What changed in this filing

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Item 1A. Risk Factors

2023-03-31 compared with 2022-03-31 · 78 added, 35 removed, 642 unchanged (15% of the section changed)

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our significant past operating losses and any inability to maintain profitability or accurately predict fluctuations in the future;

inability to sustain or manage our growth, or otherwise implement our business strategies;

a rapidly developing and relatively new market;

inability to sustain or manage our growth, or otherwise implement our business strategies;

loss of advertising revenue;

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Governance Risks and Risks Related to Our Common Stock

provisions of Delaware law and our certificate of incorporation and bylaws could limit our stockholders’

ability to obtain a favorable judicial forum for disputes with us;

provisions of Delaware law and our certificate of incorporation and bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us;

low trading volume of our common stock;

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actual or threatened epidemics, pandemics, outbreaks, or other public health crises;

reversal of the U.S.

economic recovery and a return to volatile or recessionary conditions;

changes in the state of the U.S.

economy and a return to volatile or recessionary conditions;

risks generally associated with the entertainment industry.

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We have incurred significant losses since our inception, and we may continue to experience losses in the future.

We incurred net losses of $20.7 million and $18.7 million during the years ended December 31, 2021 and 2020, respectively. 

Noncash expenses totaled $5.7 million and $3.4 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of $125.3 million.

Including a noncash goodwill impairment charge of $50.3 million recorded during the year ended December 31, 2022, the Company incurred net losses of $85.5 million and $20.7 million during the years ended December 31, 2022 and 2021, respectively.

Noncash expense totaled $60.6 million and $5.7 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $210.7 million (including fiscal year 2022 noncash goodwill impairment charges of $50.3 million).

We cannot predict if we will achieve profitability soon or at all.

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investments in bandwidth to support our video streaming functionality;

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

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

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

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

general administration, including legal, accounting and other expenses related to being a public company.

general administration, including legal, accounting and other costs related to being a public company.

We may not generate sufficient revenue to offset such costs to achieve or sustain profitability in the future.

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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.

Our independent registered public accountants have expressed that substantial doubt exits as to the Company’s ability to continue as a going concern.

Our business is highly competitive and subject to rapid changes.

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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.

For the years ended December 31, 2021 and 2020, one customer accounted for 12% and four customers accounted for 49% of revenue, respectively.

For the year ended December 31, 2022 (“Fiscal Year 2022”) and Fiscal Year 2021, one customer accounted for 8% and one customer accounted for 12% of revenue, respectively.

At December 31, 2022, three customers accounted for 33% of accounts receivable.

At December 31, 2020, two customers accounted for 39% of accounts receivable.

At December 31, 2021, three customers accounted for 35% of accounts receivable.

At December 31, 2022, one vendor accounted for 10% of accounts payable.

At December 31, 2020, three vendors accounted for 52% of accounts payable.

At December 31, 2021, one vendor accounted for 21% of accounts payable.

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In addition, the introduction of new services, or changes to existing services, may result in new or enhanced governmental or regulatory scrutiny, litigation, or other complications that could adversely affect our business and financial results.

We have also invested, and expect to continue to invest, significant resources in growing our service offerings to support increasing usage of such products. 

If our new or enhanced services fail to engage users, marketers, or developers, or if our business plans are unsuccessful, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected.

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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’

our computer software or hardware, or our customers’ or suppliers’ computer software or hardware;

our network, our customers’ networks or our suppliers’ networks;

our connections and outsourced service arrangements with third parties.

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If we fail to retain users or add new users, or if our users decrease their level of engagement with our platform, revenue, bookings, and operating results will be harmed.

During the year ended December 31, 2021, we reported 11.2 billion views and impressions, 5.0 million registered users, and 105.0 million 

engagement hours.

We believe we have successfully iterated our business model through market insights, and our organic and inorganic growth to establish scale and ultimately drive our monetization strategies.

Our strong and growing product-market fit currently reaches over 100 million monthly unique players in Roblox, Minecraft and Fortnite and generates over one billion monthly impressions.

We view our KPIs as a critical measure of our user engagement, and adding, maintaining, and engaging users has been and will continue to be necessary to our continued growth.

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Our user metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may significantly harm and negatively affect our reputation and our business.

We regularly review metrics and KPIs, including hours engaged, views and impressions, and active users to evaluate growth trends, measure our performance, and make strategic decisions.

