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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-31 · 542 added, 671 removed, 820 unchanged (60% of the section changed)

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Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.  This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Management ’

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There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On June 1, 2021, the Company completed the acquisition of Mobcrush pursuant to which the Company acquired all of the issued and outstanding shares of Mobcrush.

Upon completion of the merger, Mobcrush became a wholly-owned subsidiary of the Company.

The Company is in the process of evaluating internal control over financial reporting in connection with the acquisition of Mobcrush, and expects to complete our evaluation no later than one year from the acquisition date.

On August 24, 2021, the Company completed the acquisition of Bannerfy pursuant to which the Company acquired all of the issued and outstanding shares of Bannerfy.

Upon completion of the acquisition, Bannerfy became a wholly-owned subsidiary of the Company.

The Company is in the process of evaluating internal control over financial reporting in connection with the acquisition of Bannerfy, and expects to complete our evaluation no later than one year from the acquisition date.

On October 4, 2021, the Company completed the acquisition of Bloxbiz pursuant to which the Company acquired all of the issued and outstanding shares of Bloxbiz.

Upon completion of the acquisition, Bloxbiz became a wholly-owned subsidiary of the Company.

The Company is in the process of evaluating internal control over financial reporting in connection with the acquisition of Bloxbiz, and expects to complete our evaluation no later than one year from the acquisition date.

OTHER INFORMATION

Tumim Offering

On March 25, 2022, we entered into the Purchase Agreement with Tumim, pursuant to which we have the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase up to the Total Commitment from time to time during the term of the Purchase Agreement, subject to certain limitations and conditions.

As consideration for Tumim’s commitment to purchase shares of common stock under the Purchase Agreement, we issued to Tumim 50,000 Commitment Shares following the execution of the Purchase Agreement.

The Purchase Agreement initially precludes us from issuing and selling more than 7,361,833 shares of our common stock, including the Commitment Shares, which number equals 19.99% of our common stock issued and outstanding as of March 25, 2022, unless we obtain stockholder approval to issue additional shares, or unless certain exceptions apply.

In addition, a beneficial ownership limitation in the agreement initially limits us from directing Tumim to purchase shares of common stock if such purchases would result in Tumim beneficially owning more than 4.99% of the then-outstanding shares of our common stock (subject to an increase to 9.99% at Tumim’s option upon at least 61 calendar days’

From and after the initial satisfaction of the conditions to our right to commence sales to Tumim under the Purchase Agreement (such event, the “Commencement,”

and the date of initial satisfaction of all such conditions, the “Commencement Date”), we may direct Tumim to purchase shares of common stock at a purchase price per share equal to 95% of the average daily dollar volume-weighted average price for our common stock during the three consecutive trading day period immediately following the date on which we deliver to Tumim a notice for such purchase.

We will control the timing and amount of any such sales of common stock to Tumim.

Actual sales of shares of common stock to Tumim will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our common stock, and determinations by us as to the appropriate sources of funding for the Company and our operations.

The Commencement Date of the Tumim Offering was March 25, 2022.

Unless earlier terminated, the Purchase Agreement will automatically terminate upon the earliest of (i) the expiration of the 18-month period following the Commencement Date, (ii) Tumim’s purchase or receipt of the Total Commitment worth of common stock, or (iii) the occurrence of certain other events set forth in the Purchase Agreement.

We have the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon five trading days’

prior written notice to Tumim.

Tumim has the right to terminate the Purchase Agreement upon five trading days’

prior written notice to us, but only upon the occurrence of certain events set forth in the Purchase Agreement.

We intend to use the net proceeds, if any, from the Tumim 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 to acquire or invest in complementary businesses, products and technologies.

The Purchase Agreement contains customary representations, warranties and agreements by us, as well as customary indemnification obligations of the Company.

The securities in the Tumim Offering are being offered pursuant to our effective S-3 shelf registration statement (File No.

333-259347), which was filed with the SEC on September 7, 2021 and declared effective on November 16, 2021.

The Tumim Offering will be made only by means of a prospectus supplement and the accompanying base prospectus that form part of the S-3.

A prospectus supplement relating to the Tumim Offering was filed with the SEC pursuant to Rule 424(b) under the Securities Act on March 29, 2022.

The Purchase Agreement is filed as Exhibit 10.31 to this Report and is incorporated herein by reference.

The description of the terms of the Purchase Agreement set forth above is qualified in its entirety by reference to such exhibit.

In addition, the legal opinion letter of Disclosure Law Group, a Professional Corporation, counsel to the Company, regarding the validity of the shares of common stock to be issued from time to time in connection with the Tumim Offering is filed as Exhibit 5.1 to this Report.

The legal opinion letter is also filed with reference to, and is hereby incorporated by reference into, the S-3 shelf registration statement.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Incorporation by Reference

Agreement and Plan of Merger Agreement and Plan of Merger by and among Super League Gaming, Inc., SLG Merger Sub, Inc.

and Framerate, Inc.

Exhibit 2.1 to the Current Report on Form 8-K, filed on June 7, 2019.

Agreement and Plan of Merger, dated March 9, 2021, by and among Super League Gaming, Inc., SLG Merger Sub II, Inc., and Mobcrush, Inc.

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2 to the Registration Statement , filed on February 12, 2019.

Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Super League Gaming, Inc., dated July 24, 2020.

Exhibit 3.1 to the Current Report on Form 8-K, filed on July 24, 2020.

Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock

Filed herewith.

Certificate of Designation of Preferences, Rights and Limitations of the Series A-2 Preferred Stock

Filed herewith.

Certificate of Designation of Preferences, Rights and Limitations of the Series A-3 Preferred Stock

Filed herewith.

Certificate of Designation of Preferences, Rights and Limitations of the Series A-4 Preferred Stock

Filed herewith.

Certificate of Designation of Preferences, Rights and Limitations of the Series A-5 Preferred Stock

Filed herewith.

Form of Common Stock Certificate.

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2 to the Registration Statement on Form S-1, filed on February 12, 2019.

Opinion of Disclosure Law Group, a Professional Corporation.

Filed herewith.

10.1 †

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and Tumim Stone Capital LLC

Exhibit 10.31 to the Annual Report on Form 10-K for the period ended December 31, 2021, filed March 31, 2022.

Form of Placement Agent Agreement

Filed herewith.

Form of 2022 Series A Subscription Agreement

Filed herewith.

Form of Registration Rights Agreement, among Super League Gaming, Inc.

and certain accredited investors.

Filed herewith.

Form of Series A Placement Agent Warrant

Filed herewith.

Super League Gaming, Inc.

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Exhibit 14.1 to the Registration Statement , filed on January 4, 2019.

Consent of Disclosure Law Group, a Professional Corporation (included in Exhibit 5.1)

Filed herewith.

Consent of Independent Registered Public Accounting Firm – Baker Tilly US, LLP

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Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders ’

Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

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In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.

As noted in Note 2 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations.

This raises substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also included in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We have served as the Company’s auditor since 2016.

Irvine, California

Los Angeles, California

March 31, 2023

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Cash and cash equivalents

$ 14,533,000  

$ 7,942,000  

Accounts receivable

6,328,000  

588,000  

Prepaid expenses and other current assets

1,334,000  

837,000  

Prepaid expense and other current assets

Total current assets

22,195,000  

9,367,000  

Property and Equipment, net

104,000  

138,000  

Intangible and Other Assets, net

24,243,000  

1,907,000  

50,263,000  

2,565,000  

$ 96,805,000  

$ 13,977,000  

LIABILITIES AND STOCKHOLDERS ’

Current Liabilities

Accounts payable and accrued expenses

$ 5,514,000  

$ 1,829,000  

Accounts payable

Accrued contingent consideration (Note 5)

Deferred revenue

76,000  

Convertible note payable and accrued interest (Note 6)

Total current liabilities

5,590,000  

1,829,000  

Deferred taxes

518,000  

1,208,000  

Long-term note payable

Total liabilities

6,108,000  

3,037,000  

Commitments and Contingencies (Note 10)

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10,000,000 shares authorized;

no shares issued or outstanding

10,323 and no shares issued and outstanding as of December 31, 2022 and 2021, respectively (Note 7).

Common stock, par value $ 0.001 per share;

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37,605,973 and 36,809,187 shares issued and outstanding as of December 31, 2022 and 2021, respectively.

46,000  

25,000  

Additional paid-in capital

215,943,000  

115,459,000  

Accumulated deficit

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Total stockholders’

90,697,000  

10,940,000  

Total liabilities and stockholders’

$ 96,805,000  

$ 13,977,000  

The accompanying notes are an integral part of these consolidated financial statements.

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FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

$ 11,672,000  

$ 2,064,000  

COST OF REVENUES

6,547,000  

856,000  

5,125,000  

1,208,000  

OPERATING EXPENSES

OPERATING EXPENSE

Selling, marketing and advertising

9,670,000  

5,490,000  

Engineering, technology and development

11,100,000  

6,821,000  

General and administrative

9,435,000  

7,640,000  

Total operating expenses

30,205,000  

19,951,000  

Contingent consideration

Impairment of goodwill

Total operating expense

NET OPERATING LOSS

( 25,080,000 )

( 18,743,000 )

OTHER INCOME (EXPENSE)

Accrued interest expense

Interest expense

Gain on loan forgiveness

1,213,000  

13,000  

19,000  

Total other income

1,221,000  

11,000  

LOSS BEFORE BENEFIT FROM INCOME TAXES

( 23,859,000 )

( 18,732,000 )

Benefit from income taxes

3,111,000  

$ ( 20,748,000 )

$ ( 18,732,000 )

Net loss attributable to common stockholders - basic and diluted

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Weighted-average number of shares outstanding, basic and diluted

29,882,828  

11,430,057  

The accompanying notes are an integral part of these consolidated financial statements.

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FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Preferred stock (Shares):

Balance, beginning of period

Issuance of Series A preferred stock (Note 7)

Issuance of Series A-2 preferred stock (Note 7)

Issuance of Series A-3 preferred stock (Note 7)

Issuance of Series A-4 preferred stock (Note 7)

Balance, end of period

Preferred stock (Amount):

Balance, beginning of period

Issuance of Series A preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-2 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-3 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-4 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Balance, end of period

Common stock (Shares):

Balance, beginning of period

15,483,010  

8,573,922  

Issuance of common stock at $ 9.00 per share, net of issuance costs (Note 7)

1,512,499  

Issuance of common stock at $ 4.10 per share, net of issuance costs (Note 7)

2,926,830  

Issuance of common stock at $ 2.60 per share, net of issuance costs (Note 7)

3,076,924  

Issuance of common stock at $ 3.50 per share, net of issuance costs (Note 7)

1,825,000  

Issuance of common stock at $ 1.85 per share, net of issuance costs (Note 7)

4,988,981  

Common stock issued for Mobcrush acquisition (Note 5)

12,067,571  

Common stock issued for Bannerfy acquisition (Note 5)

415,855  

Common stock issued for Bloxbiz acquisition (Note 5)

1,030,928  

Common stock issued for Framerate Acquisition (Note 5)

32,936  

Common stock issued for Super Biz acquisition (Note 5)

Stock-based compensation

295,570  

62,171  

Other Issuances of Common Stock (Note 7)

Balance, end of period

36,809,187  

15,483,010  

Common stock (Amount):

Balance, beginning of period

$ 25,000  

$ 18,000  

Issuance of common stock at $ 9.00 per share, net of issuance costs (Note 7)

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Issuance of common stock at $ 3.50 per share, net of issuance costs (Note 7)

Issuance of common stock at $ 1.85 per share, net of issuance costs (Note 7)

Common stock issued for Mobcrush Acquisition (Note 5)

12,000  

Common stock issued for Bloxbiz Acquisition (Note 5)

Common stock issued for Super Biz Acquisition (Note 5)

Other Issuances of Common Stock

Balance, end of period

$ 46,000  

$ 25,000  

Additional paid-in-capital:

Balance, beginning of period

$ 115,459,000  

$ 99,237,000  

Issuance of common stock at $ 9.00 per share, net of issuance costs (Note 7)

13,540,000  

Issuance of common stock at $ 4.10 per share, net of issuance costs (Note 7)

11,927,000  

Issuance of Series A preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-2 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-3 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of Series A-4 preferred stock at $ 1,000 per share, net of issuance costs (Note 7)

Issuance of common stock at $ 9.00 per share, net of issuance costs (Note 7)

7,924,000  

Issuance of common stock at $ 4.10 per share, net of issuance costs (Note 7)

5,951,000  

Issuance of common stock at $ 2.60 per share, net of issuance costs (Note 7)

8,398,000  

Common stock issued for Mobcrush Acquisition (Note 5)

59,843,000  

Common stock issued for Bannerfy Acquisition (Note 5)

1,768,000  

Common stock issued for Bloxbiz Acquisition (Note 5)

2,999,000  

Common stock issued for Super Biz Acquisition (Note 5)

Stock-based compensation

2,381,000  

1,863,000  

Stock option exercises

111,000  

10,000  

Other Issuances of Common Stock (Note 7)

Balance, end of period

$ 215,943,000  

$ 115,459,000  

Accumulated Deficit:

2 unchanged sentences

( 104,544,000

( 20,748,000 )

( 18,732,000 )

Balance, end of period

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Total stockholders ’

$ 90,697,000  

$ 10,940,000  

The accompanying notes are an integral part of these consolidated financial statements.

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CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 20,748,000 )

$ ( 18,732,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

3,323,000  

1,368,000  

Stock-based compensation

2,381,000  

2,004,000  

Impairment of goodwill

Write off of intangible asset

Amortization of convertible notes discount (Note 6)

Gain on loan forgiveness (Note 6)

( 1,213,000 )

Change in valuation allowance (Note 5)

( 3,073,000 )

Changes in assets and liabilities:

Accounts receivable

( 4,270,000 )

Prepaid expenses and other current assets

Accounts payable and accrued expenses

1,328,000  

977,000  

Prepaid expense and other current assets

Accounts payable and accrued expense

Accrued contingent consideration (Note 5)

Deferred revenue

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Net cash used in operating activities

( 22,707,000 )

( 14,876,000 )

CASH FLOWS FROM INVESTING ACTIVITIES

Cash acquired in connection with Mobcrush Acquisition (Note 5)

586,000  

Cash paid in connection with Bannerfy Acquisition, net (Note 5)

Cash paid in connection with Bloxbiz Acquisition, net (Note 5)

( 3,000,000 )

Cash paid in connection with Super Biz Acquisition, net (Note 5)

Purchase of property and equipment

Purchase of third-party game properties

Capitalization of software development costs

( 1,065,000 )

( 1,035,000 )

Acquisition of other intangible and other assets

Net cash used in investing activities

( 4,203,000 )

( 1,190,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock, net of issuance costs

33,390,000  

14,356,000  

Proceeds from issuance of preferred stock, net of issuance costs (Note 7)

Proceeds from issuance of common stock, net of issuance costs (Note 7)

Proceeds from note payable (Note 6)

1,200,000  

Payments on convertible notes (Note 6)

Proceeds from stock option exercises

111,000  

10,000  

Net cash provided by financing activities

33,501,000  

15,566,000  

(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS

6,591,000  

CASH AND CASH EQUIVALENTS –

beginning of year

7,942,000  

8,442,000  

CASH AND CASH EQUIVALENTS –

$ 14,533,000  

$ 7,942,000  

CASH AND CASH EQUIVALENTS – beginning of year

CASH AND CASH EQUIVALENTS – end of year

SUPPLEMENTAL NONCASH FINANCING ACTIVITIES

Issuance of common stock in connection with Mobcrush Acquisition

$ 59,855,000  

Issuance of common stock in connection with Bannerfy Acquisition

1,705,000  

Issuance of common stock in connection with Bloxbiz Acquisition

3,000,000  

Issuance of common stock for Framerate Acquisition (Note 5)

245,000  

Issuance of common stock in connection with Super Biz Acquisition

The accompanying notes are an integral part of these consolidated financial statements.

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“us”

or “our”) builds and operates networks of games, monetization tools and content channels across open-world gaming platforms that empower developers, energize players, and entertain fans.

Our solutions provide incomparable access to an audience consisting of players in the largest global metaverse environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms.

or “our”) is a leading publisher of games, monetization tools and content channels across metaverse gaming platforms that empower developers, energize players, and entertain fans.

