Super League Enterprise, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock is listed on the Nasdaq Capital Market under the ticker symbol “SLE.” As of March 31, 2025, we had 365 holders of record of our common stock based upon the records of our transfer agent, which do not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies. Dividend Policy We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business. Therefore, we do not currently expect to pay any cash dividends on our common stock for the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board and will depend upon our results of operations, financial condition, capital requirements, general business conditions, and other factors that our Board deems relevant. Our ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities. Issuance of Common Stock as Dividends During the years ended December 31, 2024 and 2023, we paid common stock dividends on outstanding preferred stock as disclosed at Note 7 to the financial statements contained elsewhere herein. Recent Sales of Unregistered Equity Securities No unregistered securities were issued during the years ended December 31, 2024 and 2023 that were not previously reported. Performance Graph As a smaller reporting company, we are not required to provide the performance graph required by Item 201(e) of Regulation S-K. ITEM 6. [Reserved] ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and the notes thereto appearing elsewhere in this Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “ Risk Factors, ” “ Special Note Regarding Forward-Looking Statements ” and elsewhere in this Report. All references to “ Note, ” followed by a number reference from one to twelve herein, refer to the applicable corresponding numbered footnotes to the consolidated financial statements contained elsewhere herein. General Super League Enterprise, Inc. is redefining how brands connect with consumers through the power of playable media. Through solutions within mobile games and the world’s largest immersive gaming platforms, Super League provides global brands with ads, content, and experiences that are not only seen – they are played, felt, and remembered. Boasting an award-winning development studio, a vast network of native creators, and proprietary engagement technology, Super League is a one-of-a-kind partner for brands looking to stand out in culture, spark loyalty, and drive meaningful impact. In a world where attention is earned, Super League makes brands relevant - by making them playable. We generate 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, and digital collectibles, and (iii) content and technology through the production and distribution of our own, advertiser and third-party content. We operate in one reportable segment to reflect the way management and our chief operating decision maker review and assess the performance of the business. 39 Table of Contents Announced Infinite Reality Transaction On September 30, 2024, the Company entered into a binding term sheet (the “iR Term Sheet”) with Infinite Reality, Inc. (“Infinite Reality”), whereby, subject to the satisfaction of certain conditions as more specifically set forth in the iR Term Sheet (including receipt of the approval of the Company’s stockholders), and the entry into definitive documentation, the Company will: (i) acquire from Infinite Reality, (a) a perpetual, royalty free license to name and to create and host events for Drone Racing League, Inc., (b) to be determined esports assets and all related intellectual property, (c) cash in the amount of up to $20 million to come from divestiture of certain assets to be determined and/or other sources of capital, (d) TalentX and all related intellectual property, (e) Fearless Media and all related intellectual property, and (f) Thunder Studios and all related intellectual property (each an “Asset” and, collectively, the “Purchased Assets”)(the “Asset Acquisition”), in exchange for the Company issuing that number of shares of a to-be designated class of its preferred stock equal in priority to existing Series A, AA and AAA preferred shares (the “Consideration Shares”), which Consideration Shares will be convertible into 75% of the then issued and outstanding shares of Super League’s common stock, par value $0.001 per share (“Common Stock”), calculated at the time of the consummation of the Asset Acquisition; (ii) issue to Infinite Reality 2,499,090 shares of the Company’s Common Stock, in exchange for 139,592 shares of Infinite Reality’s common stock (the “Share Exchange”), pursuant to an Equity Exchange Agreement, and to appoint a designee of Infinite Reality to the Company’s Board upon the consummation of the Share Exchange (the “Closing”); and (iii) receive a credit facility in the amount of $30,000,000 from Infinite Reality, to be established in January 2025 (the “Credit Facility”, and the Asset Acquisition, Share Exchange, and Credit Facility are collectively, the “iR Transaction”). The Term Sheet contemplates that, subject to the satisfaction of the conditions contained therein (including approval of the iR Transaction by the Company’s stockholders), upon the consummation of the iR Transaction, Infinite Reality will beneficially own 84.9% of the issued and outstanding shares of the Company as of the Closing. On March 28, 2025, the Company and Infinite Reality mutually agreed to terminate both the Binding Term Sheet and the iR Transactions contemplated thereby in their entirety. Equity Exchange Agreement. On September 30, 2024, in connection with the Term Sheet and the Share Exchange, the Company entered into an Equity Exchange Agreement with Infinite Reality (the “Exchange Agreement”), pursuant to which the Company agreed, subject to the receipt of the approval of the Company’s stockholders and other customary closing conditions, to issue 2,499,090 shares of Common Stock (the “Exchange Shares”) in exchange for 139,592 shares of Infinite Reality common stock of equal value, based on the Company’s Common Stock being valued at $1.30 per share. The Exchange Agreement contains representations, warranties, and covenants of the Company and Infinite Reality that are customary for a transaction of this nature. The Exchange Shares, once exchanged pursuant to the Exchange Agreement, will be 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. On October 29, 2024, the Company entered into an Amended and Restated Equity Exchange Agreement (the “Amended Exchange Agreement”) with Infinite Reality, which amended and restated the Exchange Agreement. Pursuant to the Amended Exchange Agreement, the Company will issue an aggregate total of 2,499,090 shares of common stock, par value $0.001 per share, in exchange for 216,831 shares of Infinite Reality common stock (“Infinite Reality Common Stock” and collectively, the “Exchange”). The Exchange will be consummated across two closings: (i) an initial closing of 1,215,279 shares of Common Stock in exchange for 105,445 shares of Infinite Reality Common Stock (the “Initial Closing”); and (ii) a second closing, subject to the approval of the Company’s stockholders, of 1,283,811 shares of Common Stock for 111,386 shares of Infinite Reality Common Stock. All other terms of the Exchange Agreement were not modified. On March 28, 2025, the Company and Infinite Reality mutually agreed to terminate both the Amended Exchange Agreement and the Exchange contemplated thereby in its entirety. Bylaw Amendment On June 4, 2024, the Board approved an amendment (the “ Amendment ”) to the Company’s Second Amended and Restated Bylaws, effective June 4, 2024, to reduce the number of shares that are required to be present at a meeting of the Company’s stockholders (a “ Meeting ”) for purposes of establishing a quorum. Prior to the Amendment, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock was required to establish a quorum for the transaction of business at a Meeting. As approved in the Amendment, the presence, in person or by proxy duly authorized, of the holders of not less than one-third (1/3) of the outstanding shares of stock entitled to vote will constitute a quorum for the transaction of business at a Meeting. The Board adopted the Amendment to more practically obtain a quorum and conduct business at a Meeting. The Board based its decision on the increasing prevalence of brokerage firms opting to forgo discretionary or proportionate voting of the shares held by them in street name, which is making it increasingly difficult for companies with a large retail stockholder base to obtain a quorum of the majority. The change to the quorum requirement was made to improve the Company’s ability to hold Meetings when called. 