S-1/A 1 slgs1-am32019.htm S-1/A Super League Gaming S-1
 
 
 
As filed with the Securities and Exchange Commission on February 22, 2019
 
Registration No. 333-229144
  

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
AMENDMENT NO. 3
TO
FORM S-1
 
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
 
 
SUPER LEAGUE GAMING, INC.
(Exact name of registrant as specified in its charter) 
 
 
 
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
7374
(Primary Standard Industrial
Classification Code Number)
 
47-1990734
(I.R.S. Employer
Identification Number)
 
2906 Colorado Ave.
Santa Monica, California 90404
(855) 248-7079
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices) 
 
Ann Hand
President and Chief Executive Officer
Super League Gaming, Inc.
2906 Colorado Ave.
Santa Monica, California 90404
(802) 294-2754
(Name, address, including zip code, and telephone number, including area code, of agent for service) 
 
Copies to:
Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group,
A Professional Corporation
655 West Broadway, Suite 870
San Diego, California 92101
(619) 272-7050
Jonathan R. Zimmerman, Esq.
Ben A. Stacke, Esq.
Ryan R. Woessner, Esq.
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
(612) 766-7000
 
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement. 
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.    ☐
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ☐
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ☐
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
 
Large accelerated filer ☐
 
Accelerated filer ☐
 
Non-accelerated filer ☐
 
Smaller reporting company ☒
Emerging growth company ☒
 
           If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    
 
 

 
 
 
 
 

CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be Registered
 
Amount to be
Registered (1) (2)
 
 
Proposed Maximum Offering Price Per Share
 
 
Proposed  Maximum
Aggregate Offering 
Price (1)(2)
 
 
Amount of
Registration Fee (3)
 
Common Stock, par value $0.001 per share  
  2,613,636 
 12.00 
 31,363,632 
 3,801.28
  
(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.
  
(2)
Includes an additional 340,909 shares that the underwriters have the option to purchase to cover over- allotments, if any.
 
(3)
The registrant previously paid this amount in connection with prior filings of this Registration Statement.
 
 
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 
 
 
 
 
 
 
 
 
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
 
 
 
 
SUBJECT TO COMPLETION, DATED  FEBRUARY 22, 2019
 
 
PRELIMINARY PROSPECTUS
 
2,272,727 Shares
 
 
SUPER LEAGUE GAMING, INC.
 
We are offering 2,272,727 shares of our common stock. This is our initial public offering and no public market currently exists for our common stock. The initial public offering price of our common stock is expected to be between $10.00 and $12.00 per share. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “SLGG.”
 
We are an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary – Implications of Being an Emerging Growth Company.”
 
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of the risks that you should consider in connection with an investment in our securities.
 
 
 
Per Share
 
 
Total
 
Initial public offering price
 $  
 $  
Underwriting discounts and commissions(1)
 $  
 $  
Proceeds, before expenses, to us
 $  
 $  
 
(1)
In addition, we have agreed to issue a warrant to purchase up to 68,182 shares of our common stock to the underwriters, which equates to 3.0% of the number of shares of our common stock to be issued and sold in this offering, and to reimburse the underwriters for certain expenses. See “Underwriting” for additional information regarding this warrant and underwriting compensation generally. 
 

We have granted the underwriters an option to buy up to an additional 340,909 shares of our common stock to cover over-allotments, if any. The underwriters may exercise this option at any time during the 30-day period from the date of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Delivery of the shares will be made on or about                     , 2019, subject to customary closing conditions.
 
 
Joint Book-Running Managers
Northland Capital Markets
Lake Street

Co-Manager
National Securities Corporation
 
 
The date of this prospectus is                     , 2019
 
 
 
 
 
 
TABLE OF CONTENTS
 
 
Page
 
 
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 54
 75
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 95
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 102
 108
 109
 109
 109
 F-1
 
 
 
You should rely only on the information contained in this prospectus or in any free writing prospectus we or the underwriters may authorize to be delivered or made available to you. Neither we or the underwriters have authorized anyone to provide you with different information. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, operating results and prospects may have changed since that date.
 
For investors outside of the United States: No action is being taken in any jurisdiction outside of the United States that would permit a public offering of the shares of our common stock or possession or distribution of this prospectus in any such jurisdiction. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 
In this prospectus, unless the context indicates otherwise, references to “Super League,” “SLG,” “we,” the “Company,” “our” and “us” refer to Super League Gaming, Inc., a Delaware corporation, and references to the “Board” or the “Board of Directors” means the Board of Directors of the Company.
 
 
 
 
 
 
 
 
 
 
 
PROSPECTUS SUMMARY
 
 
 
 
 
 
 
 
 
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and our financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision.
 
We are a leading amateur esports community and content platform offering a personalized experience to the large and underserved global audience of 2.3 billion gamers, as estimated by NewZoo. According to the Electronic Software Association, the avid gamer, identified as individuals who are considered the most frequent gamers, sees gameplay as central to their social life with 55% playing video games to connect with friends and 46% to spend time with family members. Through our proprietary, cloud-based technology platform, we connect our network of gamers, venues and brand partners to enable local, social and competitive esports that can be uniquely broadcast through our platform. We offer daily and season-focused offerings for which amateur competitive gamers establish meaningful connections with each other while improving their skills.
 
As a first-mover in defining the amateur esports category in 2015, we believe we are one of the most recognizable brands for amateur gamers. We have multi-year strategic partnerships with leading game publishers such as Microsoft Corporation (“Microsoft”) and Riot Games, Inc. (“Riot Games”) with titles including Minecraft and League of Legends, respectively, as well as relationships with Supercell and Epic Games with respect to Clash Royale and Fortnite, respectively, to drive use among our member base and further penetrate our target market. We deliver enhanced gaming experiences to our members with these titles through our platform, and we provide our venue and brand partners access to our member network and platform technology. We believe our members and the organizations that use our platform are only beginning to leverage the power of the consumer experience, commercial benefits, and data analytics our technology enables. Targeting Generation Z and Millennials, members join through accessible, free-to-play experiences, allowing us to reach the expansive amateur gaming market. We intend to convert members into subscribers by offering two tiers of competitive gameplay engagement: (i) our monthly subscription for the more casual competitive player, offering access to exclusive online tournaments and member benefits; and (ii) our semi-annual season pass for the more competitive player offering access to our city leagues and advanced amateur esports offers along with membership rewards.
 
Our Platform
 
Our proprietary cloud-based platform provides amateur gamers a modernized way to connect, play and view games in real-time. We believe our platform will become central to the esports ecosystem and allow us to capture a significant portion of our members’ gameplay hours and share-of-wallet for greater lifetime value. Our platform aggregates a diverse audience of gamers across multiple game titles and provides our members with access to online, in-person and hybrid competitive experiences and broadcasts that are accessible to a broad range of ages and demographics. Through our platform, we have three core components that enable differentiated and immersive gameplay at scale: (i) our matchmaking system allows members to create their public-facing gamer persona and applies distinct criteria and filters around team size, skill level and geography to intelligently match our members for competitive gameplay and facilitate rich online and in-person social connections; (ii) our tournament system supports all major components of tournament operations and automation including, for example, ticketing, user management, event management, event operations, Application Program Interface (“API”) integrations that power direct connectivity between our platform and the servers of each game publisher, data services, leaderboards and prize fulfillment; and (iii) our proprietary, cloud-based visualization and broadcast system is capable of capturing and live streaming gameplay across all digital distribution platforms and delivering separate streams simultaneously to multiple locations and channels.
 
The end broadcast result is our customizable Heads-up-Display (“HUD”), which complements gameplay through dynamic visualization of player and team statistics, competitive status updates and contextual content that can also be uniquely displayed on a hyper-local level with content specific to the target markets, associated communities and players participating across multiple venues. In addition, our proprietary SuperLeagueTV digital network is the first esports media property principally dedicated to amateur players and teams. Currently, live stream gameplay and video-on-demand (“VOD”) content is broadcast through SuperLeagueTV on Twitch and YouTube. We believe SuperLeagueTV’s digital broadcast distribution is an essential way to drive viewership and membership interest, along with new game title expansion and additional online and in-person experiences through our distributed venue partner network.
 
 
 
 
 
 
 
 
 
 
 
Our Vision and History
 
Our vision is to make Super League Gaming the preeminent brand and platform for amateur esports. We do this by providing a proprietary, end-to-end platform that allows our members to compete, socialize and spectate premium amateur esports gameplay and enables a wide ecosystem of partners to bring Super League experiences at scale to gamers around the world.
 
After securing strategic partnerships with the publishers of top-tier game titles beginning in 2016, we became the first consumer of our platform technology through the establishment of our city league consisting of 16 teams based in various U.S. cities built around Minecraft, League of Legends and, most recently, Clash Royale. In 2017, we further differentiated our offering by migrating to a cloud-based technology platform for scale while continuing to build and establish the Super League Gaming brand. We also developed intelligent technology that facilitates personalized experiences and matchmaking for gamers, and audience-targeted gameplay broadcasting content at scale. We are now positioned to unlock the platform more extensively to new game titles and a distributed network of venue operators and gameplay organizers in order to further develop a self-organizing marketplace for online and in-person gaming experiences.
 
Industry Overview - The Esports Ecosystem
 
The consumer appetite for esports continues to grow at a rapid pace with passionate fans across the globe. According to NewZoo, the overall value of the global gaming market could reach approximately $137.9 billion by the end of 2018, representing an estimated year over year increase of 13.3%, or $16.2 billion from 2017. The consumer appetite for esports continues to grow at a rapid pace with passionate fans across the globe. Key trends fueling this growth include the rise of live streaming, real-time social networking within games, and multi-generational and lifestyle gaming that integrates several aspects of an individual gamer’s life with the core game, including online play, downloadable content, achievements and item collection.
 
In particular, the professional esports industry is growing quickly, evidenced through new leagues, teams and broadcast distribution channels, and this growth is attracting high-profile esports investments from brands, media organizations and traditional sports rights holders. As professional esports player salaries and the value of broadcast media rights have risen substantially, there is large unmet demand at the amateur level for competitions and viewing content, which, for esports fans, is predominantly consumed through live streaming and over-the-top (“OTT”) channels. The following data points illustrate the vast growth opportunity for global esports:
 
Recent reports show a “$15 billion blue sky revenue opportunity” for professional esports due to the highly engaged and untapped fanbase (Merrill Lynch Interactive Report, 2018).
 
In 2018,  approximatley 560 billion minutes of esports were viewed on Twitch, an increase of 58% year-over-year, and by 2022, esports is on track to reach  an estimated 276 million global viewers (up from approximately 167 million global viewers currently), similar to the current audience size of the National Football League (“NFL”) (TwitchTracker.com; Goldman Sachs Esports Equity Research, 2018).
 
Gaming video content is estimated to be a $4.6 billion market with more viewers than HBO, Netflix, ESPN and Hulu combined (SuperData Research, 2017).
 
Just a few top-tier game titles currently deliver hundreds of millions of gamers; estimated monthly active users (“MAU”) for Fortnite, League of Legends and Minecraft is 125 million, 100 million and 74 million, respectively (Statista and Microsoft, 2018).
 
The average U.S. gaming household has 1.7 gamers with 70% of parents believing gaming “has a positive influence on their children’s lives” (Electronic Software Association, 2018).
 
Esports enthusiasts on average have higher college graduation rates and average household incomes, with 43% earning greater than $75,000 per year, relative to traditional sports fans (Mindshare, Esports Fans: What Marketers Should Know, 2016).
 
An average esports viewer spends up to nine hours per week watching esports-related content in addition to over eight hours of gameplay per week (Nielsen Esports Playbook, 2017).
 
 
 
 
 
 
 
 
 
 
 
Our Opportunity
 
We believe our esports community platform will transform the way amateur gamers connect, interact, socialize and compete. Our premium, competitive gameplay experiences and elite amateur broadcasts, coupled with the expansion of our game title portfolio, our retail venue partner network and our strategic brand sponsorships, introduce new gamers into our customer funnel to drive membership growth and subscription conversion. Esports is still in its early stages and entering a new phase of growth. Despite the significant growth potential outlined above, there are several key challenges facing stakeholders in the esports landscape for which we can offer solutions:
 
 
 
 
 
Stakeholder
Challenge
Super League’s Solution
 
 
 
 
Amateur Gamers
As a highly fragmented, often anonymous community, gamers have limited ways to find gamers of similar skill-level for heightened competitive play and new social connections.
Through our end-to-end platform, we connect players online and locally for deeper competition and socialization along with providing a unique lens on amateur gameplay.
 
 
 
 
Game Publishers
With significant capital investment in developing game titles and increased competition, publishers need to grow and retain their gamer base to extend the lifecycle and franchise value of their intellectual property.
Through our offers and variety of alternative, premium experiences, we introduce titles to new audiences while deepening engagement among existing gamers for greater long-term retention.
 
 
 
 
Venue Operators (including restaurants and retailers)
To improve asset utilization and optimize weaker day-parts, venue operators need to draw new foot-traffic to establishments, improve overall customer satisfaction and retention.
Through our licensable technology, we provide access to our platform and enable esports experiences that attract a new customer base of both players and spectators to grow same-store sales.
 
 
 
 
Sponsors and Advertisers
In a world of increasing fragmentation of content distribution and ad-blocking technology, sponsors need to identify channels to reach gamers, particularly Generation Z and Millennials, with high quality and non-invasive advertising.
Through a range of high-touch experiences and customizable content, we deliver a highly targeted marketing channel that offers a relevant path for brands to build affinity with the target demographic.
 
 
 
 
Professional Esports Teams and Owners
With significant investments in esports teams, owners need to rapidly develop a fanbase to achieve franchise values similar to traditional sports teams as well as identify the next generation of professionals.
Through amateur youth and young adult leagues, we cultivate the future professional esports fanbase and provide a feeder system to the professional level.
 
 
 
 
 
Our Strengths
 
We differentiate ourselves from potential competition through the power of a pure horizontal platform and established partnerships that enable experiences, community, content and commerce. Our core strengths include the following:
 
Game Publisher Agreements provide access to existing user bases via strategic partnerships with some of the largest game publishers. These partnerships draw subscription interest and provide a line of defense against our competitors. Our ability to interact with this highly attractive, engaged user base draws brands and sponsors to us to reach this otherwise hard-to-reach demographic.
 
Proprietary and Curated Content provides us with a unique perspective to amateur competitive gameplay currently absent from the esports ecosystem and is highly complementary and valuable to the needs of large video streaming providers.
 
Patent-Pending Technology allows for unique, intelligent content capture enabling us to display the most relevant gameplay activity in real time and broad visualization of active gameplay to facilitate maximum scale of interactive, in-person gaming, broadcast experience, and content monetization.
 
Over Three Years of Brand and Technology Development provides us a strong, distinctive lead on followers with no obvious competitors in the holistic community, league operations and media platform category.
 
A Diverse Set of Enterprise and Commercial Revenue Streams enabled by a pure platform play that protects us from the risk of online-only offers subject to commoditization and advertising revenue dependency.
 
A Growing Member Base coupled with highly customized gaming and viewing experiences allows us to capture a global, highly engaged, yet somewhat elusive community that we believe will provide many new ways to monetize over time.
 
Creation of Intangible Brand Value in the quality of our offer, game titles, brand partners, and investor base that validates our trusted, premium brand and distinctive positioning to drive value in the fragmented, burgeoning esports landscape.
 
 
 
 
 
 
 
 
 
 
Our Growth Strategy
 
Our core strategy is to pursue initiatives that promote the viral growth of our member base, and in doing so drive subscription, sponsorships and other new revenue streams utilizing the following levers:
 
Member Growth and Network Effect is driven organically through direct marketing, partner and influencer promotion, and search engine optimization. We believe the most efficient member acquisition, however, will come through organic word of mouth and other customer-based referrals.
 
Mutually Beneficial Relationships with Game Publishers, along with our game-agnostic platform interface, allow us to access large, built-in customer bases from game titles amassing access to hundreds of millions of MAU and offering enhanced competitive gameplay experiences to deepen their connection to the game titles.
 
Strategic Retail Venue Partnerships allow us to reach domestic and international scale by leveraging the infrastructure, operations and marketing efforts of our retail venue partners to create daily, weekly and monthly in-person experiences with amateur gamers to drive more membership and competitive gameplay through our platform.
 
Brand and Media Partnerships, which often include commitments to promote our brand, events and content across their social channels outside of our events and platform, have the potential to extend the utilization of our platform by leveraging the reach of our partners’ existing broadcast, social and customer loyalty programs which, in turn, can extend our audience reach and potentially drive more gamers and viewers to our amateur esports gaming content and technology platform. 
 
International Expansion, as we continue to prove the model domestically, will enable us to access the massive global scale of gamers worldwide and unlock greater brand partnership and media rights revenue opportunities through global audience development.
 

 
 
 
 
 
 
 
 
Selected Risks Related to our Business
 
Our business is subject to numerous risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects, that you should consider before making an investment decision. Some of the more significant risks and uncertainties relating to an investment in our company are listed below. These risks are more fully described in the “Risk Factors” section of this prospectus immediately following this prospectus summary:
 
overall strength and stability of general economic conditions, and of the esports industry, both in the United States and globally;
 
changes in consumer demand for, and acceptance of, the game titles that we license for our tournaments and activities, as well as online multiplayer competitive amateur gaming in general;
 
changes in the competitive environment, including new entrants in the market for online amateur competitive gaming, tournaments and competitions that compete with our own;
 
competition from new entrants in the amateur esports space, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations;
 
our ability to generate consistent revenue;
 
our ability to effectively execute our business plan;
 
changes in the licensing fees charged by the publishers of the most popular online video games;
 
changes in laws or regulations governing our business and operations;
 
our ability to maintain adequate liquidity and financing sources and an appropriate level of debt on terms favorable to us;
 
our ability to effectively market our amateur city leagues, tournaments and competitions;
 
our ability to obtain and protect our existing intellectual property protections, including patents, trademarks and copyrights;
 
our ability to obtain and enter into new licensing agreements with game publishers and owners;
 
our ability to list our shares on the Nasdaq Capital Market or any other national exchange and maintain such listing; and
 
other risks described from time to time in periodic and current reports that we file with the Securities and Exchange Commission (the “SEC”).
 
