Super League Gaming, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company operates a gaming community and content platform, with revenue from advertising and sponsorships, content sales, and direct-to-consumer offers.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $788,000 | $243,000; up 224% |
| Gross profit and margin | $446,000; approximately 56.6% | $126,000; approximately 51.9% |
| Operating expenses | $5.072 million | $5.274 million; down 4% |
| Operating loss | $4.626 million | $5.148 million |
| Net loss | $4.625 million; $0.23 per share | $5.134 million; $0.60 per share |
| Cash used in operations | $4.370 million | $3.388 million |
| Cash used in investing | $267,000 | $283,000 |
| Cash and cash equivalents | $36.742 million at March 31, 2021 | $7.942 million at December 31, 2020 |
Advertising and sponsorship revenue was $558,000, content sales $166,000, and direct-to-consumer revenue $64,000. Revenue growth reflected higher advertising on owned digital channels and increased content sales. Cost of revenue rose 192% to $342,000, less than revenue growth; gross margin consequently improved.
At March 31, 2021, total assets were $43.019 million, current liabilities $1.645 million, total liabilities $2.856 million, and stockholders’ equity $40.163 million. Long-term debt included a $1.211 million PPP loan bearing 1% interest; the company’s forgiveness application was awaiting SBA review. The company reported no committed credit lines. It had $1.876 million of insurance-premium financing payments due within one year.
Material changes and developments
- Q1 registered direct stock offerings raised approximately $33.6 million net. The company issued 7,516,253 shares during the quarter; outstanding shares were 23,133,918 at March 31, 2021, versus 15,483,010 at year-end 2020.
- Revenue increased 224% year over year. Advertising and sponsorships rose 170%; content and direct-to-consumer revenue each increased by more than 300% from comparatively small prior-year bases.
- Operating expenses declined 4%. Technology platform and infrastructure costs fell 18%, while selling, marketing and advertising costs rose 16%. General and administrative expense decreased 3%, including $217,000 in professional fees related to the proposed Mobcrush acquisition.
- Operating cash use increased to $4.370 million from $3.388 million. Cash increased primarily because of the equity offerings, not operating cash generation.
- Engagement indicators grew: quarterly views and impressions were 578 million, up 190%; registered users reached 3.7 million, up 174% year over year; and engagement hours were approximately 34.6 million, up approximately 245%.
Outlook, risks and contingencies
- Management said existing cash was expected to fund requirements through at least March 2022, but cautioned that unforeseen difficulties could consume capital faster. The company may need additional equity or debt financing, including to fund strategic acquisitions. No numerical revenue or earnings guidance was provided.
- The proposed all-stock Mobcrush acquisition was not complete as of the filing. It contemplated issuing 12,582,204 Super League shares, subject to closing conditions including shareholder approval. An April 20 amendment extended the termination date to June 30, 2021, and provided for vested Mobcrush options to be exercised and unvested options canceled without increasing the stated merger consideration. The company described the transaction as expected to be accretive; that expectation is forward-looking.
- Key merger risks include failure or delay to close, integration challenges, unanticipated Mobcrush liabilities, costs that may not be offset by synergies, and dilution to existing shareholders. Management also cited risks to Mobcrush’s licensed intellectual-property rights if license obligations are not met.
- COVID-19 effects remained uncertain, including potential impacts on advertising demand, retail expansion, and in-person esports experiences. The company said its predominantly digital business model could limit some effects.
- Three customers generated 43% of Q1 revenue. Five customers represented 58% of accounts receivable at quarter-end. These concentrations create customer and collection exposure.
- Management reported no legal proceedings and no material changes to most previously disclosed risk factors. Disclosure controls and procedures were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Mobcrush shareholder and regulatory approvals were obtained, whether the merger closed, and the final share consideration and dilution.
- Subsequent cash burn, revenue conversion and funding needs relative to management’s stated cash runway through March 2022.
- Whether the PPP loan was forgiven and whether any repayment or interest obligations remain.
- Whether revenue growth and engagement gains persist, and whether customer concentration changes.
- How management’s forward-looking accretion and synergy expectations compare with realized acquisition costs and results.