40 Table of Contents Reverse Stock Split and Name Change On September 7, 2023, the Company filed a certificate of amendment to the Company’s Second Amended and Restated Certificate of Incorporation, as Amended (the “Charter”), which became effective September 11, 2023, to change the name of the Company from Super League Gaming, Inc. to Super League Enterprise, Inc. (the “Name Change”) and to effect a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share, at a ratio of 1-for-20 (the “Reverse Split”). The Name Change and the Reverse Split were approved by the Board on July 5, 2023, and approved by the stockholders of the Company on September 7, 2023. Refer to Note 7 for additional information regarding the Reverse Split. All references to common stock, warrants to purchase common stock, options to purchase common stock, restricted stock, share data, per share data and related information contained in the financial statements have been retroactively adjusted to reflect the effect of the Reverse Split for all periods presented. Increase in Authorized Common Stock On May 30, 2023, the Company filed a certificate of amendment to its Charter increasing the number of authorized shares of common stock from 100,000,000 to 400,000,000. The Board previously approved the amendment on March 17, 2023, and the Company obtained the approval by written consent of its stockholders holding greater than 50% of the voting securities of the Company on April 5, 2023. In connection with the Name Change, the Company also changed its Nasdaq ticker symbol to “SLE” from “SLGG.” Matters Affecting Comparability Impairment Charges. In the fourth quarter of 2023, we recorded a non-cash impairment charge related to our partner relationship related intangible assets, comprised primarily of our Microsoft Minecraft server and InPvP developed technology intangible assets originally acquired in connection with the acquisition of Mobcrush, Inc., in June 2021. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant underperformance relative to expected historical or projected future operating results, and significant changes in the manner of our use of the acquired assets or the strategy in the context of our overall business. Due to underperformance relative to historical and projected future operating results and a decision to deploy resources in other areas of the business, we performed an impairment analysis and determined that the sum of the expected undiscounted future cash flows resulting from the use of the assets was less than the carrying amount of the assets, resulting in an impairment loss totaling $7.1 million, which is recorded in the accompanying consolidated statements of operations for Fiscal Year 2023. Loss on intangible asset disposal. In June 2023 , the Company assigned the intangible assets originally acquired in connection with the Company’s acquisition of Bannerfy in fiscal year 2021, to the original sellers. The assets were disposed of in connection with management’s review of operations and decision to allocate resources elsewhere. As a result, the Company recorded a write-off of net developed technology related intangible assets acquired in connection with the acquisition of Bannerfy totaling $2.3 million, which is included in “Loss on intangible asset disposal” in the accompanying consolidated statements of operations for Fiscal Year 2023. Executive Summary Revenue for Fiscal Year 2024 and 2023 totaled $16.2 million and $25.1 million, respectively, reflecting a year over year decrease of 35%. The decrease in revenue for the periods presented reflected a mix of industry softness in ad sales, stemming from macro environmental factors including consumer spending softness, continued market education and adoption of immersive platforms as a marketing channel, structural shifts in platform ad ecosystems, the shift of certain revenues and program start delays to future periods by advertisers, and a reduction in Minehut related media sales revenues in connection with the sale of our Minehut digital property in the first quarter of 2024. Cost of revenue for Fiscal Year 2024 and 2023 was $10.1 million and $15.3 million, respectively, reflecting a year over year decrease of 34%, driven primarily by the related decrease in Fiscal Year 2024 revenues, compared to the prior year. As a percent of revenue, gross profit for Fiscal Year 2024 was 38%, relatively consistent with the 39% gross profit percentage for the prior year period. Total operating expense for Fiscal Year 2024 decreased to $22.9 million, compared to $42.6 million in the comparable prior year period. Operating expense for Fiscal Year 2023 included aggregate noncash impairment and loss on intangible asset disposal charges totaling $9.3 million, and net contingent consideration charges of $1.1 million. Excluding the noncash impairment charges and net contingent consideration charges, the decrease in total operating expense reflects decreases in cloud services and other technology platform costs and decreases in personnel, marketing and other corporate costs, resulting from ongoing cost reduction and optimization activities. Excluding noncash stock compensation expense, amortization expense, intangible asset impairment charges, legal settlement charges and mark to market related fair value adjustments, operating expense for Fiscal Year 2024 was $18.2 million, compared to $25.1 million, reflecting a 27% reduction in operating expense, compared to Fiscal Year 2023. 41 Table of Contents Net loss for Fiscal Year 2024, which includes the impact of significant mark to market related credits as described below, and noncash stock compensation, and amortization, as summarized below, was $16.6 million or $(2.35) per share, compared to a net loss of $30.3 million, or $(13.67) per share, in the comparable prior year period. The calculation of net loss per share for Fiscal Year 2024 and 2023 included noncash common stock dividend and deemed dividend (Fiscal Year 2023 only) related direct charges to accumulated deficit totaling $4.4 million and $7.9 million, respectively, as described at Note 2. Excluding the impact of the noncash common stock dividend and deemed dividend related direct charges to accumulated deficit, net loss per share for Fiscal Year 2024 and 2023 was $(1.86) and $(10.84), respectively. Sale of Minehut On February 29, 2024, the Company sold its Minehut business unit (“Minehut”) to GamerSafer, Inc., a Delaware corporation (“GamerSafer”), in a transaction approved by the Board. Pursuant to the Asset Purchase Agreement entered into by and between GamerSafer and the Company on February 26, 2024 (the “GS Agreement”), the Company will receive $1.0 million of purchase consideration for the sale of Minehut, which amount will be paid by GamerSafer in revenue and royalty sharing over a period of two years, as described in the GS Agreement. Other than with respect to the GS Agreement, there is no relationship between the Company or its affiliates with GamerSafer or its affiliates. The transaction allows Super League to streamline its position in partnering with major brands to build, market, and operate 3D experiences across multiple immersive platforms, including open gaming powerhouses like Minecraft, and aligns with our cost improvement initiative. The two companies will maintain a commercial relationship which ensures that Minehut can remain an ongoing destination available to Super League’s partners. Acquisition of Melon, Inc. On May 4, 2023 (the “Melon Closing Date”), we entered into an Asset Purchase Agreement (the “Melon Purchase Agreement”) with Melon, Inc., a Delaware corporation (“Melon”), pursuant to which the Company acquired substantially all of the assets of Melon (the “Melon Assets”) (the “Melon Acquisition”). The consummation of the Melon Acquisition (the “Melon Closing”) occurred simultaneously with the execution of the Melon Purchase Agreement. Melon is a development studio building innovative virtual worlds in partnership with powerful consumer brands across music, film, TV, sports, fashion and youth culture. With this acquisition, Super League further strengthens its position as a one-stop solutions provider and strategic operating partner for marquee brands and businesses seeking to expand and activate communities throughout the gaming metaverse. At the Closing, the Company paid an aggregate total of $900,000 to Melon (the “Melon Closing Consideration”), of which $150,000 was paid in cash, and the remaining $750,000 was paid in the form of shares of the Company’s common stock (with a closing date fair value of $722,000), valued at $9.64 (the “Melon Closing Share Price”), the volume weighted average price (“VWAP”) of the Company’s common stock for the five trading days immediately preceding the Melon Closing Date, as quoted on the Nasdaq Capital Market. Refer to the table at Note 5 for calculation of the fair value of consideration paid. Pursuant to the terms and subject to the conditions of the Melon Purchase Agreement, up to an aggregate of $2,350,000 (the “Melon Contingent Consideration”) will be payable to Melon in connection with the achievement of certain revenue milestones for the period from the Closing until December 31, 2023 (the “Melon First Earnout Period”) in the amount of $1,000,000, and for the year ending December 31, 2024 (the “Melon Second Earnout Period) in the amount of $1,350,000 (the “Second Earnout Period” and the First Earnout Period are collectively referred to as the “Earnout Periods”). The Contingent Consideration is payable in the form of cash and common stock, with $600,000 of the aggregate Melon Contingent Consideration being payable in the form of cash, and $1,750,000 payable in the form of common stock, valued at the greater of (a) the Melon Closing Share Price, and (b) the VWAP for the five trading days immediately preceding the end of each respective Earnout Period. Additionally, pursuant to the Melon Purchase Agreement, the Company entered into employment agreements with two former key Melon employees (“Key Melon Employees”), pursuant to which the Key Melon Employees were granted inducement awards consisting of restricted stock unit awards (“RSUs”) to acquire an aggregate of 103,780 shares of its common stock as described at Note 5. Meta Stadiums Collaboration In August 2024 , we announced a strategic partnership with Meta-Stadiums, a cutting-edge platform to build, customize, and manage virtual stadiums in the metaverse, to combine capabilities and offer cross-platform immersive experiences and events to music artists, sports teams, entertainment companies, and consumer brands. The alliance creates a world-class end-to-end provider of metaverse programs and strategies that reaches all corners of the virtual universe, from bespoke 3D spaces to the most popular immersive platforms such as Roblox, Fortnite Creative, The Sandbox, Decentraland, and Minecraft. 