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. You should be able to bear a complete loss of your investment.
 
 
 
 
 
 
 
 
 
 
Implications of Being an Emerging Growth Company
 
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
 
A requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
 
An exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);
 
An extended transition period for complying with new or revised accounting standards;
 
Reduced disclosure about our executive compensation arrangements; and
 
No non-binding advisory votes on executive compensation or golden parachute arrangements.
 
We may take advantage of these provisions from the JOBS Act until the end of the fiscal year in which the fifth anniversary of this offering occurs, or such earlier time when we no longer qualify as an emerging growth company. We would cease to be an emerging growth company on the earlier of (i) the last day of the fiscal year (a) in which we have more than $1.07 billion in annual revenue or (b) in which we have more than $700 million in market value of our capital stock held by non-affiliates, or (ii) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens under the JOBS Act. We have irrevocably taken advantage of other reduced reporting requirements in this prospectus, and we may choose to do so in future filings. To the extent we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold equity interests.
 
Corporate Information
 
Super League Gaming, Inc. was incorporated under the laws of the State of Delaware on October 1, 2014 as Nth Games, Inc. On July 13, 2015, we changed our corporate name from Nth Games, Inc. to Super League Gaming, Inc. Our principal executive offices are located at 2906 Colorado Avenue, Santa Monica, California 90404, and our telephone number is (855) 248-7079. Our corporate website address is www.superleague.com. Information contained in, or accessible through, our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Offering
 
The following summary is provided solely for your convenience and is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus.
 
 
 
 
 
Issuer
Super League Gaming, Inc.
 
 
 
 
 
 
 
 
 
 
Common stock offered by us
 2,272,727 shares.
 
 
 
 
 
 
 
 
 
 
Over-allotment option
 
The underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to 340,909 additional shares of our common stock to cover over-allotments, if any
 
 
 
 
 
Common stock to be outstanding after this offering
 
8,338,020 shares, or 8,678,929 shares if the underwriters exercise their option to purchase additional shares in full.
 
 
 
 
 
Use of proceeds
 
We estimate that the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $22.4 million, or approximately $25.8 million if the underwriters exercise their option to purchase additional shares from us in full, assuming an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds of this offering for working capital and general corporate purposes, including sales and marketing activities, product development and capital expenditures. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.
 
 
 
 
 
Risk factors
 
You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
 
 
 
 
 
Proposed listing
We have applied to have our common stock listed on the Nasdaq Capital Market in connection with this offering. No assurance can be given that such listing will be approved.
 
 
 
 
 
 
 
 
 
 
Proposed Nasdaq Capital Market symbol
 
“SLGG”
 
 
 
 
 
The number of shares of our common stock to be outstanding after this offering is based on 4,610,109 shares of our common stock outstanding as of February 21, 2019, and excludes:
 
2,578,415 shares of common stock issuable upon exercise of warrants to purchase our common stock, of which 1,396,383 warrants (assuming an initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, and a conversion price of $9.35, subject to adjustment as described below) are callable at the election of the Company, at any time following the completion of this offering;
 
1,524,468 shares of common stock issuable upon exercise of options held and 274,698 shares of common stock reserved for issuance pursuant to our 2014 Plan (as defined herein); and
 
 68,182 shares of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which equates to 3.0% of the number of shares of our common stock to be issued and sold in this offering.
 
Except as otherwise indicated, all information in this prospectus assumes the following:
 
automatic conversion of our outstanding 9.00% secured convertible promissory notes issued between May 2018 and August 2018 (the “2018 Notes”) into 1,455,184 shares of our common stock (the “Automatic Note Conversion”);
 
a one-for-three reverse stock split of our common stock which was effected on February 8, 2019 (all share and per share amounts in this prospectus have been presented on a retrospective basis to reflect the reverse stock split) (the “Reverse Stock Split”); and
 
no exercise by the underwriters of their option to purchase up to 340,909 additional shares of common stock from us in this offering to cover over-allotments, if any.
 
 
 
 
 
 
 
 
 
 
SUMMARY FINANCIAL DATA  
 
The following tables set forth a summary of our historical financial data as of, and for the periods ended on, the dates indicated. We have derived the statements of operations data for the years ended December 31, 2018 and 2017 from our audited financial statements included elsewhere in this prospectus. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the sections in this prospectus entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not indicative of our future results.       
 
 
 
 
 
   Year Ended December 31,
 
 
 
 
 
2018
 
 
2017
 
 
 
Statements of Operations Data:
 
 
 
 
 
 
 
 
Sales
 1,046,359 
  201,182 
 
 
Cost of goods sold
  684,105
 
  1,487,905 
 
 
Gross profit (loss)
  362,254
 
  (1,286,723)
 
 
Operating expenses:
    
    
 
 
Selling, marketing and advertising
  1,525,525
 
  1,155,506 
 
 
Research and development
  17,197 
  61,543 
 
 
General and administrative
  14,979,732
 
  12,451,636 
 
 
Total operating expenses
  16,522,454
 
 13,668,685 
 
 
 
    
    
 
 
Loss from operations
  (16,160,200)
  (14,955,408)
 
 
Other income (expense), net
  (4,466,616)
  - 
 
 
Net loss
 (20,626,816)
 (14,955,408)
 
 
 
    
    
 
 
Net loss per share attributable to common stockholders (1) (2)
    
    
 
 
Basic
 (4.48)
 (3.52)
 
 
Diluted
 (4.48)
 (3.52)
 
 
Weighted average shares outstanding used in computing net income (loss) per share attributable to common stockholders (1) (2)
    
    
 
 
Basic
  4,606,951
 4,246,626
 
 
 
Diluted
 4,606,951
 4,246,626

 
 
 
(1)  
See Note 1 to our audited financial statements included elsewhere in this prospectus for an explanation of the methods used to calculate the historical net income (loss) per share, basic and diluted, and the number of shares used in the computation of the per share amounts.     
 
(2)
All share and per share data has been retrospectively adjusted to reflect the one-for-three Reverse Stock Split, which was effected on February 8, 2019.
 
 

     
 
As of December 31, 2018 
 
 
 
     
 
Actual 
 
 
As Adjusted (1)  
 
 
 
Balance Sheet Data:     
 
 
 (unaudited) 
 
 
 
      Cash
 $2,774,421
 
 $25,128,369   
 
 
      Working capital
  (8,032,686)
  25,243,863
 
 
 
      Total assets
  4,987,157
 
 27,341,105   
 
 
      9.00% Convertible notes payable
  10,922,601
 
  -     
 
 
     
    
  
 
 
 
      Additional paid-in capital
  48,325,146
 
  89,825,509
 
 
 
      Accumulated deficit
  (55,133,473)
  (63,361,015
)
 
 
      Total stockholders’ deficit
  (6,794,496)
  26,482,053
 
 
 
 
 
(1)
Pro forma as adjusted balance sheet data reflects the Automatic Note Conversion of the 2018 Notes described above, plus our sale of 2,272,727 shares of common stock in this offering at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Pro forma as adjusted balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash, total assets and total stockholders' deficit by approximately $2.1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash, total assets and total stockholders' deficit by approximately $10.2 million, assuming that the assumed initial price to public remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. These unaudited pro forma adjustments are based upon available information and certain assumptions we believe are reasonable under the circumstances.        
   
 
 
 
 
 
RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
 
Risks Related to Our Business and Industry
 
We have incurred significant losses since our inception and we may continue to experience losses in the future.
 
We incurred net losses of $20.6 million and $14.9 million during the years ended December 31, 2018 and 2017, respectively.  Noncash expenses (excluding depreciation and amortization of fixed and intangible assets) totaled $8,850,074 and $5,000,243 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, we had an accumulated deficit of $55.1 million. The report of our independent registered public accounting firm to the financial statements for our fiscal year ended December 31, 2018, included elsewhere in the prospectus, contains an explanatory paragraph stating that our recurring losses from operations, accumulated deficit and cash used in operating activities raise substantial doubt about our ability to continue as a going concern. We cannot predict if we will achieve profitability soon or at all. We expect to continue to expend substantial financial and other resources on, among other things:
 
investments to expand and enhance our esports technology platform and technology infrastructure, make improvements to the scalability, availability and security of our platform, and develop new offerings;

 
sales and marketing, including expanding our customer acquisition and sales organization and marketing programs, and expanding our programs directed at increasing our brand awareness among current and new customers;

 
investments in bandwidth to support our video streaming functionality;

 
contract labor costs and other expenses to host our leagues and tournaments;

 
costs to retain and attract gamers and license first tier game titles, grow our online gamer community and generally expand our business operations;

 
hiring additional employees;

 
expansion of our operations and infrastructure, both domestically and internationally; and

 
general administration, including legal, accounting and other expenses related to being a public company.
 
We may not generate sufficient revenue to offset such costs to achieve or sustain profitability in the future. We expect to continue to invest heavily in our operations, our online and in person experiences, business development related to game publishers, advertisers, sponsors and gamer acquisition, to accelerate as well as maintain our current market position, support anticipated future growth and to meet our expanded reporting and compliance obligations as a public company.
 
We expect operating losses to continue in the near term in order to carry out our strategic objectives. We consider historical operating results, capital resources and financial position, in combination with current projections and estimates, as part of our plan to fund operations over a reasonable period of time.
 
Commencing in February through August 2018, we issued 9.00% secured convertible promissory notes in the aggregate principal amount of approximately $13,000,000. The notes (i) accrue simple interest at the rate of 9.00% per annum, (ii) mature on the earlier of the closing of an initial public offering (“IPO”) of our common stock on a national securities exchange or April 30, 2019, and (iii) all outstanding principal and accrued interest is automatically convertible into shares of common stock upon the closing of an IPO, as described elsewhere herein.
 
We intend to use the proceeds from the issuance of the notes for business expansion, merger and/or acquisitions, game licensing, and working capital. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are deemed satisfactory.
 
We believe our current cash, net proceeds from debt issuances and the amount available from future issuances of common stock, including shares to be issued as a part of this offering, will be sufficient to fund our working capital requirements beyond the next 12 months. This belief assumes, among other things, that we will be able to raise additional equity financing, will continue to be successful in implementing our business strategy and that there will be no material adverse developments in the business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could have a material adverse impact on our activities, including (i) reduction or delay of our business activities, (ii) forced sales of material assets, (iii) defaults on our obligations, or (iv) insolvency. Our planned investments may not result in increased revenue or growth of our business. We cannot assure you that we will be able to generate revenue sufficient to offset our expected cost increases and planned investments in our business and platform. As a result, we may incur significant losses for the foreseeable future, and may not be able to achieve and/or sustain profitability. If we fail to achieve and sustain profitability, then we may not be able to achieve our business plan, fund our business or continue as a going concern. The financial statements included in this prospectus do not contain any adjustments which might be necessary if we were unable to continue as a going concern.
 
We are a relatively young company, and we may not be able to sustain our rapid growth, effectively manage our anticipated future growth or implement our business strategies.
 
We have a limited operating history. Although we have experienced significant growth since our gaming platform for amateur online and in person gaming experiences was launched, and we established our amateur city leagues, tournaments and competitions, our historical growth rate may not be indicative of our future performance due to our limited operating history and the rapid evolution of our business model, including a focus on subscription-based gaming. We may not be able to achieve similar results or accelerate growth at the same rate as we have historically. As our amateur city leagues, tournaments and competitions continue to develop, we may adjust our strategy and business model to adapt. These adjustments may not achieve expected results and may have a material and adverse impact on our financial condition and results of operations.
 
In addition, our rapid growth and expansion have placed, and continue to place, significant strain on our management and resources. This level of significant growth may not be sustainable or achievable at all in the future. We believe that our continued growth will depend on many factors, including our ability to develop new sources of revenues, diversify monetization methods including our subscription offerings, attract and retain competitive gamers, increase engagement, continue developing innovative technologies, tournaments and competitions in response to shifting demand in esports and online gaming, increase brand awareness, and expand into new markets. We cannot assure you that we will achieve any of the above, and our failure to do so may materially and adversely affect our business and results of operations.
 
 
 
We are subject to risks associated with operating in a rapidly developing industry and a relatively new market.
 
Many elements of our business are unique, evolving and relatively unproven. Our business and prospects depend on the continuing development of live streaming of competitive esports gaming. The market for esports and amateur online gaming competition is relatively new and rapidly developing and are subject to significant challenges. Our business relies upon our ability to cultivate and grow an active gamer community, and our ability to successfully monetize such community through tournament fees, subscriptions for our esports gaming services, and advertising and sponsorship opportunities. In addition, our continued growth depends, in part, on our ability to respond to constant changes in the esports gaming industry, including rapid technological evolution, continued shifts in gamer trends and demands, frequent introductions of new games and titles and the constant emergence of new industry standards and practices. Developing and integrating new games, titles, content, products, services or infrastructure could be expensive and time-consuming, and these efforts may not yield the benefits we expect to achieve at all. We cannot assure you that we will succeed in any of these aspects or that the esports gaming industry will continue to grow as rapidly as it has in the past.
 
We generate a portion of our revenues from advertising and sponsorship. If we fail to attract more advertisers and sponsors to our gaming platform or tournaments or competitions, or if advertisers or sponsors are less willing to advertise with or sponsor us, our revenues may be adversely affected.
 
We generate a growing portion of our revenues from advertising and sponsorship, which we expect to further develop and expand in the near future as online viewership of our esports gaming offerings expand. Our revenues from advertising and sponsorship partly depend on the continual development of the online advertising industry and advertisers’ willingness to allocate budgets to online advertising in the esports gaming industry. In addition, companies that decide to advertise or promote online may utilize more established methods or channels, such as more established internet portals or search engines, over advertising on our gaming platform. If the online advertising and sponsorship market does not continue to grow, or if we are unable to capture and retain a sufficient share of that market, our ability to increase our current level of advertising and sponsorship revenue and our profitability and prospects may be materially and adversely affected.
 
Furthermore, our core and long-term priority of optimizing the gamer experience and satisfaction may limit our gaming platform’s ability to generate revenues from advertising and sponsorship. For example, in order to provide our gamers with an uninterrupted competitive gaming experience, we do not place significant amounts of advertising on our streaming interface or insert pop-up advertisements during streaming. While this decision could adversely affect our operating results in the short-term, we believe it enables us to provide a superior gamer experience on our gaming platform, which will help us expand and maintain our current base of gamers and enhance our monetization potential in the long-term. However, this philosophy of putting our gamers first may also negatively impact our relationships with advertisers, sponsors or other third parties, and may not result in the long-term benefits that we expect, in which case the success of our business and operating results could be harmed.
 
Our revenue model may not remain effective and we cannot guarantee that our future monetization strategies will be successfully implemented or generate sustainable revenues and profit.
 
We generate revenues from advertising and sponsorship of our league tournaments, and through the operation of our live streaming gaming platform using a revenue model whereby gamers can get free access to certain live streaming of amateur tournaments, and gamers pay fees to compete in league competition. We have generated, and expect to continue to generate, a substantial portion of revenues using this revenue model in the near term. We are, however, particularly focused on implementing a subscription model for our expanding gamer base. Although our business has experienced significant growth in recent years, there is no guarantee that our subscription packages will gain significant traction to maximize our growth rate in the future, as the demand for our offerings may change, decrease substantially or dissipate, or we may fail to anticipate and serve gamer demands effectively.
 
The loss of or a substantial reduction in activity by one or more of our largest customers and/or vendors could materially and adversely affect our business, financial condition and results of operations.
 
During the years ended December 31, 2018 and 2017, (i) four customers accounted for 82% and three customers accounted for 47% of our revenue, respectively, (ii) three and four customers accounted for 96% of accounts receivable, respectively, and (iii) three vendors accounted for 43% and two vendors accounted for 32% of accounts payable, respectively. The loss of or a substantial reduction in activity by one or more of our largest customers could materially and adversely affect our business, financial condition and results of operations.
 
 
 
-10-
 
Our marketing and advertising efforts may fail to resonate with amateur gamers.
 
Our amateur city league tournaments and competitions are marketed through a diverse spectrum of advertising and promotional programs such as online and mobile advertising, marketing through websites, event sponsorship and direct communications with our gaming community including via email, blogs and other electronic means. An increasing portion of our marketing activity is taking place on social media platforms that are either outside, or not totally within, our direct control. Changes to gamer preferences, marketing regulations, privacy and data protection laws, technology changes or service disruptions may negatively impact our ability to reach target gamers. Our ability to market our amateur city league tournaments and competitions is dependent in part upon the success of these programs. If the marketing for our amateur city league tournaments and competitions fails to resonate and expand with the gamer community, or if advertising rates or other media placement costs increase, our business and operating results could be harmed.
 
We have a unique community culture that is vital to our success. Our operations may be materially and adversely affected if we fail to maintain this community culture as we expand in our addressable gamer communities.
 
We have cultivated an interactive and vibrant online social gamer community centered around amateur online and in person gaming. We ensure a superior gamer experience by continuously improving the user interface and features of our gaming platform along with offering a multitude of competitive and recreational gaming experiences with first tier esports games. We believe that maintaining and promoting a vibrant community culture is critical to retaining and expanding our gamer community. We have taken multiple initiatives to preserve our community culture and values. Despite our efforts, we may be unable to maintain our community culture and cease to be the preferred platform for our target gamers as we expand our gamer footprint, which would be detrimental to our business operations.
 
The amateur esports gaming industry is intensely competitive. Gamers may prefer our competitors’ amateur leagues, competitions or tournaments over our own.
 
Competition in the amateur esports gaming industry generally is intense. Our competitors range from established leagues and championships owned directly, as well as leagues franchised by, well known and capitalized game publishers and developers, interactive entertainment companies and diversified media companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the amateur esports gaming ecosystem. If our competitors develop and launch competing amateur city leagues, tournaments or competitions, or develop a more successful amateur online gaming platform, our revenue, margins, and profitability will decline.
 
The amateur esports gaming industry is very “hit” driven. We may not have access to “hit” games or titles.
 