We regularly review metrics and KPIs, including monthly unique players and monthly impressions to evaluate growth trends, measure our performance, and make strategic decisions.

These metrics are calculated using internal data gathered on an analytics platform that we developed and operate and have not been validated by an independent third party.

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If our estimates are inaccurate, then investors will have less confidence in our company and our prospects, which could cause the market price of our common stock to decline, our reputation and brand could be harmed.

While these metrics are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring how our service offerings are used and as a result, the metrics may overstate the number of active users, hours engaged, and views and impressions.

For example, there may be users who have multiple accounts, fake user accounts, or fraudulent accounts created by bots to inflate user activity for a particular developer or creator, thus making the developer or creator’s experience or other content appear more popular than it really is.

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The integration of acquisitions, including the 2021 Acquisitions, requires significant time and resources, particularly with respect to companies that have significant operations or that develop products where we do not have prior experience, and we may not manage these processes successfully.

We continue to make substantial investments of resources to support our acquisitions, including the 2021 Acquisitions, which has in the past resulted, and we expect will in the future result, in significant ongoing operating expenses and the diversion of resources and management attention from other areas of our business.

We continue to make substantial investments of resources to support our acquisitions, including the 2021 Acquisitions, which has in the past resulted, and we expect will in the future result, in significant ongoing operating expense and the diversion of resources and management attention from other areas of our business.

We cannot assure you that these investments will be successful.

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for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our consolidated financial statements and our business.

We are currently dependent on certain game publishers and online game platforms for a substantial portion of our revenue.

In the event such publishers or online platforms change their terms and conditions impacting our ability to deploy advertising campaigns on their platforms, or otherwise engage in direct-to-consumer offers, our business, growth prospects and financial condition could be adversely affected.

We currently generate a substantial portion of our revenue from in-game platform advertising and direct to consumer offers, including digital subscriptions, in-game digital goods, and gameplay access fees, on various metaverse gaming platforms.

Additional revenue is generated through our owned and operated properties, along with properties we operate on behalf of others.

In the event such game publishers or online game platforms change their current terms and conditions in a manner that limits our ability to deploy advertising campaigns or otherwise engage in direct-to-consumer offers through our partner’s metaverse gaming platforms, or our owned and operated properties, our business, growth prospects and financial condition could be adversely affected.

Regulatory and Legal Risk Factors

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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.

On June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.”

This decision created an uncertain political and economic environment, especially in regard to regulation of data protection, in the U.K.

and other European Union countries, and the formal process for leaving the European Union has taken years to complete.

formally left the European Union on January 31, 2020 and began a transition period which expired on December 31, 2020.

In particular, while the U.K.

has implemented legislation that implements and complements the GDPR, with penalties of noncompliance of up to the greater of £17.5 million or four percent of worldwide revenues, it is unclear 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.

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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.

Currently, we have one patent application pending, 187 registered trademarks and eighteen pending trademark applications, along with licenses from game publishers to utilize their proprietary games.

For our pending patent application 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.

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Governance Risks and Risks Related to our Common Stock

We received a notice from Nasdaq that our common stock may be delisted from trading on the Nasdaq Capital Market if we fail to comply with the continued listing requirements, including the minimum bid price requirement.

A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise additional financing.

We are required to comply with certain Nasdaq continued listing requirements, including a minimum bid price for our common stock, as well as a series of financial tests relating to stockholder equity, market value of listed securities and number of market makers and stockholders.

If we fail to maintain compliance with any of those requirements, our common shares could be delisted from Nasdaq.

On October 4, 2022, we received a letter (the “Notice”) from the Listing Qualifications Staff of Nasdaq, indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we are currently not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2).

To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for 10 consecutive business days during the 180-day period from October 4, 2022 to April 3, 2023.

As a result, unless the closing bid of our common stock trades in such manner, we will need to solicit stockholder approval to authorize an amendment to its Certificate of Incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock at a ratio calculated to maintain listing on the Nasdaq Capital Market, as determined by the Board in its sole discretion (the “Reverse Stock Split”). There is no guarantee that the Company’s stockholders will approve the Reverse Stock Split.

If our stockholders fail to approve the Reverse Stock Split in such event, and our closing bid price does not meet or exceed $1.00 by the end of the compliance period and Nasdaq does not grant us an additional compliance period, or we fail to regain compliance by the end of such additional compliance period, our Board of Directors will weigh the available alternatives to regain compliance.