42 Table of Contents Common Sense Networks Initiative In March 2024, we announced an initiative with Common Sense Networks, the award winning, singular leader in age appropriate content moderation standards and owner of Sensical, the groundbreaking streaming and FAST channel service for kids 2-12, that enables brands to connect with young audiences on a global scale in safe and suitable ways across major gaming and video platforms, including Roblox, Fortnite Creative, Minecraft, YouTube, TikTok, and beyond. GSTV Partnership In March 2024, we announced a partnership with GSTV, the national on-the-go video network engaging and entertaining targeted audiences at scale across tens of thousands of fuel retailers. The partnership will unite the physical journey of consumers with the expansive digital world of gaming. Initially, the partnership brings Super League’s popular Metaburst gaming news segment to GSTV, keeping millions of viewers at fuel and convenience retailers across the country updated on the latest trends and advancements in the 3D web, virtual worlds and platforms like Roblox and Fortnite. GSTV and Super League are also collaborating on other integration opportunities that unite physical and digital retail engagement to provide brands with innovative and exciting ways to reach a broad base of consumers. In addition to extending in-game content to GSTV screens, the Super League Loyalty & Reward platform will power custom omnichannel programs that reward Roblox users with seamless real world benefits from GTSV partners, and create opportunities for GSTV audience family members to enjoy special rewards within Roblox. Chartis Partnership In March 2024, we announced new capabilities for our entertainment and consumer brand clients in Fortnite Creative via a partnership with Chartis. Chartis is a platform focused on Unreal Editor for Fortnite (UEFN), offering a rapidly-growing suite of tools to make it easier and more intuitive for creators to build original games and experiences within Fortnite Creative, where an increasing segment of the blockbuster game’s 70 million monthly players spend their time. The partnership with Chartis enables Super League and its prominent global brand partners to tap into the Chartis Network, a coalition of independent Fortnite Creative developers with more than 157 million monthly plays and nearly one billion monthly impressions. Together, the companies will provide unparalleled opportunities for brands to launch new Fortnite Creative Islands and custom integrations. Roblox Partner Program On August 2, 2023, we announced that Super League joined the Roblox (NYSE: RBLX) Partner Program. As an early mover in building and distributing creative and impactful programs for brands, in partnership with hundreds of top Roblox developers, joining the Roblox Partner Program will allow Super League to elevate its offerings to include the official Roblox advertising system with Immersive Ads. The added capabilities augment Super League’s powerful end-to-end, innovative solutions, enabling brands to reach the highly engaged audience on Roblox, a global immersive platform where over 66 million people connect and communicate daily. Super League was an early mover in the space, enabling extensive third-party distribution for brands on Roblox by providing hundreds of developers in the community with measurement, monetization, and optimization tools. Through the Roblox Partner Program, Super League is evolving its offering by repurposing its previous ad network to focus on Roblox’s Immersive Ads product to enable brands to reach audiences at scale. Super League will be integrating Roblox’s Immersive Ads into its growing suite of cross-platform offerings and capabilities inclusive of experience creation, promotion, distribution, and monetization: ● Highly immersive ad formats for the official Roblox advertising system; ● Bespoke brand integrations into popular experiences; ● Proprietary Pop-Up Shops, interactive characters, and integrated content products; ● First-to-market home grown solution to turn digital in-experience codes into real-world physical redemptions; ● Robust influencer marketing programs; ● In-experience brand lift studies; ● Expert video content creation for Tik Tok, YouTube, and more; and ● Metaverse strategy & innovation consulting. Super League’s inclusion in the Roblox Partner Program, combined with its longstanding dedication to supporting hundreds of Roblox developers with software to help manage and grow their businesses, creates an unparalleled opportunity to achieve massive reach and powerful results for brands. Immediate benefits of being part of the program include access to educational resources and training, along with comprehensive tools, collateral, and insights for brand onboarding and education. 43 Table of Contents Equity Financings Convertible Preferred Stock Issuances ● Series AAA Junior Convertible Preferred Financing On the dates set forth in the applicable table below, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 2,857 shares of newly designated Series AAA Junior, AAA-2 Junior, AAA-3 Junior and AAA-4 Junior Convertible Preferred Stock, each series having a $0.001 par value and a $1,000 purchase price, hereinafter collectively referred to as “Series AAA Junior Preferred,” and the individual offerings of Series AAA Junior Preferred stock, hereinafter collectively referred to as the “Series AAA Junior Offerings”, raising gross proceeds of $2.9 million, before fees. ● Series AAA Convertible Preferred Financing On the dates set forth in the applicable table below, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 8,355 shares of newly designated Series AAA and AAA-2 Convertible Preferred Stock, each series having a $0.001 par value and a $1,000 purchase price, hereinafter collectively referred to as “Series AAA Preferred,” and the individual offerings of Series AAA Preferred stock, hereinafter collectively referred to as the “Series AAA Offerings”, raising gross proceeds of $8.4 million, before fees. ● Series AA Convertible Preferred Financing On the dates set forth in the applicable table below, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 11,781 shares of newly designated Series AA, AA-2, AA-3, AA-4 and AA-5 Convertible Preferred Stock, each series having a $0.001 par value and a $1,000 purchase price, hereinafter collectively referred to as “Series AA Preferred,” and the individual offerings of Series AA Preferred stock hereinafter collectively referred to as the “Series AA Offerings”, raising gross proceeds of $11.8 million, before fees. ● Series A Convertible Preferred Financing On the dates set forth in the applicable table below, we entered into subscription agreements with accredited investors in connection with the sale of an aggregate of 12,622 shares of newly designated Series A, A-2, A-3, A-4 and A-5 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”, raising gross proceeds of $12.6 million, before fees. In connection with the Series A Offerings, Series AA Offerings, Series AAA Offerings and Series AAA Junior Offerings (collectively, the “Preferred Offerings”), the Company filed Certificates of Designation of Preferences, Rights and Limitations of the respective series stock with the State of Delaware. Use of net proceeds from the Preferred Offerings for the periods presented included working capital, repayment of certain indebtedness and general corporate purposes, including sales and marketing activities and product development. The Company undertook the Preferred Offerings pursuant to certain placement agency agreements (collectively, the “Placement Agency Agreements”) with Aegis Capital Corporation, a New York corporation and registered broker-dealer and member of the Financial Industry Regulatory Authority (the “Placement Agent”), which acted as the Company’s exclusive placement agent for the Offerings. Pursuant to the terms of the Placement Agency Agreements, in connection with the closings of the Offerings, the Company paid the Placement Agent aggregate cash fees, and non-accountable expense allowances as disclosed in the applicable tables below, and issued to the Placement Agent or its designees warrants to purchase shares of common stock as disclosed in the tables below, at the conversion prices disclosed below. Refer to Liquidity and Capital Resources, below, and Note 7 for additional information. Common Stock Issuances On October 24, 2024, the Company entered into a securities purchase agreement with an accredited investor for the registered direct offering of an aggregate of 1,136,364 shares of the Company’s common stock, par value $0.001 per share (the “Shares”), at a purchase price of $0.88 per Share. The registered direct offering closed on October 25, 2024 and resulted in gross proceeds to the Company of approximately $1.0 million. The Shares were offered by the Company pursuant to a prospectus supplement to the Company’s then effective shelf Registration Statement on Form S-3, which was declared effective by the U.S. Securities and Exchange Commission on November 16, 2021 (File No. 333-259347). The Company filed a final prospectus supplement in connection with the Registered Direct Offering on October 25, 2024. On August 21, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp. (the “Underwriter”), relating to the Company’s public offering (the “Common Stock Offering”) of 778,653 shares of its common stock, and pre-funded warrants to purchase 67,500 shares of the Company’s common stock, in lieu of the Company’s common stock (the “Pre-Funded Warrants”, and collectively with the Shares, the “Firm Securities”) to certain investors. On August 23, 2023, the Company issued the Firm Securities and closed the Offering at a public price of $2.60 per share, and $2.58 per share underlying each Pre-Funded Warrant, for net proceeds to the Company of approximately $1.