Select game titles dominate competitive amateur esports and online gaming, including League of Legends, Minecraft, Fortnite and Overwatch, and many new games titles are regularly introduced in each major industry segment (console, mobile and PC free-to-download). Despite the number of new entrants, only a very few “hit” titles account for a significant portion of total revenue in each segment.
 
The size and engagement level of our online and in person gamers are critical to our success and are closely linked to the quality and popularity of the esports game publishers with which we have licenses. Esports game publishers on our gaming platform, including those who have entered into license agreements with us, may leave us for other gaming platforms or amateur leagues which may offer better competition, and terms and conditions than we do. Furthermore, we may lose esports game publishers if we fail to generate the number of gamers to our amateur tournaments and competitions expected by such publishers. In addition, if popular esports game publishers cease to license their games to us, or our live streams fail to attract gamers, we may experience a decline in gamer traffic, subscriptions and engagement, which may have a material and adverse impact on our results of operations and financial conditions.
 
Although we have entered into multi-year agreements with the publishers of League of Legends and Minecraft, if we fail to license multiple additional “hit” games or any of our existing licensed esports game publishers with which we currently have a license decide to breach the license agreement or choose not to continue with us once the term of the license agreement expires, the popularity of our amateur city leagues, tournaments and competitions may decline and the number of our gamers may decrease, which could materially and adversely affect our results of operations and financial condition.
 
 
 
-11-
 
In addition to the esports games we have licensed, we must continue to attract and retain the most popular esports gaming titles in order to maintain and increase the popularity of our amateur city leagues, tournaments and competitions, and ensure the sustainable growth of our gamer community. We must continue to identify and enter into license agreements with esports gaming publishers developing “hit’ games that resonate with our community on an ongoing basis. We cannot assure you that we can continue to attract and retain the same level of first-tier esports game publishers and our ability to do so is critical to our future success.
 
We have not entered into definitive license agreements with certain game publishers that we currently have relationships with, and we may never do so.
 
Although we have relationships with Supercell and Epic Games for experiences involving Clash Royale and Fortnite, respectively, we currently do not have definitive license agreements in place with respect to these relationships. We currently anticipate that we will enter into license agreements with both parties in the future, however no assurances can be given as to when we will be able to come to terms agreeable to both parties, if ever. In the event that we are not able to come to mutually agreeable terms and enter into definitive license agreements with each of Supercell and Epic Games, they may unilaterally choose to discontinue their relationship with the Company, thereby preventing us from offering experiences on our platform using Clash Royale or Fortnite, as the case may be. Should either Supercell or Epic Games choose not to allow us to offer experiences involving Clash Royale and Fortnite to our users, the popularity of our amateur city leagues, tournaments and competitions may decline and the number of our gamers may decrease, which could materially and adversely affect our results of operations and financial condition.
 
If we fail to keep our existing gamers highly engaged, to acquire new gamers, to successfully implement a subscription model for our gaming community, our business, profitability and prospects may be adversely affected.
 
Our success depends on our ability to maintain and grow the number of amateur gamers attending and participating in our in-person and online tournaments and competitions, and using our gaming platform, and keeping our gamers highly engaged. Of particular importance is the successful deployment and expansion of our subscription model to our gaming community for purposes of creating predictable recurring revenues.
 
In order to attract, retain and engage amateur gamers and remain competitive, we must continue to develop and expand our city leagues, including internationally, produce engaging tournaments and competitions, successfully license the newest “hit” esports games and titles, implement new technologies and strategies, improve features of our gaming platform and stimulate interactions in our gamer community.
 
A decline in the number of our amateur gamers in our ecosystem may adversely affect the engagement level of our gamers, the vibrancy of our gamer community, or the popularity of our amateur league play, which may in turn reduce our monetization opportunities, and have a material and adverse effect on our business, financial condition and results of operations. If we are unable to attract and retain, or convert gamers into subscription-based paying gamers, our revenues may decline and our results of operations and financial condition may suffer.
 
We cannot assure you that our online and in person gaming platform will remain sufficiently popular with amateur gamers to offset the costs incurred to operate and expand it. It is vital to our operations that we remain sensitive and responsive to evolving gamer preferences and offer first-tier esports game content that attracts our amateur gamers. We must also keep providing amateur gamers with new features and functions to enable superior content viewing, and social interaction. Further, we will need to continue to develop and improve our gaming platform and to enhance our brand awareness, which may require us to incur substantial costs and expenses. If such increased costs and expenses do not effectively translate into an improved gamer experience and subscription-based, long-term engagement, our results of operations may be materially and adversely affected.
 
The ability to grow our business is dependent in part on the success and availability of mass media channels developed by third parties, as well as our ability to develop commercially successful content, and amateur tournaments and competitions.
 
The success of our business is driven in part by the commercial success and adequate supply of third-party mass media channels for which we may distribute our content, amateur league tournaments and competitions, including Twitch, YouTube and ESL.tv. Our success also depends on our ability to accurately predict which channels and platforms will be successful with the esports gaming community, our ability to develop commercially successful content and distribute via SuperLeagueTV, which is presently available on Twitch, amateur tournaments and competition for these channels and gaming platforms and our ability to effectively manage the transition of our gamers from one generation or demographic to the next. Additionally, we may enter into certain exclusive licensing arrangements that affect our ability to deliver or market our amateur gaming tournaments and competitions on certain channels and platforms. A channel or platform may not succeed as expected or new channels or platforms may take market share and gamers away from platforms for which we have devoted significant resources. If demand for the channels or platforms for which we are developing amateur tournaments or competitions is lower than our expectations, we may be unable to fully recover the investments we have made, and our financial performance may be harmed. Alternatively, a channel or platform for which we have not devoted significant resources could be more successful than we initially anticipated, causing us to not be able to take advantage of meaningful revenue opportunities.
 
 
 
-12-
 
Our business is subject to risks generally associated with the entertainment industry.
 
Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include the popularity, price to play, and timing of release of our esports licensed games, economic conditions that adversely affect discretionary consumer spending, changes in gamer demographics, the availability and popularity of other forms of entertainment, and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.
 
If we fail to maintain and enhance our brand or if we incur excessive expenses in this effort, our business, results of operations and prospects may be materially and adversely affected.
 
We believe that maintaining and enhancing our brand is of significant importance to the success of our business. A well-recognized brand is important to increasing the number of esports gamers and the level of engagement of our overall gaming community which is critical in enhancing our attractiveness to advertisers and sponsors. Since we operate in a highly competitive market, brand maintenance and enhancement directly affect our ability to maintain and enhance our market position.
 
Although we have developed our brand and amateur tournaments and competitions through word of mouth referrals, key strategic partners and our esports game publisher licensors, as we expand, we may conduct various marketing and brand promotion activities using various methods to continue promoting our brand. We cannot assure you, however, that these activities will be successful or that we will be able to achieve the brand promotion effect we expect.
 
In addition, any negative publicity in relation to our league tournaments or competitions, or operations, regardless of its veracity, could harm our brands and reputation. Negative publicity or public complaints from gamers may harm our reputation, and if complaints against us are not addressed to their satisfaction, our reputation and our market position could be significantly harmed, which may materially and adversely affect our business, results of operations and prospects.
 
Negative gamer perceptions about our brand, gaming platform, amateur city leagues, tournaments or competitions and/or business practices may damage our business and increase the costs incurred in addressing gamer concerns.
 
Esports gamer expectations regarding the quality, performance and integrity of our amateur city league tournaments and competitions are high. Esports gamers may be critical of our brand, gaming platform, amateur city leagues, tournaments or competitions and/or business practices for a wide variety of reasons. These negative gamer reactions may not be foreseeable or within our control to manage effectively, including perceptions about gameplay fairness, negative gamer reactions to game content via social media or other outlets, components and services, or objections to certain of our business practices. Negative gamer sentiment about our business practices also can lead to investigations from regulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be costly, damaging to our reputation and harm our business.
 
Technology changes rapidly in our business and if we fail to anticipate or successfully implement new technologies or adopt new business strategies, technologies or methods, the quality, timeliness and competitiveness of our amateur city leagues, tournaments or competition may suffer.
 
Rapid technology changes in the esports gaming market require us to anticipate, sometimes years in advance, which technologies we must develop, implement and take advantage of in order to be and remain competitive in the esports gaming market. We have invested, and in the future may invest, in new business strategies including a subscription model, technologies, products, or games or first-tier game titles to continue to persistently engage the amateur gamer and deliver the best online and in person gaming experience. Such endeavors may involve significant risks and uncertainties, and no assurance can be given that the technology we choose to adopt and the features that we pursue will be successful. If we do not successfully implement these new technologies, our reputation may be materially adversely affected and our financial condition and operating results may be impacted. We also may miss opportunities to adopt technology, or develop amateur city leagues, tournaments or competitions that become popular with gamers, which could adversely affect our financial results. It may take significant time and resources to shift our focus to such technologies, putting us at a competitive disadvantage.
 
 
 
-13-
 
Our development process usually starts with particular gamer experiences in mind, and a range of technical development and feature goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competitors may be able to achieve them more quickly and effectively than we can based on having greater operating capital and personnel resources. If we cannot achieve our technology goals within the original development schedule, then we may delay their release until these goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may be required to significantly increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our launch schedule or to keep up with our competitors, which would increase our development expenses.
 
We may experience security breaches and cyber threats.
 
We continually face cyber risks and threats that seek to damage, disrupt or gain access to our networks and our gaming platform, supporting infrastructure, intellectual property and other assets. In addition, we rely on technological infrastructure, including third party cloud hosting and broadband, provided by third party business partners to support the in person and online functionality of our gaming platform. These business partners are also subject to cyber risks and threats. Such cyber risks and threats may be difficult to detect. Both our partners and we have implemented certain systems and processes to guard against cyber risks and to help protect our data and systems. However, the techniques that may be used to obtain unauthorized access or disable, degrade, exploit or sabotage our networks and gaming platform change frequently and often are not detected. Our systems and processes, and the systems and processes of our third-party business partners, may not be adequate. Any failure to prevent or mitigate security breaches or cyber risks, or respond adequately to a security breach or cyber risk, could result in interruptions to our gaming platform, degrade the gamer experience, cause gamers to lose confidence in our gaming platform and cease utilizing it, as well as significant legal and financial exposure. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.
 
Successful exploitation of our networks and gaming platform can have other negative effects upon the gamer experience we offer. In particular, the virtual economies that exist in certain of our licensed game publishers’ games are subject to abuse, exploitation and other forms of fraudulent activity that can negatively impact our business. Virtual economies involve the use of virtual currency and/or virtual assets that can be used or redeemed by a player within a particular online game or service.
 
Our business could be adversely affected if our data privacy and security practices are not adequate, or perceived as being inadequate, to prevent data breaches, or by the application of data privacy and security laws generally.
 
In the course of our business, we may collect, process, store and use gamer and other information, including personally identifiable information, passwords and credit card information, the latter of which is subject to PCI-DSS compliance. Although we take measures to protect this information from unauthorized access, acquisition, disclosure and misuse, our security controls, policies and practices may not be able to prevent the improper or unauthorized access, acquisition or disclosure of such information. The unauthorized access, acquisition or disclosure of this information, or a perception that we do not adequately secure this information could result in legal liability, costly remedial measures, governmental and regulatory investigations, harm our profitability and reputation and cause our financial results to be materially affected. In addition, third party vendors and business partners receive access to information that we collect. These vendors and business partners may not prevent data security breaches with respect to the information we provide them or fully enforce our policies, contractual obligations and disclosures regarding the collection, use, storage, transfer and retention of personal data. A data security breach of one of our vendors or business partners could cause reputational harm to them and/or negatively impact our ability to maintain the credibility of our gamer community.
 
Data privacy, data protection, localization, security and consumer-protection laws are evolving, and the interpretation and application of these laws in the United States, Europe (including compliance with the General Data Protection Regulation), and elsewhere often are uncertain, contradictory and changing. It is possible that these laws may be interpreted or applied in a manner that is averse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business. As a result, our reputation and brand may be harmed, we could incur substantial costs, and we could lose both gamers and revenue.
 
 
 
-14-
 
We depend on servers to operate our games with online features and our proprietary online gaming service. If we were to lose server functionality for any reason, our business may be negatively impacted.
 
Our business relies on the continuous operation of servers, some of which are owned and operated by third parties. Although we strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason could degrade or interrupt the functionality of our platform, and could prevent the operation of our platform for both in-person and online gaming experiences.
 
We also rely on networks operated by third parties to support content on our platform, including networks owned and operated by game publishers. An extended interruption to any of these services could adversely affect the use of our platform, which would have a negative impact on our business.
 
Further, insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.
 
Our online gaming platform and games offered through our gaming platform may contain defects.
 
Our online gaming platform and the games offered through our gaming platform are extremely complex, and are difficult to develop and distribute. We have quality controls in place to detect defects in our gaming platform before they are released. Nonetheless, these quality controls are subject to human error, overriding, and reasonable resource or technical constraints. Further, we have not undertaken independent third-party testing, verification or analysis of our gaming platform and associated systems and controls. Therefore, our gaming platform and quality controls and preventative measures we have implemented may not be effective in detecting all defects in our gaming platform. In the event a significant defect in our gaming platform and associated systems and controls is realized, we could be required to offer refunds, suspend the availability of our city league competitions and other gameplay, or expend significant resources to cure the defect, each of which could significantly harm our business and operating results.
 
We may experience system failures, outages and/or disruptions of the functionality of our platform. Such failures, delays and other problems could harm our reputation and business, cause us to lose customers and expose us to customer liability.
 
We may experience system failures, outages and/or disruptions of our infrastructure, including information technology system failures and network disruptions, cloud hosting and broadband availability at in person and online experiences. Our operations could be interrupted or degraded by any damage to or failure of:
 
our computer software or hardware, or our customers’ or suppliers’ computer software or hardware;
 
our network, our customers’ networks or our suppliers’ networks; or
 
our connections and outsourced service arrangements with third parties.
 
Our systems and operations are also vulnerable to damage or interruption from:
 
power loss, transmission cable cuts and other telecommunications and utility failures;
 
hurricanes, fires, earthquakes, floods and other natural disasters;
 
a terrorist attack in the U.S. or in another country in which we operate;
 
interruption of service arising from facility migrations, resulting from changes in business operations including acquisitions and planned data center migrations;
 
computer viruses or software defects;
 
loss or misuse of proprietary information or customer data that compromises security, confidentiality or integrity; or
 
errors by our employees or third-party service providers.
 
From time to time in the ordinary course of our business, our network nodes and other systems experience temporary outages. As a means of ensuring continuity in the services we provide to our members, we have invested in system redundancies via partnerships with industry leading cloud service providers, proactive alarm monitoring and other back-up infrastructure, though we cannot assure you that we will be able to re-route our services over our back-up facilities and provide continuous service to customers in all circumstances without material degradation. Because many of our services play a critical role for our members, any damage to or failure of the infrastructure we rely on could disrupt or degrade the operation of our network, our platform and the provision of our services and result in the loss of current and potential members and harm our ability to conduct normal business operations.
 
We use third-party services and technologies in connection with our business, and any disruption to the provision of these services and technologies to us could result in negative publicity and a slowdown in the growth of our users, which could materially and adversely affect our business, financial condition and results of operations.
 
Our business partially depends on services provided by, and relationships with, various third parties, including cloud hosting and broadband providers, among others. To this end, when our cloud hosting and broadband vendors experience outages, our esports gaming services will be negatively impacted and alternative resources will not be immediately available. In addition, certain third-party software we use in our operations is currently publicly available free of charge. If the owner of any such software decides to charge users or no longer makes the software publicly available, we may need to incur significant costs to obtain licensing, find replacement software or develop it on our own. If we are unable to obtain licensing, find or develop replacement software at a reasonable cost, or at all, our business and operations may be adversely affected.
 
 
 
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We exercise no control over the third-party vendors that we rely upon for cloud hosting, broadband and software service. If such third parties increase their prices, fail to provide their services effectively, terminate their service or agreements or discontinue their relationships with us, we could suffer service interruptions, reduced revenues or increased costs, any of which may have a material adverse effect on our business, financial condition and results of operations.
 
Growth and engagement of our gamer community depends upon effective interoperability with mobile operating systems, networks, mobile devices and standards that we do not control.
 
We make our services available across a variety of mobile operating systems and devices. We are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android and iOS. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. In order to deliver high quality services, it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our users to access and use our services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected.
 
Our business depends substantially on the continuing efforts of our executive officers, key employees and qualified personnel, and our business operations may be severely disrupted if we lose their services.
 
Our future success depends substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all. Since the esports gaming industry is characterized by high demand and intense competition for talents, we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees. In addition, as the Company is relatively young, our ability to train and integrate new employees into our operations may not meet the growing demands of our business which may materially and adversely affect our ability to grow our business and hence our results of operations.
 
If any of our executive officers and key employees terminates their services with us, our business may be severely disrupted, our financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain qualified personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose gamers, know-how and key professionals and staff members. Certain of our executive officers and key employees have entered into a non-solicitation and non-competition agreements with us. However, certain provisions under the non-solicitation and non-competition agreement may be deemed legally invalid or unenforceable. If any dispute arises between our executive officers and us, we cannot assure you that we would be able to enforce these non-compete agreements.
 
Our business is subject to regulation, and changes in applicable regulations may negatively impact our business.
 
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. In addition, laws and regulations relating to user privacy, data collection, retention, electronic commerce, virtual items and currency, consumer protection, content, advertising, localization, and information security have been adopted or are being considered for adoption by many jurisdictions and countries throughout the world. These laws could harm our business by limiting the products and services we can offer consumers or the manner in which we offer them. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability.
 
In addition, we include modes in our gaming platform that allow players to compete against each other. Although we structure and operate these skill-based competitions with applicable laws in mind, our skill-based competitions in the future could become subject to evolving rules and regulations and expose us to significant liability, penalties and reputational harm.
 
 
 
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Our online activities are subject to various laws and regulations relating to privacy and child protection, which, if violated, could subject us to an increased risk of litigation and regulatory actions.
 
