Super League Gaming, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The filing describes Super League Gaming as a publisher and creator of gaming experiences, advertising, content, and direct-to-consumer products across immersive digital platforms. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $3.322 million | $3.768 million; down 12% |
| Gross profit / margin | $1.374 million / 41% | $1.859 million / 49% |
| Operating expenses | $8.594 million | $9.820 million; down 12% |
| Operating loss | $7.220 million | $7.961 million |
| Net loss | $7.236 million; $0.19 per share | $7.916 million; $0.21 per share |
| Operating cash flow | $(2.978) million | $(6.287) million |
| Cash and cash equivalents | $0.590 million at March 31 | $2.482 million at December 31, 2022 |
| Total assets / stockholders’ equity | $24.402 million / $14.607 million | $30.210 million / $19.204 million at December 31, 2022 |
Investing cash outflow was $0.294 million, including $0.281 million of capitalized software development costs. Financing provided $1.380 million net: $1.919 million from preferred stock, less $0.539 million of convertible-note principal payments. The remaining convertible note principal and accrued interest were paid in full during the quarter; no note balance remained at March 31. Current liabilities totaled $9.482 million, including $3.674 million of accrued contingent consideration. The filing reports no long-term debt or committed credit lines at quarter-end.
Changes versus the prior-year quarter
- Reported revenue fell 12%, but the prior-year quarter included $0.919 million of product-design and software-development-kit revenue. Excluding that item, management said revenue increased $0.473 million, or 17%.
- Media and advertising revenue declined 10%; direct advertising revenue per customer fell 36%, partly offset by a $0.467 million increase in reseller revenue.
- Publishing and content studio revenue was down 9% as reported; excluding the prior-year development agreement revenue, management said it increased $0.786 million, or 162%.
- Direct-to-consumer revenue declined 25% to $0.382 million.
- Operating expenses decreased $1.226 million, primarily due to lower engineering, technology, and development costs, including reduced cloud and platform spending. Contingent-consideration expense of $0.468 million was recorded in Q1 2023, versus none in Q1 2022.
- Despite lower reported revenue and gross margin, net loss narrowed by $0.680 million. Operating cash use also improved year over year.
Outlook, financing, and notable items
- Going concern: Management stated that the company’s recurring losses, $218.0 million accumulated deficit, cash of $0.590 million, and reliance on additional financing raise substantial doubt about its ability to continue as a going concern. Management plans to pursue equity or debt financing and strategic partnerships, but gave no assurance that financing will be available on acceptable terms.
- Subsequent financing: Preferred-stock offerings completed from April 19 through May 5, 2023 raised $11.231 million gross and $9.869 million net, before any further use of proceeds. The securities are convertible into an indicated 23.532 million common shares; placement-agent warrants cover a further indicated 3.196 million shares. Series AA terms include share dividends, conversion-price adjustment provisions, and investor rights. These financings occurred after quarter-end.
- Super Biz earn-out: In April, the company paid accrued consideration for the initial earn-out period with $2.9 million cash and 987,973 common shares. The March 31 liability was $3.674 million.
- Melon acquisition: On May 4, 2023, the company acquired substantially all of Melon’s assets for $0.900 million—$0.150 million through forgiveness of advances and $0.750 million in common stock. Up to another $2.350 million is payable against revenue milestones for 2023 and 2024, in cash and stock. The company also granted the former owners’ employees RSUs covering 2,075,550 shares. Integration and unknown-liability risks are disclosed.
- Nasdaq listing: The company received an extension through October 2, 2023 to regain compliance with the $1.00 minimum bid-price requirement. Failure to regain compliance could lead to delisting proceedings; a reverse stock split may be necessary.
- Seasonality: Management says revenue, particularly advertising, is generally higher in the second half of the fiscal year, with Q4 typically strongest. No specific revenue or earnings guidance was provided.
- Other risks and controls: Revenue is concentrated: three customers accounted for 37% of Q1 revenue, and three customers represented 58% of accounts receivable at March 31. Management reported disclosure controls were effective and no material change in internal control over financial reporting. No legal proceedings were reported.
Important facts for investors to verify
- Cash runway and financing needs after the quarter-end preferred-stock proceeds, contingent-consideration payment, and Melon acquisition.
- Potential dilution from convertible preferred stock, preferred-stock dividends, placement-agent warrants, and acquisition-related RSUs; the filing indicates substantial potential conversion shares.
- Whether the company regains Nasdaq’s minimum bid-price compliance by October 2, 2023 and whether a reverse split is required.
- Whether revenue growth excluding the prior-year development agreement is sustained, and whether reseller growth can offset weaker direct advertising and direct-to-consumer revenue.
- Achievement and cash-versus-stock settlement of Super Biz and Melon earn-outs, and the financial contribution and integration costs of Melon.
- Ongoing customer concentration, gross-margin trends, and progress toward reducing operating cash burn and addressing the disclosed substantial doubt about going concern.