Our solutions provide incomparable access to an audience consisting of players in the largest global metaverse game environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms.

Fueled by proprietary and patented technology systems, the Company’s platform includes access to vibrant in-game communities, a leading metaverse advertising platform, a network of highly viewed channels and original shows on Instagram, TikTok, Snap, YouTube, and Twitch, cloud-based livestream production tools, and an award-winning esports invitational tournament series.

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Acquisition of Bannerfy, LTD.

On August 24, 2021, the Company completed the acquisition of Bannerfy, Ltd., (“Bannerfy”) pursuant to which the Company acquired all of the issued and outstanding common shares of Bannerfy, as described at Note 5.

Bannerfy is an intelligent technology platform that enables digital video and live streaming creators to collaborate with tier one sponsors on their social media channels including YouTube through scalable and custom premium placements.

On August 24, 2021, the Company completed the acquisition of Bannerfy, Ltd., (“Bannerfy”), an intelligent technology platform that enables digital video and live streaming creators to collaborate with tier one sponsors on their social media channels including YouTube through scalable and custom premium placements.

Acquisition of Bloxbiz Co.

On October 4, 2021, the Company acquired (i) substantially all of the assets of Bloxbiz Co.

(“Bloxbiz”) and (ii) the personal goodwill of the Founders regarding Bloxbiz's business, as described at Note 5.

Bloxbiz is a dynamic ad platform designed specifically for metaverse environments.

Bloxbiz’s initial deployment enables brands to advertise across popular Roblox game titles and helps Roblox creators with monetization and game analytics.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of the fiscal year 2021 acquisitions described above for the period from the respective transaction closing dates to the end of the current period presented herein.

(doing business as, and hereinafter referred to as “

Super Biz ”

 On October 4, 2021, the Company acquired (i) substantially all of the assets of Super Biz, and (ii) the personal goodwill of the founders regarding Super Biz’s business, as described at Note 5.

Super Biz is a dynamic ad platform designed specifically for metaverse environments.

Super Biz’s initial deployment enables brands to advertise across popular Roblox game titles and helps Roblox creators with monetization and game analytics.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of the fiscal year 2021 acquisitions described above for the applicable periods subsequent to the respective transaction closing dates.

Refer to Note 5 for additional information.

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The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 these estimates.

The Company believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, impairment of goodwill and intangibles, stock-based compensation expense, capitalized internal-use-software costs, accounting for business combinations, and accounting for income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective or complex judgments.

The Company believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, impairment of goodwill and intangibles, stock-based compensation expense, capitalized internal-use-software costs, accounting for business combinations, accounting for convertible debt, including estimates and assumptions used to calculate the fair value of debt instruments, accounting for convertible preferred stock, and accounting for income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective, or complex judgments.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company incurred net losses of $ 20.7 million and $ 18.7 million during the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $ 125.3 million as of December 31, 2021.

Including a noncash goodwill impairment charge of $ 50.3 million in fiscal year 2022, the Company incurred net losses of $ 85.5 million and $ 20.7 million during the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of $ 210.7 million (including fiscal year 2022 noncash goodwill impairment charges of $ 50.3 million) as of December 31, 2022.

For the years ended December 31, 2022 and 2021 net cash used in operating activities totaled $ 19.8 million and $ 22.7 million, respectively.

As of December 31, 2021, the Company had cash and cash equivalents of approximately $ 14.5 million.

The Company has used and will continue to use significant capital for the growth and development of its business.

The Company has grown significantly in fiscal year 2021 through organic and inorganic growth activities, including the expansion of our premium advertising inventory and year over year increases in recognized revenues across our three primary revenue streams, as reflected elsewhere herein.

In 2022, we are focused on the continued expansion of our service offerings and revenue growth opportunities through internal development, collaborations, and through opportunistic strategic acquisitions.

In addition, as further described at Note 11, on March 25, 2022, we entered into a common stock purchase agreement (the “

Purchase Agreement ”) with Tumim Stone Capital, LLC (“

Tumim ”).

Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase, up to $ 10,000,000 of newly issued shares of the Company’s common stock, from time to time during the term of the Purchase Agreement, subject to certain limitations and conditions.

Our management believes that our cash balances and capital raising facilities in place will be sufficient to meet our cash requirements through at least March 2023.

The Company considers historical operating results, capital resources and financial position, in combination with current projections and estimates, as part of its plan to fund operations over a reasonable period.

Management's considerations assume, among other things, that the Company will continue to be successful implementing its business strategy, that there will be no material adverse developments in the business, liquidity or capital requirements and, if necessary, the Company will be able to raise additional equity or debt financing on acceptable terms.

The Company had cash and cash equivalents of $ 2.5 million and $ 14.5 million as of December 31, 2022 and 2021, respectively.

To date, our principal sources of capital used to fund our operations and growth have been the net proceeds received from equity and debt financings.

We have and will continue to use significant capital for the growth and development of our business, and, as such, we expect to seek additional capital either from operations, or that may be available from future issuance(s) of common stock, preferred stock and / or debt financings, to fund our planned operations.

Accordingly, our results of operations and the implementation of our long-term business strategies have been and could continue to be adversely affected by general conditions in the global economy, including conditions that are outside of our control.

The most recent global financial crisis caused by severe geopolitical conditions, including conflicts abroad, and the lingering effects of COVID-19 and the threat of other outbreaks, have resulted in extreme volatility, disruptions and downward pressure on stock prices and trading volumes across the capital and credit markets in which we traditionally operate.

A severe or prolonged economic downturn could result in a variety of risks to our business and could have a material adverse effect on us, including limiting our ability to obtain additional funding from the capital and credit markets.

In management’s judgement, these conditions raise substantial doubt about the ability of the Company to continue as a going concern as contemplated by ASC 205-40.

Management’s Plans

The Company experienced significant growth in fiscal year 2022 and 2021 through organic and inorganic growth activities, including the expansion of our premium advertising inventory and quarter over quarter and year over year increases in recognized revenue across our primary revenue streams.

In fiscal year 2022, we focused on the continued expansion of our service offerings and revenue growth opportunities through internal development, collaborations, and through opportunistic strategic acquisitions, as well as management and reduction of operating costs.

Management continues to consider alternatives for raising capital to facilitate our growth and execute our business strategy, including strategic partnerships and or other forms of equity or debt financings.

During the fourth quarter of 2022, we entered into subscription agreements with accredited investors relating to offerings with respect to the sale of an aggregate of 10,323 shares of newly designated Series A, A-2, A-3 and A-4 Convertible Preferred Stock, each series having a $ 0.001 par value and a $ 1,000 purchase price, raising net proceeds totaling $ 8.9 million, after deducting placement agent and other financing costs totaling $ 1.4 million.

Use of net proceeds from the preferred stock offerings included the repayment of certain indebtedness and working capital and general corporate purposes, including sales and marketing activities and product development.

In addition, on January 31, 2023, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 2,299 shares of newly designated Series A-5 Convertible Preferred Stock, par value $ 0.001 per share, at a purchase price of $ 1,000 per share, raising net proceeds of $ 2,000,000 , after deducting placement agent costs of $ 299,000 .

Pursuant to the terms of the SPA (Note 7), $ 4.2 million of the net proceeds were utilized in connection with the partial redemption of the Notes as of March 31, 2023.

On May 16, 2022, as further described at Note 6, the Company entered into a securities purchase agreement with three institutional investors, providing for the sale and issuance of a new series of senior convertible notes in the aggregate original principal amount of $ 4,320,000 , of which 8 % is an original issue discount.

As further described at Note 7, on March 25, 2022, we entered into a common stock purchase agreement with an institutional investor.

Pursuant to the agreement, the Company has the right, but not the obligation, to sell to the investor, and the investor is obligated to purchase, up to $ 10,000,000 of newly issued shares of the Company’s common stock, from time to time during the term of the agreement, subject to certain limitations and conditions.

The Company considers historical operating results, costs, capital resources and financial position, in combination with current projections and estimates, as part of its plan to fund operations over a reasonable period.

Management's considerations assume, among other things, that the Company will continue to be successful implementing its business strategy, that there will be no material adverse developments in the business, liquidity or capital requirements, and the Company will be able to raise additional equity and / or debt financing on acceptable terms.

If one or more of these factors do not occur as expected, it could cause a reduction or delay of its business activities, sales of material assets, default on its obligations, or forced insolvency.

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No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.

We may continue to evaluate potential strategic acquisitions.

To finance such strategic acquisitions, we may find it necessary to raise additional equity capital, incur debt, or both.

Any efforts to seek additional funding could be made through issuances of equity or debt, or other external financing.

However, additional funding may not be available on favorable terms, or at all.

The capital and credit markets have experienced extreme volatility and disruption periodically and such volatility and disruption may occur in the future.

If we fail to obtain additional financing when needed, we may not be able to execute our business plans which, in turn, would have a material adverse impact on our financial condition, our ability to meet our obligations, and our ability to pursue our business strategies.

Reclassifications

Certain reclassifications to operating expense line items have been made to prior year amounts for consistency and comparability with the current year’s consolidated financial statement presentation.

These reclassifications had no effect on the reported total operating expenses for the periods presented.

These reclassifications had no effect on the reported total operating expense for the periods presented.

Revenue Recognition

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Refunds and sales returns historically have not been material.

Super League generates revenues from (i) advertising, serving as a marketing channel for brands and advertisers to reach their target audiences of gamers across our network, (ii) content, curating and distributing esports and gaming-centric entertainment content for our own network of digital channels and media and entertainment partner channels and (iii) direct to consumer offers including digital subscriptions, in-game digital goods, and gameplay access fees.

The Company generates revenue from (i) innovative advertising including immersive game world and experience publishing and in-game media products, (ii) direct to consumer offers, including in-game items, e-commerce, game passes and ticketing and digital collectibles, and (iii) content and technology through the production and distribution of our own, advertiser and third-party content.

The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction and is evaluated on a transaction-by-transaction basis.

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exclusive or non-exclusive title sponsorships, marketing benefits, official product status exclusivity, product visibly and additional infrastructure placement, social media rights, rights to on-screen activations and promotions, display material rights, media rights, hospitality and tickets and merchandising rights.

Sponsorship revenues also include revenues pursuant to arrangements with brand and media partners, retail venues, game publishers and broadcasters that allow our partners to run amateur esports experiences, and or capture specifically curated gameplay content that is customized for our partners’

Sponsorship revenue also includes revenue pursuant to arrangements with brand and media partners, retail venues, game publishers and broadcasters that allow our partners to run amateur esports experiences, and or capture specifically curated gameplay content that is customized for our partners’

distribution channels.

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distribution channels that provide for a contractual delivery or performance date, is recognized at a point in time, when performance is substantially complete and or delivery occurs.

Content Sales

Content sales revenue is generated in connection with our curation and distribution of esports and entertainment content for our own network of digital channels and media and entertainment partner channels.

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Payments are typically due from customers during the term of the arrangement for longer-term campaigns, and once delivery is complete for shorter-term campaigns.

Direct to Consumer

Direct to consumer revenues primarily consist of primarily monthly digital subscription fees, and sales of in-game digital goods.

Direct to consumer revenue primarily consists of monthly digital subscription fees, and sales of in-game digital goods.

Subscription revenue is recognized in the period the services are rendered.

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InPvP Platform Generated Sales Transactions.

Our Mobcrush subsidiary generates in-game Platform sales revenues via digital goods sold within the platform, including cosmetic items, durable goods, player ranks and game modes, leveraging the flexibility of the Microsoft Minecraft Bedrock platform, and powered by the InPvP cloud architecture technology platform.

Our Mobcrush subsidiary generates in-game Platform sales revenue via digital goods sold within the platform, including cosmetic items, durable goods, player ranks and game modes, leveraging the flexibility of the Microsoft Minecraft Bedrock platform, and powered by the InPvP cloud architecture technology platform.

Revenue is generated when transactions are facilitated between Microsoft and the end user, either via in-game currency or cash.

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Payments are made to the Company monthly based on the reconciled sales revenue generated.

Revenue was comprised of the following for the years ended December 31, 2021 and 2020:

Revenue was comprised of the following for the periods presented:

Advertising and sponsorships

$ 8,005,000  

$ 1,170,000  

Content sales

2,264,000  

735,000  

Direct to consumer

1,403,000  

159,000  

$ 11,672,000  

$ 2,064,000  

For the fiscal years ended December 31, 2022 and 2021, 32 % and 19 % of revenues were recognized at a single point in time, and 68 % and 81 % of revenues were recognized over time, respectively.

Cost of Revenues

Cost of revenues includes direct costs incurred in connection with the satisfaction of performance obligations under our revenue arrangements including internal and third -party engineering, creative, content, broadcast and other personnel, talent and influencers, developers, content capture and production services, direct marketing, cloud services, software, prizing, and revenue sharing fees.

Gaming experience and Super League brand related advertising costs include the cost of ad production, social media, print media, digital marketing, promotions, and merchandising.

Cost of revenue includes direct costs incurred in connection with the satisfaction of performance obligations under our revenue arrangements including internal and third-party engineering, creative, content, broadcast and other personnel, talent and influencers, developers, content capture and production services, direct marketing, cloud services, software, prizing, and revenue sharing fees.

Gaming experience and Super League brand related advertising costs include the cost of ad production, social media, print media, marketing, promotions, and merchandising.

The Company expenses advertising costs as incurred.

Advertising costs are included in selling, marketing and advertising expenses in the accompanying statements of operations.

Advertising expenses for the fiscal years ended December 31, 2021 and 2020 were $ 568,000 and $ 187,000 , respectively, and are included in selling, marketing and advertising expenses in the accompanying statements of operations.

Advertising costs are included in selling, marketing and advertising expense in the accompanying statements of operations.

Advertising expense for the fiscal years ended December 31, 2022 and 2021 were $ 507,000 and $ 568,000 , respectively.

Engineering, Technology and Development Costs

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and are utilized and offered as an audience acquisition tool, as a means of growing our audience, engagement, viewership, players and community.

Engineering, technology and development related operating expenses includes the costs described below, incurred in connection with our audience acquisition and viewership expansion activities.

Engineering, technology and development related operating expenses include (i) allocated internal engineering personnel expenses, including salaries, noncash stock compensation, taxes and benefits, (ii) third -party contract software development and engineering expenses, (iii) internal use software cost amortization expense, and (iv) technology platform related cloud services, broadband and other platform expenses, incurred in connection with our audience acquisition and viewership expansion activities, including tools and product offering development, testing, minor upgrades and features, free to use services, corporate information technology and general platform maintenance and support.  

Engineering, technology and development related operating expense includes the costs described below, incurred in connection with our audience acquisition and viewership expansion activities.

Engineering, technology and development related operating expense includes (i) allocated internal engineering personnel expense, including salaries, noncash stock compensation, taxes and benefits, (ii) third-party contract software development and engineering expense, (iii) internal use software cost amortization expense, and (iv) technology platform related cloud services, broadband and other platform expense, incurred in connection with our audience acquisition and viewership expansion activities, including tools and product offering development, testing, minor upgrades and features, free to use services, corporate information technology and general platform maintenance and support.

Cash and Cash Equivalents

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Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.

The Company does not have any instruments that are measured at fair value on a recurring basis.

However, the Company measured certain acquired intangible assets and the Earn-Out using Level 3 inputs on a nonrecurring basis.

Certain assets and liabilities are required to be recorded at fair value on a recurring basis, including derivative financial instruments and convertible notes payable recorded at fair value (Note 6).

The convertible notes outstanding at December 31, 2022 are recorded at fair value, using Level 3 inputs.

Certain long-lived assets may be periodically required to be measured at fair value on a nonrecurring basis, including long-lived assets that are impaired.

The fair value for other assets and liabilities such as cash, restricted cash, accounts receivable, receivables reserved for users, other receivables, prepaid expense and other current assets, accounts payable and accrued expense, and liabilities to customers have been determined to approximate carrying amounts due to the short maturities of these instruments.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.

Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to a liability at the fair value of the instrument on the reclassification date.

Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in the statement of operations.

Property and Equipment

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Acquisition Method .

 Acquisitions that meet the definition of a business under ASC 805, “Business Combinations,”

(“ASC 805”

) are accounted for using the acquisition method of accounting.