In addition to our gaming platform, we use third-party applications, websites, and social media platforms to promote our amateur tournaments and competitions and engage gamers, as well as monitor and collect certain information about gamers in our online forums. A variety of laws and regulations have been adopted in recent years aimed at protecting children using the internet such as the Children’s Online Privacy and Protection Act of 1998 (“COPPA”). COPPA sets forth, among other things, a number of restrictions on what website operators can present to children under the age of 13 and what information can be collected from them. COPPA is of particular concern to us, and in an effort to minimize our risk of potential exposure, we retained a COPPA expert as a consultant and have posted a compliant privacy policy, terms of use and various other policies on our website. We undertake significant effort to implement certain precautions to ensure that access to our gaming platform for competitive gameplay is COPPA compliant. Despite our efforts, no assurances can be given that such measures will be sufficient to completely avoid exposure and COPPA violations, any of which could expose us to significant liability, penalties, reputational harm and loss of revenue, among other things.
 
The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our business. 
 
Consumers are able to play our licensed game titles online, using our platform. We collect and store information about our consumers both personally identifying and non-personally identifying information. Numerous federal, state and international laws address privacy, data protection and the collection, storing, sharing, use, disclosure and protection of personally identifiable information and other user data. Numerous states already have, and are looking to expand, data protection legislation requiring companies like ours to consider solutions to meet differing needs and expectations of creators and attendees. Outside the United States, personally identifiable information and other user data is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of information that is collected, processed and transmitted in or from the governing jurisdiction. Foreign data protection, privacy, information security, user protection and other laws and regulations are often more restrictive than those in the United States. In particular, the European Union and its member states traditionally have taken broader views as to types of data that are subject to privacy and data protection laws and regulations, and have imposed greater legal obligations on companies in this regard. For example, in April 2016, European legislative bodies adopted the General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018. The GDPR applies to any company established in the European Union as well as to those outside of the European Union if they collect and use personal data in connection with the offering of goods or services to individuals in the European Union or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on service providers. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of annual worldwide revenue, whichever is higher. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of personal data could greatly increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions in which we operate. The European Commission is also currently negotiating a new ePrivacy Regulation that would address various matters, including provisions specifically aimed at the use of cookies to identify an individual’s online behavior, and any such ePrivacy Regulation may provide for new compliance obligations and significant penalties. Any of these changes to European Union data protection law or its interpretation could disrupt and/or harm our business.
 
Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the European Union, the United Kingdom government has initiated a process to leave the European Union, which has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, although a Data Protection Bill designed to be consistent with the GDPR is pending in the United Kingdom’s legislative process, it is unclear whether the United Kingdom will enact data protection laws or regulations designed to be consistent with the GDPR and how data transfers to and from the United Kingdom will be regulated. The interpretation and application of many privacy and data protection laws are, and will likely remain, uncertain, and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or product features. Although player interaction on our platform is subject to our privacy policies, end user license agreements (“EULAs”), and terms of service, if we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and/or harm our business.
 
In addition to government regulation, privacy advocacy and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Any inability to adequately address privacy, data protection and data security concerns or comply with applicable privacy, data protection or data security laws, regulations, policies and other obligations could result in additional cost and liability to us, damage our reputation, inhibit sales and harm our business. Further, our failure, and/or the failure by the various third-party service providers and partners with which we do business, to comply with applicable privacy policies or federal, state or similar international laws and regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in the unauthorized release of personally identifiable information or other user data, or the perception that any such failure or compromise has occurred, could damage our reputation, result in a loss of creators or attendees, discourage potential creators and attendees from trying our platform and/or result in fines and/or proceedings by governmental agencies and/or users, any of which could have an adverse effect on our business, results of operations and financial condition. In addition, given the breadth and depth of changes in data protection obligations, ongoing compliance with evolving interpretation of the GDPR and other regulatory requirements requires time and resources and a review of the technology and systems currently in use against the requirements of GDPR and other regulations. 
 
 
 
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The preparation of our financial statements involves the use of good faith estimates, judgments and assumptions, and our financial statements may be materially affected if such good faith estimates, judgments or good faith assumptions prove to be inaccurate.
 
Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) typically require the use of good faith estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets, share-based compensation and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes would require a restatement of our financial statements and could harm our business, including our financial condition and results of operations and the price of our securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our financial statements and our business.
 
We may be held liable for information or content displayed on, retrieved from or linked to our gaming platform, or distributed to our users.
 
Our interactive live streaming platform enables gamers to exchange information and engage in various other online activities. Although we require our gamers to register their real name, we do not require user identifications used and displayed during gameplay to contain any real-name information, and hence we are unable to verify the sources of all the information posted by our gamers. In addition, because a majority of the communications on our online and in person gaming platform is conducted in real time, we are unable to examine the content generated by gamers before they are posted or streamed. Therefore, it is possible that gamers may engage in illegal, obscene or incendiary conversations or activities, including publishing of inappropriate or illegal content that may be deemed unlawful. If any content on our platform is deemed illegal, obscene or incendiary, or if appropriate licenses and third-party consents have not been obtained, claims may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or otherwise accessed through our platform. Moreover, the costs of compliance may continue to increase when more content is made available on our platform as a result of our growing base of gamers, which may adversely affect our results of operations.
 
Intensified government regulation of the Internet industry could restrict our ability to maintain or increase the level of traffic to our gaming platform as well as our ability to capture other market opportunities.
 
The Internet industry is increasingly subject to strict scrutiny. New laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. We may not timely obtain or maintain all the required licenses or approvals or make all the necessary filings in the future. We also cannot assure you that we will be able to obtain the required licenses or approvals if we plan to expand into other Internet businesses. If we fail to obtain or maintain any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, which may disrupt our business operations or derail our business strategy, and materially and adversely affect our business, financial condition and results of operations.
 
From time to time we may become involved in legal proceedings.
 
From time to time we may become subject to legal proceedings, claims, litigation and government investigations or inquiries, which could be expensive, lengthy, disruptive to normal business operations and occupy a significant amount of our employees’ time and attention. In addition, the outcome of any legal proceedings, claims, litigation, investigations or inquiries may be difficult to predict and could have a material adverse effect on our business, operating results, or financial condition.
 
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
 
Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine shall be a state or federal court located within the State of Delaware, in all cases subject to the court’s having personal jurisdiction over indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. The forum selection clause in our amended and restated bylaws may have the effect of discouraging lawsuits against us or our directors and officers and may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
 
 
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Risks Related to Intellectual Property
 
We may be subject to claims of infringement of third-party intellectual property rights.
 
From time to time, third parties may claim that we have infringed their intellectual property rights. For example, patent holding companies may assert patent claims against us in which they seek to monetize patents they have purchased or otherwise obtained. Although we take steps to avoid knowingly violating the intellectual property rights of others, it is possible that third parties still may claim infringement.
 
Existing or future infringement claims against us, whether valid or not, may be expensive to defend and divert the attention of our employees from business operations. Such claims or litigation could require us to pay damages, royalties, legal fees and other costs. We also could be required to stop offering, distributing or supporting esports games, our gaming platform or other features or services which incorporate the affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a license, all of which could be costly and harm our business.
 
In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing interactive entertainment software products and services, such as those offered on our gaming platform or that we would like to offer in the future. We may discover that future opportunities to provide new and innovative modes of game play and game delivery to gamers may be precluded by existing patents that we are unable to license on reasonable terms.
 
Our technology, content and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement.
 
We regard our technology, content and brands as proprietary and take measures to protect our technology, content and brands and other confidential information from infringement. Piracy and other forms of unauthorized copying and use of our technology, content and brands are persistent, and policing is difficult. Further, the laws of some countries in which our products are or may be distributed either do not protect our intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. Legal protection of our rights may be ineffective in such countries. In addition, although we take steps to enforce and police our rights, factors such as the proliferation of technology designed to circumvent the protection measures used by our business partners or by us, the availability of broadband access to the Internet, the refusal of Internet service providers or platform holders to remove infringing content in certain instances, and the proliferation of online channels through which infringing product is distributed all have contributed to an expansion in unauthorized copying of our technology, content and brands.
 
Third parties may register trademarks or domain names or purchase internet search engine keywords that are similar to our registered trademark or pending trademarks, brands or websites, or misappropriate our data and copy our gaming platform, all of which could cause confusion, divert gamers away from our gaming platform and league tournaments, or harm our reputation.
 
Competitors and other third parties may purchase (i) trademarks that are similar to our trademarks and (ii) keywords that are confusingly similar to our brands or websites in Internet search engine advertising programs and in the header and text of the resulting sponsored links or advertisements in order to divert gamers from us to their websites. Preventing such unauthorized use is inherently difficult. If we are unable to prevent such unauthorized use, competitors and other third parties may continue to drive potential gamers away from our gaming platform to competing, irrelevant or potentially offensive platforms, which could harm our reputation and cause us to lose revenue.
 
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
 
We regard our registered trademark and pending trademarks, service marks, pending patents, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to our success. We rely on trademark and patent law, trade secret protection and confidentiality and license agreements with our employees and others to protect our proprietary rights.
 
 
 
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We have invested significant resources to develop our own intellectual property and acquire licenses to use and distribute the intellectual property of others on our gaming platform. Failure to maintain or protect these rights could harm our business. In addition, any unauthorized use of our intellectual property by third parties may adversely affect our current and future revenues and our reputation.
 
Policing unauthorized use of proprietary technology is difficult and expensive. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Further, we require every employee and consultant to execute proprietary information and invention agreements prior to commencing work. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot assure you that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
 
Our patent and trademark applications may not be granted and our patent and trademark rights, once patents are issued and trademarks are registered, may be contested, circumvented, invalidated or limited in scope, and our patent and trademark rights may not protect us effectively once issued and registered, respectively. In particular, we may not be able to prevent others from developing or exploiting competing technologies and trademarks, which could have a material and adverse effect on our business operations, financial condition and results of operations.
 
Currently, we have three patent applications pending, one registered trademark and eighteen pending trademark applications, along with licenses from game publishers to utilize their proprietary games. For our pending patent applications and we cannot assure you that we will be granted patents pursuant to our pending applications as well as future patent applications we intend to file. Even if our patent applications succeed, it is still uncertain whether these patents will be contested, circumvented or invalidated in the future. In addition, the rights granted under any issued patents may not provide us with sufficient protection or competitive advantages. The claims under any patents that issue from our patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. It is also possible that the intellectual property rights of others will bar us from licensing and from exploiting any patents that issue from our pending applications. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent applications and could subject our patent applications to invalidation. Finally, in addition to those who may claim priority, any of our pending patent and trademark applications may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
 
We may be held liable for information or content displayed on, retrieved from or linked to our gaming platform, or distributed to our users.
 
Our interactive live streaming platform enables gamers to exchange information and engage in various other online activities. Although we require our gamers to register their real name, we do not require user identifications used and displayed during gameplay to contain any real-name information, and hence we are unable to verify the sources of all the information posted by our gamers. In addition, because a majority of the communications on our online and in person gaming platform is conducted in real time, we are unable to examine the content generated by gamers before they are posted or streamed. Therefore, it is possible that gamers may engage in illegal, obscene or incendiary conversations or activities, including publishing of inappropriate or illegal content that may be deemed unlawful. If any content on our platform is deemed illegal, obscene or incendiary, or if appropriate licenses and third-party consents have not been obtained, claims may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or otherwise accessed through our platform. Moreover, the costs of compliance may continue to increase when more content is made available on our platform as a result of our growing base of gamers, which may adversely affect our results of operations.
 
 
 
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Intensified government regulation of the Internet industry could restrict our ability to maintain or increase the level of traffic to our gaming platform as well as our ability to capture other market opportunities.
 
The Internet industry is increasingly subject to strict scrutiny. New laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. We may not timely obtain or maintain all the required licenses or approvals or make all the necessary filings in the future. We also cannot assure you that we will be able to obtain the required licenses or approvals if we plan to expand into other Internet businesses. If we fail to obtain or maintain any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, which may disrupt our business operations or derail our business strategy, and materially and adversely affect our business, financial condition and results of operations.
 
From time to time we may become involved in legal proceedings.
 
From time to time we may become subject to legal proceedings, claims, litigation and government investigations or inquiries, which could be expensive, lengthy, disruptive to normal business operations and occupy a significant amount of our employees’ time and attention. In addition, the outcome of any legal proceedings, claims, litigation, investigations or inquiries may be difficult to predict and could have a material adverse effect on our business, operating results, or financial condition.
 
Risks Related to our Common Stock and this Offering
 
There is currently no trading market for our common stock and we cannot ensure that one will ever develop or be sustained.
 
There is no current market for any of our shares of common stock and a market may not develop. We have applied to list our common stock on the Nasdaq Capital Market and intend to list our common stock on the Nasdaq Capital Market if we raise sufficient capital in this offering, but there is no guarantee that we will be able to do so. If we are not successful in listing our shares of common stock on the Nasdaq Capital Market, our common stock may be traded on an over-the-counter market to the extent any demand exists. Even if listed on the Nasdaq Capital Market, a liquid trading market may not develop. Investors should assume that they may not be able to liquidate their investment for some time or be able to pledge their shares as collateral.
 
If we successfully list on Nasdaq Capital Market, our shares are likely to be thinly traded for some time and an active market may never develop.
 
If we successfully list on the Nasdaq Capital Market, it is likely that initially there will be a very limited trading market for our common stock and we cannot ensure that a robust trading market will ever develop or be sustained. Our shares of common stock may be thinly traded, and the price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of common stock in the future. The market liquidity will be dependent on the perception of our operating business, competitive forces, state of the esports gaming industry, growth rate and becoming cash flow profitable on a sustainable basis, among other things. We may, in the future, take certain steps, including utilizing investor awareness campaigns, press releases, road shows, and conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may require we compensate financial public relations firms with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of low-priced shares of common stock as collateral for any loans.
 
 
 
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Our stock price may be volatile, and you could lose all or part of your investment.
 
The trading price of our common stock following this offering may fluctuate substantially and may be higher or lower than the initial public offering price. This may be especially true for companies with a small public float. The trading price of our common stock following this offering will depend on several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our common stock include:
 
changes to our industry, including demand and regulations;
 
we may not be able to compete successfully against current and future competitors;
 
competitive pricing pressures;
 
our ability to obtain working capital financing as required;
 
additions or departures of key personnel;
 
sales of our common stock;
 
our ability to execute our business plan;
 
operating results that fall below expectations;
 
loss of any strategic relationship, sponsor or licensor;
 
any major change in our management;
 
changes in accounting standards, procedures, guidelines, interpretations or principals; and
 
economic, geo-political and other external factors.
 
In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
 
In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.
 
If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.
 
Any trading market for our common stock will be influenced in part by any research reports that securities industry analysts publish about us. We may not obtain any future research coverage by securities industry analysts. In the event we are covered by research analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our common stock could be negatively affected.
 
You will experience dilution as a result of future equity offerings.
 
We may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. Although no assurances can be given that we will consummate a future financing, in the event we do, or in the event we sell shares of common stock or other securities convertible into shares of our common stock in the future, additional and potentially substantial dilution will occur. In addition, investors purchasing shares or other securities in the future could have rights superior to investors in this offering.
 
 
 
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We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment will likely be limited to the value of our common stock.
 
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
 
Since we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain.
 
We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain for the foreseeable future.
 
Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which would rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.
 
In the future, we may attempt to increase our capital resources by offering debt securities. In the event of a bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock in the future, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred securities in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any such future offerings we conduct or borrowings we make may adversely affect the level of return they may be able to achieve from an investment in our common stock.
 
We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements.
 
Upon becoming subject to reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be required to comply with a variety of extensive reporting, accounting, and other rules and regulations. Compliance with each of these requirements is expensive, time consuming and intricate. Further requirements may increase our costs and require additional management time and resources. We may need to implement additional finance and accounting systems, procedures and controls to satisfy our reporting requirements. If our internal controls over financial reporting are determined to be ineffective, such failure could cause investors to lose confidence in our reported financial information, negatively affect the market price of our common stock, subject us to regulatory investigations and penalties, cause us to have to restate our financial statements, and adversely impact our business and financial condition.
 
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
 
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies,” including:
 
 
 
not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
 
 
 
reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and
 
 
 
exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
 
We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:
 
 
 
the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;
 
 
 
the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;
 
 
 
the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
 
 
 
the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
 
 
 
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We cannot predict if investors will find our common stock less attractive if we choose to rely on the exemptions afforded emerging growth companies. If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.
 
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
 
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
 
Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. We expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
 
In the past, stockholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
 
Because of our status as an emerging growth company, you will not be able to depend on any attestation from our independent registered public accounting firm as to our internal control over financial reporting for the foreseeable future.
 
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company” as defined in the JOBS Act. Accordingly, you will not be able to depend on any attestation concerning our internal control over financial reporting from our independent registered public accounting firm for the foreseeable future. Subsequent to the time frame above, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act until such time that the Company becomes an “accelerated filer,” as defined by the SEC.
 
 
 
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If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
 
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on the Nasdaq Capital Market or if the price of our common stock falls below $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements would likely have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
 
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
 
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, Inc. (“FINRA”), has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares, as well as overall liquidity, of our common stock.
 
We will incur increased costs as a result of operating as a listed public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
 
If at some point in the future we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we have not incurred in the past. The Sarbanes-Oxley Act, the JOBS Act, the listing requirements of the Nasdaq Capital Market and other applicable securities rules and regulations impose various requirements on public companies beyond what management has experienced in operating a privately held company. Our management and other personnel will need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we will incur as a listed public company, or the timing of such costs, but such costs will be significant.
 
We are evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
 
 
 
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We may be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.
 
Rule 12b-2 of the Exchange Act, defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
 
had a public float of less than $75.0 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or
 
in the case of an initial registration statement under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act for shares of its common equity, had a public float of less than $75.0 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or
 
in the case of an issuer whose public float was zero, had annual revenues of less than $50.0 million during the most recently completed fiscal year for which audited financial statements are available.
 
As a smaller reporting company, we would not be required and may not include a Compensation Discussion and Analysis section in our proxy statements; we would provide only two years of financial statements; and we would not need to provide the table of selected financial data. We also would have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, and also could make it more difficult for our stockholders to sell their shares.
 
Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.
 
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our earnings and adversely affect our operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, on December 22, 2017, President Trump signed tax legislation into law, commonly referred to as the Tax Cuts and Jobs Act of 2017, that contains many significant changes to the U.S. tax laws. The new legislation reduced the corporate income tax rate from 34% to 21% effective January 1, 2018, causing all of our deferred income tax assets and liabilities, including NOLs, to be measured using the new rate and which value is reflected in the valuation of these assets as of December 31, 2017. As a result, the value of our deferred tax assets decreased by approximately $4.3 million and the related valuation allowance has been reduced by the same amount. Our analysis and interpretation of this legislation is ongoing. Given the full valuation allowance provided for net deferred tax assets for the periods presented herein, the change in tax law did not have a material impact on our financial statements provided herein. There may, however, be additional tax impacts identified in subsequent fiscal periods in accordance with subsequent interpretive guidance issued by the SEC or the Internal Revenue Service. Further, there may be other material adverse effects resulting from the legislation that we have not yet identified. No estimated tax provision has been recorded in the financial statements included herein for tax attributes that are incomplete or subject to change.
 
 
 
 
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The foregoing items could have a material adverse effect on our business, cash flow, financial condition or results of operations. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. The impact of this tax legislation on holders of our common stock is also uncertain and could be adverse. We urge our stockholders and investors to consult with our legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
 
Our management has broad discretion as to the use of certain of the net proceeds from this offering and may not use them effectively.
 
We currently intend to use the net proceeds of the offering for working capital and general corporate purposes, including sales and marketing activities, game licensing, product development, and capital expenditures. Our management will have considerable discretion in the application of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of those proceeds. Our management may spend the proceeds in ways that do not improve our operating results or enhance the value of our common stock, and you will not have the opportunity to influence management’s decisions on how to use the proceeds from this offering. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may also invest the net proceeds of this offering in a manner that does not produce income or that loses value. See “Use of Proceeds” below for more information.
 
If we fail to maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of our common stock may be materially and adversely affected.
 
Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Although management has reviewed our current internal controls over financial reporting and concluded that our internal controls are effective, our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future and we may be unable to timely complete our evaluation testing and any required remediation.
 
During the course of documenting and testing our internal control procedures, we may identify weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our common stock. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
 
 
 
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We may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all. Furthermore, our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends.
 
To grow our business and remain competitive, we may require additional capital from time to time for our daily operation. Our ability to obtain additional capital is subject to a variety of uncertainties, including:
 
our market position and competitiveness in the esports and online amateur gaming market;
 
our future profitability, overall financial condition, results of operations and cash flows; and
 
economic, political and other conditions in the U.S. and internationally.
 
We may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. In addition, our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our stockholders.
 
Our existing stockholders have substantial influence over our company and their interests may not be aligned with the interests of our other stockholders, which may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their securities.
 
As of the date of this prospectus, certain stockholders control approximately 44.5% of the voting power in us, including management. As a result, these stockholders have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of any contemplated sale of our company and may reduce the price of our common stock.
 
Because our offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.
 
If you purchase common stock in this offering, you will pay more for your common stock than the amount paid by our existing stockholders for their common stock on a per share basis. As a result, you will experience immediate and substantial dilution of $7.91 per share, representing the difference between the assumed initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and our net tangible book value per share as of December 31, 2018, after giving effect to the net proceeds to us from this offering. In addition, you may experience further dilution to the extent that our shares are issued upon the exercise of any share options. See “Dilution” for a more complete description of how the value of your investment in our common stock will be diluted upon completion of this offering.
 
 
 
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Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our common stock for return on your investment.
 
We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any future dividend income.
 
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Delaware General Corporation Law. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our common stock will likely depend entirely upon any future price appreciation of our common stock. There is no guarantee that our common stock will appreciate in value after this offering or even maintain the price at which you purchased the common stock. You may not realize a return on your investment in our common stock and you may even lose your entire investment in our common stock.
 
Substantial future sales or perceived potential sales of our common stock in the public market could cause the price of our common stock to decline.
 
Sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Immediately after the completion of this offering, we will have 8.3 million shares of common stock outstanding, assuming the underwriters do not exercise their option to purchase additional shares of common stock from us. All common stock sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining shares outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of Northland Securities, Inc. and Lake Street Capital Markets, LLC. To the extent shares are released before the expiration of the lock-up period and sold into the market, the market price of our common stock could decline.
 
We have granted, and may continue to grant, share incentive awards, which may result in increased share-based compensation expenses.
 
We adopted our Amended and Restated 2014 Stock Option and Incentive Plan (the “2014 Plan”) in October 2014, for purposes of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. We account for compensation costs for all share-based awards issued under the 2014 Plan using a fair-value based method and recognize expenses in our statements of comprehensive loss in accordance with GAAP. Under the 2014 Plan, we are authorized to grant options to purchase shares of common stock of our Company, restricted share units to receive shares of common stock and restricted shares of common stock. Following the approval of an amendment to the 2014 Plan to increase the number shares which may be issued pursuant to all awards under the 2014 Plan by our Board of Directors and holders of a majority of our outstanding voting securities, the number of shares of common stock available for issuance under the 2014 Plan is now 1,833,334. As of the date of this prospectus, options to purchase 1,524,468 shares of common stock have been granted and are outstanding, 23,334 shares of our common stock have been issued pursuant to the exercise of options, and 10,834 restricted share units have been granted, of which 834 restricted share units have vested. For the years ended December 31, 2018 and 2017, we recorded share-based compensation expense of $2.5 million and $1.9 million, respectively, primarily related to issuances under the 2014 Plan.
 
We believe the granting of share incentive awards is important to our ability to attract and retain employees, and we will continue to grant share incentive awards to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.
 
 
 
 
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State securities laws may limit secondary trading of our common stock if our common stock is not listed on a national securities exchange, which may restrict the states in which and conditions under which you can sell shares purchased in this offering.
 
Secondary trading of the shares sold in this offering will not be possible in any state until the shares are qualified for sale under the applicable securities laws of the state, or there is confirmation that an exemption, such as resulting from the potential listing of our common stock on the Nasdaq Capital Market or another national securities exchange or listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to list our common stock on a national securities exchange and otherwise fail to register, qualify, obtain or verify an exemption for the secondary trading of our common stock in any particular state, any shares purchased in this offering may not be offered, sold to, or be purchased by a resident of such state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for our common stock could be significantly impacted, thus causing you to suffer a loss on your investment. While we intend to seek to facilitate secondary trading in our common stock in the event our common stock is not listed on a national securities exchange, there can be no assurances that we will be successful in qualifying or finding an exemption in each state or other jurisdictions.
 
 
 
 
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections of this prospectus entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:
 
overall strength and stability of general economic conditions and of the electronic video game sports (“esports”) industry in the United States and globally;
 
changes in consumer demand for, and acceptance of, our services and the games that we license for our tournaments and other experiences, as well as online gaming in general;
 
changes in the competitive environment, including adoption of technologies, services and products that compete with our own;
 
our ability to generate consistent revenue;
 
our ability to effectively execute our business plan;
 
changes in the price of streaming services, licensing fees, and network infrastructure, hosting and maintenance;
 
changes in laws or regulations governing our business and operations;
 
our ability to maintain adequate liquidity and financing sources and an appropriate level of debt on terms favorable to us;
 
our ability to effectively market our services;
 
costs and risks associated with litigation;
 
our ability to obtain and protect our existing intellectual property protections, including patents, trademarks and copyrights;
 
our ability to obtain and enter into new licensing agreements with game publishers and owners;
 
changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on earnings;
 
interest rates and the credit markets;
 
our ability to list our shares on the Nasdaq Capital Market or any other exchange and maintain such listing; and
 
other risks described from time to time in periodic and current reports that we file with the SEC.
 
 
 
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This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but not exhaustive. New risk factors and uncertainties not described here or elsewhere in this prospectus, including in the sections entitled “Risk Factors,” may emerge from time to time. Moreover, because we operate in a competitive and rapidly changing environment, it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The forward-looking statements are also subject to the risks and uncertainties specific to our Company, including but not limited to the fact that we have no operating history as a public company. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
 
You should read this prospectus, the documents referenced herein and those documents filed as exhibits to the registration statement, of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect.
 
 
 
 
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INDUSTRY AND MARKET DATA
 
In addition to the industry, market and competitive position data referenced in this prospectus from our own internal estimates and research, some market data and other statistical information included in this prospectus are based in part upon information obtained from third-party industry publications, research, surveys and studies, none of which we commissioned. Third-party industry publications, research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.
 
We are responsible for all of the disclosure in this prospectus and while we believe that each of the publications, research, surveys and studies included in this prospectus are prepared by reputable sources, neither we, nor the underwriters have independently verified market and industry data from third-party sources. In addition, while we believe our internal company research and estimates are reliable, such research and estimates have not been verified by independent sources. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”
 
 
 
 
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USE OF PROCEEDS
 
We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $22.4 million (or approximately $25.8 million if the underwriters exercise their option to purchase additional shares of common stock from us in full), based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
Each $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $2.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $10.2 million, assuming the assumed initial public offering price stays the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We currently intend to use the net proceeds we receive from this offering for working capital and 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. However, we have no present commitments or agreements to enter into any acquisitions or investments. Pending these uses, we may invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
 
The amounts and timing of our actual expenditure, including expenditure related to sales and marketing and product development will depend on numerous factors, including the status of our product development efforts, our sales and marketing activities, expansion internationally, the amount of cash generated or used by our operations, competitive pressures and other factors described under “Risk Factors” in this prospectus. We therefore cannot estimate the amount of net proceeds to be used for the purposes described above. As a result, we may find it necessary or advisable to use the net proceeds for other purposes. Our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds from this offering. Investors will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.
 
 
 
 
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DIVIDEND POLICY
 
We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business and, therefore, we do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in our current and future debt agreements, and other factors that our board of directors may deem relevant.
 
 
 
 
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CAPITALIZATION
 
The following table sets forth our cash and capitalization as of December 31, 2018:
 
on an actual basis; 
 
on a pro forma basis, giving effect to (i) the Automatic Note Conversion of all outstanding principal and accrued but unpaid interest on the 2018 Notes, totaling $13.6 million at December 31, 2018, into an aggregate of 1,455,184 shares of our common stock immediately prior to the completion of this offering (assuming an initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, and a conversion price of $9.35) and (ii) the immediate amortization, as interest expense, of the beneficial conversion feature (“BCF”) associated with the 2018 Notes, which is exercisable upon the consummation of an initial public offering, as described at Note 6 to the audited financial statements included elsewhere in this prospectus. The intrinsic value of the BCF at December 31, 2018, which was limited to the net proceeds allocated to the debt on a relative fair value basis, was approximately $8,227,542; and  
 
on a pro forma as adjusted basis to reflect the sale by us of 2,272,727 shares of common stock in this offering at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing as well as our actual expenses. You should read this table together with “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto appearing elsewhere in this prospectus.
 
 
 
As of  December 31, 2018
 
 
 
Actual
 
 
Pro Forma
 
 
Pro Forma
As Adjusted (1)
 
 
 
 
 
 
(unaudited)
 
 
 (unaudited)
 
Cash
 2,774,421 
 2,774,421 
 25,128,369
 
    
    
    
Convertible notes payable
  10,922,601 
  - 
  -
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 4,610,109 shares issued and outstanding, actual; 6,065,293 shares issued and outstanding, pro forma; 8,338,020 shares issued and outstanding, pro forma as adjusted
  13,831 
  15,286 
  17,559 
Additional paid-in capital
  48,325,146 
  67,473,834 
 89,825,509
Accumulated deficit
  (55,133,473)
  (63,361,015)
  (63,361,015)
Total stockholders’ deficit
  (6,794,496)
  4,128,105 
 26,482,053
Total capitalization
 4,128,105 
 4,128,105 
 $26,482,053
_______________
(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $2.1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $10.2 million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
 
The number of shares of common stock that will be outstanding after this offering is based on 4,610,109 shares of common stock outstanding as of December 31, 2018, and excludes as of such date:
 
2,578,415 shares of common stock issuable upon exercise of warrants to purchase our common stock, including an estimated 1,396,383 warrants (subject to adjustment as described below) that are callable, at the election of the Company, at any time following the completion of this offering;
 
1,524,468 shares of common stock issuable upon exercise of options held and 274,698 shares of common stock reserved for issuance pursuant to our 2014 Plan; and
 
68,182 shares of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which equates to 3.0% of the number of shares of our common stock to be issued and sold in this offering.
 
 
-36-
 
DILUTION  
 
If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the assumed initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of this offering. Net tangible book value per share of our common stock is determined at any date by subtracting our total liabilities from the amount of our total tangible assets (total assets, less intangible assets) and dividing the difference by the number of shares of our common stock deemed to be outstanding at that date. 
 
Our historical net tangible book value (deficit) as of December 31, 2018 was $(7.5) million, or $(1.63) per share of common stock. Our historical net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2018.
 
Our pro forma net tangible book value as of December 31, 2018 was $3.4 million, or $0.56 per share of common stock. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2018, as adjusted to reflect the Reverse Stock Split, after giving effect to the Automatic Note Conversion of all principal and accrued but unpaid interest on the 2018 Notes, totaling $13.6 million at December 31, 2018, into an aggregate of 1,455,184 shares of our common stock immediately prior to the closing of this offering.
 
After further giving effect to (i) the pro forma adjustment to reflect the Automatic Note Conversion of the 2018 Notes described above, and (ii) our receipt of approximately $22.4 million of estimated net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, from our sale of common stock in this offering at an assumed initial public offering price of  $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of December 31, 2018, would have been approximately $25.8 million, or $3.09 per share. This amount represents an immediate increase in net tangible book value of  $2.53 per share of our common stock to existing stockholders and an immediate dilution in net tangible book value of  $7.91 per share of our common stock to new investors purchasing shares of common stock in this offering.
 
 The following table illustrates this dilution on a per share basis to new investors: 
 
 
 
 
 
 
 
 
 
Assumed initial public offering price per share  
 
 
 
 
$
 11.00
 
Historical net tangible book value (deficit) per share as of December 31, 2018  
 
$
(1.63
)
 
 
 
Pro forma increase in net tangible book value per share attributable to the transactions described above  
 
$
 2.19
 
 
 
 
Pro forma net tangible book value per share as of December 31, 2018  
 
$
 0.56
 
 
 
 
Increase in pro forma net tangible book value per share attributed to new investors purchasing shares from us in this offering  
 
$
 2.53
 
 
 
 
Pro forma as adjusted net tangible book value per share after giving effect to this offering  
 
 
 
 
$
 3.09
 
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering  
 
 
 
 
$
 7.91
 
 
The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering to be determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value by approximately $2.1 million, or by approximately $0.30 per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the pro forma as adjusted net tangible book value per share by approximately $10.2 million, or approximately $0.76 per share, assuming the assumed initial public offering price remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
-37-
 
If the underwriters exercise their option to purchase additional shares in full in this offering, the pro forma as adjusted net tangible book value after this offering would be approximately $29.3 million, or approximately $3.37 per share, the increase in pro forma net tangible book value to existing stockholders would be $0.28 per share, and the dilution per share to new investors would be $7.63 per share, in each case based on an assumed initial public offering price of  $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus.
 
The following table summarizes as of  December 31, 2018, on the pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by investors purchasing our common stock in this offering at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
Shares Purchased
 
 
Total Consideration
 
 
Average Price
 
 
 
Number
 
 
Percent
 
 
Amount
 
 
Percent
 
 
Per Share
 
Existing Stockholders
  6,065,293
  73%
 43,054,978
  63%
 7.10
New Investors
  2,272,727 
  27%
 25,000,000 
  37%
 11.00 
Total
  8,338,020
  100%
 68,054,978
  100%
    
 
The number of shares of common stock that will be outstanding after this offering is based on 4,610,109 shares of common stock outstanding as of  December 31, 2018, and excludes as of such date:
 
2,578,415 shares of common stock issuable upon exercise of warrants to purchase our common stock, including an estimated 1,396,383 warrants (assuming an initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, and a conversion price of $9.35, subject to adjustment as described below) that are callable, at the election of the Company, at any time following the completion of this offering;  
 
1,524,468 shares of common stock issuable upon exercise of options held and 274,698 shares of common stock reserved for issuance pursuant to our 2014 Plan; and
 
68,182  shares of common stock issuable upon the exercise of the warrant to be issued to the underwriters, which equates to 3.0% of the number of shares of our common stock to be issued and sold in this offering.
 
If the underwriters exercise their option to purchase additional shares in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately 70% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to  2,613,636, or approximately 30% of the total number of shares of common stock outstanding after the offering.
 
To the extent that options or warrants are exercised, new options or other securities are issued under our equity incentive plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
 
 
 
-38-
 
SELECTED FINANCIAL DATA  
 
The following selected financial data should be read together with our financial statements and related notes thereto, as well as the information found under the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. We derived the selected financial data as of and for the years ended December 31, 2018 and 2017 from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in future periods.
 
