Super League Gaming, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The filing identifies the registrant as Super League Gaming, Inc. (NASDAQ: SLGG). The company operates esports experiences and content platforms, including Framerate and Minehut.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $324,000 | $223,000 | $567,000 | $472,000 |
| Gross profit | $208,000 | $110,000 | $334,000 | $285,000 |
| Gross margin | 64.2% | 49.3% | 58.9% | 60.4% |
| Operating expenses | $4.767 million | $5.615 million | $10.041 million | $11.926 million |
| Operating loss | $4.559 million | $5.505 million | $9.707 million | $11.641 million |
| Net loss | $4.560 million | $5.505 million | $9.694 million | $21.574 million |
| Loss per share, basic and diluted | $(0.48) | $(0.65) | $(1.07) | $(3.00) |
- Q2 revenue rose 45%; first-half revenue rose 20%. Q2 sponsorship and advertising revenue was $285,000, and direct-to-consumer revenue was $39,000. For the first half, those categories were $513,000 and $54,000, respectively.
- Q2 gross margin improved as revenue growth outpaced cost of revenue; first-half margin declined slightly. Operating expenses fell year over year, notably due to lower general and administrative expense and lower stock-based compensation than in 2019. Technology platform and infrastructure costs increased.
- First-half operating cash outflow was $8.585 million, versus $6.883 million in 2019. Investing cash outflow was $769,000; financing provided $7.153 million. Cash decreased $2.201 million to $6.241 million.
- At June 30, cash was $6.241 million, current assets $8.099 million, current liabilities $850,000, and working capital approximately $6.0 million. Total liabilities were $2.052 million, including a $1.202 million long-term PPP loan. Accumulated deficit was $95.506 million.
Material changes and business developments
- The May 2020 registered direct offering issued 1.825 million shares at $3.50 per share and raised approximately $6.0 million net. Shares outstanding increased to 10,460,696 at June 30, from 8,573,922 at December 31, 2019.
- The company received approximately $1.2 million under a potentially forgivable Paycheck Protection Program loan. It bears 1% interest, matures May 4, 2022, and payments were deferred until at least December 4, 2020. Forgiveness depends on qualifying use and compliance with program requirements.
- In April, the company amended its ggCircuit arrangement, ending certain in-person gaming-center rights and obtaining rights focused on online play at home. It accelerated $413,000 of amortization on terminated licenses and related software costs during the first half.
- Management reported 1.96 million registered users and 30.5 million gameplay and engagement hours by June 30, compared with approximately 980,000 users at year-end 2019 and 15.0 million hours for full-year 2019. The company reported 808.5 million views and impressions in the first half and one billion year-to-date in July.
Outlook, risks and contingencies
- Management expects operating losses to continue in the near term and states that existing cash, without additional capital, is insufficient to fund planned operations for the twelve months following issuance. The filing says this raises substantial doubt about the company’s ability to continue as a going concern; additional financing is not assured.
- COVID-19 contributed to advertiser and sponsor program deferrals, although the company reported no cancellations of existing programs. Management said audience engagement grew during the pandemic, but future effects on advertising demand, retail expansion and in-person events remain uncertain.
- Management is pursuing monetization through advertising and content sales, direct-to-consumer offers, a planned digital subscription relaunch and an early-stage micro-transaction marketplace. The filing provides no quantified revenue or profitability guidance.
- Revenue concentration remains material: six customers generated 84% of Q2 revenue; four customers generated 61% of first-half revenue. The filing also reports four customers represented 84% of receivables at June 30.
- Other key risks include ongoing losses and funding needs, dependence on sponsors and game publishers, competition, ability to convert engagement into revenue, cybersecurity and privacy exposure, and the uncertain impact of COVID-19. The company reported no legal proceedings and no subsequent events considered reasonably likely to affect the reported statements.
Important facts for investors to verify
- Progress on financing and cash runway, including any later capital raises, operating cash use and the going-concern assessment.
- PPP loan forgiveness status, eligible spending and remaining repayment obligations.
- Whether rising user, engagement and view metrics convert into durable advertising, sponsorship and direct-to-consumer revenue.
- Customer concentration and receivables collection; the filing gives differing vendor-concentration figures in separate sections (55% and 48% of accounts payable).
- Effects of the ggCircuit amendment and accelerated amortization, plus continued platform and infrastructure spending.
- Potential shareholder dilution and the use of proceeds from the May stock offering.