Acquisitions that meet the definition of a business under ASC 805 are accounted for using the acquisition method of accounting.

Under the acquisition method of accounting, assets acquired, liabilities assumed, contractual contingencies, and contingent consideration, when applicable, are recorded at fair value at the acquisition date.

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The application of the acquisition method of accounting requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in connection with the allocation of the purchase price consideration to the assets acquired and liabilities assumed.

Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the consolidated statements of operations.

Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expense in the consolidated statements of operations.

Contingent consideration, if any, is recognized and measured at fair value as of the acquisition date.

Cost Accumulation Model.

 Acquisitions that do not meet the definition of a business under ASC 805 are accounted for as an asset acquisition, utilizing a cost accumulation model.

Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transfers to the seller, including direct transaction costs, on the acquisition date.

The cost of the acquisition is then allocated to the assets acquired based on their relative fair values.

Goodwill is not recognized in an asset acquisition. Direct transaction costs include those third -party costs that can be directly attributable to the asset acquisition and would not have been incurred absent the acquisition transaction.

Goodwill is not recognized in an asset acquisition.

Direct transaction costs include those third-party costs that can be directly attributable to the asset acquisition and would not have been incurred absent the acquisition transaction.

Contingent consideration, representing an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met, is recognized when probable and reasonably estimable.

Contingent consideration recognized is included in the initial cost of the assets acquired, with subsequent changes in the recorded amount of contingent consideration recognized as an adjustment to the cost basis of the acquired assets.

Contingent consideration recognized is included in the initial cost of the assets acquired, with subsequent changes in the recorded amount of contingent consideration recognized as an adjustment to the cost basis of the acquired assets.

Subsequent changes are allocated to the acquired assets based on their relative fair value.

Depreciation and/or amortization of adjusted assets are recognized as a cumulative catch-up adjustment, as if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement.

Contingent consideration that is paid to sellers that remain employed by the acquirer and linked to future services is generally considered compensation cost and recorded in the statement of operations in the post-combination period. 

Intangible Assets

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Upgrades or enhancements to existing internal-use software that result in additional functionality are capitalized and amortized on a straight-line basis over the applicable estimated useful life.

The Company currently has one  reporting unit.

The following table presents the changes in the carrying amount of goodwill for the year ended December 31, 2021:

Balance as of December 31, 2020

$ 2,565,000  

Acquisitions (See Note 5)

47,698,000  

Balance as of December 31, 2021

$ 50,263,000  

Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis ( December 31) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

We consider our market capitalization and the carrying value of our assets and liabilities, including goodwill, when performing our goodwill impairment tests.

We operate in one reporting segment.

If a potential impairment exists, a calculation is performed to determine the fair value of existing goodwill.

This calculation can be based on quoted market prices and / or valuation models, which consider the estimated future undiscounted cash flows resulting from the reporting unit, and a discount rate commensurate with the risks involved.

Third party appraised values may also be used in determining whether impairment potentially exists.

In assessing goodwill impairment, significant judgment is required in connection with estimates of market values, estimates of the amount and timing of future cash flows, and estimates of other factors that are used to determine the fair value of our reporting unit.

If these estimates or related projections change in future periods, future goodwill impairment tests may result in charges to earnings.

When conducting the Company’s annual or interim goodwill impairment assessment, we initially perform a qualitative evaluation of whether it is more likely than not that goodwill is impaired.

In evaluating whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we consider the guidance set forth in ASC- 350 “Intangibles Goodwill and Other,”

(“ASC 350”

) which requires an entity to assess relevant events and circumstances, including macroeconomic conditions, industry and market considerations, cost factors, financial performance and other relevant events or circumstances.

From a qualitative standpoint, we considered the Company’s history of reported losses and negative cash flows from operating activities, along with the downturn in macroeconomic conditions and the broader mid-cap and micro-cap equity markets in late 2021.

We also considered that the Company experienced significant inorganic and organic growth in fiscal 2021, including the impact of the acquisitions of Mobcrush, Bannerfy and Bloxbiz on our premium advertising inventory, product offerings to advertisers, current period revenues recognized and future revenue generating opportunities.

Given that the Company’s significant growth occurred recently, and the relatively short period of time between the commencement of the downturn in macroeconomic and general equity market conditions as of December 31, 2021, management believes that the recent reduction in prices of our common stock, consistent with the broader market, is not other-than-temporary and not indicative of any fundamental change in the value or prospects of the underlying business as of the measurement date.

As another data point, the Company also performed a quantitative goodwill impairment analysis comparing the estimated fair value of the Company’s reporting unit to its carrying or book value as of the current period presented herein.

In performing the quantitative analysis, the Company compared the fair value of the reporting unit to its carrying or book value to determine if the fair value of the reporting unit exceeded its carrying value as of the testing date, in which case the standard indicates that goodwill would not be impaired, and no further testing is required.

The fair value of a reporting unit refers to the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date.

Quoted market prices in active markets are considered to be the best evidence of fair value and should be used as the basis for fair value measurement, if available.

When using quoted market prices to estimate the fair value of a reporting unit, we consider all available evidence.

In certain circumstances, such as a distressed market, it may be appropriate to consider recent trends in the Company’s stock price, instead of a single day’s stock price in evaluating fair value.

In these circumstances, averages over relatively short periods of time are used to determine representative market values.

At December 31, 2021, we reported goodwill of $ 50.3 million.

We utilized the Company’s market capitalization, based on the 30 -day volume weighted average ( “30 -day VWAP”) closing price of the Company’s common stock as of December 31, 2021, multiplied by the number of shares of the Company’s common stock outstanding as of the measurement date, for purposes of estimating the fair value of the Company at December 31, 2021.

In management’s estimate, the 30 -day VWAP of closing stock prices for our common stock was the best estimate of fair value of the company’s single reporting unit available at the date of testing.

Based on the results of the quantitative impairment analysis, the fair value of the Company’s single reporting unit exceeded its carrying value at December 31, 2021 by approximately $ 11.3 million.

Based on the qualitative analysis and other data points described above, 

the Company concluded that goodwill was not “more likely than not”

impaired as of December 31, 2021.

As described above, we have significant intangible assets recorded on our consolidated balance sheets.

We will continue to evaluate the recoverability of the carrying amount of our intangible assets on an ongoing basis. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges.

Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions.

Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result.

The 30 -day VWAP of closing stock prices for our common stock subsequent to December 31, 2021, consistent with the broader market, have continued to trend downward.

If the decline in our stock price persists throughout the three month period ending March 31, 2022, we will perform an interim goodwill impairment assessment as of March 31, 2022, consistent with the methodology and approach described above.

Impairment of Long-Lived Assets

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In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.

Other assets of a reporting unit that are held and used may be required to be tested for impairment when certain events trigger interim goodwill impairment tests.

In such situations, other assets, or asset groups, are tested for impairment under their respective standards and the other assets’

or asset groups’

carrying amounts are adjusted for impairment before testing goodwill for impairment as described below.

For the periods presented herein, management believes that there was no impairment of long-lived assets.

There can be no assurance, however, that market conditions or demand for the Company’s products or services will not change, which could result in long-lived asset impairment charges in the future.

The Company currently has one reporting unit.

The following table presents the changes in the carrying amount of goodwill for the periods presented.

Beginning Balance

Acquisitions (See Note 5)

Impairment charges

Ending Balance

Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December 31) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

We consider our market capitalization and the carrying value of our assets and liabilities, including goodwill, when performing our goodwill impairment tests.

We operate in one reporting segment.

If a potential impairment exists, a calculation is performed to determine the fair value of existing goodwill.

Third-party appraised values may also be used in determining whether impairment potentially exists.

If these estimates or related projections change in future periods, future goodwill impairment tests may result in charges to earnings.

When conducting the Company’s annual or interim goodwill impairment assessment, we initially perform a qualitative evaluation of whether it is more likely than not that goodwill is impaired.

In evaluating whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we consider the guidance set forth in ASC 350, which requires an entity to assess relevant events and circumstances, including macroeconomic conditions, industry and market considerations, cost factors, financial performance and other relevant events or circumstances.

September 30, 2022 Goodwill Impairment Testing

At September 30, 2022, prior to the completion of our goodwill impairment testing, the goodwill balance totaled $ 50.3 million.

At September 30, 2022, from a qualitative standpoint, we considered the Company’s history of reported losses and negative cash flows from operating activities, and also considered the sustained downturn in industry and macroeconomic conditions, including inflationary pressures and potential reductions in advertising spending and the sustained downturn of the broader mid-cap and micro-cap equity markets in the third quarter of 2022.

We also considered that the Company experienced significant inorganic and organic growth in fiscal 2021, including the impact of the acquisitions of Mobcrush, Bannerfy and Super Biz on our premium advertising inventory, product offerings to advertisers, current period revenue recognized and future revenue generating opportunities.

However, the Company’s stock price has been volatile, and the volatility continued during the three months ended September 30, 2022, declining 34 % to $ 0.68 as of September 30, 2022, reflecting a market capitalization that was approximately 38 % of the Company’s September 30, 2022 net book value.

To assess whether the decline in our market capitalization was an indicator requiring an interim goodwill impairment test, we considered the significance of the decline and the length of time our common stock has been trading at a depressed value along with the macro factors described above.

The significance of the decline is consistent with the broader microcap market.

As of September 30, 2022 the decline in our stock price and other factors were deemed to be sustained, and therefore a triggering event requiring a goodwill impairment test as of September 30, 2022 was deemed to have occurred.

We utilized the market capitalization of the Company as of September 30, 2022, a Level 1 input as described above, to estimate the fair value of the Company’s single reporting unit.

The estimated market capitalization was determined by multiplying our September 30, 2022 stock price and the common shares outstanding as of September 30, 2022.

The market capitalization approach was utilized to estimate the fair value of our single reporting unit as of September 30, 2022, due to the significance of the decline in stock price as of September 30, 2022, resulting in a market capitalization that was 38 % of the net book value of our single reporting unit.

Based on the analysis, the estimated fair value of our reporting unit was $ 25.2 million, compared to a carrying value of our single reporting unit of $ 67.3 million as of September 30, 2022.

As such, the fair value of our single reporting unit was deemed to be below its carrying value as of September 30, 2022, resulting in a goodwill impairment charge of $ 42.0 million, which was reflected in the consolidated statement of operations for the nine months ended September 30, 2022.

December 31, 2022 Goodwill Impairment Testing

At December 31, 2022, prior to the completion of our goodwill impairment testing, the goodwill balance totaled $ 8.3 million.

At December 31, 2022, from a qualitative standpoint, we considered the factors described above under “September 30, 2022 Goodwill Impairment Testing,”

including the current period reported loss and negative cash flows from operating activities, and the sustained downturn in industry and macroeconomic conditions, including inflationary pressures and potential reductions in advertising spending and the sustained downturn of the broader mid-cap and micro-cap equity markets in the fourth quarter of 2022.

Similarly, given the Company’s recent significant growth, management does not believe that the current market capitalization of the Company is indicative of any material fundamental change in the Company’s underlying business or future prospects as of the December 31, 2022 measurement date.

The Company's stock price has been volatile, and the volatility continued during the three months ended December 31, 2022, declining approximately 50 % from the September 30, 2022 closing price to $ 0.336 as of December 31, 2022, reflecting a market capitalization that was approximately 46 % of the Company’s December 31, 2022 net book value.

As of December 31, 2022 the decline in our stock price and other factors were deemed to be sustained, and therefore a triggering event requiring a goodwill impairment test as of December 30, 2022 was deemed to have occurred.

We utilized the market capitalization of the Company as of December 31, 2022, a Level 1 input as described above, to estimate the fair value of the Company’s single reporting unit.

Based on the analysis, the estimated fair value of our reporting unit was $ 12.6 million, compared to a carrying value of our single reporting unit of $ 27.5 million as of December 31, 2022.

As such, the fair value of our single reporting unit was deemed to be below its carrying value as of December 31, 2022, resulting in an additional goodwill impairment charge of $ 8.3 million in the fourth quarter of 2022, reflecting the write down of the remaining balance of goodwill for our single reporting unit.

Stock-Based Compensation

Compensation expense for stock-based awards is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense, typically on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is generally two to four years. Compensation expense for awards with performance conditions that affect vesting is recorded only for those awards expected to vest or when the performance criteria are met. The fair value of restricted stock and restricted stock unit awards is determined by the product of the number of shares or units granted and the grant date market price of the underlying common stock.

Compensation expense for awards with performance conditions that affect vesting is recorded only for those awards expected to vest or when the performance criteria are met.

The fair value of restricted stock and restricted stock unit awards is determined by the product of the number of shares or units granted and the grant date market price of the underlying common stock.

The fair value of stock option and common stock purchase warrant awards is estimated on the date of grant utilizing the Black-Scholes-Merton option pricing model.

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Grants of equity-based awards (including warrants) to non-employees in exchange for consulting or other services are accounted for using the grant date fair value of the equity instruments issued.

On January 1, 2022, the Company issued 1,350,000 performance stock units (“PSUs”) under the Company’s 2014 Amended and Restated Stock Option and Incentive Plan, which vest in five equal increments of 270,000 PSUs, based on the Company’s stock price reaching certain predetermined levels, as described at Note 8.

A condition affecting the exercisability or other pertinent factors used in determining the fair value of an award that is based on an entity achieving a specified share price constitutes a market condition pursuant to ASC 718, “Stock based Compensation”

(“ASC 718”).

A market condition is reflected in the grant-date fair value of an award, and therefore, a Monte Carlo simulation model is utilized to determine the estimated fair value of the equity-based award.

Compensation cost is recognized for awards with a market condition, provided the requisite service period is satisfied, regardless of whether the market condition is ever satisfied.

Equity Financing Costs

Specific incremental costs directly attributable to a proposed or actual offering of securities or debt are deferred and charged against the gross proceeds of the financing.

In the event that the proposed or actual financing is not completed, or is deemed not likely to be completed, such costs are expensed in the period that such determination is made.

Deferred financing costs, if any, are included in other current assets in the accompanying balance sheet.

Specific incremental costs directly attributable to a proposed or actual offering of securities are deferred and charged against the gross proceeds of the equity financing.

In the event that the proposed or actual equity financing is not completed, or is deemed not likely to be completed, such costs are expensed in the period that such determination is made.

Deferred equity financing costs, if any, are included in other current assets in the accompanying consolidated balance sheet.

For the years ended December 31, 2022 and 2021, financing costs charged against gross proceeds in connection with equity financings totaled $ 1,397,000 and $ 434,000 , respectively.

Deferred financing cost, included in prepaid expense and other current assets, at December 31, 2022 and 2021, totaled $ 374,000 and $ 144,000 , respectively.

Specific incremental costs directly attributable to a proposed or actual debt offering are reported in the balance sheet as a direct deduction from the face amount of the debt instrument.

In the event that the proposed or actual debt financing is not completed, or is deemed not likely to be completed, such costs are expensed in the period that such determination is made.

In the event that the Company elects to use the fair value option to account for debt instruments, all costs directly attributable to the debt offering are expensed as incurred in the statement of operations.

For the years ended December 31, 2022 and 2021, debt financing costs expensed as incurred in connection with debt financings totaled $ 123,000 and $ 0 , respectively.

Convertible Debt

The Company evaluates its convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives under ASC 815, “Derivatives and Hedging”

(“ASC 815”).

ASC 815 requires conversion, redemption options, call options and other features (hereinafter, “Embedded Instruments”) contained in the Company’s convertible debt instruments that meet certain criteria to be bifurcated and separately accounted for as an embedded derivative.

In the event that the fair value option election is not made, as described below, the Company evaluates the balance sheet classification for convertible debt instruments issued to determine whether the instrument should be classified as debt or equity, and whether the Embedded Instruments should be accounted for separately from the host instrument.

Embedded Instruments of a convertible debt instrument would be separated from the convertible instrument and classified as a derivative liability if the feature, were it a standalone instrument, meets the definition of an “embedded derivative.”

Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, or when it must be settled either in cash or by issuing stock that is readily convertible to cash.

When a conversion feature meets the definition of an embedded derivative, it is required to be separated from the host instrument and classified as a derivative liability carried on the balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.

Fair Value Option ( “

The Company accounts for convertible notes issued, as described at Note 6 under the fair value option election pursuant to ASC 825, “Financial Instruments”

(“ASC 825”), as discussed below.