 
 
Year Ended December 31, 
 
 
 
2018
 
 
2017 
 
 
 
 
 
 
 
 
 Sales   
 $1,046,359 
 $201,182 
 Cost of sales   
  684,105 
  1,487,905 
 Gross profit (loss) 
  362,254 
  (1,286,723)
 
    
    
 Operating expense:   
    
    
 Sales, marketing and advertising 
  1,525,525 
  1,155,506 
 Research and development   
  17,197 
  61,543 
 General and administrative   
  14,979,732 
  12,451,636 
 Total operating expense   
  16,522,454 
  13,668,685 
 Loss from operations   
  (16,160,200)
  (14,955,408)
 
    
    
 Other Income (expense), net:   
    
    
Interest expense, net   
  (4,468,692)
  - 
Other   
  2,076 
  - 
Other income (expense), net   
  (4,466,616)
  - 
 Net loss   
 $(20,626,816)
 $(14,955,408)
 
   
   
Net loss per share:   
    
    
Basic and diluted   
 (4.48)
 (3.52)
 Weighted average common shares used to compute net loss per share: 
    
    
Basic and diluted   
  4,606,951
 
  4,246,626
 
Pro forma net loss per share (unaudited):   
    
    
Basic and diluted (1) (2) 
 (4.76)
 (3.52)
Pro forma weighted average common shares outstanding (unaudited): 
    
    
Basic and diluted (1) (2) 
 6,062,135
 
 4,246,626
 
  _______________
(1)
See Note 1 to our audited financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

 

Pro forma basic and diluted net loss per common share and pro forma weighted average shares outstanding have been calculated assuming, as of the beginning of the applicable period: (i) the Automatic Note Conversion of all outstanding principal and accrued but unpaid interest on our outstanding 2018 Notes, totaling $13.6 million at December 31, 2018, into an aggregate of 1,455,184 shares of our common stock immediately prior to the closing of this offering (assuming an initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, and a conversion price of $9.35); and (ii) the immediate amortization, as interest expense, of the BCF associated with the 2018 Notes which is exercisable upon the consummation of an initial public offering, as described at Note 6 to the audited financial statements included elsewhere in this prospectus. The intrinsic value of the BCF at December 31, 2018, which was limited to the net proceeds allocated to the debt on a relative fair value basis, was approximately $8,227,542.  
 
(2)
All share and per share data has been retrospectively adjusted to reflect the one-for-three Reverse Stock Split, which was effected on February 8, 2019. 
 
 
 
As of December 31, 
 
 
 
2018
 
 
2017
 
Balance Sheet Data:
 
 
 
 
 
 
Cash
 2,774,421 
 1,709,473 
Accounts receivable
  487,398 
  113,702 
Prepaid expenses and other current assets
  487,148 
  780,111 
Property and equipment, net
  531,369 
  1,137,817 
Intangible and other assets, net
  706,821 
  340,998 
Accounts payable, accrued expenses and other
  859,052 
  383,814 
Convertible debt, net
  10,922,601 
  - 
Total stockholders’ equity (deficit)
  (6,794,496)
  3,698,287 
 
 
 
-39-
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this prospectus.
 
Overview
 
We are a leading amateur esports community and content platform offering a personalized experience to the large and underserved global audience of 2.3 billion gamers, as estimated by NewZoo. Through our proprietary, cloud-based technology platform, we connect our network of gamers, venues and brand partners to enable local, social and competitive esports that can be uniquely broadcast through our platform. We offer daily and season-focused offerings for which amateur competitive gamers establish meaningful connections with each other while improving their skills.
 
As a first-mover in defining the amateur esports category in 2015, we believe we are one of the most recognizable brands for amateur gamers. We have multi-year strategic partnerships with leading game publishers such as Microsoft and Riot Games with titles including Minecraft and League of Legends, respectively, as well as relationships with Supercell and Epic Games with respect to Clash Royale and Fortnite, respectively, to drive use among our member base and further penetrate our target market. We deliver enhanced gaming experiences to our members with these titles through our platform, and we provide our venue and brand partners access to our member network and platform technology. We believe that our members and the organizations that use our platform are only beginning to leverage the power of the consumer experience, commercial benefits, and data analytics our technology enables. Primarily targeting Generation Z and Millennials, members join through accessible, free-to-play experiences allowing us to reach the expansive amateur gaming market. We intend to convert members into subscribers through offering two tiers of competitive gameplay engagement: (i) our monthly subscription for the more casual competitive player, offering access to exclusive online tournaments and member benefits; and (ii) our semi-annual season pass for the more competitive player, offering access to our city leagues and advanced amateur esports offers along with membership rewards.
 
Components of Results of Operations
 
Revenue
 
We generate revenues and related cash flows from (i) the sale of subscriptions to gamers for participation in our in-person and online multiplayer gaming experiences, and (ii) brand and media partnerships.
 
Subscription Revenue. To date, subscription revenues have consisted of the sale of season passes to gamers for participation in our in-person and or online multiplayer gaming experiences. For the periods presented herein, season passes for gaming experiences were primarily comprised of multi-week packages and also include one-time, single experience admissions. The majority of the gaming experiences we have offered to date have occurred in movie theatres.
 
We intend to convert members into subscribers by offering our members two tiers of competitive gameplay engagement: (i) a monthly subscription for the more casual competitive player, offering access to exclusive online tournaments and member benefits; and (ii) a semi-annual season pass for the more competitive player, offering access to our city leagues and advanced amateur esports offers along with membership rewards.
 
 
-40-
 
Brand and Media Partnerships. We generate brand and media partnership revenues primarily from sales of various forms of sponsorships and promotional campaigns for our online platforms and from sponsorship at our in-person esports experiences. We also generate brand and media partnership revenues from the development of content tailored specifically for our partners’ distribution channels. We actively pursue the sale of sponsorships through our brand and media partnerships, including arrangements that 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.
 
We expect our brand and media partnerships revenues to increase in the foreseeable future as we introduce new brand and media partnership solutions and attract more sponsorship partners, particularly as we license additional game titles, grow our subscriber base, and generate a large volume of amateur gaming content.
 
Cost of Sales
 
Cost of sales includes direct costs incurred for the production of our in-person and online gaming experiences, including venue rental, licenses and contract services.
 
Venue rental. Venue rental costs consists of net revenue share payments primarily to our contracted theatre groups, including Cinemark, National Amusements, Studio Movie Grill and others, for hosting our in-person experiences.
 
Licenses Fees. License agreements with game developers generally include the grant to us of a license, during the applicable term, to (i) reproduce, publicly display and publicly perform the applicable game and approved game content to authorized users of the game as part of our leagues, and (ii) display approved advertising content in connection with game developer-approved advertising, marketing and promotion of our leagues. License agreements may also include a license to create derivative works using game content and/or game publisher marks in connection with the creation of merchandise. In consideration for the licenses granted, we are typically obligated to pay a royalty to the game-publisher. We are currently parties to license agreements with Riot Games and Microsoft for the use of League of Legends and Minecraft, respectively. Although we have relationships with Supercell and Epic Games for experiences involving Clash Royale and Fortnite, respectively, we currently do not have definitive license agreements in place with respect to these relationships.
 
License fees for the year ended December 31, 2017 also include amortized noncash license fee expense related to a June 2016 gaming license agreement whereby we issued restricted stock units to a third-party upon the achievement of certain game related service conditions. As we continue to become a more widely recognized brand in the esports space, we expect we will be in a position to secure more favorable terms in future license agreements with game publishers.
 
Contract Services. Contract services includes agency and contract labor costs incurred in connection with the execution of our in-person experiences held in theatres and other venues, including onsite staff to manage logistics and technical support, assist participants and ensure and promote the quality of the brand and overall gaming experience.
 
Materials / Giveaways and Prizing. Materials, giveaways and prizing costs include the costs of apparel and other paraphernalia, as well as the cost of scholarships, cash prizes and other awards provided in connection with our amateur esports league seasons.
 
Selling, Marketing and Advertising.
 
Selling, marketing and advertising expenses include the cost of creating and implementing marketing strategies, conducting market research, building relationships with our target audience, and increasing the overall exposure of our amateur esports brand to gamers. In-person gaming experience and Super League brand related advertising costs include the cost of producing advertisements, social media, print media, marketing, promotions, and merchandising. We expense advertising costs as incurred.
 
 
 
-41-
 
Research and Development
 
Research and development costs represent costs incurred in connection with the testing of game-play on our technology platform, comprised of third-party consultant and contractor costs. Research and development costs are expensed as incurred.
 
General and Administrative
 
General and administrative expenses consist primarily of personnel-related costs, including salaries and benefits, non-cash stock compensation expenses, office and facilities costs, legal, accounting and other professional fees, public relations costs and other corporate and administrative costs.
 
Results of Operations
 
Comparison of the Results of Operations for the Years Ended December 31, 2018 and 2017
 
The following table sets forth a summary of our statements of operations for the years ended December 31, 2018 and 2017:
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
SALES
 $1,046,359 
 $201,182 
COST OF SALES
  684,105 
  1,487,905 
GROSS PROFIT (LOSS)
  362,254 
  (1,286,723)
 
    
    
OPERATING EXPENSES
    
    
Selling, marketing and advertising
  1,525,525 
  1,155,506 
Research and development
  17,197 
  61,543 
General and administrative
  14,979,732 
  12,451,636 
Total operating expenses
  16,522,454 
  13,668,685 
 
    
    
NET LOSS FROM OPERATIONS
  (16,160,200)
  (14,955,408)
 
    
    
OTHER INCOME (EXPENSE), NET
  (4,466,616)
  - 
 
    
    
NET LOSS
 $(20,626,816)
 $(14,955,408)
 
    
    
 
Revenue
 
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
2018
 
 
2017
 
 
 $ Change
 
 
% Change
 
Subscription
 135,260 
 87,480 
 47,780 
  55%
Brand & Media Partnerships
  911,099 
  113,702 
  797,397 
  +300%
 
 1,046,359 
 201,182 
 845,177 
  +300%
 
 
-42-
  
Revenue for the year ended December 31, 2018 (“Fiscal 2018) increased $845,177, or over 300%, compared to the year ended December 31, 2017 (“Fiscal 2017”). Revenues for the periods presented were comprised of the following:
 
Subscription. Subscription revenue for Fiscal 2018 increased $47,780, or 55%, compared to the prior year period. The increase was primarily due to the expansion of our City Champs amateur esports competitions into 16 cities in Fiscal 2018, as compared to 12 cities in Fiscal 2017, and running two complete League of Legends City Champs seasons in Fiscal 2018, as compared to one League of Legends City Champs season in Fiscal 2017. In addition, the third and fourth quarters of Fiscal 2018 included revenues recognized in connection with our Minecraft related database asset acquisition in June 2018.
  
Brand and Media Partnerships. Brand and media partnerships revenue for Fiscal 2018 increased $797,397, or over 300%, compared to the prior year period. This year over year increase was primarily attributable to the growing visibility of our brand and platform, and an increase in marketing and sales resources and related activities focusing on increasing the number of new brand and media partnerships and strengthening existing brand and media partnerships. Brand and media partnerships revenue for Fiscal 2018 included amounts from Logitech, Inc. (“Logitech”), Red Bull North America, Inc., Sony Pictures Entertainment (“Sony”), Viacom Media Networks (Nickelodeon), Tribeca Film Festival and Samsung. Brand and media partnerships revenues Fiscal 2017 was primarily comprised of revenues from partnerships with Advanced Micro Devices, Inc., Nickelodeon, Mattel, Inc. and DMG Entertainment.
 
Cost of Sales

 
Year Ended December 31,
 
 
         
 
 
 
2018
 
 
2017
 
 
 $ Change
 
 
% Change
 
Cost of sales
 $684,105
 1,487,905 
 (803,800)
  (54%)
 
 
Cost of sales for Fiscal 2018 decreased $803,800, or (54%), compared to Fiscal 2017. The change in cost of sales was primarily due to the following:
 
 
License Fees. License fees for Fiscal 2018 decreased $1,040,058, or 98%, compared to the same period in 2017. In June 2016, we entered into a gaming license agreement whereby we issued 183,334 restricted stock units (“License RSUs”) upon the achievement of certain game related service conditions. Noncash license fee expense included in cost of sales for Fiscal 2017 was $1,054,167, all of which related to License RSUs and was recognized over the contractual license term of 18-months beginning June 2016 and ending December 31, 2017. As of December 31, 2017, the License RSUs were fully expensed and no further expense related to the License RSUs will be recorded in the statement of operations in periods subsequent to December 31, 2017.
 
Contract Services. Contract services costs for Fiscal 2018 increased $84,817, or 39%, compared to the same period in 2017, which amount was relatively consistent with the related increase in subscriptions revenue for the same period. The increase was primarily due to the expansion of our City Champs amateur esports competitions into 16 cities in Fiscal 2018, as compared to 12 cities in Fiscal 2017, and running two complete League of Legends City Champs seasons in Fiscal 2018, as compared to one League of Legends City Champs season in Fiscal 2017. In addition, in the fourth quarter of Fiscal 2018 we incurred additional contract services costs for influencers utilized in connection with our dedicated Minecraft build and monthly online gaming competitions in partnership with Sony, in connection with its cinematic release of “Spider Man into the Spider-Verse.”
 
 
 
-43-
 
Operating Expenses
 
Selling, Marketing and Advertising
 
 
 
Year Ended December 31,
 
 
             
 
 
 
2018
 
 
2017
 
 
 $ Change
 
 
% Change
 
Selling, Marketing and Advertising
 1,525,525 
 1,155,506 
 370,019 
  32%
 
Selling, marketing and advertising expenses for Fiscal 2018 increased $370,019, or 32%, compared to the same period in Fiscal 2017, primarily due to the amortization of noncash in-kind advertising costs which were initially capitalized pursuant to a June 2017 third-party investment agreement. The investment agreement included in-kind advertising for use in future periods, valued at $1.0 million, as a component of the consideration paid to us in exchange for equity in the Company. This prepaid advertising cost was amortized over an 18-month period ending as of December 31, 2018. In addition, selling, marketing and advertising costs for Fiscal 2018 included approximately $86,000 of costs incurred in connection with the development of a pilot program and related activities for use in the launch of SuperLeagueTV in April 2018.
 
Research and Development
 
 
 
Year Ended December 31,
 
 
           
 
 
 
2018
 
 
2017
 
 
 $ Change
 
 
% Change
 
Research and development
 17,197 
 61,543 
 (44,346)
  (72%)
 
Research and development expense for Fiscal 2018 decreased $44,346 or 72%, compared to the same period in Fiscal 2017, primarily due to a slight reduction in new game integration testing costs paid to third-party contractors and consultants. Third party research and development related game testing expenses vary period to period based on the timing of the acquisition and installation of new game properties and modifications to the functionalities and features of existing game properties on the platform.
 
General and Administrative
 
General and administrative expense for the periods presented was comprised of the following:
 
 
 
Year Ended December 31,
 
 
   
 
 
   
 
 
 
2018
 
 
2017
 
 
 $ Change
 
 
% Change
 
Personnel costs
 6,912,955 
 5,184,986 
  1,727,969 
  33%
Office and facilities
  365,562 
  267,290 
  98,272 
  37%
Professional fees
  666,416 
  469,965 
  196,451 
  42%
Stock-based compensation
  3,943,128 
  3,612,743 
  330,385 
  9%
Depreciation and amortization
  1,105,989 
  1,237,609 
  (131,620)
  (11%)
Other
  1,985,682 
  1,679,043 
  306,639 
  18%
Total general and administrative expense
 14,979,732 
 12,451,636 
 2,528,096 
  20%
 
 
-44-
 
General and administrative expenses for Fiscal 2018 increased $2,528,096, or 20%, compared to Fiscal 2017. A summary of the main drivers of the change in general and administrative expenses is as follows:
 
Increase in personnel costs totaling $1,727,969, due primarily to an increase in headcount since the end of Fiscal 2017 in connection with the continued expansion of our technology platform, product offerings and marketing activities, requiring additional internal resources across our technology platform engineering and development, product, operations, and commercial departments. During each of Fiscal 2018 and Fiscal 2017, we had average full-time equivalent employees of 44 and 33, respectively. As of December 31, 2018 and 2017, we had 46 and 38 full-time equivalent employees, respectively.
 
Increase in office and facilities expense totaling $98,271, primarily due to the increase in leased office space in June 2018 in connection with the expansion of our operations.

Increase in professional fees totaling $196,451, primarily due to an increase in technical consulting expenses related to the launch of SuperLeagueTV, the development of our subscription and game related offerings and our content series, an increase in audit fees incurred in connection with the completion of  audits of our financial statements for the years ended December 31, 2017 and 2016 incurred during Fiscal 2018, and an increase in placement fees incurred in connection with technology team contract positions that were converted to full-time employee positions during the period.

Increase in noncash stock compensation totaling $330,385, primarily due to noncash stock compensation expense for employee stock options granted during Fiscal 2018 in connection with the increase in headcount described above, partially offset by a decrease in noncash common stock purchase warrant expense related to warrants issued to members of our Board of Directors and consultants that vested immediately upon grant and, as a result, were fully expensed in the prior year period.
 
Increase in other general and administrative expenses totaling $306,639 primarily due to an increase in insurance, travel, broad-band, software and subscription costs in connection with the expansion of operations.
 
Other Income (expense)
 
Other income (expense), net, was primarily comprised of interest expense, as follows:
 
 
 
Year Ended
December 31, 2018
 
Accretion of discount on convertible notes
 3,508,176 
Accrued interest expense on convertible notes
  605,972 
Accretion of convertible note issuance costs
  354,544 
 
 4,468,692 
Interest Expense
 
Interest expense for Fiscal 2018 totaled $4,468,692, relating to the issuance of 9.00% secured convertible promissory notes, with an aggregate principal amount of approximately $13,000,000, during Fiscal, 2018, as described below under Liquidity and Capital Resources.
 
Liquidity and Capital Resources
 
General
 
Cash totaled $2,774,421 at December 31, 2018, compared to $1,709,473 at December 31, 2017.
 
We have experienced net losses and negative cash flows from operations since our inception. As of December 31, 2018, we had negative working capital of approximately $8,032,688, and sustained cumulative losses attributable to common stockholders of approximately $55,133,473. Total noncash charges included in accumulated deficit since inception, primarily related to noncash stock compensation, License RSUs, amortization of the discount on the 2018 Notes (defined below) and in-kind advertising expense, totaled $17,673,778. During Fiscal 2018, the Company issued 9.00% secured convertible promissory notes, as described below, in an aggregate principal amount of approximately $13,000,000. Approximately 1.3 million of the warrants issued in conjunction with the 2018 Notes are callable at the election of the Company at any time following the completion of this offering.
 
We believe that our cash on hand, including the approximately $22.4 million in net proceeds received from this offering (or approximately $25.8 million if the underwriters exercise their option to purchase additional shares from us in full) will sustain operations at least until February, 2020. We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. Without adequate funding, we may not be able to meet our obligations. We believe these conditions raise substantial doubt about our ability to continue as a going concern.
 
To date, our principal sources of capital used to fund our operations have been the net proceeds we received from private sales of equity securities and proceeds received from the issuance of convertible debt, as described below.
 
