Certain reclassifications to operating expense line items have been made to prior year amounts for consistency and comparability with the current year’s financial statements presentation. These reclassifications had no effect on the reported total operating expenses for the periods presented.

The accompanying interim condensed financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, the Company incurred net losses of $9.7 million and $21.6 million during the six months ended June 30, 2020 and 2019, respectively, and had an accumulated deficit of $95.5 million as of June 30, 2020. 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 convertible debt and in-kind advertising expense, totaled approximately $36.0 million. For the six months ended June 30, 2020 and 2019, noncash expenses (excluding depreciation and amortization of fixed and intangible assets, respectively) included in net loss, primarily comprised of stock-based compensation and noncash interest charges (2019 period only), totaled $1.1 million and $14.5 million, respectively. For the six months ended June 30, 2020 and 2019, net cash used in operating activities totaled $8.6 million and $6.9 million, respectively.

As of June 30, 2020, the Company had cash and cash equivalents of approximately $6.2 million. The Company has used and will continue to use significant capital for the growth and development of its business. The Company’s management expects operating losses to continue in the near term in connection with the pursuit of its strategic objectives. As such, management believes its current cash position, absent receipt of additional capital either from operations or that may be available from future issuance(s) of common stock or debt financings, is not sufficient to fund our planned operations for the twelve months following the issuance of these financial statements. As a result, our current financial condition raises substantial doubt about our ability to continue as a going concern.

We are focused on expanding our service offerings and revenue growth opportunities through internal development, collaborations, and through one or more strategic acquisitions. Management is currently exploring several alternatives for raising capital to facilitate our growth and execute our business strategy, including strategic partnerships or other forms of equity or debt financings.

The Company considers historical operating results, capital resources and financial position, in combination with current projections and estimates, as part of its plan to fund operations over a reasonable period. Management's considerations assume, among other things, that the Company will continue to be successful implementing its business strategy, that there will be no material adverse developments in the business, liquidity or capital requirements and, if necessary, the Company will be able to raise additional equity or debt financing on acceptable terms. If one or more of these factors do not occur as expected, it could cause a reduction or delay of its business activities, sales of material assets, default on its obligations, or forced insolvency. The accompanying financial statements do not contain any adjustments which might be necessary if the Company were unable to continue as a going concern. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.

Recent Financing Activities

As described at Note 5, on May 4, 2020, the Company entered into a potentially forgivable loan from the U.S. Small Business Administration (“SBA”) resulting in net proceeds of approximately $1.2 million pursuant to the Paycheck Protection Program enacted by Congress under the CARES Act administered by the SBA.

As described at Note 6, in May 2020, the Company issued 1,825,000 shares of common stock at a price of $3.50 per share, raising aggregate net proceeds of approximately $6.0 million, after deducting placement agent fees of $319,000 and other offering expenses totaling $116,000, pursuant to a registered direct offering. The net proceeds are for working capital and other 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.

Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. In this regard, revenue is recognized when: (i) the parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations; (ii) the entity can identify each party’s rights regarding the goods or services to be transferred; (iii) the entity can identify the payment terms for the goods or services to be transferred; (iv) the contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract);and (v) it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Super League generates revenues and related cash flows from (i) sponsorships and advertising, including third-party content sales and (ii) direct to consumer offers including tournament fees for participation in our physical and online multiplayer gaming experiences, digital subscriptions and merchandise sales.

Sponsorships and Advertising:

The Company generates sponsorship revenues primarily from sales of various forms of sponsorships and promotional campaigns for its online gameplay and content platforms and from sponsorship at its in-person esports experiences. These 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.

Sponsorship revenues also include 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 the Super League gaming and content technology platform.

Sponsorship arrangements typically include contract terms for time periods ranging from several weeks or months to multi-year arrangements.

We also 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 sponsorship arrangements that include performance obligations satisfied over time, customers typically simultaneously receive and consume the benefits under the agreement as the Company satisfies its performance obligations, over the applicable contract term. As such, revenue is recognized over the contract term based upon estimates of progress toward complete satisfaction of the contract performance obligations (typically utilizing a time, effort or delivery-based method of estimation). Payments are typically due from customers during the term of the arrangement.

Revenue for sponsorship arrangements for one-off branded experiences and/or the development of content tailored specifically for the Company’s partners’ distribution channels that provide for a contractual delivery or performance date, is recognized when performance is substantially complete and or delivery occurs.