The convertible notes accounted for under the FVO election are each debt host financial instruments containing embedded features which would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815.

Notwithstanding, ASC 825 provides for the “fair value option”

election, to the extent not otherwise prohibited by ASC 825, to be afforded to financial instruments, wherein bifurcation of an embedded derivative is not necessary, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

The estimated fair value adjustment, as required by ASC 825, is recognized as a component of other comprehensive income (“OCI”) with respect to the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk, with the remaining amount of the fair value adjustment recognized as other income (expense) in the accompanying consolidated statement of operations.

With respect to the note described at Note 6, as provided for by ASC 825, the estimated fair value adjustment is presented in a respective single line item within other income (expense) in the accompanying consolidated statements of operations, since the change in fair value of the convertible notes payable was not attributable to instrument specific credit risk.

The estimated fair value adjustment is included in other income (expense) in the accompanying consolidated statement of operations.

Reportable Segments

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An operating segment of a public entity has all the following characteristics:

( 1 ) it engages in business activities from which it may earn revenues and incur expenses;

( 2 ) its operating results are regularly reviewed by the public entity's CODM to make decisions about resources to be allocated to the segment and assess its performance:

(1) it engages in business activities from which it may earn revenues and incur expense;

(2) its operating results are regularly reviewed by the public entity’s CODM to make decisions about resources to be allocated to the segment and assess its performance:

and (3) its discrete financial information is available.

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and (2) the Company’s direct-to-consumer component.

A reportable segment is an identified operating segment that also exceeds the quantitative thresholds described in the applicable standard.

A reportable segment is an identified operating segment that also exceeds the quantitative thresholds described in the applicable standard.

Based on the applicable criteria under the standard, including quantitative thresholds, management has determined that the Company has one reportable segment that operated primarily in domestic markets during the periods presented herein.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk are cash equivalents, investments and accounts receivable. The Company places its cash equivalents and investments primarily in highly rated money market funds. Cash equivalents are also invested in deposits with certain financial institutions and may, at times, exceed federally insured limits.

The Company has not experienced any significant losses on its deposits of cash and cash equivalents. 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash equivalents, investments and accounts receivable.

The Company places its cash equivalents and investments primarily in highly rated money market funds.

Cash equivalents are also invested in deposits with certain financial institutions and may, at times, exceed federally insured limits.

The Company has not experienced any significant losses on its deposits of cash and cash equivalents.

Risks and Uncertainties

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Diluted earnings per share is computed by dividing the income or loss by the weighted-average number of outstanding shares of common stock for the applicable period, including the dilutive effect of common stock equivalents.

Potentially dilutive common stock equivalents primarily consist of employee stock options, warrants issued to employees and non-employees in exchange for services and warrants issued in connection with financings.

All outstanding stock options, restricted stock units and warrants, totaling 5,060,000 and 4,470,000 at December 31, 2021 and December 31, 2020, respectively, have been excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive. 

Potentially dilutive common stock equivalents primarily consist of common stock potentially issuable in connection with the conversion of outstanding preferred stock, convertible notes payable, employee stock options, unvested restricted stock units, common stock purchase warrants (“warrants”) issued to employees and non-employees in exchange for services and warrants issued in connection with financings.

Common stock underlying all outstanding stock options, restricted stock units and warrants, totaling 7,174,000 and 5,060,000 at December 31, 2022 and 2021, respectively, have been excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive.

Common stock potentially issuable in connection with the conversion of outstanding preferred stock totaling 18,269,000 and zero at December 31, 2022 and 2021, respectively, have been excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive.

Common stock potentially issuable in connection with the conversion of outstanding convertible notes payable totaling 143,000 and zero at December 31, 2022 and 2021, respectively, have been excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

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Recent Accounting Guidance

Recent Accounting Pronouncements - Not Yet Adopted.

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, 2021 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.

Recent Accounting Pronouncements - Adopted.

 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.

Recent Accounting Pronouncements –

Not Yet Adopted.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers , in order to align the recognition of a contract liability with the definition of a performance obligation.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted.

The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures.

Recent Accounting Pronouncements –

On August 5, 2020, the FASB issued ASU No.

2020-06, Debt –

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –

Contracts in Entity ’

s Own Equity (Subtopic 815-40) .

The guidance in this update eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.

It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.

In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

The guidance was required to be applied retrospectively with the cumulative effect recognized as of the date of adoption.

The guidance became effective at the beginning of the Company’s first quarter of the fiscal year ending December 31, 2022.

The adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) .

The guidance requires lessees to present right-of-use assets and lease liabilities on the balance sheet.

The guidance became effective at the beginning of the Company’s first quarter of the fiscal year ending December 31, 2022.

The adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

PROPERTY AND EQUIPMENT

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Computer hardware

$ 3,165,000  

$ 3,143,000  

Furniture and fixtures

356,000  

342,000  

3,521,000  

3,485,000  

accumulated depreciation and amortization

( 3,417,000 )

( 3,347,000 )

$ 104,000  

$ 138,000  

Depreciation and amortization expense for property and equipment was $ 106,000 and $ 73,000 for the years ended December 31, 2022 and 2021, respectively.

INTANGIBLE AND OTHER ASSETS

Intangible and other assets consisted of the following at December 31, 2021 and 2020:

Intangible and other assets consisted of the following for the periods presented:

Partner and customer relationships

Capitalized software development costs

$ 4,339,000  

$ 3,275,000  

189,000  

68,000  

Capitalized third-party game property costs

Developed technology

Influencers/content creators

Copyrights and other

641,000  

435,000  

Intangible assets acquired in connection with Mobcrush Acquisition (Note 5)

19,500,000  

Intangible assets acquired in connection with Bannerfy Acquisition (Note 5)

3,068,000  

Intangible assets acquired in connection with Bloxbiz acquisition (Note 5)

1,747,000  

29,552,000  

3,967,000  

accumulated amortization

( 5,309,000 )

( 2,060,000 )

Intangible and other assets, net

$ 24,243,000  

$ 1,907,000  

Amortization expense for the fiscal year ended December 31, 2021 totaled $ 3,187,000 .

Amortization expense included in cost of revenues for the fiscal year ended December 31, 2021 totaled $ 63,000 .

Amortization expense for the fiscal year ended December 31, 2020 totaled $ 1,258,000 .

The Company expects to record amortization of intangible assets for fiscal years ending December31, 2022 and future fiscal years as follows:

Total amortization expense for the fiscal years ended December 31, 2022 and 2021 totaled $ 5,629,000 and $ 3,187,000 , respectively.

Amortization expense included in cost of revenues for the fiscal years ended December 31, 2022 and 2021 totaled $ 90,000 and $ 63,000 , respectively.

In June 2022, we purchased “Anime Battlegrounds X ”, a highly rated game on Roblox, from a third-party game developer.

The total purchase price of $ 500,000 was capitalized and is being amortized to cost of revenue over the estimated useful life of 5 years.

During the third quarter of 2022 , the Company rebranded certain products acquired in connection with the acquisition of Mobcrush.

As a result, the Company recorded a write down of trademark related intangible assets acquired in connection with the acquisition of Mobcrush totaling $ 423,000 , which is included as a component of amortization expense in general and administrative expense in the accompanying consolidated statement of operations for the year ended December 31, 2022.

The Company expects to record aggregate amortization expense for each of the five succeeding fiscal years as follows:

For the years ending December 31,

$ 5,086,000  

4,749,000  

4,347,000  

3,909,000  

2,899,000  

3,253,000  

$ 24,243,000  

Acquisition of Mobcrush

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On June 1, 2021 (“Mobcrush Closing Date”), the Company completed the Mobcrush Acquisition pursuant to which the Company acquired all of the issued and outstanding shares of Mobcrush.

In accordance with the terms and subject to the conditions of the Mobcrush Merger Agreement:

(A) each outstanding share of Mobcrush common stock, par value $ 0.001 per share (“Mobcrush Common Stock”), and Mobcrush preferred stock, par value $ 0.001 , was canceled and converted into the right to receive (i) 0.528 shares of the Company’s common stock, as determined in the Mobcrush Merger Agreement, and (ii) any cash in lieu of fractional shares of common stock otherwise issuable under the Mobcrush Merger Agreement (the “Mobcrush Merger Consideration”). At closing, the Company issued to the former stockholders of Mobcrush an aggregate total of 

12,067,571  shares of the Company’s common stock and reserved an aggregate total of 

514,633  shares of common stock for future stock option grants, under the Super League 2014 Stock Option and Incentive Plan, to the former Mobcrush employees retained by the Company in connection with the Mobcrush Acquisition, resulting in a total of 12,582,204 shares of 

common stock issued and reserved as consideration for the Mobcrush Acquisition.

In accordance with the terms and subject to the conditions of the Mobcrush Merger Agreement each outstanding share of Mobcrush common stock, par value $ 0.001 per share (“Mobcrush Common Stock”), and Mobcrush preferred stock, par value $ 0.001 , was canceled and converted into the right to receive (i) 0.528 shares of the Company’s common stock, as determined in the Mobcrush Merger Agreement, and (ii) any cash in lieu of fractional shares of common stock otherwise issuable under the Mobcrush Merger Agreement (the “Mobcrush Merger Consideration”).

At closing, the Company issued to the former stockholders of Mobcrush an aggregate total of 12,067,571 shares of the Company’s common stock and reserved an aggregate total of 514,633 shares of common stock for future stock option grants, under the Super League 2014 Stock Option and Incentive Plan, to the former Mobcrush employees retained by the Company in connection with the Mobcrush Acquisition, resulting in a total of 12,582,204 shares of common stock issued and reserved as consideration for the Mobcrush Acquisition.

Upon completion of the Mobcrush Acquisition, Mobcrush became a wholly-owned subsidiary of the Company.

The Mobcrush Acquisition was approved by the board of directors of each of the Company and Mobcrush, and was approved by the stockholders of Mobcrush.

For purposes of complying with Nasdaq Listing Rule 5635, Super League’s stockholders approved the issuance of an aggregate of 12,582,204 shares of Common Stock to be issued in connection with the Mobcrush Acquisition.

For purposes of complying with Nasdaq Listing Rule 5635, Super League’s stockholders approved the issuance of an aggregate of 12,582,204 shares of common stock to be issued in connection with the Mobcrush Acquisition.

Transaction costs incurred by the Company relating to the Mobcrush Acquisition totaled $ 636,000 and were expensed as incurred in accordance with the acquisition method of accounting.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of Mobcrush from the Mobcrush Closing Date to the end of the current period presented.

Total revenues for Mobcrush from the Mobcrush Closing Date to December 31, 2021 ( “Mobcrush Stub Period”), included in the consolidated statements of operations for the fiscal year ended December 31, 2021, were approximately $ 5.2 million.

Disclosure of net loss for Mobcrush on a stand-alone basis for the Mobcrush Stub Period is not practical due to the integration of Mobcrush operations, including resource allocation and related operating expenses, with those of the consolidated Company upon acquisition, consistent with Super League operating in one reporting segment.

The Company determined that the Mobcrush Acquisition constitutes a business acquisition as defined by Accounting Standards Codification (“ASC”) 805,  

Business Combinations .

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of Mobcrush subsequent to the Mobcrush Closing Date.

Disclosure of revenue and net loss for Mobcrush on a stand-alone basis for the periods presented herein is not practical due to the integration of Mobcrush operations, including sales, products, advertising inventory, resource allocation and related operating expense, with those of the consolidated Company upon acquisition, consistent with Super League operating in one reporting segment.

The Company determined that the Mobcrush Acquisition constituted a business acquisition as defined by ASC 805 .

Accordingly, the assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred pursuant to the acquisition method of accounting in accordance with ASC 805.

 Super League’s preliminary purchase price allocation was based on an evaluation of the appropriate fair values of the assets acquired and liabilities assumed and represents management’s best estimate based on available data.

Fair values are determined based on the requirements of ASC 820,  

Fair Value Measurements and Disclosures  (“ASC 820”

Super League’s purchase price allocation was based on an evaluation of the appropriate fair values of the assets acquired and liabilities assumed and represents management’s best estimate based on available data.

Fair values were determined based on the requirements of ASC 820, “Fair Value Measurements and Disclosures”

(“ASC 820”).

The following table summarizes the determination of the fair value of the purchase price consideration paid in connection with the Mobcrush Acquisition:

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shares of common stock

$ 12,067,571  

Super League closing stock price per share on the Mobcrush Closing Date

$ 4.96  

Fair value of common stock issued

$ 59,855,000  

The fair value of the Company common stock used in determining the estimated fair value of the Mobcrush Merger Consideration was $ 4.96 per share based on the closing price of Company common stock on June 1, 2021, as quoted on the Nasdaq Capital Market.

The purchase price allocation was based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in connection with the Mobcrush Acquisition, as follows:

The purchase price allocation was based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in connection with the Mobcrush Acquisition, as follows:

Assets Acquired and Liabilities Assumed:

$ 586,000  

Accounts receivable

1,266,000  

141,000  

Property and equipment

13,000  

Identifiable intangible assets

19,500,000  

Accounts payable and accrued expenses

( 2,017,000 )

Accounts payable and accrued expense

Deferred revenue

Net deferred income tax liability

( 3,073,000 )

Identifiable net assets acquired

16,286,000  

43,569,000  

Total purchase price

$ 59,855,000  

The following table presents details of the fair values of the acquired intangible assets of Mobcrush:

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Preferred partner relationship

10,700,000  

Developed technology

3,900,000  

Influencers/content creators

2,000,000  

Advertiser and agency relationships

1,900,000  

500,000  

Trademarks (see Note 4)

Customer relationships

500,000  

Total intangible assets acquired

$ 19,500,000  

Aggregated amortization expense for the fiscal year ended December 31, 2021 related to intangible assets acquired in connection with the Mobcrush Acquisition, totaled $ 1,883,000 . Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill recorded in connection with the Mobcrush Acquisition is primarily attributable to expected synergies from combining the operations of Super League and Mobcrush, and also includes residual value attributable to the assembled and trained workforce acquired in the Mobcrush Acquisition.

Aggregated amortization expense for intangible assets acquired in connection with the Mobcrush Acquisition (including the write down of trademark related intangible assets described above) for the fiscal years ended December 31, 2022 and 2021, totaled $ 3,651,000 and $ 1,883,000 , respectively.

Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill recorded in connection with the Mobcrush Acquisition was primarily attributable to expected synergies from combining the operations of Super League and Mobcrush, and also included residual value attributable to the assembled and trained workforce acquired in the Mobcrush Acquisition.

Refer to Note 2 “Goodwill”

above for additional information.

Pursuant to the terms of the Mobcrush Merger Agreement, immediately prior to the effective time of the Mobcrush Acquisition, each vested option to acquire shares of Mobcrush common stock held by former Mobcrush employees was exercised so that, at the effective time of the Mobcrush Acquisition, shares of Mobcrush common stock issued upon exercise of these vested options received shares of Company common stock issuable as Mobcrush Merger Consideration.

Unvested options to acquire shares of Mobcrush common stock that were outstanding immediately prior to the Mobcrush Closing Date were canceled, and a number of options to purchase shares of Company common stock were issued to replace the cancelled unvested Mobcrush options in a manner consistent with options historically granted by Super League under the Super League 2014 Stock Option and Incentive Plan (the “Replacement Options”).

Pursuant to the terms of the Mobcrush Merger Agreement, 514,633  shares of the Company’s common stock were reserved for Replacement Option grants to the former Mobcrush employees retained by the Company in connection with the Mobcrush Acquisition.

As of December 31, 2021, 415,000 Replacement Options have been granted to former Mobcrush employees retained by the Company, with continued employment required to vest and retain the Replacement Options granted. 

Pursuant to the terms of the Mobcrush Merger Agreement, 514,633 shares of the Company’s common stock were reserved for Replacement Option grants to the former Mobcrush employees retained by the Company in connection with the Mobcrush Acquisition.

As of December 31, 2022, 415,000 Replacement Options have been granted to former Mobcrush employees retained by the Company, with continued employment required to vest and retain the Replacement Options granted.

Under ASC 805, consideration arrangements in which the payments are automatically forfeited if employment terminates is considered to be compensation for post-combination services, and not acquisition consideration.