However, there can be no assurance that we will be able to successfully resolve such noncompliance.

If, for any reason, Nasdaq should delist our common stock from trading on its exchange and we are unable to obtain listing on another national securities exchange or take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our stockholders:

the liquidity of our common stock;

the market price of our common stock;

we will become a “penny stock”, which will make trading of our common stock much more difficult;

our ability to obtain financing for the continuation of our operations;

the number of institutional and general investors that will consider investing in our common stock;

the number of investors in general that will consider investing in our common stock;

the number of market makers in our common stock;

the availability of information concerning the trading prices and volume of our common stock;

the number of broker-dealers willing to execute trades in shares of our common stock.

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 ’

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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.

We have not paid cash dividends in the past and do not expect to pay dividends in the future.

We have not paid cash dividends in the past and do not expect to pay cash dividends on our common stock in the future.

Any return on investment will likely be limited to the value of our common stock.

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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

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.

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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.

Our issuance of additional shares of preferred stock could adversely affect the market value of our common stock, dilute the voting power of common stockholders and delay or prevent a change of control.

Our board of directors have the authority to cause us to issue, without any further vote or action by the stockholders, up to an additional 9,994,641 shares of preferred stock in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

As of March 29, 2023, we had the following shares of Preferred Stock outstanding:

5,359 shares of Series A Preferred Stock, 1,297 shares of Series A-2 Preferred Stock, 1,733 shares of Series A-3 Preferred Stock, 1,934 shares of Series A-4 Preferred Stock and 2,299 shares of Series A-5 Preferred Stock.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive.

For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.

Further, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock.

The issuance of shares of preferred stock may also have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares.

The holders of Series A Preferred Stock are entitled to vote on an as-converted to Class A common stock basis and have rights to approve certain actions.

From November 2022 to January 2023, we issued 12,622 shares of our (i) Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred”);

(ii) Series A-2 Convertible Preferred Stock, par value $0.001 per share (the “Series A-2 Preferred”);

(iii) Series A-3 Convertible Preferred Stock, par value $0.001 per share (the “Series A-3 Preferred”);

(iv) Series A-4 Convertible Preferred Stock, par value $0.001 per share (the “Series A-4 Preferred”) and (v) Series A-5 Convertible Preferred Stock, par value $0.001 per share (the “Series A-5 Preferred”, and, collectively with the Series A Preferred, Series A-2 Preferred, Series A-3 Preferred and Series A-4 Preferred, the “Series A Stock”), to a group of accredited investors (collectively, the “Investors”), pursuant to a certain placement agency agreement.

The holders of our Series A Stock are generally entitled to vote with the holders of our common stock on all matters submitted for a vote of our stockholders (voting together with the holders of common stock as one class) on an as-converted basis.

Additionally, the consent of the holders of a majority of the outstanding shares of Series A Stock is required in order for us to take certain actions, including issuances of securities that are senior to, or equal in priority with, the Series A Stock.

As a result, the holders of Series A Stock may in the future have the ability to influence the outcome of certain matters affecting our governance and capitalization.

As of March 29, 2023, there were 12,622 shares of our Series A Preferred Stock outstanding, which are convertible without payment of additional consideration, into 22.4 million shares of our common stock, subject to certain ownership limitations.

The conversion of the outstanding shares of our Series A Stock into common stock would be substantially dilutive to existing stockholders.

Any dilatation or potential dilution may cause our stockholders to sell their shares, which may contribute to a downward movement in the stock price of our common stock.

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 .

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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 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;

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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.

For the year ended December 31, 2021 and 2020, we recorded share-based compensation expense of $2.4 million and $2.0 million, respectively, primarily related to issuances and vesting of awards under the 2014 Plan.

For Fiscal Year 2022 and Fiscal Year 2021, we recorded share-based compensation expense of $4.3 million and $2.4 million, respectively, primarily related to issuances and vesting of awards 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.

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These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore adversely affect our business, financial condition and results of operations. 

A reversal of the U.S.

economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.

Changes in the state of the U.S.

economy and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.

To date, our principal sources of capital used to fund our operations have been the net proceeds we received from sales of equity securities and proceeds received from the issuance of convertible debt, as described herein.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors