Super League Gaming, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company develops and publishes games and immersive digital experiences, and sells advertising, content and direct-to-consumer offerings. Figures below are in U.S. dollars.
Financial performance and liquidity
- Q2 revenue: $5.052 million, up 18% from $4.279 million. Gross profit was $2.141 million; gross margin was 42%, versus 43%. Operating loss was $8.187 million and net loss was $6.836 million, or $0.17 per share, compared with a $8.743 million operating loss and $8.720 million net loss, or $0.24 per share, in Q2 2022.
- First-half revenue: $8.374 million, up 4% from $8.047 million. Excluding $919,000 of prior-year product design and software development kit revenue, management said revenue grew 17%. Gross profit was $3.517 million and gross margin was 42%, down from 46%. Operating loss was $15.406 million; net loss was $14.072 million, or $0.36 per share, versus $16.704 million and $16.636 million, or $0.45 per share, respectively, in the prior-year period.
- Revenue mix: Q2 media and advertising revenue was $3.634 million (+3%); publishing and content studio was $1.030 million (+258%); direct-to-consumer was $388,000 (-18%). First-half publishing and content studio growth was strong, while media and advertising was nearly flat and direct-to-consumer declined 21%.
- Expenses: First-half operating expenses fell 7% to $18.923 million. Engineering, technology and development expense declined 41%, and general and administrative expense declined 18%. The reductions reflect lower platform/cloud and personnel costs and other cost controls.
- Cash and working capital: Cash was $2.569 million at June 30, versus $2.482 million at year-end 2022. Current assets were $8.878 million and current liabilities $7.509 million (current ratio approximately 1.18). Operating cash use was $10.792 million in the first half, compared with $10.247 million a year earlier. Financing provided $11.531 million, primarily from preferred-stock proceeds; investing used $652,000.
- Debt and other obligations: The remaining convertible notes and accrued interest were repaid in Q1; the company reported no long-term debt or committed credit line at June 30. It had $1.485 million of current and $656,000 of long-term accrued contingent consideration, plus a $1.764 million warrant liability.
Material changes, transactions and unusual items
- On May 4, 2023, the company acquired substantially all of Melon, Inc.’s assets for stated closing consideration of $900,000: $150,000 in cash/forgiven advances and $750,000 in common stock. The preliminary purchase-price allocation included $1.864 million of goodwill. Up to $2.35 million of additional consideration is contingent on revenue milestones through 2024; the filing does not provide a clear breakdown of the milestone thresholds.
- The company recorded a $2.284 million loss from disposing of Bannerfy-related developed technology intangible assets, following a decision to allocate resources elsewhere. This was a significant noncash charge. It also recognized a $313,000 tax benefit related to the disposal.
- A $1.040 million gain from remeasuring placement-agent warrant liabilities improved reported other income. The warrant liability was $1.764 million at quarter-end; the valuation uses Level 3 inputs.
- Preferred-stock financings generated $12.070 million net cash in the first half. Series A and Series AA preferred securities carry conversion and dividend features. Series A conversions issued 7,995,105 common shares in June. The company increased authorized common shares from 100 million to 400 million in May.
- Common shares outstanding were 48,334,818 at June 30 and 50,426,199 at August 10. The filing also reports substantial potential dilution from preferred-stock conversions, placement-agent warrants, options and other awards.
Outlook, management commentary and risks
- No numerical financial guidance is provided. Management described larger advertising deals, repeat customers, improved direct-sales effectiveness and cost reductions. It said persistent branded virtual worlds may support more recurring and predictable revenue over time.
- Management expects revenue to be seasonally stronger in the second half, with Q4 typically the highest quarter, reflecting advertising and holiday-season patterns. This is commentary, not a quantified forecast.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing recurring losses, $10.8 million of first-half operating cash use, limited cash and dependence on additional capital. Management is considering equity, debt and strategic-partnership financing; availability and acceptable terms are not assured.
- Nasdaq had granted an extension through October 2, 2023 to regain compliance with the $1.00 minimum bid-price requirement; failure could lead to delisting proceedings. The company said a reverse split may be necessary to cure the deficiency.
- Other risks include integrating Melon and realizing expected benefits, possible unknown liabilities, customer concentration, continued financing needs, and potential share dilution. Two customers accounted for 22% of Q2 revenue; three customers represented 36% of receivables at June 30.
- After quarter-end, the company announced on August 2 that it joined the Roblox Partner Program, adding access to Roblox Immersive Ads. The filing does not quantify expected financial effects.
Important facts for investors to verify
- Near-term liquidity, operating cash burn, and the timing and terms of any additional financing; assess the going-concern disclosure against subsequent developments.
- Melon’s revenue contribution and integration progress, earnout performance, and whether the preliminary purchase-price allocation changes.
- Potential dilution from preferred conversion shares, preferred dividends, warrants, options, equity awards and the expanded authorized-share count; reconcile these with the latest shares outstanding.
- Progress toward Nasdaq’s minimum bid-price requirement and any resulting corporate action or listing-status change.
- Whether revenue growth and improved cost controls persist, particularly given weaker direct-to-consumer revenue, lower first-half gross margin and seasonal revenue patterns.