As such, the 514,633 shares of the Company’s common stock reserved at closing for future stock option grants to former Mobcrush employees retained by the Company are not included as a component of the consideration paid in connection with the Mobcrush Acquisition, and will be accounted for pursuant to ASC 718, “

Stock based Compensation, ”

upon grant. For the fiscal year ended December 31, 2021, noncash stock compensation expense related to stock options granted pursuant to the terms of the Mobcrush Merger Agreement totaled $ 252,000 .

As such, the 514,633 shares of the Company’s common stock reserved at closing for future stock option grants to former Mobcrush employees retained by the Company are not included as a component of the consideration paid in connection with the Mobcrush Acquisition, and will be accounted for pursuant to ASC 718 upon grant.

Management is primarily responsible for determining the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as of the Mobcrush Closing Date.

Management considered a number of factors, including reference to a preliminary independent analysis of estimated fair values solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed.

The analysis included a preliminary discounted cash flow analysis which estimated the future net cash flows expected to result from the respective assets acquired as of the Mobcrush Closing Date.

Management considered a number of factors, including reference to an independent analysis of estimated fair values solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed.

The analysis included a discounted cash flow analysis which estimated the future net cash flows expected to result from the respective assets acquired as of the Mobcrush Closing Date.

A discount rate consistent with the risks associated with achieving the estimated net cash flows was used to estimate the present value of future estimated net cash flows.

The Company is in the process of finalizing the estimates and assumptions developed in connection with the independent analysis of estimated fair values of intangible assets acquired solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed.

Any adjustments to the fair values of intangibles assets acquired, or estimates of economic useful lives of the intangible assets acquired, could impact the carrying value of those assets and related goodwill, as well as the estimates of periodic amortization of intangible assets acquired to be reflected in the statement of operations.

In addition, the Company is in the process of finalizing its estimate and analysis of the fair values of certain tax attributes acquired.

Any adjustments to the preliminary estimates of tax attributes acquired will increase or decrease the estimated net deferred tax liability recorded in connection with the acquisition method of accounting, with an offsetting adjustment to goodwill.

The fair values of the acquired intangible assets, as described above, was determined using the following methods:

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Preferred partner relationship / Advertiser and agency relationships

Multi-Period Excess Earnings Method ("MPEEM") under the Income Approach

MPEEM is an application of the DCF Method, whereby revenue derived from the intangible asset is estimated using the overall business revenue, adjusted for attrition, obsolescence, cost of goods sold, operating expenses, and taxes.

Multi-Period Excess Earnings Method “MPEE”) under the Income Approach

Required returns attributable to other assets employed in the business are subtracted.

The  “excess” earnings are attributable to the intangible asset, and are discounted to present value at a rate of return to estimate the fair value of the intangible asset.

The “excess”

earnings are attributable to the intangible asset, and are discounted to present value at a rate of return to estimate the fair value of the intangible asset.

Discount rate 13 % - 14 %;

Forecast period 6 - 10yrs.;

Forecast period 6 –

Developed technology and Trademarks

14 unchanged sentences

Customer relationships

Cost Approach

Replacement Cost Method

In the Replacement Cost Method, value is estimated by determining the current cost of replacing an asset with one of equivalent economic utility.

11 unchanged sentences

Intangible assets acquired

$ 19,500,000  

$ 2,635,000  

$ ( 16,865,000 )

Tangible assets acquired

13,000  

Estimated net operating loss carryforwards –

5,895,000  

Net deferred tax liability –

( 10,983,000 )

Estimated tax rate

Estimated net deferred tax liability

$ ( 3,073,000 )

Release of Valuation Allowance .

2 unchanged sentences

Under the acquisition method of accounting, the impact on the acquiring company’s deferred tax assets is recorded outside of acquisition accounting.

Accordingly, the valuation allowance on a portion of the Company’s net deferred tax assets was released, resulting in an income tax benefit of approximately $ 3,073,000 , recorded as a credit to income tax expense for fiscal year ended December 31, 2021.

The offsetting amounts reduced net deferred tax liabilities, 

$3,073,000, of which reduced the net deferred tax liability established in connection with the application of the acquisition method of accounting for the Mobcrush Acquisition.

The following unaudited pro forma combined results of operations for the periods presented are provided for illustrative purposes only.

The unaudited pro forma combined statements of operations for the fiscal year ended December 31, 2021 and 2020, assume the acquisition occurred as of January 1, 2020.

The unaudited pro forma combined financial results do not purport to be indicative of the results of operations for future periods or the results that actually would have been realized had the entities been a single entity during these periods.

$ 14,976 ,000  

$ 8,591,000  

(26,363,000 )

(29,077,000 )

Pro forma adjustments primarily relate to the amortization of identifiable intangible assets acquired over the estimated economic useful life as described above, the expensing of stock options issued to former Mobcrush employees acquired in connection with the Mobcrush Acquisition, the exclusion of interest expense related to convertible debt of Mobcrush not assumed by Super League in connection with the Mobcrush Acquisition, the exclusion of nonrecurring transaction costs,  and the exclusion of amortization and depreciation related to tangible and intangible assets of Mobcrush existing immediately prior to the Mobcrush Acquisition.

The unaudited pro forma combined statements of operations for the periods presented herein have been adjusted to give effect to pro forma events that are expected to have a continuing impact on the combined results.

As such, the income tax benefit related to the release of valuation allowance reflected in the statement of income for the fiscal year ended December 31, 2021, as described above, totaling $3,073,000, is not reflected in the accompanying unaudited pro forma combined statements of income for the periods presented.

Accordingly, the valuation allowance on a portion of the Company’s net deferred tax assets was released, resulting in an income tax benefit of approximately $ 3,073,000 , recorded as a credit to income tax expense for the year ended December 31, 2021.

The offsetting amounts reduced net deferred tax liabilities, $ 3,073,000 , of which reduced the net deferred tax liability established in connection with the application of the acquisition method of accounting for the Mobcrush Acquisition.

The following unaudited pro forma combined results of operations for the period presented are provided for illustrative purposes only.

The unaudited pro forma combined statements of operations for the year ended December 31, 2021, assumes the acquisition occurred as of January 1, 2020.

Pro forma adjustments primarily relate to the amortization of identifiable intangible assets acquired over the estimated economic useful life as described above, the expensing of stock options issued to former Mobcrush employees acquired in connection with the Merger, the exclusion of interest expense related to convertible debt of Mobcrush not assumed by Super League in connection with the Merger, the exclusion of nonrecurring transaction costs, and the exclusion of amortization and depreciation related to tangible and intangible assets of Mobcrush existing immediately prior to the Merger.

The unaudited pro forma combined statement of operations for the period presented herein have been adjusted to give effect to pro forma events that are expected to have a continuing impact on the combined results.

As such, the income tax benefit related to the release of valuation allowance reflected in the statement of income for the year ended December 31, 2021, as described above, totaling $ 3,073,000 , is not reflected in the accompanying unaudited pro forma combined statement of operations for the period presented.

Acquisition of Bannerfy, LTD

1 unchanged sentence

On August 24, 2021 (the “Bannerfy Closing Date”), the Company completed the acquisition of Bannerfy.

Pursuant to the Bannerfy Purchase Agreement, upon the consummation of the Bannerfy Acquisition (the “Bannerfy Closing”), the Company paid an initial payment (subject to a holdback as described below) of $ 2.45 million (the “Bannerfy Closing Consideration”), paid or to be paid as follows (i) $ 525,000 in the form of a cash payment, and (ii) $ 1.92 million in the form of shares of the Company’s common stock, at a price per share of $ 4.10 , the closing price of the Company’s common stock on the effective date of the Bannerfy Purchase Agreement, as reported on the Nasdaq Capital Market. Pursuant to the terms of the Bannerfy Purchase Agreement, $ 275,000 of the Bannerfy Closing Consideration (“Holdback Amount”), was withheld from the Bannerfy Closing Consideration to satisfy any indemnifiable losses incurred by the Company (as defined in the Bannerfy Purchase Agreement) prior to the first anniversary of the Bannerfy Closing Date.

In the event the Company incurs no indemnifiable losses prior to the first anniversary of the Bannerfy Closing Date, the Company will release to the Sellers the Holdback Amount as follows:

(i) $ 55,000 payable in the form of cash, and (ii) approximately $ 220,000 in the form of shares of the Company’s common stock at $4.10.

In accordance with the Bannerfy Purchase Agreement, all remaining portions of the Bannerfy Purchase Price subsequent to the payment of the Bannerfy Closing Consideration, up to approximately $ 4.55 million (the “Contingent Consideration”), is payable upon the achievement of certain revenue and gross profit thresholds for the remainder of the 2021 fiscal year, and each of the fiscal years ending December 31, 2022, and December 31, 2023 ( “Earnout Periods”). 

Pursuant to the terms of the Bannerfy Purchase Agreement, $ 275,000 of the Bannerfy Closing Consideration (“Holdback Amount”), was withheld from the Bannerfy Closing Consideration to satisfy any indemnifiable losses incurred by the Company (as defined in the Bannerfy Purchase Agreement) prior to the first anniversary of the Bannerfy Closing Date.

The Company incurred no indemnifiable losses prior to the first anniversary of the Bannerfy Closing Date, and therefore during the three months ended September 30, 2022, the Company released to the Sellers the Holdback Amount as follows:

(i) $ 55,000 payable in the form of cash, and (ii) approximately $ 220,000 in the form of shares of the Company’s common stock, at a price per share of $4.10.

In accordance with the Bannerfy Purchase Agreement, all remaining portions of the Bannerfy Purchase Price subsequent to the payment of the Bannerfy Closing Consideration, up to approximately $ 4.55 million (the “Contingent Consideration”), was payable upon the achievement of certain revenue and gross profit thresholds for the remainder of the 2021 fiscal year, and each of the fiscal years ending December 31, 2022, and December 31, 2023 (“Earnout Periods”).

For the 2021, 2022 and 2023 Earnout Periods, 8 %, 38 % and 54 %, respectively of the Contingent Consideration is potentially payable.

The Contingent Consideration is payable in the form of both cash and shares of the Company’s common stock, 21 % in cash and 79 % in Company common stock, based on a conversion price of $ 4.10 per share.

No Contingent Consideration was accrued or paid during the periods presented.

The Bannerfy Acquisition was accounted for in accordance with ASC 805.

5 unchanged sentences

Transaction costs incurred in connection with the Bannerfy Acquisition totaled $ 62,000 , which are included as a component of the purchase price paid in connection with the Bannerfy Acquisition.

The Bannerfy Purchase Price paid as of December 31, 2021, comprised of the Bannerfy Closing Consideration of $2.45 million and $62,000 of related transaction costs, was allocated to the developed technology acquired, with an estimated useful life of seven years.

The Bannerfy Purchase Price paid, comprised of the Bannerfy Closing Consideration of $ 2.45 million and $ 62,000 of related transaction costs, was allocated to the developed technology acquired, with an estimated useful life of seven years.

In addition, the carrying value of the developed technology acquired in connection with the Bannerfy Acquisition includes an adjustment related to deferred taxes, totaling $ 556,000 , as described below.

Net working capital assets acquired were not material.

Aggregated amortization expense for the fiscal year ended December 31, 2021, related to the developed technology acquired in connection with the Bannerfy Acquisition, totaled $ 146,000 .

Aggregated amortization expense for the developed technology intangible asset acquired in connection with the Bannerfy Acquisition for the fiscal years ended December 31, 2022 and 2021, totaled $ 438,000 and $ 146,000 , respectively.

The Company hired the former director of Bannerfy (“Bannerfy Executive”), who was also a selling shareholder of Bannerfy.

1 unchanged sentence

Under ASC 805, a contingent consideration arrangement in which the payments are automatically forfeited if employment terminates is considered to be compensation for post-combination services, and not acquisition consideration.

As such, the Contingent Consideration, if any, will be accounted for as post-combination services and expensed in the period that payment of any amounts of Contingent Consideration becomes probable and reasonably estimable. 

The Bannerfy Acquisition was treated for tax purposes as a nontaxable transaction and, as such, the historical tax bases of the acquired assets and assumed liabilities, net operating losses, and other tax attributes of Bannerfy will carryover.

1 unchanged sentence

The acquisition method of accounting includes the establishment of a net deferred tax asset or liability resulting from book tax basis differences related to assets acquired and liabilities assumed on the date of acquisition.

When an acquisition of a group of assets is purchased in a transaction that is not accounted for as a business combination under ASC 805, a difference between the book and tax bases of the assets arises. ASC 740, “Income Taxes,”

(“ASC 740”

) requires the use of simultaneous equations to determine the assigned value of the asset and the related deferred tax asset or liability.

When an acquisition of a group of assets is purchased in a transaction that is not accounted for as a business combination under ASC 805, a difference between the book and tax bases of the assets arises.

ASC 740, “Income Taxes”

(“ASC 740”) requires the use of simultaneous equations to determine the assigned value of the asset and the related deferred tax asset or liability.

As neither goodwill nor a bargain purchase gain is recognized in an asset acquisition, recognizing deferred tax assets or liabilities for temporary differences in an asset acquisition results in adjusting the carrying amount of the related assets and liabilities.

1 unchanged sentence

Intangible assets acquired

$ 2,512,000  

$ ( 2,512,000 )

Estimated net operating loss carryforwards –

144,000  

Net deferred tax liability –

( 2,368,000 )

Estimated tax rate

1 unchanged sentence

Pursuant to ASC 740(1)

$ ( 556,000 )

Pursuant to ASC 740, the deferred tax liability is estimated using the following formula:

1 unchanged sentence

Bannerfy commenced operations in September 2020.

As such, the historical balance sheets and statements of operations of Bannerfy were not material, and therefore unaudited pro forma combined results of operations for the periods presented are not provided for illustrative purposes. Revenues and net loss related to Bannerfy for the period from the closing date to December 31, 2021 were not material.

On October 4, 2021 ( “Bloxbiz Closing Date”), the Company entered into an Asset Purchase Agreement (the “Bloxbiz Purchase Agreement”) with Bloxbiz Co.

and the founders of Bloxbiz (the “Founders”), pursuant to which the Company acquired (i) substantially all of the assets of Bloxbiz (the “Bloxbiz Assets”), and (ii) the personal goodwill of the Founders regarding Bloxbiz's business, (the "Bloxbiz Acquisition”).

The consummation of the Bloxbiz Acquisition (the “Bloxbiz Closing”) occurred simultaneously with the execution of the Bloxbiz Purchase Agreement on the Bloxbiz Closing Date.

At closing, the Company paid an aggregate total of $ 6.0 million to Bloxbiz and the Founders (the “Bloxbiz Closing Consideration”), of which $ 3.0 million was paid in the form of cash (the “Bloxbiz Closing Cash Consideration”) and $ 3.0 million was paid in the form of shares of the Company's common stock, at a per share price of $ 2.91 , the closing price of the Company's common stock on the Bloxbiz Closing Date, as reported on the Nasdaq Capital Market (the “Bloxbiz Stock Consideration”).

Pursuant to the terms and subject to the conditions of the Bloxbiz Purchase Agreement, up to an aggregate amount $ 11.5 million will be payable to Bloxbiz and the Founders in connection with the achievement of certain revenue milestones for the period from the Bloxbiz Closing Date until December 31, 2022 and for the fiscal year ending December 31, 2023 ( the “Bloxbiz Contingent Consideration”)(“Bloxbiz Earn Out Periods”).

The Bloxbiz Contingent Consideration is payable in the form of both cash and shares of the Company’s common stock, in equal amounts, as more specifically set forth in the Bloxbiz Purchase Agreement.

The Bloxbiz Acquisition was approved by the board of directors of each of the Company and Bloxbiz, and was approved by the stockholders of Bloxbiz.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of Bloxbiz from the Bloxbiz Closing Date to the end of the current period presented herein.

Total revenues for Bloxbiz from the Bloxbiz Closing Date to December 31, 2021 ( “Bloxbiz Stub Period”), included in the consolidated statements of operations for the fiscal year ended on December 31, 2021 was $ 486,000 .

Disclosure of net loss for Bloxbiz on a stand-alone basis for the Bloxbiz Stub Period is not practical due to the integration of Bloxbiz activities, including resource allocation and related operating expenses, with those of the consolidated Company upon acquisition, consistent with Super League operating in one reporting segment.