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Use of net proceeds from the Common Stock Offering for the periods presented included working capital and general corporate purposes, including sales and marketing activities and product development. The Firm Securities were offered, issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the Securities and Exchange Commission (the “SEC”) pursuant to an effective shelf registration statement filed with the SEC on Form S-3 (File No. 333-259347) (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), as supplemented by a prospectus supplement, dated August 23, 2023, relating to the Securities (together with the accompanying base prospectus, dated September 7, 2021, the “Prospectus Supplement”), filed with the SEC pursuant to Rule 424(b) of the Securities Act on August 23, 2023. Refer to “Liquidity and Capital Resources” and Note 7 below for additional information. 44 Table of Contents Debt Financings Agile Promissory Note On November 8, 2024 (the “Agile Effective Date”), the Company entered into a loan agreement with Agile Capital Funding, LLC, as collateral agent (“Agile”)(“ the Agile Loan Agreement”), pursuant to which the Company issued to Agile a Confessed Judgment Secured Promissory Note for an aggregate value of $1.85 million (the “Agile Note”). Pursuant to the Agile Loan Agreement: (i) the Agile Note matures 28 weeks from the Agile Effective Date; (ii) carries an aggregate total interest payment of approximately $0.78 million (the “Applicable Rate”), and (iii) immediately upon the occurrence and during the continuance of an Event of Default (as defined in the Agile Loan Agreement), interest shall accrue at a fixed per annum rate equal to the Applicable Rate plus five percent. The Company is required to repay all the obligations due under the Agile Loan Agreement and the Agile Note in 28 equal payments of $93,821, with the first payment being made to Agile on November 14, 2024, and every seven days thereafter until the Maturity Date. The proceeds received from the Agile Note were utilized to fund general working capital needs. Pursuant to the Agile Loan Agreement, upon the occurrence of certain events, including (a) a change in the Company’s business other than the business engaged in by the Company on the Agile Effective Date, (b) cause or permit, voluntarily or involuntarily, any Key Person to cease being actively engagement in the management of the Company without prior notice to Agile, (c) a change in control of the Company (expressly excluding the pending transactions with Infinite Reality, Inc.) or otherwise approve the liquidation or dissolution of the Company or its Subsidiary (collectively, a “Change in Business, Management, or Ownership”), or (d) the Term Loan is accelerated upon the occurrence of an Event of Default, the Company shall be required to immediately pay to Agile an amount equal to the sum of: (i) all outstanding principal of the Agile Note plus accrued and unpaid interest thereon through the prepayment date, (ii) a fee equal to the aggregate and actual amount of interest (at the contract rate of interest) that would be paid through the Maturity Date (the “Prepayment Fee”), plus (iii) all other obligations that are due and payable, including, without limitation, interest at the Default Rate with respect to any past due amounts. The Company is allowed to make a full or partial prepayment of any or all of the obligations arising under the Agile Loan Agreement and the Agile Note, provided, the Company shall be obligated to pay a contractual prepayment fee. The Agile Loan Agreement imposes various restrictions on the activities of the Company, including, subject to certain exceptions set forth in the Agile Loan Agreement (including, without limitation, the pending transactions with Infinite Reality, Inc.), a prohibition on: (i) creating, incurring, assuming, or being liable for any indebtedness, or allow the Subsidiary to do so (expressly excluding up to $3,000,000 of unsecured loans through one or more third parties); (ii) any Change in Business, Management, or Ownership; (iii) fundamental changes to the Company or its subsidiaries (including certain consolidations, mergers and sales/transfers of assets outside the ordinary course of business, and limitations on the ability of the Company and its Subsidiary to grant liens upon their property or assets); (iv) pay any dividends (other than dividends payable solely in capital stock) or make any distribution or payment in respect of or redeem, retire or purchase any capital stock; (v) enter into certain transactions with the Company’s affiliates; (vi) make or permit any payment on any debt that is subordinate to the obligations under the Agile Loan Agreement and the Agile Note (expressly excluding up to $3,000,000 of unsecured loans through one or more third parties); and (vi) other than in the ordinary course of business, entering into any material agreement, or terminating or materially amending a material agreement. As security for the full and prompt payment and performance of any obligations arising under the Agile Loan Agreement and the Agile Note, the Company and its Subsidiary granted to Agile a continuing first priority security interest in all the assets of the Company and its Subsidiary; provided, however, the filing of a financing statement and/or the taking of any action required to perfect Agile’s security interest in the collateral may only occur upon an event of default. The Agile Loan Agreement also provides for standard Events of Default, customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, arbitration, and the exercise of remedies upon a breach or default. In connection with entering into the Agile Loan Agreement, the Company was required to pay an administrative fee of $92,500 to the Collateral Agent, which was paid at the closing out of proceeds of the issuance of the Agile Note. On February 10, 2025 (the “Agile II Effective Date”), the Company entered into a Business Loan and Security Agreement (the “Agile II Loan Agreement”), with the Collateral Agent and Agile, pursuant to which the Company issued to Agile a Confessed Judgment Secured Promissory Note for an aggregate value of $2.5 million (the “Agile II Note”). Pursuant to the Agile II Loan Agreement: (i) the Agile II Note matures 32 weeks from the Agile II Effective Date; (ii) carries an aggregate total interest payment of approximately $1.05 million, and (iii) immediately upon the occurrence and during the continuance of an Event of Default (as defined in the Agile Loan Agreement), interest shall accrue at a fixed per annum rate equal to the applicable rate plus five percent. The Company is required to repay all the obligations due under the Agile II Loan Agreement and the Agile II Note in 32 equal payments of $110,937, with the first payment being made to Agile on February 17, 2025, and every seven days thereafter until the maturity date. The proceeds received from the Agile II Note will be used to fund general working capital needs. In connection with entering into the Agile Loan Agreement, the Company was required to pay an administrative fee of $125,000 to the Collateral Agent, which was paid at the closing out of proceeds of the issuance of the Agile II Note. $1.5 million of the Agile II Note was used to repay the remaining balance under the Agile Note, with net proceeds to the Company of approximately $875,000. Related Party Promissory Note On November 19, 2024 (the “RP Effective Date”), we entered into a Note Purchase Agreement (the “RP Purchase Agreement”) with a non-employee member of the Board (the “Purchaser”). Pursuant to the RP Purchase Agreement, the Company issued to the Purchaser an Unsecured Promissory Note (the “RP Note”) in the amount of $1,500,000 (the “RP Principal”), for which the RP Note (i) matures on the date that is 12 months from the RP Effective Date (the “RP Maturity Date”), (ii) may be pre-paid at any time by the Company without penalty, and (iii) accrues interest on the RP Principal at a rate of 40% simple interest per annum (the “RP Interest”). The RP Interest is payable on the RP Maturity Date. In the event of a prepayment of the RP Note by the Company, the RP Interest will be pro-rated for the period the RP Note is outstanding. The Company utilized the proceeds for working capital and general corporate purposes. 