For advertising and third-party content arrangements that include performance obligations satisfied over time, customers typically simultaneously receive and consume the benefits under the arrangement as we satisfy our performance obligations, over the applicable contract term. As such, revenue is recognized over the contract term based upon estimates of progress toward complete satisfaction of the contract performance obligations (typically utilizing a time, effort or delivery-based method of estimation). Payments are typically due from customers during the term of the arrangement for longer-term campaigns, and once delivery is complete for shorter-term campaigns.

Direct to Consumer:

Direct to consumer revenues include online and physical tournament fees, digital subscriptions, digital goods and merchandise. 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. Payments are typically due from customers at the point of sale.

Revenue billed or collected in advance is recorded as deferred revenue until the event occurs or until applicable performance obligations are satisfied, as described above.

Revenue was comprised of the following for the periods presented:

For the three and six months ended June 30, 2020, 46% and 35% of revenues were recognized at a single point in time, and 54% and 65% of revenues were recognized over time, respectively. For the three and six months ended June 30, 2019, 35% and 55% of revenues were recognized at a point in time, and 65% and 45% of revenues were recognized over time, respectively.

For the three and six months ended June 30, 2020 and 2019, 46% and 35% of revenues were recognized at a single point in time, and 54% and 65% of revenues were recognized over time, respectively. For the three and six months ended June 30, 2019, 35% and 55% of revenues were recognized at a point in time, and 65% and 45% of revenues were recognized over time, respectively.

Gaming experience and Super League brand related advertising costs include the cost of ad production, social media, print media, marketing, promotions, and merchandising. The Company expenses advertising costs as incurred. Advertising costs are included in selling, marketing and advertising expenses in the accompanying statements of operations. Advertising expenses for the three and six months ended June 30, 2020 were $20,000 and $87,000, respectively. Advertising expenses for the three and six months ended June 30, 2019 were $54,000 and $84,000, respectively.

Concentrations. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, and vendors whose accounts payable balances individually represented 10% or more of the Company’s total accounts payable, as follows:

For the three and six months ended June 30, 2020, six customers accounted for 84% and four customers accounted for 61% of revenues, respectively. For the three and six months ended June 30, 2019, four customers accounted for 98% and 89% of revenues, respectively. At June 30, 2020, four customers accounted for 84% of accounts receivable. At December 31, 2019, one customer accounted for 70% of accounts receivable. At June 30, 2020, one vendor accounted for 55% of accounts payable. At December 31, 2019, one vendor accounted for 21% of accounts payable.

The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. Management believes that there was no impairment of long-lived assets for the periods presented herein. There can be no assurance, however, that market conditions or demand for the Company’s products or services will not change, which could result in long-lived asset impairment charges in the future.

Concentrations. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, and vendors whose accounts payable balances individually represented 10% or more of the Company’s total accounts payable, as follows:

For the three and six months ended June 30, 2020, six customers accounted for 84% and four customers accounted for 61% of revenues, respectively. For the three and six months ended June 30, 2019, four customers accounted for 98% and 89% of revenues, respectively. At June 30, 2020, four customers accounted for 84% of accounts receivable. At December 31, 2019, one customer accounted for 70% of accounts receivable. At June 30, 2020, one vendor accounted for 55% of accounts payable. At December 31, 2019, one vendor accounted for 21% of accounts payable.

Recent Accounting Pronouncements - Recently 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 Company adopted this new standard effective January 1, 2020. The adoption of the new standard did not have a material impact on the Company’s financial position or results of operations for the current or prior periods.

Recent Accounting Pronouncements – Not Yet Adopted.

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, 2021 and early adoption is permitted. The Company is evaluating the impact that this guidance will have on its financial position, results of operations and financial statement disclosures.

In June 2016, the FASB issued guidance on the measurement and recognition of credit losses on most financial assets. For trade receivables, loans, and held-to-maturity debt securities, the current probable loss recognition methodology is being replaced by an expected credit loss model. For available-for-sale debt securities, the recognition model on credit losses is generally unchanged, except the losses will be presented as an adjustable allowance. The guidance will be applied retrospectively with the cumulative effect recognized as of the date of adoption. The guidance will become effective at the beginning of the Company’s first quarter of the fiscal year ending December 31, 2021 but can be adopted as early as the beginning of the first quarter of fiscal year ending December 31, 2020. The Company is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.