The Company determined that the Bloxbiz Acquisition constitutes a business acquisition as defined by Accounting Standards Codification (“ASC”) 805,  

Business Combinations .

Disclosure of revenue and net loss for Bannerfy on a stand-alone basis for the periods presented herein is not practical due to the integration of Bannerfy operations, including sales, products, advertising inventory, resource allocation and related operating expense, with those of the consolidated Company upon acquisition, consistent with Super League operating in one reporting segment.

Acquisition of Super Biz Co.

On October 4, 2021 (“Super Biz Closing Date”), the Company entered into an Asset Purchase Agreement (the “Super Biz Purchase Agreement”) with Super Biz Co.

and the founders of Super Biz (the “Founders”), pursuant to which the Company acquired (i) substantially all of the assets of Super Biz (the “Super Biz Assets”), and (ii) the personal goodwill of the Founders regarding Super Biz’s business, (the “Super Biz Acquisition”).

The consummation of the Super Biz Acquisition (the “Super Biz Closing”) occurred simultaneously with the execution of the Super Biz Purchase Agreement on the Super Biz Closing Date.

At closing, the Company paid an aggregate total of $ 6.0 million to Super Biz and the Founders (the “Super Biz Closing Consideration”), of which $ 3.0 million was paid in the form of cash (the “Super Biz Closing Cash Consideration”) and $ 3.0 million was paid in the form of shares of the Company’s common stock, at a per share price of $ 2.91 , the closing price of the Company’s common stock on the Super Biz Closing Date, as reported on the Nasdaq Capital Market (the “Super Biz Stock Consideration”).

Pursuant to the terms and subject to the conditions of the Super Biz Purchase Agreement, up to an aggregate amount $ 11.5 million will be payable to Super Biz and the Founders in connection with the achievement of certain revenue milestones for the period from the Super Biz Closing Date until December 31, 2022 (“Initial Earn Out Period”) and for the fiscal year ending December 31, 2023 (the “Super Biz Contingent Consideration”) (“Super Biz Earn Out Periods”).

The Super Biz Contingent Consideration is payable in the form of both cash and shares of the Company’s common stock, in equal amounts, as more specifically set forth in the Super Biz Purchase Agreement.

The Super Biz Acquisition was approved by the board of directors of each of the Company and Super Biz and was approved by the stockholders of Super Biz.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of Super Biz subsequent to the Super Biz Closing Date.

Disclosure of revenue and net loss for Super Biz on a stand-alone basis for the year ended December 31, 2022 is not practical due to the integration of Super Biz activities, including sales, products, advertising inventory, resource allocation and related operating expense, with those of the consolidated Company upon acquisition, consistent with Super League operating in one reporting segment.

The Company determined that the Super Biz Acquisition constitutes a business acquisition as defined by ASC 805.

Fair values are determined based on the requirements of ASC 820,  

Fair Value Measurements and Disclosures  (“ASC 820”

Transaction costs incurred by the Company relating to the Bloxbiz Acquisition totaled $ 47,000 and were expensed as incurred in accordance with the acquisition method of accounting.

The following table summarizes the determination of the fair value of the purchase price consideration paid in connection with the Bloxbiz Acquisition:

Fair values were determined based on the requirements of ASC 820.

Transaction costs incurred by the Company relating to the Super Biz Acquisition totaled $ 47,000 and were expensed as incurred in accordance with the acquisition method of accounting.

The following table summarizes the determination of the fair value of the purchase price consideration paid in connection with the Super Biz Acquisition:

Cash consideration at closing

$ 3,000,000  

Equity consideration at closing –

shares of common stock

1,031,928  

Super League closing stock price per share on the Bloxbiz Closing Date

$ 2.91  

Super League closing stock price per share on the Super Biz Closing Date

Fair value of equity consideration issued at closing

$ 3,000,000  

3,000,000  

Fair value of total consideration issued at closing

$ 6,000,000  

The fair value of the Company Common Stock used in determining the estimated fair value of the Bloxbiz Closing Consideration was $ 2.91 per share based on the closing price of Company Common Stock on October 4, 2021, as quoted on the Nasdaq Capital Market.

The purchase price allocation was based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in connection with the Bloxbiz Acquisition, as follows:

The fair value of the Company common stock used in determining the estimated fair value of the Super Biz Closing Consideration was $ 2.91 per share based on the closing price of Company common stock on October 4, 2021, as quoted on the Nasdaq Capital Market.

The purchase price allocation was based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in connection with the Super Biz Acquisition, as follows:

Assets Acquired and Liabilities Assumed:

Accounts receivable

$ 124,000  

Identifiable intangible assets

1,747,000  

Identifiable net assets acquired

1,871,000  

4,129,000  

Total purchase price

$ 6,000,000  

The following table presents details of the fair values of the acquired intangible assets of Bloxbiz:

The following table presents details of the fair values of the acquired intangible assets of Super Biz:

Estimated Useful Life (in years)

Developed technology

$ 912,000  

Developer relationships

559,000  

Customer relationships

276,000  

Total intangible assets acquired

$ 1,747,000  

Aggregated amortization expense for the fiscal year ended December 31, 2021 related to intangible assets acquired in connection with the Bloxbiz Acquisition, totaled $ 99,000 . Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill recorded in connection with the Bloxbiz Acquisition is primarily attributable to expected synergies from combining the operations and assets of Super League and Bloxbiz, and also includes residual value attributable to the assembled and trained workforce acquired in the acquisition.

Management is primarily responsible for determining the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as of the Bloxbiz Closing Date.

The analysis included a preliminary discounted cash flow analysis which estimated the future net cash flows expected to result from the respective assets acquired as of the Bloxbiz Closing Date.

Aggregated amortization expense for the intangible assets acquired in connection with the Super Biz Acquisition for the fiscal years ended December 31, 2022 and 2021, totaled $ 409,000 and $ 99,000 , respectively.

Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill recorded in connection with the Super Biz Acquisition was primarily attributable to expected synergies from combining the operations and assets of Super League and Super Biz, and also includes residual value attributable to the assembled and trained workforce acquired in the acquisition.

Refer to Note 2 “Goodwill”

above for additional information.

Management is primarily responsible for determining the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as of the Super Biz Closing Date.

The analysis included a discounted cash flow analysis which estimated the future net cash flows expected to result from the respective assets acquired as of the Super Biz Closing Date.

A discount rate consistent with the risks associated with achieving the estimated net cash flows was used to estimate the present value of future estimated net cash flows.

In addition, the Company is in the process of finalizing its estimate and analysis of the fair values of certain tax attributes acquired.

The fair values of the intangible assets acquired in connection with the Bloxbiz acquisition were determined using the cost method.

The fair values of the intangible assets acquired in connection with the Super Biz acquisition were determined using the cost method.

Under the cost method, value is estimated by determining the current cost of replacing an asset with one of equivalent economic utility.

The premise of the approach is that a prudent investor would pay no more for an asset than the amount for which the utility of the asset could be replaced.

Valuation assumptions utilized included rates of return of 30 %, discount periods of 0.5 to one, risk adjusted return factors of 1.1 to 1.3 and weighted average costs of capital of 30 %.

The Company hired the Founders of Bloxbiz in connection with the Bloxbiz Acquisition.

Pursuant to the provisions of the Bloxbiz Purchase Agreement, in the event that a Founder ceases to be an employee during any of the Bloxbiz Earn Out Periods, as a consequence of his resignation without good cause, or termination for cause, the Bloxbiz Contingent Consideration will be reduced by one -half ( 50% ) for the respective Bloxbiz Earn Out Periods, if and when earned.

Valuation assumptions utilized included rates of return of 30 %, discount periods of 0.5 to 1, risk adjusted return factors of 1.1 to 1.3 and weighted average costs of capital of 30 %.

The Company hired the Founders of Super Biz in connection with the Super Biz Acquisition.

Pursuant to the provisions of the Super Biz Purchase Agreement, in the event that a Founder ceases to be an employee during any of the Super Biz Earn Out Periods, as a consequence of his resignation without good cause, or termination for cause, the Super Biz Contingent Consideration will be reduced by one-half (50%) for the respective Super Biz Earn Out Periods, if and when earned.

For tax purposes, consistent with the accounting for book purposes, the Bloxbiz Closing Consideration was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess purchase price allocated to goodwill. 

As such, the Contingent Consideration, is accounted for as post-combination services and expensed in the period that payment of any amounts of Contingent Consideration is determined to be probable and reasonably estimable.

As of December 31, 2022, the Company determined that it was probable that the contingency for the Initial Earn Out Period would be met in accordance with the terms of the Super Biz Purchase Agreement, and the applicable amounts were reasonably estimable, resulting in a charge to compensation expense totaling $ 3,206,000 (including approximately 988,000 shares of common stock valued at $ 0.336 , the closing price of our common stock as of December 31, 2022), which is reflected as a component of operating expense in the consolidated statement of operations for the year ended December 31, 2022.

The Contingent Consideration is recorded as a liability in the accompanying consolidated balance sheet in accordance with ASC 480, “Distinguishing liabilities from equity”

(“ASC 480”), which requires freestanding financial instruments where the company must or could settle the obligation by issuing a variable number of its shares, and the obligation's monetary value is based solely or predominantly on variations in something other than the fair value of the company's shares, to be recorded as a liability.

For tax purposes, consistent with the accounting for book purposes, the Super Biz Closing Consideration was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess purchase price allocated to goodwill.

As a result, no deferred tax assets or liabilities were recorded with the acquisition and all of the goodwill is expected to be deductible for tax purposes.

Bloxbiz operations commenced in December 2020.

As such, the historical balance sheets and statements of operations of Bloxbiz were not material, and therefore unaudited pro forma combined results of operations for the periods presented are not provided for illustrative purposes. 

On June 6, 2019, we acquired Framerate, Inc., (“Framerate”).

The underlying agreement provided for the issuance of up to an additional $ 980,000 worth of shares of the Company’s common stock, at a price of $ 7.44 per share (the “Earn-Out Shares”), in the event Framerate achieved certain performance-based milestones during the two -year period following the closing of the acquisition (the “Earn-Out”).

One-half of the Earn-Out Shares are issuable on the one -year anniversary of the Effective Date, and the remaining one -half are issuable on the second anniversary of the Effective Date.

In June 2020, we issued an additional 32,936 shares of our common stock to the former shareholders of Framerate in connection with the achievement of certain components of the year- one earn-out related performance milestones.

Long-Term Note Payable

Super Biz operations commenced in December 2020.

As such, the historical balance sheets and statements of operations of Super Biz were not material, and therefore unaudited pro forma combined results of operations for the periods presented are not provided for illustrative purposes.

Convertible Notes Payable at Fair Value

On May 16, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with three institutional investors (collectively, the “Note Holders”) providing for the sale and issuance of a series of senior convertible notes in the aggregate original principal amount of $ 4,320,000 , of which 8 % is an original issue discount (“OID”) (each, a “Note,”

and, collectively, the “Notes,”

and such financing, the “Note Offering”).

The Notes accrue interest at a guaranteed annual rate of 9 % per annum, mature 12 months from the date of issuance, and are convertible at the option of the Note Holders into that number of shares of the Company’s common stock, equal to the sum of the outstanding principal balance, accrued and unpaid interest, and accrued and unpaid late charges (the “Conversion Amount”), divided by $ 4.00 (the “Conversion Price”), subject to adjustment upon the occurrence of certain events as more specifically set forth in the Note, as amended;

provided, however, in no event will the Company be permitted to issue more than 19.99 % of the shares of common stock issued and outstanding immediately prior to the Note Offering, which number of shares shall be reduced, on a share-for-share basis, by the number of shares of common stock issued or issuable pursuant to any transaction or series of transactions that may be aggregated with the Note Offering.

In the event of the occurrence of an event of default, the Note Holders may, at the Note Holder’s option, convert all, or any part of, the Conversion Amount into shares of common stock at 90% of the lowest volume weighted average price of the ten trading days preceding the date for which the price is being calculated.

In addition, the Company may be required to redeem all or a portion of the Notes under certain circumstances, and, in the event (A) the Company sells Company common stock pursuant to the March 25, 2022 Purchase Agreement, described below, or (B) consummates a subsequent equity financing, then the Note Holders will have the right, but not the obligation, to require the Company to use 50 % of the gross proceeds raised from such sale to redeem all or any portion of the Conversion Amount then remaining under the Notes, in cash, at a price equal to the Conversion Amount being redeemed.

The Company may, at its option, redeem all or a portion of the Notes at a price equal to 110 % of the Conversion Amount being redeemed.

In the event of a change of control, the Note Holders may require the Company to redeem all or any portion of this Note in cash at a price equal to the greatest of (i) the product of (x) 110 % multiplied by (y) the Conversion Amount being redeemed, (ii) the product of (x) 110 % multiplied by (y) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable change of control and (2) the public announcement of such change of control and ending on the date the Note Holder delivers the change of control redemption notice by (II) the Conversion Price then in effect, and (iii) the product of (x) 110 % multiplied by (y) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of common stock to be paid to the holders of the shares of common stock upon consummation of such change of control divided by (II) the Conversion Price then in effect.

In the event of the occurrence of an event of default, the Note Holders may require the Company to redeem (regardless of whether such Event of Default has been cured) all or any portion of the Notes.

Each portion of the Notes subject to redemption by the Company pursuant to an event of default shall be redeemed by the Company at a price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) 110 % and (ii) the product of (X) the conversion rate with respect to the Conversion Amount in effect at such time as the Holder delivers an event of default redemption notice multiplied by (Y) the product of (1) 110 % multiplied by (2) the greatest closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment required to be made under the Notes.

Upon any bankruptcy the Company would be required to pay to the Note Holders an amount in cash representing (i) all outstanding principal, accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, multiplied by (ii) 110 %, in addition to any and all other amounts due under the Notes, provided that any Note Holder may, in its sole discretion, waive such right to receive payment upon a bankruptcy event of default, in whole or in part.

Under the Notes, the Company is subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters.

The Notes are subject to a most favored nation provision and standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction.

If the Company issues or sells, or enters into any agreement to issue or sell, any variable rate securities, including by way of one or more reset(s) to a fixed price, the Note Holders have the right, but not the obligation, in any Note Holder’s sole discretion, to substitute the applicable variable price for the Conversion Price upon conversion of the Notes.

Concurrently with the SPA, the Company and the Note Holders entered into a registration rights agreement, pursuant to which the Company agreed to file a Registration Statement on Form S-3 within 30 days after the closing of the Note Offering.

During the year ended December 31, 2022, the Company recorded interest expense related to the Notes totaling $ 389,000 , and made cash interest payments totaling $ 209,000 .

Accrued interest totaled $ 180,000 at December 31, 2022.

The Notes were issued with an original issue discount of $ 320,000 , or 8 %, which is recorded as an adjustment to the carrying amount of the Notes.

The original issue discount is amortized using the interest method over the contractual term of the Notes and reflected as interest expense in the statement of operations.

Total amortization of original issue discount for the year ended December 31, 2022 was $ 280,000 .

At December 31, 2022, the balance of the original issue discount was $ 40,000 , which is included in “Convertible note payable and accrued interest”

in the accompanying consolidated balance sheet.

The Company elected to utilize the FVO to account for the Notes, which is included in current liabilities.

Principal payments on the Notes during the year ended December 31, 2022 totaled $ 3,781,000 .

The change in fair value of the Notes at each balance sheet date, if any, is included in other income (expense) in the accompanying consolidated statement of operations for the year ended December 31, 2022.

The Notes were valued based on a binomial lattice model utilizing the following assumptions and results for fiscal year 2022:

September 30,

Risk free rate

Dividend rate

Implied yield

Estimated Fair value of Notes, including OID, excluding accrued interest

Change in fair value

At December 31, 2022, the remaining principal balance of the Notes totaled $ 539,000 , and accrued interest totaled $ 180,000 , both of which were paid in full in the first quarter of 2023.

The carrying value of the Notes approximated their fair values as of December 31, 2022. The decrease in fair value during the three months ended December 31, 2022 was $ 285,000 , resulting in a net impact of the change in fair value of the Notes of $ 0 for the year ended December 31, 2022.

On May 4, 2020, the Company entered into a forgivable loan from the U.S.

