, you would not be able
to generate revenues. We note, however, that these costs appear to
be significant in comparison to the amounts included in cost of
revenues. Please tell us your basis for determining whether a cost
is classified as cost of revenues or technology platform and
infrastructure costs.
Response: The Company
respectfully acknowledges the Staff’s comment and advises the
Staff that the Company classifies internal and external engineering
costs, internal use software amortization costs and cloud services
costs between (1) cost of revenues and (2) operating expenses based
on the nature of the costs incurred in the applicable period, as
further described below. In addition, the description of technology
and platform infrastructure costs provided on page F-9 of the Form
10-K under the heading, “Technology Platform and
Infrastructure Costs,” refers to and only includes internal
and external engineering costs, amortization expense, cloud
services and other related operating expenses that are not directly
attributable to revenues recognized in the applicable reporting
period, and therefore are included as a component of operating
expenses. The Company respectfully advises the Staff that the
Company’s response to the Staff’s comment #2 to the
Form 10-K, as set forth in the letter dated September 1, 2021 (the
“Prior Comment
Letter”), only referred to internal and external
engineering costs, amortization expense, cloud services costs and
other costs that are directly related to revenues recognized in the
reporting period, and therefore are included in cost of
revenues.
The Company
respectfully acknowledges its disclosures regarding the use of our
technology systems in connection with our community and content
platform offerings. In addition, the Company respectfully advises
the Staff that our technology platform, as outlined in the bullet
points below, is utilized by the Company for non-revenue generating
activities, as well as for revenue generating activities.
Consistent with our disclosure on page 5, Item 1.
“Business” of the Form 10-K, in general, components of
our platform are available on a free to use, “always on
basis,” and further, are utilized and offered as an audience
acquisition tool, as a means of growing our audience, engagement,
viewership, players and community. Components of our platform are
also used in connection with the satisfaction of performance
obligations under our revenue arrangements. This distinction forms
the basis of our classification of internal and external
engineering costs, amortization expense and cloud services costs
between cost of revenues and operating expenses.
Our technology
platform as contemplated in our disclosures under Item 1.
“Business” in our quarterly and annual reports,
including the 10-K, is comprised of a number of separate components
that when taken together represent our technology platform
offerings, as follows:
●
Minehut.com, free to play
social and gaming portal for Minecraft players, used largely as an
audience acquisition tool, as described above
●
Digital Tournament
Capabilities
●
Visualization and
Broadcast Capabilities
●
Framerate Gameplay
Highlights
We generate
revenues from (i) advertising, serving as a marketing channel
for brands and advertisers, (ii) content, distributing esports and
entertainment content, and (iii) direct to consumer offers
including digital subscriptions.
As previously
noted, internal and external engineering costs, amortization
expense and cloud services costs are classified as (1) cost of
revenues or (2) technology platform and infrastructure costs
included in operating expense, based on whether the costs are
directly related to revenue recognized in the applicable reporting
period, or whether the costs are incurred in connection with our
audience acquisition activities, for the purpose of growing our
audience, viewership, players and community. Costs directly related
to revenues recognized in the period are classified as cost of
revenues and costs related to audience acquisition are included in
technology platform and infrastructure costs in operating
expense.
Audience Acquisition Costs included in
Operating Expenses:
Operating
expenses includes the periodic cost of internal and external
engineering personnel, cloud and other platform services and the
amortization of internal use software costs, incurred in connection
with our audience acquisition and viewership expansion activities,
and not directly related to revenue generating activities in the
applicable period, including tools and product offering
development, testing, minor upgrades and features, free to use
services, corporate IT and general platform maintenance and
support.
For example,
our Minehut.com, Minecraft property is a free to play,
“always-on” free gaming server, that is largely used as
an audience acquisition tool, to increase awareness of Super
League, and increase engagement and viewership across our digital
properties. Internal and external engineering costs, cloud and
platform services and other costs incurred in connection with our
audience acquisition activities on Minehut.com are included in
operating expenses as they are not directly related to revenue
recognized.
As another
example, historically we have utilized certain components of our
technology platform to run esports tournaments and broadcasts that
are free to play as user engagement and audience / viewership
acquisition activities. In addition, we use certain components of
the technology platform to create broadcasts and original
programming as tools to boost audience and engagement on our own
social channels. Any internal and external engineering costs,
amortization expense and cloud services costs incurred in
connection with these activities is included in operating expenses,
as they are not revenue generating activities in the applicable
period.
Costs included in Cost of
Revenues:
We classify
direct costs incurred in connection with revenues recognized during
the period as cost of revenues. As described in our response to
comment #2 of the Prior Comment Letter, internal personnel costs
are classified as cost of revenues based on monthly engineering
employee timesheet information by project, third-party consultants
/ contractors, are classified as cost of revenues based on
documented invoice information by project, internal use software
costs that are specific to a revenue generating project are
amortized to cost of revenues over the estimated useful life of the
capitalized project costs, and cloud services costs are classified
as cost of revenues based on total server time usage statics by
specific revenue generating project.
For example, we
execute advertising campaigns from time to time on our Minehut.com
property. In connection with the satisfaction of our obligations
under the respective revenue agreements, we typically incur
internal and external engineering costs, cloud services and other
costs to satisfy the Company’s performance obligations under
the revenue agreement. These costs are identified and classified as
cost of revenues for the applicable period in accordance with the
methodologies summarized above.
Similarly, for
other revenue agreement obligations related to our broadcasting,
content, tournament or other capabilities included in the bullet
points above, that require engineering resource costs, cloud
services costs or other types of engineering and services costs,
those costs are identified and classified as cost of revenues for
the applicable period in accordance with the methodologies
summarized above.
The Company
appreciates that the aforementioned information regarding the uses
of the components of our technology platform as contemplated by our
periodic filings may be helpful disclosure to include in the
Company’s periodic filings moving forward. As such, the
Company respectfully advises the Staff that the Company intends to
provide additional disclosures , in future periodic filings,
beginning with the Company’s Quarterly Report on Form 10-Q
for the period ending September 30, 2021 and in all subsequent
quarterly and annual filings thereafter, as follows:
1.
Consolidated Condensed
Statements of Operations
Modify the line
item description from “Technology platform and
infrastructure” to “Engineering, Technology and
Development,” with a corresponding change to the heading for
the related footnote.
2.
Notes to the Consolidated
Financial Statements
Enhanced
disclosures regarding “Cost of Revenues,” as
follows:
Cost of
revenues includes direct costs incurred in connection with the
satisfaction of performance obligations under our revenue
arrangements, including internal and third-party engineering,
creative, content, broadcast and other personnel, talent and
influencer, content capture and production services, direct
marketing, cloud services, software, prizing, and venue
fees.
3.
Item 1. “Business
Description,” under “Our Scalable Technology
Platform”
Components of
our platform are available on a “free to use,”
“always on basis,” and further, are utilized and
offered as an audience acquisition tool, as a means of growing our
audience, engagement, viewership, players and community. Components
of our platform are also used in connection with the satisfaction
of performance obligations under our revenue
arrangements.
We hope that
the foregoing has been responsive to the Staff’s comments. If
you have any questions or would like further information regarding
the foregoing, please do not hesitate to contact either myself at
(949) 903-5120 or Ms. Jessica Sudweeks of Disclosure Law Group, the
Company’s corporate and securities counsel, at (619)
272-7063.
|
Sincerely,
/s/ Clayton Haynes
Clayton
Haynes
Chief Financial
Officer
Super League
Gaming, Inc.
|
cc: Ms.
Ann Hand
Chief Executive
Officer
Super League
Gaming, Inc.
Ms. Jessica R.
Sudweeks
Partner
Disclosure Law
Group,
a Professional
Corporation