We expect to continue to incur substantial expenditures in the foreseeable future at rates consistent with expenditures incurred during Fiscal 2018 and Fiscal 2017, for the continued development and expansion of our esports brand, community and technology platform. We will require additional financing to further develop and market our esports technology platform, fund operations, and otherwise implement our business strategy at amounts relatively consistent with Fiscal 2018 expenditure levels disclosed above. Our current financial condition raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition, our ability to meet our obligations, and our ability to pursue our business strategies. We will seek funds through additional equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
 
We are focused on expanding our service offering through internal development, collaborations, and through strategic acquisitions. We are continually evaluating potential asset acquisitions and business combinations. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both.
 
 
 
 
-45-
 
Cash Flows for the Years Ended December 31, 2018 and 2017
 
The following table summarizes changes in cash for Fiscal 2018 and Fiscal 2017:
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Net cash used in operating activities
 (10,680,375)
 (8,968,886)
Net cash used in investing activities
  (865,365)
  (437,069)
Net cash provided by financing activities
  12,610,688 
  8,244,882 
Increase (decrease) in cash
  1,064,948 
  (1,161,073)
Cash at beginning of period
  1,709,473 
  2,870,546 
Cash at end of period
 2,774,421 
 1,709,473 
 
Cash Flows from Operating Activities. Net cash used in operating activities during Fiscal 2018 was $10,680,375, which primarily reflected our net loss of $20,626,816, net of adjustments to reconcile net loss to net cash used in operating activities of $9,946,441, which included $3,943,128 of noncash stock compensation charges, noncash accrued interest and amortization of discount on the 2018 Notes issued by us during Fiscal 2018 totaling $4,468,692, as described below, noncash amortization of prepaid in-kind advertising totaling $666,667 and $1,105,989 of noncash depreciation and amortization charges. Changes in working capital primarily reflected the impact of increases in receivables and the settlement of payables in the ordinary course. Net cash used in operating activities during Fiscal 2017 was $8,968,886, which primarily reflected our net loss of $14,955,408, net of adjustments to reconcile net loss to net cash used in operating activities of $5,986,522, which included $4,666,910 of non-cash stock compensation and game royalty charges, noncash amortization of prepaid in-kind advertising totaling $333,333 and $1,237,608 of non-cash depreciation and amortization charges. Changes in working capital primarily reflected increases in receivables and the settlement of payables in the ordinary course of business during the periods.
 
Cash Flows from Investing Activities. Cash flows from investing activities were comprised of the following for Fiscal 2018 and Fiscal 2017:
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
 
 
    
 
Purchase of property and equipment
 (254,766)
 (327,351)
Capitalization of software development costs
  (518,630)
  (109,718)
Acquisition of other intangible and other assets
  (91,969)
   
Net cash used in investing activities
 (865,365)
 (437,069)
 
Cash Flows from Financing Activities. Cash flows from financing activities were comprised of the following for Fiscal 2018 and Fiscal 2017:
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
 
       
Proceeds from issuance of common stock, net of issuance costs
 - 
 8,244,882
Proceeds from convertible notes payable, net of issuance cost
  12,610,688 
  - 
Net cash provided by financing activities
 12,610,688 
 8,244,882
 
During Fiscal 2017, the Company issued 788,280 shares of common stock at a price of $10.80 per share, raising aggregate net proceeds of approximately $8.2 million.
 
 
-46-
 
In February through April 2018, we issued 9.00% secured convertible promissory notes with a collective face value of $3,000,000 (the “Initial 2018 Notes”). The Initial 2018 Notes (i) accrued simple interest at the rate of 9.00% per annum, (ii) matured on the earlier of December 31, 2018 or the close of a $15,000,000 equity financing (“Qualifying Equity Financing”) by us, and (iii) all outstanding principal and accrued interest was automatically convertible into equity or equity-linked securities sold in a Qualifying Equity Financing based upon a conversion rate equal to (x) a 10% discount to the price per share of a Qualifying Equity Financing, with (y) a floor of $10.80 per share. In addition, the holders of the Initial 2018 Notes were collectively issued warrants to purchase approximately 55,559 shares of common stock, at an exercise price of $10.80 per share and a term of five years (the “Initial 2018 Warrants”).
 
In May through August 2018, we issued additional 9.00% secured convertible promissory notes with a collective face value of $10,000,000 (the “Additional 2018 Notes”). In May 2018, all of the Initial 2018 Notes and related accrued interest, totaling $3,056,182, were converted into the Additional 2018 Notes, resulting in an aggregate principal amount of $13,056,182 (hereinafter collectively, the “2018 Notes”). The holders of the converted Initial 2018 Notes retained their respective Initial 2018 Warrants.
 
The 2018 Notes (i) accrue simple interest at the rate of 9.00% per annum, (ii) mature on the earlier of the closing of an initial public offering (“IPO”) of our common stock on a national securities exchange or April 30, 2019, and (iii) all outstanding principal and accrued interest is automatically convertible into shares of common stock upon the closing of an IPO at the lesser of (x) $10.80 per share or (y) a 15% discount to the price per share of the IPO. In addition, the holders of the 2018 Notes were collectively issued 1,396,383 warrants to purchase common stock equal to 100% of the aggregate principal amount of the 2018 Notes divided by $9.35 per share (assuming an initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, and a conversion price of $9.35) (the “2018 Warrants”). The number of 2018 Warrants ultimately issued is subject to adjustment upon the closing of an IPO and will be determined by dividing 100% of the face value of the 2018 Notes by the lesser of (x) $10.80 per share or (y) a 15% discount to the price per share of the IPO. The 2018 Warrants are exercisable for a term of five years, commencing on the close of an IPO, at an exercise price equal to the lesser of (x) $10.80 per share or (y) a 15% discount to the IPO price per share and are callable at our election at any time following the closing of an IPO.
  
 
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Contractual Obligations
 
As of December 31, 2018, we had no significant commitments for capital expenditures, nor do we have any committed lines of credit, noncancelable operating leases obligations, other committed funding or long-term debt, and no guarantees.
 
The operating lease for our corporate headquarters expired on May 31, 2017 and was subsequently amended to operate on a month-to-month basis. 
 
Rent expense for Fiscal 2018 and Fiscal 2017 totaled approximately $317,000 and $238,000, respectively. Rent expense is included in general and administrative expense in the accompanying statements of operations included elsewhere in this prospectus. Rental payments are expensed in the statements of operations in the period to which they relate. Scheduled rent increases, if any, are amortized on a straight-line basis over the lease term.
 
 
 
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Off-Balance Sheet Commitments and Arrangements
 
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our financial statements included elsewhere in this prospectus. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
 
Quantitative and Qualitative Disclosures about Market Risk
 
In the ordinary course of our business, we are not currently exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.
 
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the fair value of the Company’s common stock, stock-based compensation, the recoverability and useful lives of long-lived assets, and the valuation allowance relating to the Company’s deferred tax assets.
 
Recent Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. Subsequently, the FASB issued additional ASUs to clarify the guidance in ASU 2014-09. ASU 2014-09 and its related ASUs are collectively referred to herein as the “new revenue standard.” The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.
 
The new  revenue standard is effective for emerging growth companies for annual periods beginning after December 15, 2018, with early adoption permitted. We are in the process of evaluating the impact, if any, of the update on our financial position, results of operations and financial statement disclosures.
 
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, 2019 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 our first quarter of fiscal year ending December 31, 2021 but can be adopted as early as the beginning of our first quarter of fiscal year ending December 31, 2020. Management is currently assessing the impact that adopting this new accounting guidance will have on our financial statements and footnote disclosures.
 
Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
 
 
 
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Relaxed Ongoing Reporting Requirements
 
Upon the completion of this offering, we expect to become a public reporting company under the Exchange Act, and will be required to publicly report on an ongoing basis. We expect to elect to report as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies,” including but not limited to:
 
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
 
taking advantage of extensions of time to comply with certain new or revised financial accounting standards;
 
being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
 
being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
 
We will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our stockholders could receive less information than they might expect to receive from more mature public companies.
 
We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an “emerging growth company” for up to five years, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 31.
 
 
 
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OUR BUSINESS
Overview
 
We are a leading amateur esports community and content platform offering a personalized experience to the large and underserved global audience of 2.3 billion gamers, as estimated by NewZoo. According to the Electronic Software Association, the avid gamer, identified as individuals who are considered the most frequent gamers, sees gameplay as central to their social life with 55% playing video games to connect with friends and 46% to spend time with family members. Through our proprietary, cloud-based technology platform, we connect our network of gamers, venues and brand partners to enable local, social and competitive esports that can be uniquely broadcast through our platform. We offer daily and season-focused offerings for which amateur competitive gamers establish meaningful connections with each other while improving their skills.
 
As a first-mover in defining the amateur esports category in 2015, we believe we are one of the most recognizable brands for amateur gamers. We have multi-year strategic partnerships with leading game publishers such as Microsoft and Riot Games with titles including Minecraft and League of Legends, respectively, as well as relationships with Supercell and Epic Games with respect to Clash Royale and Fortnite, respectively, to drive use among our member base and further penetrate our target market. We deliver enhanced gaming experiences to our members with these titles through our platform, and we provide our venue and brand partners access to our member network and platform technology. We believe our members and the organizations that use our platform are only beginning to leverage the power of the consumer experience, commercial benefits, and data analytics our technology enables. Targeting Generation Z and Millennials, members join through accessible, free-to-play experiences allowing us to reach the expansive amateur gaming market. We intend to convert members into subscribers by offering two tiers of competitive gameplay engagement: (i) our monthly subscription for the more casual competitive player, offering access to exclusive online tournaments and member benefits; and (ii) our semi-annual season pass for the more competitive player offering access to our city leagues and advanced amateur esports offers along with membership rewards.
 
 The Esports Player Pyramid  
 
______________________
* Based on the average esports viewer, Nielsen Esports Playbook, 2017.
 
 
 
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Our Vision
 
Our vision is to make Super League Gaming the preeminent brand and platform for amateur esports. We do this by providing a proprietary, end-to-end platform that allows our members to compete, socialize and spectate premium amateur esports gameplay and enabling a wide ecosystem of partners to bring Super League experiences at scale to gamers around the world.
 
After securing strategic partnerships with the publishers of top-tier game titles beginning in 2016, we became the first consumer of our platform technology through the establishment of our city leagues, consisting of 16 teams based in various U.S. cities built around Minecraft, League of Legends and, most recently, Clash Royale. In 2017, we further differentiated our offering by migrating to a cloud-based technology platform for scale while continuing to build and establish the Super League Gaming brand. We also developed intelligent technology that facilitates personalized experiences and matchmaking for gamers, and audience-targeted gameplay broadcasting content at scale.
 
Strategy and Milestones
 
 
2015 to 2017
2018
Theme
Technology and Brand Foundation
Community and Network Foundation
Core Objectives
 Establish the brand
 Build technology platform
 Establish amateur leagues
 Cultivate audience and user base
 Enhance technology platform for scale
 Establish nodes of distributed network
Technology and Web
 Develop automated tournament operations, including ticketing, team formation and leaderboards
 Create local visualization from local hardware devices
 Develop cloud-based streaming infrastructure for scale of local, custom gameplay
 Complete automation of API integration on our platform
 Enhance standardized ticketing and gameplay launcher to streamline operation of Super League experiences
 Create robust game statistics management
 Provide “always-on” offers, allowing members to play anytime
Brand
 Super League Gaming (Master Brand)
 12 City Clubs
 National tournament (City Champs)
 SuperLeagueTV 
 Establish four additional City Clubs
 Introduction of additional gameplay offers
Game Titles
Execute Microsoft and Riot licensing agreements
Addition of two new, top-tier game titles to our platform
Network
 Theatres
 Action Squad, our local, city-by-city contract workforce
 Retailers: Expanding array of venue types (e.g. LAN centers retail and restaurants (food and beverage)), now viable gameplay locations as a result of centralized, cloud-based infrastructure and IP delivery, along with ever-decreasing local hardware and bandwidth requirements
 Pro Teams, local organizers and ambassadors
 Brands: national and local sponsors
 
 
 
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Since the launch of the Super League brand in 2015, we have continually strengthened our brand and platform by:
 
developing our proprietary, highly automated community, tournament and broadcast system;
 
executing multi-year agreements with top tier game titles;
 
creating a product library of 10 unique game modes related to our licensed game titles that are exclusive to Super League and utilized during our gaming experiences;
 
launching our City Club League consisting of 16 city-based teams across the U.S. supported by a fleet of installed gaming auditoriums;
 
establishing a flexible event-specific contract labor workforce, consisting of over 150 trained and engaged individuals;
 
executing multi-year, global brand sponsorship deals, such as Logitech and Nickelodeon;
 
securing 38 protected logos and wordmarks domestically, collectively, and two logos and wordmarks in China for our master brand and 16 of our City Clubs; and
 
establishing three patent families in the U.S. around multi-player gameplay and visualization.
 
We are now positioned to expand the utility of our platform for new game titles and a distributed network of venue operators and gameplay organizers to further develop a self-organizing marketplace for online and in-person gaming experiences. This expansion of game titles, across multiple hardware platforms, venue partners and offerings will bring new audiences to Super League to increase the breadth of our audience and depth of engagement through our “always on” gameplay experiences.
 
Our Platform
 
Our proprietary cloud-based platform provides amateur gamers a modernized way to connect, play and view games in real-time. We believe our platform will become central to the esports ecosystem and allow us to capture a significant portion of our members’ gameplay hours and share-of-wallet for greater lifetime value. Our platform aggregates a diverse audience of gamers across multiple game titles and provides our members with access to online, in-person and hybrid competitive experiences and broadcasts that are accessible to a broad range of ages and demographics. Through our platform, we have three core components that enable differentiated and immersive gameplay at scale for both online and in-person experiences:
  
(i)
Match-Making allows members to create their public-facing gamer persona and applies distinct criteria and filters around team size, skill level and geography to intelligently match our members for competitive gameplay and facilitate rich online and in-person social connections.
 
(ii)
Tournament Operations supports all major components of tournament operations and automation including, for example, ticketing, user management, event management, event operations, API integrations, data services, leaderboards and prize fulfillment. 
 
(iii)
Our Proprietary Visualization and Broadcast System is capable of capturing and live streaming gameplay across all digital distribution platforms and delivering separate streams simultaneously to multiple locations and channels, including through our Player and Spectator Third-Person Experience and the SuperLeagueTV digital network, as further described below.
 
Our Player Interface, illustrated below, is the entry point of use for our members that offers a user-friendly and engaging interaction from profile creation to tournament operations, and provides our members with real-time reporting of personal statistics, national leaderboards and other individualized gaming content.

 
 
-53-
 
  Super League’s User Portal
             
Our Player and Spectator Third-Person Experience, as illustrated below, provides players and spectators with pre-gameplay content and a unique “birds-eye” view during gameplay that is captured by our platform and overlaid with additional interactive content allowing us to introduce a new screen to the gameplay experience beyond the traditional first-person and spectating views. The end broadcast result is our customizable Heads-up-Display (“HUD”), which complements gameplay through dynamic visualization of player and team statistics, competitive status updates and contextual content that can also be uniquely displayed on a hyper-local level across venues. Before gameplay begins, players entering our experiences are greeted with a welcome screen that contains key information, including experience start-time, team assignments, log-in status of individual teams and players and other entertaining content.
 
 
-54-
 
  Super League’s HUD Pre-Gameplay View
 
 
 
 
-55-
 
Once gameplay is launched, players and spectators enjoy a unique third-person perspective of gameplay along with dynamic leaderboards, statistics and other tournament-specific content including brand sponsor integration, local team and player statistics, instructional tips and other pertinent content, as illustrated below. Dynamic leaderboards update in real-time during gameplay and provide recaps of team and individual scoring highlights at intermission and at the conclusion of competition.
 
Super League’s HUD Gameplay View 
 
 
In addition, our proprietary SuperLeagueTV digital network is the first esports media property principally dedicated to amateur players and teams. Currently, live stream gameplay and video-on-demand (“VOD”) content is broadcast through SuperLeagueTV on Twitch and YouTube. We believe that SuperLeagueTV’s digital broadcast distribution is an essential way to drive viewership and membership interest, along with new game title expansion and additional online and in-person experiences through our distributed venue partner network.
 
Industry Overview
 
The consumer appetite for esports continues to grow at a rapid pace with passionate fans across the globe. According to NewZoo, the overall value of the global gaming market could reach approximately $137.9 billion by the end of 2018, representing an estimated year over year increase of 13.3%, or $16.2 billion from 2017. Key trends fueling this growth include the rise of live streaming, real-time social networking within games, and multi-generational and lifestyle gaming that integrates several aspects of an individual gamer’s life with the core game, including online play, downloadable content, achievements and item collection.
 
In particular, the professional esports industry is growing quickly, evidenced through new leagues, teams and broadcast distribution channels, and this growth is attracting high-profile esports investments from brands, media organizations and traditional sports rights holders. As professional esports player salaries and the value of broadcast media rights have risen substantially, there is large unmet demand at the amateur level for competitions and viewing content, which, for esports fans, is predominantly consumed through live streaming and over-the-top (“OTT”) channels. The following data points illustrate the vast growth opportunity for global esports:
 
 
 
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The esports audience is already comparable to leading entertainment platforms, with gamers and viewer numbers in the hundreds of millions.
 
Esports, a term generally used to refer to competitive video game play by professional and amateur players, have been around for as long as the video game industry itself. However, recent growth in the gaming audience and player engagement has elevated esports into mainstream culture with a massive global following that, in some instances, exceeds the monthly audience of large professional sports leagues. For example:
 
     
The average global monthly esports audience is estimated to reach 167 million people in 2018, which is larger than estimates for the monthly average audience of Major League Baseball (“MLB ”) and the National Hockey League (“NHL”) (Goldman Sachs Esports Equity Research, 2018).
 
     
The esports audience is on track to reach approximately an estimated 276 million people by 2022, which is similar to the 2017 monthly average audience size of the National Football League (“NFL ”) (Goldman Sachs Esports Equity Research, 2018)
 
The following chart reflects the monthly average audience size in 2017 for the four largest professional sports leagues, as compared to the global monthly esports audience in 2017:
 
 
Source: Goldman Sachs: The World of Games- esports- From Wild West to Mainstream, June 26, 2018. Figures reflect global monthly average audience sizes in 2017.
 