2 unchanged sentences

The PPP Loan had an original maturity date of May 4, 2022, and accrued interest at a rate of 1.00 % per annum, with interest accruing throughout the period the PPP Loan was outstanding, or until forgiven.

The PPP Loan was accounted for as a financial liability in accordance with FASB ASC 470, “

Accordingly, the proceeds from the PPP Loan were recorded as a long-term liability on the balance sheet until either ( 1 ) the loan is, in part or wholly, forgiven and the company had been “legally released”

The PPP Loan was accounted for as a financial liability in accordance with ASC 470, “Debt”

(“ASC 470”) Accordingly, the proceeds from the PPP Loan were recorded as a long-term liability on the balance sheet until either (1) the loan is, in part or wholly, forgiven and the company had been “legally released”

or (2) the Company paid off the loan to the Lender.

1 unchanged sentence

In May 2021, the PPP loan was forgiven pursuant to the terms and conditions of the PPP Loan Agreement and the provision of the Cares Act.

Upon forgiveness, and legal release, the Company reduced the liability by the amount forgiven, totaling $ 1,213,000 and recorded a gain on extinguishment in the accompanying statement of operations.

STOCKHOLDERS ’ 

Upon forgiveness, and legal release, the Company reduced the liability by the amount forgiven, totaling $ 1,213,000 and recorded a gain on extinguishment in the consolidated statement of operations for the year ended December 31, 2021.

STOCKHOLDERS ’

Preferred Stock

3 unchanged sentences

In August 2018, the Board of Directors approved a second amendment and restatement of the Company’s amended and restated certificate of incorporation (the “Amended and Restated Charter”) to, in part, increase the Company’s authorized capital to a total of 110.0 million shares, including 10.0 million shares of newly created preferred stock, par value $ 0.001 per share (“Preferred Stock”), authorize the Board of Directors to fix the designation and number of each series of Preferred Stock, and to determine or change the designation, relative rights, preferences, and limitations of any series of Preferred Stock.

The Amended and Restated Charter was approved by a majority of the Company’s stockholders in September 2018, 

and was filed with the State of Delaware in November 2018.

The Amended and Restated Charter was approved by a majority of the Company’s stockholders in September 2018, and was filed with the State of Delaware in November 2018.

All references in the accompanying consolidated financial statements to Preferred Stock have been restated to reflect the Amended and Restated Charter.

1 unchanged sentence

Each holder of common stock is entitled to one vote for each share of common stock held at all meetings of stockholders.

Financing Activities

Equity Financings

Fiscal year ended December 31, 2022:

In January 2021, the Company issued 3,076,924 shares of common stock at a price of $ 2.60 per share, raising aggregate net proceeds of approximately $ 8.0 million, after deducting offering expenses totaling $ 73,000 .

In February 2021, the Company issued 2,926,830 shares of common stock at a price of $ 4.10 per share, raising aggregate net proceeds of approximately $ 12.0 million, after deducting offering expenses totaling $ 70,000 .

In March 2021, the Company issued 1,512,499 shares of common stock at a price of $ 9.00 per share, raising aggregate net proceeds of approximately $ 13.6 million, after deducting offering expenses totaling $ 72,000 .

Preferred Stock Issuances

During the fourth quarter of 2022, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 10,323 shares of newly designated Series A, A-2, A-3 and A-4 Convertible Preferred Stock, each series having a $ 0.001 par value and a $ 1,000 purchase price, hereinafter collectively referred to as “Series A Preferred,”

and the individual offerings of Series A Preferred stock hereinafter collectively referred to as the Series A Offerings, as follows:

Series Design-ation

November 22, 2022

November 28, 2022

November 30, 2022

December 22, 2022

To be issued upon final closing of the Series A Preferred Stock offering

Use of net proceeds from the Series A Offerings include the repayment of certain indebtedness and working capital and general corporate purposes, including sales and marketing activities and product development.

As disclosed at Note 6, in the event the Company consummated a subsequent equity financing during the term of the Notes, the Company is required, at the option of the Note Holders, to use 50 % of the gross proceeds raised from such sale to redeem all or any portion of the Notes outstanding upon closing of such equity financing.

For the year ended December 31, 2022, $ 3,621,000 of the net proceeds from the Series A Offerings were utilized in connection with the partial redemption of the Notes.

On the respective effective dates, the Company filed certificates of designation of preferences, rights and limitations of the Series A Preferred with the State of Delaware, respectively.

Each share of Series A Preferred is convertible at the option of the holder, subject to certain beneficial ownership limitations and primary market limitations as set forth in each Series A Certificate of Designation, into such number of shares of the Company’s common stock, equal to the number of Series A Preferred to be converted, multiplied by the stated value of $ 1,000 (the “Stated Value”), divided by the conversion price in effect at the time of the conversion, as described above.

In addition, subject to beneficial ownership and primary market limitations:

(1) the Series A Preferred will automatically convert into shares of Common Stock at the Conversion Price upon the earlier of (a) the 24-month anniversary of the Effective Date or (b) the consent to conversion by holders of at least 51 % of the outstanding shares of Series A Preferred;

and (2) on the one year anniversary of the Effective Date, the Company may, in its discretion, convert (y) 50 % of the outstanding shares of Series A Preferred if the volume-weighted average price of the Company’s Common Stock over the previous 10 days as reported on the NASDAQ Capital Market (the “VWAP”), equals at least 250% of the Conversion Price, or (z) 100 % of the outstanding shares of Series A Preferred if and only if the VWAP equals at least 300% of the Conversion Price.

The Series A Preferred shall vote together with the common stock on an as-converted basis, and not as a separate class, subject to the primary market limitations, except that holders of Series A Preferred shall vote as a separate class with respect to (a) amending, altering, or repealing any provision of the Series A Certificate of Designation in a manner that adversely affects the powers, preferences or rights of the Series A Preferred, (b) increasing the number of authorized shares of Series A Preferred, (c) authorizing or issuing an additional class or series of capital stock that ranks senior to or pari passu with the Series A Preferred with respect to the distribution of assets on liquidation, (d) authorizing, creating, incurring, assuming, guaranteeing or suffering to exist any indebtedness for borrowed money of any kind in excess of $ 5 million, or I entering into any agreement with respect to the foregoing.

In addition, no holder of Series A Preferred shall be entitled to vote on any matter presented to the Company’s stockholders relating to approving the conversion of such holder’s Series A Preferred into an amount in excess of the primary market limitations.

Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series A Preferred will be entitled to first receive distributions out of the Company’s assets in an amount per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions shall be made on any shares of Common Stock (after the payment to any senior security, if any).

Holders of the Series A Preferred will be entitled to receive dividends, subject to the beneficial ownership and primary market limitations, payable in the form of that number of shares of Common Stock equal to 20 % of the shares of Common Stock underlying the Series A Preferred then held by such holder on the 12 and 24-month anniversaries of the respective filing date.

In addition, subject to the beneficial ownership and primary market limitations, holders of Series A Preferred will be entitled to receive dividends equal, on an as-if-converted to shares of Common Stock basis, and in the same form as dividends actually paid on shares of the common stock when, as, and if such dividends are paid on shares of the common stock.

Notwithstanding the foregoing, to the extent that a holder’s right to participate in any dividend in shares of common stock to which such holder is entitled would result in such holder exceeding the beneficial ownership and primary market limitations, then such holder shall not be entitled to participate in any such dividend to such extent and the portion of such shares that would cause such holder to exceed the beneficial ownership and primary market limitations shall be held in abeyance for the benefit of such holder until such time, if ever, as such holder’s beneficial ownership thereof would not result in such holder exceeding the beneficial ownership and primary market limitations.

The Company and the investors in the Series A Offerings also executed a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the Series A Preferred within sixty days following the final closing of Series A Offerings and to use its best efforts to cause such registration statement to become effective within 90 days of the filing date.

The Company sold the shares of Series A Preferred pursuant to a Placement Agency Agreement (the “Placement Agency Agreement”) with a registered broker dealer, which acted as the Company’s exclusive placement agent (the “Placement Agent”) for Series A Offerings.

Pursuant to the terms of the Placement Agency Agreement, we agreed to pay to the Placement Agent at each Closing a cash fee equal to 10 % of the gross proceeds raised in the Series A Offerings and (ii) a non-accountable expense allowance equal to 3 % of the gross proceeds of the Series A Offerings.

In addition, we have agreed to issue to the Placement Agent or its designees for nominal consideration and following the final closing under the Series A Offerings, five-year warrants to purchase 14.5 % of the shares of common stock issuable upon conversion of the Series A Preferred shares sold in the Series A Offerings, at an exercise price equal to the applicable conversion price.

The Placement Agent Warrants provide for a cashless exercise feature and are exercisable for a period of five years from the Effective Date.

In addition, the Company agreed to grant the Placement Agent the right to appoint, subject to the Company’s approval, one representative to serve as a member of the Company’s Board of Directors upon the closing of at least $ 10 million in aggregate in connection with the Series A Offerings.

The securities to be issued in the Series A Offerings are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder because, among other things, the transaction did not involve a public offering, the investors are accredited investors, the investors are purchasing the securities for investment and not for resale and the Company took appropriate measures to restrict the transfer of the securities.

The securities have not been registered under the Securities Act and may not be sold in the United States absent registration or an exemption from registration.

This Current Report on Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

The Subscription Agreements contains representations and warranties that the parties made to, and solely for the benefit of, the other signatories to the Subscription Agreements in the context of all of the terms and conditions thereof and in the context of the specific relationship between the parties to the Subscription Agreements.

The provisions of such Subscription Agreements, including the representations and warranties contained therein, are not for the benefit of any party other than the party signatories thereto and are not intended for investors and the public to obtain factual information about the current state of affairs of the parties to such Subscription Agreements.

Rather, investors and the public refer to other disclosures contained in the Company’s filings with the U.S.

Securities and Exchange Commission.

Common Stock Purchase Agreement

On March 25, 2022, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Tumim Stone Capital, LLC (“Tumim”).

Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase, up to $ 10,000,000 of newly issued shares (the “Total Commitment”) of the Company’s common stock from time to time during the term of the Purchase Agreement (the “Tumim Offering”), subject to certain limitations and conditions.

As consideration for Tumim’s commitment to purchase shares of common stock under the Purchase Agreement, the Company issued to Tumim 50,000 shares of common stock, valued at $ 100,000 , following the execution of the Purchase Agreement (the “Commitment Shares”).

During the year ended December 31, 2022, we issued 7,425 shares of common stock at an average price of $ 1.11 , raising net proceeds of approximately $ 8,000 , under the Purchase Agreement.

The Purchase Agreement initially precludes the Company from issuing and selling more than 7,361,833 shares of its common stock, including the Commitment Shares, which number equals 19.99 % of the common stock issued and outstanding as of March 25, 2022, unless the Company obtains stockholder approval to issue additional shares, or unless certain exceptions apply.

In addition, a beneficial ownership limitation in the agreement initially limits the Company from directing Tumim to purchase shares of common stock if such purchases would result in Tumim beneficially owning more than 4.99 % of the then-outstanding shares of common stock (subject to an increase to 9.99 % at Tumim’s option upon at least 61 calendar days’

From and after the initial satisfaction of the conditions to the Company’s right to commence sales of common stock to Tumim (such event, the “Commencement,”

and the date of initial satisfaction of all such conditions, the “Commencement Date”), the Company may direct Tumim to purchase shares of common stock at a purchase price per share equal to 95 % of the average daily dollar volume-weighted average price for the common stock during the three consecutive trading day period immediately following the date on which the Company delivers to Tumim a notice for such purchase.

The Company will control the timing and amount of any such sales of common stock to Tumim.

Actual sales of shares of common stock to Tumim will depend on a variety of factors to be determined by the Company from time to time, including, among other things, market conditions, the trading price of the common stock, and determinations by the Company as to the appropriate sources of funding for the Company and its operations.

The Commencement Date of the Tumim Offering was March 25, 2022.

The Company has the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon five trading days’

prior written notice to Tumim.

Tumim has the right to terminate the Purchase Agreement upon five trading days’

prior written notice to the Company, but only upon the occurrence of certain events set forth in the Purchase Agreement.

Use of proceeds from any Tumim Offerings includes working capital and general corporate purposes, including sales and marketing activities, product development and capital expenditures.

The Company may also use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies.

The Purchase Agreement contains customary representations, warranties and agreements by the Company, as well as customary indemnification obligations of the Company.

Fiscal year ended December 31, 2021:

The offerings described above were made pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on April 10, 2020 (File No.

333 - 237626 ).

The net proceeds from these offerings were intended to be used for working capital and other general corporate purposes, including sales and marketing activities, product development and capital expenditures.

The net proceeds from these offerings were used for working capital and other general corporate purposes, including sales and marketing activities, product development and capital expenditures.

The Company also reserved the right to use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses.

Equity Distribution Agreement

On September 3, 2021, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with two investment banks (the “Agents”), pursuant to which the Company may offer and sell, from time to time, through the Agents (the “Offering”), up to $ 75 million of its shares of common stock, par value $ 0.001 per share (the “Shares”).

Any Shares offered and sold in the Offering will be issued pursuant to the Company’s Registration Statement on Form S- 3 filed with the Securities and Exchange Commission (the “SEC”) on September 3, 2021 ( the “Form S- 3”

) and the prospectus relating to the Offering that forms a part of the Form S- 3, following such time as the Form S- 3 is declared effective by the SEC.

Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions.

Under the Sales Agreement, the Agents may sell the Shares by any method permitted by law deemed to be an “at-the-market”

On September 3, 2021, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with two investment banks (the “Agents”), pursuant to which the Company could offer and sell, from time to time, through the Agents (the “ATM Offering”), up to $ 75 million of its shares of common stock (the “Shares”).

Any Shares offered and sold in the Offering were issued pursuant to the Company’s Registration Statement on Form S-3 filed with the SEC on September 3, 2021 (the “Form S-3”) and the prospectus relating to the Offering that forms a part of the Form S-3, following such time as the Form S-3 is declared effective by the SEC.

During the year ended December 31, 2022, the Company issued 323,639 shares of common stock, at an average price of $ 0.99 , raising net proceeds of $ 312,000 , under the Sales Agreement.

Subject to the terms and conditions of the Sales Agreement, the Agents used their commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions.

Under the Sales Agreement, the Agents sold the Shares by any method permitted by law deemed to be an “at-the-market”

offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market, on any other existing trading market for the Company’s common stock or to or through a market maker.

The Agents may also sell Shares in privately negotiated transactions, provided that the Agents receive the Company’s prior written approval.

The Company has no obligation to sell any of the Shares, and may at any time suspend offers under the Sales Agreement.

The Offering will terminate upon the earlier of (a) the sale of all of the Shares, (b) the termination by the mutual written agreement of the managing agent and the Company, or (c) one year from the date that the Form S- 3 is declared effective by the SEC.

Under the terms of the Sales Agreement, the Agents will be entitled to an aggregate commission at a fixed rate of 3.0 % of the gross sales price of Shares sold under the Sales Agreement.

The Company intends to use the net proceeds from any “at-the-market”

offering primarily for working capital and general corporate purposes, including sales and marketing activities, product development and capital and acquisition related expenditures.

The Company may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses.

Fiscal year ended December 31, 2020:

In May 2020, the Company issued 1,825,000 shares of common stock at a price of $ 3.50 per share, raising aggregate net proceeds of approximately $ 6.0 million, after deducting placement agent fees of $ 319,000 and other offering expenses totaling $ 116,000 .

The offering was made pursuant to an effective shelf registration statement on Form S- 3 previously filed with the U.S.

Securities and Exchange Commission.

In August 2020, the Company issued 4,540,541 shares of common stock at a price of $ 1.85 per share, raising aggregate net proceeds of approximately $ 7.6 million, after deducting placement agent fees of $ 588,000 and other offering expenses totaling $ 180,000 .

The offering was conducted pursuant to the Company’s effective Registration Statements on Form S- 1  (File No.

333 - 248248 ), and a related registration statement filed pursuant to Rule 462 (b) under the Securities Act. In addition, pursuant to the terms of the related underwriting agreement, the Company granted to the underwriter a 30 -day over-allotment option to purchase up to an additional 681,081 Shares at the same public offering price per share, less discounts and commissions, which was partially exercised in September 2020, resulting in the issuance of 448,440 shares of common stock and net proceeds of $ 771,000 , after deducting placement agent fees of $ 58,000 .