The esports audience is also young, digital and global. Is it estimated that more than half of esports viewers are in Asia and 79% of viewers are under the age of 35 (Goldman Sachs Esports Equity Research, 2018). In addition, online video sites like YouTube Gaming and Twitch have larger audiences than HBO, Netflix and ESPN combined, as shown below:
 
Source: Goldman Sachs: The World of Games- esports- From Wild West to Mainstream, June 26, 2018. Amounts reported for each platform represent annual audience figures data as of the end of 2016.
 
Moreover, there is still vast opportunity for audience growth in esports with the introduction of new game titles and increasing popularity of online gaming content.
 
  
A portfolio of just a few top tier game titles can bring access to hundreds of millions of gamers, as the estimated monthly active users (“MAU ”) for Fortnite, League of Legends and Minecraft is 125 million, 100 million and 74 million, respectively (Statista and Microsoft, 2018).

●  
In 2018, approximately 560 billion minutes of esports were viewed on Twitch, an increase of 58% year-over-year (TwitchTracker.com). 
 
 
 
 

Demographics centered on the highly sought after, younger segments.
 
 
 
 
-57-
 
Video games have a positive social impact.
 
70% of parents believing gaming “has a positive influence on their children’s lives” (Electronic Software Association, 2018).
Esports enthusiasts, on average, have higher college graduation rates and average household incomes, with 43% earning greater than $75,000 per year, relative to traditional sports fans (Mindshare, Esports Fans: What Marketers Should Now, 2016).
 
Revenue potential is valued at billions of dollars and broad based.
 
Recent reports show a “$15 billion blue sky revenue opportunity” for professional esports due to the highly engaged and untapped fanbase (Merrill Lynch Interactive Report, 2018).
Gaming video content is estimated to be a $4.6 billion market with more viewers than HBO, Netflix, ESPN and Hulu combined (SuperData Research, 2017).
Currently, an estimated 40% of professional esports revenues come from brand and media sponsorships (endemic and non-endemic) and 19% from media rights, with the latter expected to grow to 40% by 2022 (BofA Merrill Lynch Global Research, 2018).
 
Revenue potential is not only very large, but also growing rapidly.
 
 
Source: Goldman Sachs: The World of Games- esports- From Wild West to Mainstream, June 26, 2018. Reflects an estimated 35% five-year compound annual growth rate through 2022.
 
 
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Our Opportunity
 
We believe our esports community platform will transform the way amateur gamers connect, interact, socialize and compete. Our premium, competitive gameplay experiences and elite amateur broadcasts, coupled with the expansion of our game title portfolio, our retail venue partner network and our strategic brand sponsorships introduce new gamers into our customer funnel to drive membership growth and subscription conversion. Esports is still in its early stages and entering a new phase of growth, but top game titles attract large, global audiences and just a few titles provide us access to hundreds of millions of players. Examples include:
 
Game Title Sample Set
 
TITLE
PUBLISHER
GENRE
TARGET DEMOGRAPHIC
(AGE)
ESTIMATED MAU/PLAYERS
League of Legends
Riot Games
Multiplayer Online Battle Arena (“MOBA”)
14 34
100MM1
Minecraft
Microsoft (Mojang)
Sandbox
6 14
74MM2
Clash Royale
Supercell
Collectible Card Game (“CCG”); Tower Defense; Real Time Strategy (“RTS”); “MOBA
14 – 50
100MM3
Fortnite
Epic Games
Battle Royale
8 – 34
125MM1
______________________
(1) statista.com.
 
(2) popsugar.com, “Minecraft Boss Helen Chiang on Her New Role, Breaking Records, and What's in Store For 2018,” May 8, 2018.
 
(3) 100MM MAU across all four of Supercell’s games announced via twitter.com, March 7, 2016.
 
With each game title we are able to offer on our platform, we benefit from an established audience of MAUs or other players who may be interested in different opportunities to play the game they are already familiar with. We believe access to these audiences provides us with opportunities to increase our revenue by bringing new members to the platform, increasing enrollment for our experiences, expanding viewership of our online content and promoting additional merchandise sales. However, we are currently unable to accurately calculate the estimated increase in revenue associated with increasing our MAUs and/or the addition of players of new game titles.
 
Despite the significant growth potential outlined above, there are several key challenges facing stakeholders in the esports landscape:
 
Amateur Gamers are a highly fragmented, often anonymous community with limited ways to find gamers of similar skill-level and gaming interest online and locally. In addition, the lack of amateur esports infrastructure results in few experiences with no clear path to the professional esports level for players who wish to develop and test their skills while forging social connections.
 
Game Publishers must find alternative methods to attract new gamer audiences to their game titles and offer premium experiences that drive greater gamer retention. The lack of diversity in gaming, along with increased competition amongst titles, requires marketing partnerships to extend the lifecycle and franchise value of their intellectual property.
 
 
 
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Venue Operators, including restaurants and retailers, must grow same-store sales in order to capture new sources of foot-traffic and deeper customer loyalty. Millennials and Generation Z generally value experiences, but tend to purchase more content and products online, making them an attractive demographic to widen a venue’s customer base and improve asset utilization.
 
Sponsors and Advertisers are limited in their channels to reach the “cord cutting” Generation Z and Millennials due to the increasing fragmentation of content distribution and use of advertising-blocking technology. Given these demographic groups consume most content online, brands are challenged to target these audiences in an authentic way and achieve efficient marketing spend.
 
Professional Esports Teams and Owners have made significant investments in their teams and must rapidly develop a fanbase to achieve franchise values similar to traditional sports teams. However, there is no formal structure to identify the next generation of esports professionals to build their long-term rosters to support long-term fan loyalty.
 
Super League’s Solution for Esports Ecosystem Stakeholders 
 
 
 
  
Our platform offers the following solutions for these key stakeholders:
 
For Amateur Gamers, our platform enables online and in-person player connections and a league-based structure that provides participants and spectators with a unique lens on elite and local amateur gameplay. Over time, we expect to have a volume of broadcast content that allows us to build our own premium OTT channel network on SuperLeagueTV and, ultimately, attract broadcast rights revenue.
 
For Game Publishers, our platform introduces their game titles to new audiences and drives retention by providing an immersive, premium way to play games, leading to deeper player engagement. Through our data analytics, we believe we will become a central component to new game development and launches, and will have the ability to drive cross-game behavior across a wide portfolio of game titles.
 
 
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For Venue Operators, we provide licenses to access our platform in order to operate esports experiences that enable these enterprises to attract new foot traffic, improve day-part utilization and drive same store sales. In addition, we expect to provide venue operators with predictive customer activity information for more targeted offers to existing customers and our members.
 
For Sponsors and Advertisers, our platform provides a highly targeted marketing channel that offers a relevant path for brands to build affinity with the hard to reach, yet highly sought after, Generation Z and Millennial demographics. Based on our member data, we will have the ability to target audiences based on our members’ profile information for more efficient marketing spend.
 
For Professional Esports Teams and Owners, we cultivate the future professional esports fanbase through amateur competitive youth leagues, while providing an amateur feeder system as a path to the professional leagues. Looking forward, we will have a comprehensive set of data and tools to provide player analytics and progress skill levels.
 
Our Amateur Esports Capabilities
 
Super League is an “always-on” operation with scalable technology and deep experiential capabilities to deliver premium player experiences in the amateur esports space. Our value propositions for all competitive amateur gamers, irrespective of our game titles, are:
  
Public-facing gamer persona that connect our members to their local community: Members can create a gamer profile that provides key gamer information, such as their unique game title identification, enabling us to manage player matchmaking, tournament gameplay and statistics tracking. Member results are dynamically updated on individual profile pages, along with national and local leaderboards.
 
High-quality, immersive gameplay experiences online and in-person: Members can initially join our platform through accessible, free-to-play, online experiences and then convert to our monthly subscription offers for a deeper engagement through exclusive online competitions across all game titles. More competitive members can subscribe to our semi-annual season pass, which includes access to our city league for more heightened, immersive gameplay. In addition, our distributed network of retail venues, will augment our subscription offers and allow for event-specific, in-person experiences to drive more members and gameplay hours to our platform.
 
Broadcasts of elite amateur gameplay competitions from a unique perspective: Our cloud-based platform allows anyone, anywhere to view gameplay with a birds-eye perspective that is interactive and contextualized. Spectators can view live gameplay and original story-driven content either in-venue or through live stream and VOD on a wide network of digital distribution channels such as Twitch and YouTube.
 
Exclusive member benefits and player status program: Members earn rewards through gameplay participation to enhance their individual gamer profile and gain exposure on national and local leaderboards on an annual and lifetime basis. In the future, members will be rewarded for the quality and length of gameplay through our platform and have access to additional member benefits in the form of exclusive experiences, content and offers available from our top consumer brand and retail partners.
 
New way to make social gaming connections: Members enjoy an easier way to meet new friends and experience the games they are passionate about through their engagement with a new social community. In addition to socializing in our competitions, our members can communicate through our media channels, including Facebook, Discord and SuperLeagueTV, as part of a positive, inclusive community.
 
 
 
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Subscriptions
 
Core to our business is moving to a subscription-based model that allows gamers of varying levels of gameplay across multiple titles to engage in premium competition on our platform. Members join through accessible, free-to-play experiences that act as an introduction to our platform, and over time, convert into two tiers of consumer subscriptions. We also offer specialized commercial subscriptions for venue operators to drive new membership. Each of these offerings are further described below:
 
(i)
Monthly Subscriptions target the more casual competitive gamer and is set at an affordable price-point with a free trial and a discounted price, if purchased annually. The monthly pass provides competitive amateur gamers with access to exclusive online tournaments across all active game titles and member benefits. At the end of the trial period, members are enrolled as paying subscribers and billed monthly thereafter. Current pricing is estimated to be set at $4.99 per month with the option to purchase an annual subscription at the discounted price of $49.90, in effect offering two months free, not inclusive of purchases of one-off experience passes and merchandise from our website, superleague.com.
 
(ii)
Semi-Annual Season Passes target the more dedicated amateur gamer who has a greater share of gameplay hours and share-of-wallet to commit to intensive competition. The season pass provides access to our city leagues for a heightened level of hybrid competition, both online and in-person, over an extended number of weeks. Taking place each spring and fall, our City Club League is a national tournament lasting between six to 12 weeks and can include pre-season qualifications and post-season “All-Star” components. Current pricing for semi-annual passes range from $40.00 to $60.00 per season, translating to $80.00 to $120.00 of annual revenue for our recurring players, not inclusive of one-off experience passes and merchandise from our website, superleague.com.
 
(iii)
Commercial Subscriptions enable retail venue partners to license our platform to host curated Super League experiences for a monthly fee to introduce a wider reach of amateur gamers to Super League experiences and drive more membership and gameplay hours through our platform. This allows retail and restaurant operators to attract new foot traffic and enhance capacity utilization by creating interactive gaming experiences in their locations, and we, in turn, benefit from their wide national geographic reach and the leverage provided by their infrastructure, marketing and operations, ultimately bringing Super League to a wider community of amateur competitive gamers. We are exploring monthly license subscription fees with our inaugural commercial partners, with the understanding that the pilot period will provide more data on increased foot traffic and same-store sales that could lead to additional revenue sharing opportunities on food and beverage, door entry fees, and merchandise.
 
 
 
 
 
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A Sample of Super League Experiences on superleague.com
 
              
 
 
 
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City Club League
 
Our City Club League is an integral part of our effort to connect amateur gamers with one another. City Clubs not only enable our seasonal competitions, but also allow us to aggregate our community around our owned and operated clubs serving an unmet desire for amateur players to connect on a local level and exhibit civic pride for esports. Our City Clubs serve as a unifying umbrella across game titles, age groups and skill levels in 16 major metropolitan centers across the U.S., including Chicago, Los Angeles and New York City, with an intention to expand both domestically and internationally in the foreseeable future.
 
Super League’s City Clubs
 
                   
 
SuperLeagueTV
 
SuperLeagueTV content is a core component of our offer, as well as a binding element connecting players within our local communities. Whether promoting upcoming Super League experiences, engaging players during an event, live streaming the competitive action, producing original video series or recapping the results of a tournament, SuperLeagueTV is dedicated to creating and showcasing novel and intriguing stories that emerge during and in between the approximately 175,000 hours of gameplay enjoyed by Super Leaguers this year. As a primary distribution channel, SuperLeagueTV launched on Twitch in April 2018, broadcasting from the Super League Gaming esports desk. Following several months of additional testing and development of creative concepts and production techniques enabled by the Super League platform, SuperLeagueTV now features an average of 50 hours of gameplay and entertainment programming across multiple game titles per month and will grow programming during 2019.  Additionally, over 1.4 million minutes of content was viewed in December alone, and over 150,000 unique viewers tuned in to our League of Legends City Champs Finals.
 
 
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Live Stream Remote Shout-Casting and Gameplay on SuperLeagueTV
 
                 
 
 
Brand and Media Partnerships
 
The highly sought after Millennial and Generation Z audience is increasingly difficult for brands to reach due to the proliferation of new content distribution channels, ad-blocking technology and a sentiment against overt marketing and promotion. This difficulty is compounded by the limited ways to directly reach gamers, given game publishers control of in-game content. Our ability to uniquely aggregate a diverse membership base across age ranges, skill levels and game titles can direct authentic brand integrations to our players in a targeted way. We believe that our brand is at the forefront in the mainstreaming of esports, and we stand for inclusive, positive gameplay by providing a positive access point for both endemic and non-endemic brands to enter the category.
 
Currently, our largest revenue stream comes by way of brand sponsorships and includes multi-year strategic partnerships with several companies, including Logitech and Nickelodeon. Additionally, in February 2019, we entered into a partnership with Topgolf to bring amateur competitive video gaming events to Topgolf locations throughout the United States. Over time, we expect to extract additional revenue through the monetization of our large volume of distributed content through advertising income. Our brand sponsorship opportunities include:
 
Master brand sponsorships covering all appropriate game titles and subscription types, providing our brand partners with promotion opportunities through our online and in-person offerings for targeted, deep engagement along with member benefits specific to the sponsors’ products and offers including discounts, free trials, and exclusive content and experiences.
 
Tournament and game specific sponsorships, allowing brands to more narrowly target specific age ranges, game genres and other demographic objectives.
 
City Club sponsorships, allowing regional and local brands to participate in geo-targeted promotion to cultivate unique gamer lifestyle brands within our City Club metropolitan areas.
 
SuperLeagueTV sponsorships enable brands to achieve wider reach through our broadcast distribution channels, including Twitch, Facebook, YouTube and in-venue channels, for both amateur esports players and spectators.
 
Tailored experience-specific sponsorships, providing brands with an opportunity to design unique experiences and content for deeper integration and wider media distribution.
 
It is our intention to have brand and media partnerships across various vertical categories, in order to attract both brands that are already deeply committed to esports and brands just entering the esports space and seeking a mainstream, safe brand partner and entry point. For example, in February 2019, we announced a partnership with Top Golf for amateur competitive video gaming events at venues around the United States.
 
 
 
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Marketing and Member Acquisition
 
Prospective members and subscribers are introduced to Super League through seven primary channels that feed our customer funnel, consisting of:
 
(i)
top-tier games titles that provide access to communities in the hundreds of millions;
 
(ii)
continued press and public relations that drives brand awareness;
 
(iii)
generation of interest and audience development through SuperLeagueTV;
 
(iv)
retail venue partners that provide geographic coverage and access to built-in customer bases;
 
(v)
brand sponsors who amplify our sales and marketing through their own customer and social reach;
 
(vi)
brand ambassadors that drive local, organic word-of-mouth advertising for deeper engagement and loyalty; and
 
(vii)
member referral programs that round out the integral feedback loop for a network effect.
 
  Our Customer Funnel
 
 
In addition to these channels, we also market our community and platform through in-game promotion, search engine optimization, online advertising, social influencers and e-mail marketing.
 
Members typically begin their relationship with Super League by viewing content on SuperLeagueTV, registering an email address, and/or by participating in our free-to-play experiences. Members become more engaged by creating a profile to join our network of amateur gamers where they can find and connect with other players by gaming interest, geographic location and other attributes. Membership is free, but we do monetize members as activity grows with one-off paid experiences, merchandise sales, and brand and media sponsorship revenues.
 
 
 
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We intend to drive deeper member engagement by offering a free trial to join our monthly subscription program, which offers frequent gaming experiences, leaderboards, and prizing across all of our game titles along with benefits and discounts from our brand partners. We estimate that our monthly subscribers can generate between $50.00 and $60.00 in annual revenue per subscriber, and content from these experiences is broadcast daily on SuperLeagueTV, which drives deeper engagement among this player group and serves as a channel to attract new members.
 
For our most engaged players, we offer a semi-annual season pass subscription for each game title. The format varies among game titles, but our semi-annual season passes offer a combination of online and in-person premium experiences organized around our City Clubs. Due to the more formal team structure and length of season, players often spend more time practicing and communicating with each other, in addition to participating in our organized gaming experiences. Our semi-annual season pass holders generate between $80.00 and $120.00 per year per holder and produce our highest tier of premium amateur gaming content which is featured on SuperLeagueTV as well as brand partner channels. This content attracts the largest viewership among our existing Super League community and provides the greatest exposure to new audiences. In addition, professional esports teams can gain visibility to this pool of experienced amateur players for recruiting purposes.
 
The key performance indicators (“KPI”) driving our business model are related to “always on,” scalable offers, conversion, and engagement. The significant growth we achieved in 2018 was a function of the advancement of our technology platform, expansion of our in-person and online offer catalogue, and select customer acquisition accelerating our ability to reach and serve a larger target audience with greater frequency.
 
Our Customer Key Performance Indicators (“KPI”)
 
 
 
2015
2016
2017
2018
Always On
Venues
0
4
20
50
 
Experiences
330
1,000
250
900
Conversion
Registered Accounts
13,000
30,000
43,000
300,000
Engagement
 
Participations
9,000