The net proceeds from this offering were utilized for working capital and other general corporate purposes, including sales and marketing activities, product development and capital expenditures.

The Company had no obligation to sell any of the Shares and could at any time suspend offers under the Sales Agreement.

The Offering terminated upon the earlier of (a) the sale of all of the Shares, (b) the termination by the mutual written agreement of the managing agent and the Company, or (c) one year from the date that the Form S-3 is declared effective by the SEC, or November 16, 2022.

Under the terms of the Sales Agreement, the Agents were entitled to an aggregate commission at a fixed rate of 3.0 % of the gross sales price of Shares sold under the Sales Agreement.

Use of proceeds from “at-the-market”

offerings included working capital and general corporate purposes, including sales and marketing activities, product development and capital and acquisition related expenditures.

STOCK-BASED INCENTIVE PLANS

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The Board of Directors administers the Plan and determines which eligible individuals are to receive option grants or stock issuances under the Plan, the times when the grants or issuances are to be made, the number of shares of common stock subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding.

The exercise price of options is generally equal to the fair market value of common stock of the Company on the date of grant. Options generally begin to be exercisable six months to one year after grant and typically expire 10 years after grant. Stock options and restricted shares generally vest over two to four years (generally representing the requisite service period).

The exercise price of options is generally equal to the fair market value of common stock of the Company on the date of grant.

Options generally begin to be exercisable six months to one year after grant and typically expire 10 years after grant.

Stock options and restricted shares generally vest over two to four years (generally representing the requisite service period).

The Plan terminates automatically on July 1, 2027.

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In May 2021, the Company’s shareholders approved an amendment to the Plan to increase the number of shares authorized for issuance from 2,583,334 to 5,000,000 .

In June 2022, the Company’s shareholders approved an amendment to the Plan to increase the number of shares authorized for issuance from 5,000,000 to 6,250,000 .

As of December 31, 2022, 1,139,074 shares remained available for issuance under the Plan.

Super League issues new shares of common stock upon the exercise of stock options, the grant of restricted stock, or the delivery of shares pursuant to vested restricted stock units.

The compensation committee of the Board of Directors may amend or modify the Plan at any time, subject to any required approval by the stockholders of the Company, pursuant to the terms therein. 

In the event that any outstanding option or other right for any reason expires or is canceled or otherwise terminated, the shares allocable to the unexercised portion of such option or other right is returned and available for the purposes of this Plan.

Stock Options

The fair value of stock options granted was estimated on their respective grant dates using the Black-Scholes-Merton option pricing model and the following weighted-average assumptions for the years ended December 31, 2022 and 2021:

Expected Volatility

Risk–free interest rate

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Expected life of options (in years)

The expected volatility assumption for purposes of determining the fair value of stock options for the periods presented was estimated based on reference to the historical stock price volatility of the Company and a representative peer group for the applicable estimated term.

A summary of stock option activity for the year ended December 31, 2022 is as follows:

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Outstanding at December 31, 2021

1,638,000  

$ 5.59  

$ 308,000  

998,000  

$ 4.50  

$ 3.17  

Canceled / forfeited

$ 5.63  

Outstanding at December 31, 2022

2,433,000  

$ 5.18  

$ 246,000  

Vested and exercisable at December 31, 2022

1,004,000  

$ 6.66  

$ 242,000  

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 1.17 and $ 3.40 , respectively.

The total intrinsic value of stock options exercised during the years ended December 31, 2021 and 2020 was $ 121,000 and $ 0 , respectively.

The aggregate fair value of stock options that vested during the years ended December 31, 2022 and 2021 was $ 1,726,000 and $ 720,000 , respectively.

As of December 31, 2021, the total unrecognized compensation expense related to non-vested stock option awards was $ 3,749,000 , which is expected to be recognized over a weighted-average term of approximately three years.

In February 2020, the Board of Directors approved the cancellation of 540,000 stock options in exchange for 243,000 RSUs (the “Stock Swap”) for seven employees.

The stock options canceled had a weighted average exercise price of $ 10.16 and a weighted average grant date fair value of $ 8.33 .

The RSUs issued had weighted average grant date fair value of $ 2.60 and vest over two years.

Cancellation of an existing equity-classified award along with a concurrent grant of a replacement award is accounted for as a modification under ASC 718, “Stock-based Compensation.”

Total compensation cost to be recognized is equal to the original grant date fair value plus any incremental fair value calculated as the excess of the fair value of the replacement RSUs over the fair value of the original stock option awards on the cancellation date.

Any incremental compensation cost is recognized prospectively over the remaining service period, in addition to the remaining unrecognized grant date fair value.

There was no incremental compensation cost in connection with the Stock Swap.

The net impact of the Stock Swap was to return 297,000 shares to the share reserve under the Plan for the Company’s future employee related incentive and retention activities.

As of December 31, 2022, the total unrecognized compensation expense related to non-vested stock option awards was $ 2,204,000 , which is expected to be recognized over a weighted-average term of approximately 2.16 years.

Restricted Stock Units

The following table summarizes non-vested restricted stock unit activity for the year ended December 31, 2022:

2014 Plan Activity

Outside of the 2014 Plan Activity

Non-vested Restricted Stock

Weighted Average

Fair Value ($)

Non-vested restricted stock units at December 31, 2020

382,000  

$ 4.68  

250,000  

$ 4.81  

$ 4.07  

$ 9.91  

Non-vested restricted stock units at December 31, 2021

361,000  

$ 5.05  

As of December 31, 2021, the total unrecognized compensation expenses related to non-vested restricted stock units was $ 864,000 , which will be recognized over a weighted-average term of approximately 1.8 years.

Weighted Average

Fair Value ($)

Weighted Average

Fair Value ($)

At December 31, 2021

At December 31, 2022

As of December 31, 2022, the total unrecognized compensation expense related to non-vested restricted stock units was $ 983,000 which will be recognized over a weighted-average term of approximately one year.

On January 1, 2022, the Company issued 1,350,000 performance stock units (“PSUs”) (included in the table above) under the Company’s 2014 Amended and Restated Stock Option and Incentive Plan, which vest in five equal increments of 270,000 PSUs, based on satisfaction of the following vesting conditions during the three-year period commencing on January 1, 2022:

the Company’s stock price equaling $ 4.75 per share based on 60-day volume weighted average price (“VWAP”);

the Company’s stock price equaling $ 6.00 per share based on 60-day VWAP;

the Company’s stock price equaling $ 7.00 per share based on 60-day VWAP;

the Company’s stock price equaling $ 8.00 per share based on 60-day VWAP;

the Company’s stock price equaling $ 9.00 per share based on 60-day VWAP.

Noncash stock compensation expense related to the PSUs totaled $ 2,142,000 for the year ended December 31, 2022.

During the year ended December 31, 2022, the Company issued 170,000 restricted stock units (included in the table above) to nonemployees for services (“Nonemployee RSUs”).

The weighted average grant date fair value of the Nonemployee RSUs granted during the year ended December 13, 2022 was $ 0.91 .

Compensation expense for Nonemployee RSUs for the year ended December 31, 2022 totaled $ 131,000 .

As of December 31, 2022, the total unrecognized compensation expense related to Nonemployee RSUs was $ 24,000 , which will be recognized in the first quarter of fiscal 2023.

Warrants Issued to Employees and Nonemployees for Services

A summary of employee and nonemployee warrant activity for the year ended December 31, 2021 is as follows:

A summary of employee and nonemployee warrant activity (outside of the Plan) for the year ended December 31, 2022 is as follows:

Weighted-Average

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Outstanding at December 31, 2021

964,000  

$ 10.02  

$ 9.00  

Outstanding at December 31, 2022

781,000  

$ 10.26  

Vested and exercisable as of December 31, 2022

781,000  

$ 10.26  

Compensation expense related to common stock purchase warrants was $ 0 and $ 282,000 for the years ended December 31, 2021 and 2020, respectively.

No warrants were granted to employees or non-employees in exchange for services performed during the periods presented herein.

The aggregate fair value of warrants that vested during the years ended December 31, 2021 and 2020 was $ 0 and $ 206,000 , respectively.

The weighted-average grant date fair value of common stock purchase warrants (“Warrants”) granted during the year ended December 31, 2022 was $ 0.50 .

No Warrants were granted to employees or non-employees in exchange for services performed during the year ended December 31, 2021.

No Warrants vested during the years ended December 31, 2022 and 2021.

As of December 31, 2022, the total unrecognized compensation expense related to Warrants was $ 228,000 .

On December 1, 2022, the Company issued 500,000 warrants (included in the table above) to a third-party for nonemployee investor relations services.

The warrants have an exercise price of $ 0.67 , a grant date fair value of $ 0.50 , vest in twelve equal monthly installments commencing on the grant date and expire five years from the grant date.

Compensation expense included in the statement of operations for the year ended December 31, 2022 totaled $ 20,000 .

Noncash Stock Compensation Expense

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Stock options

$ 1,148,000  

$ 745,000  

282,000  

Restricted stock units

1,233,000  

836,000  

141,000  

Total noncash stock compensation expense

$ 2,381,000  

$ 2,004,000  

Noncash stock-based compensation expense for the periods presented was included in the following financial statement line items: 

Sales, marketing and advertising

$ 934,000  

$ 849,000  

Engineering, technology and development

288,000  

254,000  

General and administrative

1,159,000  

901,000  

Total noncash stock compensation expense

$ 2,381,000  

$ 2,004,000  

Super League’s provision for income taxes consisted of the following for the years ended December 31, 2022 and 2021:

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Federal taxes

$ ( 4,654,000 )

$ 2,919,000  

886,000  

( 5,661,000 )

3,805,000  

Foreign taxes

Change in valuation allowance

2,550,000  

( 3,805,000 )

Total deferred

( 3,111,000 )

Provision for income taxes

$ ( 3,111,000 )

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following as of December 31, 2022 and 2021.

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Net operating loss and credits

$ 27,963,000  

$ 20,799,000  

Stock compensation

2,837,000  

3,155,000  

Accrued liabilities

11,000  

65,000  

Fixed assets and intangibles

( 4,812,000 )  

Total deferred tax assets

26,000,000  

23,913,000  

Capitalized research and development costs

Total net deferred tax assets (liabilities)

Valuation allowance

( 26,518,000 )  

( 23,913,000 )

Total deferred tax assets, net of valuation allowance

$ ( 518,000 )

Total net deferred tax assets (liabilities), net of valuation allowance

A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows:

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Non-deductible permanent items

Change in tax rate

Valuation allowance

For the years ended December 31, 2022 and 2021, the Company recorded full valuation allowances against its domestic net deferred tax assets due to uncertainty regarding future realizability pursuant to guidance set forth in the FASB’s Accounting Standards Codification Topic No.

740,  Income Taxes.

740, Income Taxes.

In future periods, if the Company determines it will more likely than not be able to realize these amounts, the applicable portion of the benefit from the release of the valuation allowance will generally be recognized in the statements of operations in the period the determination is made.

The Company does not maintain a valuation allowance on the activity in the UK from its recent acquisition of Bannerfy Ltd due to the deferred tax liability position.

At December 

31, 2021, the Company had U.S.

federal, state income tax, and foreign net operating loss carryforwards of approximating $ 102,096,000 , $ 92,469,000 and $ 343,000 , respectively, expiring through 2041.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 

382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions.

Components of net loss before income tax attributable to foreign entities totaled $ 1.1 million for the year ended December 31, 2022, and was not material for the year ended December 31, 2021.

At December 31, 2022, the Company had U.S.

federal, state income tax, and foreign net operating loss carryforwards of approximately $ 118.3  million, $ 104.9  million and $ 985,000 , respectively, expiring through 2037.

The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future.

Federal net operating loss carryforwards totaling approximately $ 94.1 million were generated in fiscal year 2018 or after, and therefore have no expiration date.

A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization for tax purposes of research and experimental expenditures became effective January 1, 2022.

This provision requires us to capitalize research and experimental expenditures and amortize them on the U.S.

tax return over five or fifteen years, depending upon where the research is conducted.

This provision did not have a material impact on our fiscal year 2022 effective tax rate on a net basis or our cash paid for taxes due to our net operating loss position.

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leased office space under an operating lease agreement which expired on May 31, 2017, and was amended to a month-to-month basis lease.

In June 2020, we terminated the lease for the majority of our corporate headquarters (approximately 4,965 square feet).

As of December 31, 2021 we maintain approximately 3,200 square feet of office space, 1,650 square feet of which is on a month-to-month basis, and 1,550 square feet of which is subject to a two -year lease, commencing on August 1, 2021, at a combined rate of approximately $ 11,800 per month.

Rent expense for the years ended December 31, 2021 and 2020 was approximately $ 111,000 and $ 200,000 , respectively, and is included in general and administrative expenses in the accompanying statements of operations. Rental payments are expensed in the statements of operations in the period to which they relate.

As of December 31, 2022 we maintain approximately 3,200 square feet of office space, 1,650 square feet of which is on a month-to-month basis, and 1,550 square feet of which expires on August 1, 2023, at a combined rate of approximately $ 12,000 per month.

The adoption of ASC 842, “Leases”

(“ASC 842”), did not have a material impact on the Company's consolidated financial statements and related disclosures.

Rent expense for the years ended December 31, 2022 and 2021 was approximately $ 168,000 and $ 111,000 , respectively, and is included in general and administrative expense in the accompanying statements of operations.

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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In May 2018, the Company entered into a consulting agreement with a member of the Board of Directors, pursuant to which the board member provides the Company with strategic advice and planning services for which he receives a cash payment of $ 7,500 per month from the Company.

The consulting agreement had an initial term ending December 31, 2019, and could be extended upon mutual agreement of the board member and the Company.

The consulting agreement was extended throughout fiscal year 2020 and fiscal year 2021.

The consulting agreement had an initial term ending December 31, 2019, and was extended for successive one-year periods upon mutual agreement of the board member and the Company through to fiscal year 2023.

Total consulting expense under the agreement totaled $ 90,000 for each of the years ended December 31, 2022 and 2021.

SUBSEQUENT EVENTS

The Company evaluated subsequent events for their potential impact on the consolidated financial statements and disclosures through the date the consolidated financial statements were available to be issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the consolidated financial statements presented herein.

Common Stock Purchase Agreement

On March 25, 2022, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Tumim Stone Capital, LLC (“Tumim”).

Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase, up to $ 10,000,000 of newly issued shares (the “Total Commitment”) of the Company’s common stock, par value $ 0.001 per share from time to time during the term of the Purchase Agreement (the “Tumim Offering”), subject to certain limitations and conditions.

From and after the initial satisfaction of the conditions to the Company’s right to commence sales of common stock to Tumim (such event, the “Commencement,”

The Company will control the timing and amount of any such sales of common stock to Tumim.

The Commencement Date of the Tumim Offering was March 25, 2022.

Unless earlier terminated, the Purchase Agreement will automatically terminate upon the earliest of (i) the expiration of the 18 -month period following the Commencement Date, (ii) Tumim’s purchase or receipt of the Total Commitment worth of common stock, or (iii) the occurrence of certain other events set forth in the Purchase Agreement.

The Company has the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon five trading days’

prior written notice to Tumim.

Tumim has the right to terminate the Purchase Agreement upon five trading days’

prior written notice to the Company, but only upon the occurrence of certain events set forth in the Purchase Agreement.

The Company intends to use the net proceeds, if any, from the Tumim Offering for working capital and general corporate purposes, including sales and marketing activities, product development and capital expenditures.

The Company may also use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies. The Purchase Agreement contains customary representations, warranties and agreements by the Company, as well as customary indemnification obligations of the Company.

On January 31, 2023, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 2,299 shares of newly designated Series A-5 Convertible Preferred Stock, par value $ 0.001 per share, at a purchase price of $ 1,000 per share, raising net proceeds of $ 2,000,000 , after deducting placement agent costs of $ 299,000 .

Refer to Note 7 for a description of the terms of the preferred stock issued.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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March 31, 2023

President, Chair of the Board

and Chair of the Board

(Principal Executive Officer)

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Michael Keller

/s/ Michael Wann

March 31, 2022

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 8. Financial Statements and Supplementary Data