45 Table of Contents The RP Note also provides for: (i) standard events of default, including (a) any default in the payment of the RP Principal or RP Interest on their respective due dates, (b) the occurrence of a Bankruptcy Event (as defined in the Note), or (c) the Company commits any material breach or default of any material provision of the Note, if not cured within 20 days following the written notice from the Purchaser specifying in reasonable detail such breach or default (sections (a) through (c), the “Events of Default”); and (ii) customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, arbitration, and the exercise of remedies upon a breach or default. Upon the occurrence of an Event of Default, the RP Note will bear interest at the default interest rate of 45% per annum, and upon Purchaser’s written notice to the Company, all payments of RP Principal and RP Interest will become immediately due and payable. 1800 Diagonal Lending, LLC On March 26, 2025 (the “Diagonal Effective Date”), the Company and 1800 Diagonal Lending, LLC, a Virginia limited liability company, or registered assigns (“Diagonal”) entered into a Securities Purchase Agreement (the “Diagonal Agreement”), pursuant to which the Company issued a Convertible Promissory Note (the “Diagonal Note”) in the principal amount of $300,000 (the “Diagonal Principal”), for which the Diagonal Note, among other things, (a) matures on December 30, 2025 (unless otherwise accelerated upon an Event of Default (as defined below)) (the “Diagonal Maturity Date”), (b) accrues interest at a rate of 10% per annum on the unpaid principal balance from the date the Diagonal Note was issued (the “Diagonal Issuance Date”) until the principal and interest becomes due and payable, whether on the Maturity Date or upon acceleration by prepayment or otherwise, (c) interest begins to accrue on the Diagonal Issuance Date but shall not be payable until the Diagonal Note becomes payable, and (d) interest will accrue at a rate of 22% per annum for any amount of principal or interest which is not paid as required under the Diagonal Note, or during an Event of Default. Pursuant to the Diagonal Note, Diagonal has the right, from time to time, and at any time, during the period beginning on the date which is 180 days from the Diagonal Effective Date and ending on the earlier of (a) the Diagonal Maturity Date, or (b) the date of payment of the Default Amount, each in respect of the remaining outstanding amount of the Diagonal Note into fully paid and non-assessable shares of Common Stock at a price equal to 75% multiplied by the Market Price (as defined below) (the “Conversion Price”). For purposes of the Diagonal Note: (x) the “Market Price” means the lowest Trading Price for the Company’s Common Stock during the 10 trading ending on the latest complete trading day prior to the Diagonal Conversion Date; (y) the “Trading Price” means the closing price (or bid, if applicable) of the Company’s Common Stock as listed (or quoted, as applicable) on the principal securities exchange or trading market where it is listed or traded; and (z) the “Diagonal Conversion Date” means the date specified in the applicable notice of conversion, delivered to the Company by Diagonal in accordance with the Diagonal Note. Pursuant to the Diagonal Note, the following events, among other things, constitute an Event of Default: (i) failure to pay principal and interest when due; (ii) the Company fails to issue shares of Common Stock upon exercise of Diagonal’s conversion rights under the Diagonal Note; (iii) the Company’s breach of any material covenant or other material term or condition in the Diagonal note or the Diagonal Agreement, and such breach continues for a period of 20 business days after written notice from Diagonal; (iv) any breach of the representations and warranties set forth in both the Diagonal Agreement and the Diagonal Note; (v) the Company institutes any assignment for the benefit of creditors, or applies for or consents to the appointment of a receiver or trustee for it or for a substantial part of its property or business; (vi) the Company institutes, or any proceeding is instated against the Company, relating to any bankruptcy, insolvency, reorganization, or liquidation proceedings; (vii) the Company fails to maintain the listing of its Common Stock on the Nasdaq Capital Market or on the Over The Counter boards or an equivalent exchange; (viii) the Company failing to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or ceases to be subject to the reporting requirements of the Exchange Act; (ix) the Company institutes any dissolution, liquidation, or winding up of the Company or any substantial portion of its business; (x) the restatement of any financial statements filed by the Company with the Securities and Exchange Commission, if the result of such restatement would have constituted a material adverse effect on the rights of Diagonal; (xi) the Company proposes to replace its transfer agent and fails to provide a fully executed irrevocable transfer agent instructions signed by the successor transfer agent; and (xii) a breach or default by the Company of any covenant or other term or condition contained in any other agreement by the Company, after the passage of all applicable notice and cure or grace periods (each individually an “Event of Default”, and collectively, “Events of Default”). Upon the occurrence and during the continuation of any Event of Default that is enumerated in Section 3.2 of the Diagonal Note, the Diagonal Note shall become immediately due and payable, and the Company shall pay to Diagonal an amount equal to the Default Amount (as defined below), multiplied by two. For other Events of Default not enumerated in Section 3.2 of the Diagonal Note, the Diagonal Note shall become immediately due and payable in an amount equal to 150% times the sum of (a) the then outstanding principal amount of the Diagonal Note, plus (b) accrued and unpaid interest on the unpaid principal amount of the Diagonal Note to the date of payment, plus (c) Default Interest, if any, on the amounts referred to in clauses (a) and/or (b), plus (d) any amounts owed to Diagonal pursuant to Sections 1.3 and 1.4(g) of the Diagonal Note (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (b), (c) and (d) shall collectively be known as the “Default Amount”) and all other amounts payable under the Diagonal Note shall immediately become due and payable, together with all costs, including, without limitation, legal fees and expenses, of collection, and Diagonal shall be entitled to exercise all other rights and remedies available at law or in equity. 46 Table of Contents The Diagonal Note was issued with an Original Issue Discount of 4.75% (the “OID”), with net proceeds to the Company of $278,500 after giving deducting the OID, reimbursement of Diagonal’s expenses in an amount equal to $7,000, and other estimated offering expenses. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes. Refer to Note 6 to the consolidated financial statements. Belleau Note Purchase Agreement On March 28, 2025 (the “Belleau Effective Date”), we entered into a Note Purchase Agreement (the “Belleau Purchase Agreement”) with Belleau Wood Capital, LP, or its assigns (“Belleau”). Pursuant to the Belleau Purchase Agreement, the Company will issue to Belleau a total of three Unsecured Promissory Notes (each, a “Belleau Note” and collectively, the “Belleau Notes”) with an aggregate principal amount of $1,500,000 (the “Belleau Principal”). The consummation of the sale of the initial Belleau Note was consummated on the Belleau Effective Date, with gross proceeds to the Company of $300,000. The consummation of the sale of the two remaining Belleau Notes will occur in the amounts and on the dates as follows: (a) $600,000 on April 14, 2025; and (b) $600,000 on April 28, 2025. Each of the Belleau Notes: (x) matures on the date that is 12 months from the date of the issuance of each respective Belleau Note (collectively, the “Belleau Maturity Date”); (y) may be prepaid in part or in full at any time by the Company without penalty; and (z) accrues interest at a rate of 20% simple interest per annum (the “Belleau Interest Rate”, and the dollar value of the accrued interest, the “Belleau Interest”). The Belleau Interest that accrues on each respective Belleau Note is payable on each respective Belleau Maturity Date in the form of restricted shares of the Company’s Common Stock equal to 20% of the Belleau Principal, calculated at a price per share of $0.35. In the event of a prepayment of any Belleau Note by the Company, the Belleau Interest will be payable in full at the time of such prepayment. The Belleau Note also provides for: (i) standard events of default, including (a) any default in the payment of the Belleau Principal or Belleau Interest on their respective due dates, (b) the occurrence of a Bankruptcy Event (as defined in the Belleau Note), or (c) the Company commits any material breach or default of any material provision of the Belleau Note, if not cured within 20 days following the written notice from Belleau specifying in reasonable detail such breach or default (sections (a) through (c), the “Belleau Events of Default”); and (ii) customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, arbitration, and the exercise of remedies upon a breach or default. Upon the occurrence of an Event of Default, the Belleau Note will bear interest at the default interest rate of 20% per annum, payable in cash, and upon Belleau’s written notice to the Company, all payments of Belleau Principal and Belleau Interest will become immediately due and payable. The Company intends to utilize the proceeds from the sale of the Belleau Notes for working capital and general corporate purposes. The initial Belleau Note was issued without registration under the Securities Act, based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act. The two remaining Belleau Notes, along with the shares of the Company’s Common Stock payable as interest pursuant to the Belleau Notes, when issued according to the Belleau Purchase Agreement, will be issued without registration under the Securities Act, based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act. Belleau represented that it is an accredited investor, as defined in Rule 501(d) of the Securities Act, and that it has, and will continue to, acquire the applicable securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. Compliance with NASDAQ Listing Rule 5550(a)(2) and 5620(a) On January 2, 2025, the Company received a letter (the “ Bid Price Letter ”) from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC (“ Nasdaq ”) indicating that, based upon the closing bid price of the Company’s common stock, par value $0.001 per share (“ Common Stock ”), for the last 30 consecutive business days, the Company is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2). On January 3, 2025, the Company received a letter (the “ Annual Meeting Letter ”) from Nasdaq indicating that the Company no longer complies with Listing Rule 5620(a) (the “ Annual Meeting Rule ”) since it did not hold an annual meeting of stockholders within twelve months of the end of the Company’s fiscal year ended December 31, 2023. The Bid Price Letter and the Annual Meeting Letter have no immediate effect on the listing of the Company's Common Stock on The Nasdaq Capital Market.  47 Table of Contents The Company intends to monitor the closing bid price of its Common Stock. To regain compliance with Nasdaq Listing Rule 5550(a)(2), the closing bid price of the Company's Common Stock must be at least $1.00 per share for 10 consecutive business days during the 180-day period from January 2, 2025 to July 1, 2025. If the Company does not regain compliance with the minimum bid price requirement by July 1, 2025, Nasdaq may grant the Company a second 180-day period to regain compliance. To qualify for this additional 180-day compliance period, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, other than the minimum bid price requirement. In addition, the Company would also be required to notify Nasdaq of its intent to cure the minimum bid price deficiency by effecting a reverse stock split, if necessary. If the Company does not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Company's Common Stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel. On February 17, 2025, the Company submitted its plan to regain compliance to Nasdaq (the “Plan”). As of the date of this Report, the Company has not received a response from Nasdaq as to whether the Plan has been approved and there is no guaranty that Nasdaq will accept our Plan. See Item 1A, “Risk Factors- Governance Risks and Risks Related to our Common Stock - We received a notice from Nasdaq that our common stock may be delisted from trading on the Nasdaq Capital Market if we fail to comply with the continued listing requirements, including the minimum bid price requirement and annual meeting requirement. A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise additional financing.” Seasonality Our revenue fluctuates quarterly and is generally higher in the second half of our fiscal year, with the fourth quarter typically representing our highest revenue quarter each year. Advertising spending is traditionally seasonally strong in the second half of each year, reflecting the impact of seasonal back to school, game release and holiday season advertising spending by brands and advertisers. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflect relatively higher advertising revenue in the second half of each year, compared to the first half of the year. Results of Operations for the Fiscal Years Ended December 31, 2024 and 2023 We derived the financial data as of and for the Fiscal Years 2024 and 2023, set forth below, from our audited consolidated financial statements included elsewhere herein, and should be read in conjunction with those audited consolidated financial statements and related notes thereto, as well as the information found under this section. Our historical results are not necessarily indicative of the results to be expected in future periods. 48 Table of Contents The following table sets forth a summary of our results of operations for Fiscal Years 2024 and 2023: Fiscal Year Ended December 31, Change 2024 2023 $ % REVENUE $ 16,182,000 $ 25,079,000 $ (8,897,000 ) (35 )% COST OF REVENUE 10,080,000 15,297,000 (5,217,000 ) (34 )% GROSS PROFIT 6,102,000 9,782,000 (3,680,000 ) (38 )% OPERATING EXPENSE Selling, marketing and advertising 9,822,000 12,450,000 (2,628,000 ) (21 )% Engineering, technology and development 4,447,000 9,500,000 (5,053,000 ) (53 )% General and administrative 8,731,000 10,258,000 (1,527,000 ) (15 )% Contingent consideration (144,000 ) 1,075,000 (1,219,000 ) (113 )% Loss on intangible asset disposal - 9,336,000 (9,336,000 ) (100 )% Total operating expense 22,856,000 42,619,000 (19,763,000 ) (46 )% NET LOSS FROM OPERATIONS (16,754,000 ) (32,837,000 ) (16,083,000 ) (49 )% OTHER INCOME (EXPENSE), NET 280,000 2,194,000 (1,914,000 ) (87 )% Loss before (provision for) benefit from income taxes (16,474,000 ) (30,643,000 ) (14,169,000 ) (46 )% (Provision for) benefit from income taxes (161,000) 313,000 (474,000 ) (151 )% NET LOSS $ (16,635,000 ) $ (30,330,000 ) $ (13,695,000 ) (45 )% Comparison of the Results of Operations for the Fiscal Years Ended December 31, 2024 and 2023 Revenue Fiscal Year Ended December 31, Change 2024 2023 $ % Media and advertising $ 6,696,000 $ 10,919,000 $ (4,223,000 ) (39 )% Publishing and content studio 8,607,000 12,732,000 (4,125,000 (32 )% Direct to consumer 879,000 1,428,000 (549,000 ) (38 )% $ 16,182,000 $ 25,079,000 $ (8,897,000 ) (35 )% Fiscal Year 2024 2023 Number of customers > 10% of revenue / percent of revenue Two / 20% One / 14% By revenue category: Advertising and sponsorships One / 10% One / 3% Publishing and content studio One / 10% One / 11% ● Total revenue decreased $8.9 million, or 35% to $16.2 million, compared to $25.1 million in the comparable prior year period. The decrease in revenue for the periods presented reflected a mix of industry softness in ad sales, stemming from macro environmental factors including consumer spending softness, continued market education and adoption of immersive platforms as a marketing channel, structural shifts in platform ad ecosystems, the shift of certain revenues and program start delays to future periods by advertisers, and a reduction in Minehut related media sales revenues in connection with the sale of our Minehut digital property in the first quarter of 2024. ● Media and advertising revenue decreased $4.2 million, or 39%, to $6.7 million, compared to $10.9 million in the comparable prior year period. The change reflected a $3.2 million decrease in on-platform related media sales revenue and a $1.2 million decrease in influencer marketing revenue, partially offset by a $162,000 increase in off-platform related media sales revenue. The decrease in on-platform related media revenue reflects the impact of the sale of our Minehut Assets discussed above. Minehut related media sales for Fiscal year 2024 and 2023 totaled $1.0 million and $1.2 million, respectively. ● Publishing and content studio revenue decreased $4.1 million, or 32%, to $8.6 million, compared to $12.7 million in the comparable prior year period. Revenue for Fiscal Year 2023 included a significant custom game development project for a customer totaling approximately $2.7 million. Publishing and content studio revenue for Fiscal Year 2024 included custom game development and immersive experience related revenues for the International Olympic Committee (“IOC”), Google, Inc., Visa, Inc., Maybelline, Claire’s, Kraft Lunchables, Skechers, The Lego Group, DreamWorks: The Wild Robot, Avid Technology, Universal Pictures, American Heart Association, American Egg Board, Bandi Namco Entertainment America Inc, Lionsgate Ancillary LLC, Logitech Inc., and Paramount Global/Viacom CBS Inc., among others. Publishing and content studio revenues for Fiscal Year 2023 included revenues for immersive experiences for Kraft Lunchables, Lego, Dave & Busters, Proctor & Gamble, Yas Island, Hamiliton, Arm & Hammer, Universal Pictures, “Trolls Band Together,” Universal Pictures, “Migration”, Canon and Motorola Solutions. ● Direct to consumer revenue decreased $549,000, or 38%, to $879,000, compared to $1.4 million in the comparable prior year period. The decrease primarily reflects the impact of the sale of our Minehut Assets in the first quarter of 2024, which prior to the sale, generated direct to consumer Minecraft server related subscription revenues for the Company. Minehut direct to consumer related revenues for Fiscal year 2024 and 2023 totaled $140,000 and $576,000, respectively. 49 Table of Contents Cost of Revenues 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, internal and third-party game developers, content capture and production services, direct marketing, cloud services, software, prizing, and revenue sharing fees. Cost of revenue fluctuates period to period based on the specific programs and revenue streams contributing to revenue each period and the related cost profile of our immersive digital experiences, media and advertising campaigns and publishing and content studio sales activities occurring each period. Cost of revenue decreased $5.2 million, or 34%, driven primarily by the 35% decrease in related revenues for the fiscal year periods presented. Operating Expense Fiscal Year Ended December 31, Change 2024 2023 $ % Selling, marketing and advertising $ 9,822,000 $ 12,450,000 $ (2,628,000 ) (21 )% Engineering, technology and development 4,447,000 9,500,000 (5,053,000 ) (53 )% General and administrative 8,731,000 10,258,000 (1,527,000 ) (15 )% Contingent consideration (144,000 ) 1,075,000 (1,219,000 ) (113 )% Loss on intangible asset disposal - 2,284,000 (2,284,000 ) (100 )% Impairment of intangible assets and goodwill - 7,052,000 (7,052,000 ) (100 )% Total operating expense $ 22,856,000 $ 42,619,000 $ (19,763,000 ) (46 )% Noncash Stock-Based Compensation Expense Noncash stock-based compensation expense for the periods presented was included in the following operating expense line items: Fiscal Year Ended December 31, Change 2024 2023 $ % Selling, marketing and advertising $ 488,000 $ 879,000 $ (391,000 ) (44 )% Engineering, technology and development 30,000 219,000 (189,000 ) (86 )% General and administrative 771,000 1,637,000 (866,000 ) (53 )% Total noncash stock-based compensation expense $ 1,289,000 $ 2,735,000 $ (1,446,000 ) (53 )% ● The net decrease in noncash stock compensation expense was primarily due to a $495,000 reduction in noncash stock compensation expense due to the Executive Grant Modifications and Employee Grant Modifications described below, including accelerated vesting due to partial vesting of a portion of the replacement grants in the prior year period, a $248,000, decrease due to net reductions in headcount in the current and prior year period, and a $444,000 reduction in connection with the granting of the Modified PSUs, with accelerated amortization in the prior year period, due to the market based vesting conditions and use of a Monte Carlo simulation model and lower grant date fair values reflecting lower stock prices on the applicable grant date, compared to the Original PSUs expensed in the prior year period. The overall reduction in noncash stock compensation expense also reflects the decrease in the average grant date fair values for equity awards expensed during Fiscal Year 2024, compared to Fiscal Year 2023. Modifications to Equity-Based Awards ● On January 1, 2022, the Company issued 67,500 performance stock units (“Original PSUs”) under the Company’s 2014 Amended and Restated Stock Option and Incentive Plan, which vest in five equal increments of 13,500 PSUs, based on satisfaction of certain market based vesting conditions. The Original PSUs were fully expensed as of June 30, 2023. Noncash stock compensation expense related to the Original PSUs totaled $0 and $299,000 for the years ended December 31, 2024 and 2023, respectively. ● On April 30, 2023, the Board approved the cancellation of the 67,500 Original PSUs previously granted to certain executives (four plan participants in total) under the 2014 Plan (as described above). In exchange for the cancelled Original PSUs, the executives were granted an aggregate of 67,500 PSUs, which vest, over a five-year term, upon the Company’s common stock achieving certain VWAP goals as described at Note 8, elsewhere herein (“Modified PSUs”). Total incremental compensation cost related to the Modified PSUs totaled $540,000 which is recognized prospectively over the implied service period, ranging from .69 years to 1.5 years, calculated in connection with the Monte Carlo simulation model used to determine the fair value of the equity awards immediately before and after the modifications. Net noncash stock compensation expense related to the Modified PSUs totaled $130,000 and $351,000 for the years ended December 31, 2024 and 2023, respectively. 50 Table of Contents ● On April 30, 2023, the Board approved the cancellation of certain stock options to purchase an aggregate of 58,951 shares of the Company’s common stock previously granted to certain executives and employees (six plan participants in total) under the Company’s 2014 Amended and Restated Employee Stock Option and Incentive Plan (the “2014 Plan”), with an average exercise price of approximately $56.40. In addition, the Board approved the cancellation of certain warrants to purchase an aggregate of 26,100 shares of the Company’s common stock previously granted to certain executives and employees, with an average exercise price of approximately $199.80. In exchange for the cancelled options and warrants, certain executives and employees were granted options to purchase an aggregate of 305,000 shares of common stock under the 2014 Plan, at an exercise price of $9.80 (the closing price of the Company’s common stock as listed on the Nasdaq Capital Market on April 28, 2023, the last trading day before the approval of the awards), with one-third of the options vesting on the April 30, 2023, the grant date, with the remainder vesting monthly over the thirty-six month period thereafter, subject to continued service (“Executive Grant Modifications”) (collectively, “Modified Executive Grants”). The grant and exercise of the Modified Executive Grants was contingent upon the Company receiving approval from its stockholders to increase the number of shares available under the 2014 Plan, which was obtained in connection with the Company’s 2023 annual shareholder meeting in September 2023. As such, the grant date and the commencement of noncash stock compensation amortization for the Modified Executive Grants was September 7, 2023. Total incremental compensation cost related to the Modified Executive Grants totaled $347,000, $112,000 of which related to vested awards as of the modification date and was recognized as expense immediately, and $235,000 related to unvested awards which is recognized prospectively over the remaining service period of 3 years. Net noncash stock compensation expense related to the Modified Executive Grants totaled $221,000 and $573,000 for the years ended December 31, 2024 and 2023, respectively. ● On May 1, 2023, the Board approved the cancellation of options to purchase an aggregate of 29,224 shares of the Company’s common stock previously granted to its employees (68 plan participants in total) under the 2014 Plan, in exchange for newly issued options to purchase an aggregate of 63,900 shares of the Company’s common stock under the 2014 Plan, at an exercise price equal to the closing trading price on May 1, 2023, or $9.81, with a range of zero to one-third of the options vesting on the May 1, 2023, the grant date, dependent upon the tenure of the employee, and the remainder vesting monthly over the forty-eight month period thereafter, subject to continued service (“Employee Grant Modifications”)(collectively, “Modified Employee Grants”). Unrecognized compensation expense related to the original award as of the date of the Employee Grant Modifications totaled $960,000 which is recognized prospectively over the remaining service period of 4 years. Total incremental compensation cost related to the Modified Employee Grants totaled $449,000, $101,000 of which related to vested awards as of the modification date and was recognized as expense immediately, and $348,000 related to unvested awards which is recognized prospectively over the remaining service period of 4 years. Net noncash stock compensation expense related to the Modified Employee Grants totaled $158,000 and $300,000 for the years ended December 31, 2024 and 2023, respectively. Intangible Asset Amortization Expense Intangible asset amortization expense for the periods presented was included in the following operating expense line items: Fiscal Year Ended December 31, Change 2024 2023 $ % Sales, marketing and advertising $ 773,000 $ 2,125,000 $ (1,352,000 ) (64 )% Engineering, technology and development 1,070,000 2,331,000 (1,261,000 ) (54 )% General and administrative 701,000 782,000 (81,000 ) (10 )% Total amortization expense $ 2,544,000 $ 5,238,000 $ (2,694,000 ) (51 )% The net decrease in amortization expense was primarily due to a $7.1 million write-down of our partner relationship related intangible assets in the fourth quarter of Fiscal Year 2023, comprised of our Microsoft Minecraft server and InPvP developed technology intangible assets originally acquired in connection with the acquisition of Mobcrush, Inc. in June 2021. The write-down resulted in a $7.1 million decrease in the carrying value of the related intangible assets as of December 31, 2023, and a corresponding decrease in scheduled future quarterly and annual amortization expense for the remaining carrying value of the applicable intangible assets, commencing in the first quarter of 2024 (remaining carrying value totaled $860,000 as of December 31, 2023). Amortization expense related to our partner relationship related intangible assets, comprised of our Microsoft Minecraft server and InPvP developed technology intangible assets, for the years ended December 31, 2024 and 2023 totaled $200,000 and $2,009,000, respectively. In addition, as described above, the Company sold its Minehut related assets to GamerSafer, Inc., with a carrying value of $475,000 as of February 26, 2024, the date of sale, resulting in a net decrease in related amortization expense for Fiscal Year 2024. Minehut asset related amortization expense totaled $86,000 and $682,000 for the years ended December 31, 2024 and 2023, respectively. 51 Table of Contents In June 2023, the Company assigned the intangible assets originally acquired in connection with the Company’s acquisition of Bannerfy in fiscal year 2021, to the original sellers. The assets were disposed of in connection with management’s review of operations and decision to allocate resources elsewhere. As a result, in the second quarter of 2023, the Company recorded a write-off of net developed technology related intangible assets acquired in connection with the acquisition of Bannerfy totaling $2,284,000. Amortization expense for the disposed Bannerfy related intangible assets for the years ended December 31, 2024 and 2023 totaled $0 and $201,000, respectively. Selling, Marketing and Advertising Selling, marketing and advertising expense decreased $2.6 million or 21%, primarily due a $1.4 million, or 64% reduction in amortization expense related to the write-down of our partner relationship related intangible assets as described above, an $874,000, or 63% decrease in sales commission and performance based compensation primarily due to the related decrease in revenues for the periods presented, and a $391,000, or 44% net decrease in selling and marketing personnel related noncash stock compensation expense as described above. Engineering, Technology and Development For the periods presented, components of our platform are available on a “free to use,” “always on basis,” 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 expense include 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. Capitalized internal use software development costs are amortized on a straight-line basis over the software’s estimated useful life. Engineering, technology and development costs decreased $5.1 million, or 53%, driven primarily by the following: ● Decrease in cloud services and other technology platform costs totaling $1.6 million, or 67%, and a decrease in product and engineering personnel and noncash stock compensation expense totaling $2.0 million, or 48%, and $189,000, or 86%, respectively, reflecting the impact of related personnel and other cost reduction activities, including the sale of our Minehut assets. ● Decrease in developed technology related intangible asset amortization expense totaling $1.3 million, or 54% resulting primarily from the write-down of our Microsoft Minecraft Server, InPvP developed technology and Bannerfy technology related intangible assets, respectively, during Fiscal Year 2023, as described above. General and Administrative General and administrative expense for the periods presented was comprised of the following: Fiscal Year Ended December 31, Change 2024 2023 $ % Personnel costs $ 1,805,000 $ 2,605,000 $ (800,000 ) (31 )% Office and facilities 179,000 202,000 (23,000 ) (11 )% Professional fees 1,016,000 798,000 218,000 27 % Stock-based compensation 771,000 1,638,000 (867,000 ) (53 )% Depreciation and amortization 770,000 866,000 (96,000 ) (11 )% Other 4,190,000 4,149,000 41,000 1 % Total general and administrative expense $ 8,731,000 $ 10,258,000 $ (1,527,000 ) (15 )% The net decrease in general and administrative expense for the periods presented was primarily due to the following: ● Personnel costs decreased due to headcount reductions in various corporate, general and administrative functions in connection with ongoing cost reduction and optimization activities. ● Professional fees expense increased in Fiscal Year 2024 due to additional audit and third-party valuation fees incurred in connection with various Fiscal Year 2023 complex, nonstandard transactions, including the Melon Acquisition and various technical accounting related aspects associated with preferred stock outstanding, and related freestanding equity instruments. 52 Table of Contents ● Noncash stock compensation expense included in general and administrative expense decreased primarily due to a $244,000 net reduction in noncash stock compensation expense in connection with the Executive Grant Modification described above, and a $204,000 net reduction due to reductions in headcount and equity awards granted in prior periods that where fully vested during Fiscal Year 2024 or prior, with higher average grant date fair values than equity awards granted and included in expense subsequent to December 31, 2023. The decrease also reflects a $359,000 net reduction in noncash stock compensation expense in connection with the Original PSUs, with an estimated average grant date fair value of $36.16, and which were fully expensed as of September 30, 2023, and the Modified PSUs, with an average grant date fair value of $8.00 and are amortized on an accelerated basis over the implied service period due to the utilization of a Monte Carlo simulation model to determine the estimated fair value of the equity-based award. ● Other expense for Fiscal Year 2024 included noncash legal settlement expense incurred in connection with the Pioneer Settlement, described at Note 10 to the Financial Statements accompanying this Report, comprised of $516,000 of noncash expense in connection with the issuance of 550,000 shares of common stock to Pioneer; the noncash incremental fair value totaling $283,000, related to Pioneer and other AA AIRs (see Note 7 to the Financial Statements accompanying this Report), which were modified to include a reduction in exercise price and an extension of the exercise term, as described at Note 7; and a $164,000 noncash legal settlement charge related to the adjustment of the estimated fair value (i.e. mark-to-market), as of the issuance date, for common stock issued pursuant to the Note Holder Settlement Agreement, as described at Note 10. The increase was partially offset by a reduction in information technology, insurance and other corporate costs in connection with ongoing cost reduction activities. Other expense for Fiscal Year 2023 included noncash legal settlement expense incurred in connection with the settlement of matters involving the Note Holders (as defined at Note 6) related to certain claims arising from an interpretation of certain rights that the Note Holders had pursuant to the terms of the SPA (as defined at Note 6). On March 12, 2024, the Company and the Note Holders (the “Parties”) executed a Mutual General Release and Settlement Agreement (the “Settlement Agreement”) settling all claims between the Parties with respect to the SPA. In consideration for the Settlement Agreement, the Company agreed to issue an aggregate amount of 500,000 shares of common stock (the “Settlement Payment”). The Company accrued the fair value of the Settlement Payment as of December 31, 2023, resulting in a noncash settlement charge of $760,000 which is included in general and administrative expense in the consolidated statements of operations. Contingent Consideration Super Biz Acquisition In connection with the Super Biz Acquisition described at Note 5, 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, 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. Contingent Consideration was originally recorded as a liability in the consolidated balance sheets in accordance with 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 at fair value and re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The change in accrued Super Biz Contingent Consideration and the related impact on our consolidated statements of operations for the periods presented was comprised of the following: Fiscal Year Ended December 31, 2024 2023 Beginning balance $ 1,670,000 $ 3,206,000 Change in fair value (3) (9,000 ) 137,000 Current period accrued contingent consideration 142,000 1,750,000 Contingent consideration payments (2) (38,000 ) (3,423,000 ) Issuance of Super Biz Note (as described below) (1) (1,765,000 ) - Accrued contingent consideration (1) $ - $ 1,670,000 (1) As of December 31, 2024, reflects the cash portion of the Super Biz Second Earn Out Period related contingent consideration payable. As of December 31, 2023, includes 27,968 shares of common stock valued at $1.52, the closing price of our common stock as of the applicable period end date. (2) In May 2024, the Company paid accrued contingent consideration related to the Super Biz Second Earn Out Period, comprised of 30,330 shares of our common stock valued at $38,000. In April 2023, the Company paid accrued contingent consideration related to the Initial Earn Out Period, comprised of $2.9 million of cash payments and payment of 49,399 shares of our common stock valued at $548,000. (3) Reflected in the consolidated statements of operations for the applicable period. 53 Table of Contents Issuance of Promissory Note . In August 2024, the Company issued an unsecured promissory note to the Founders (as defined at Note 5) in connection with the remaining Super Biz Second Earn Out Period accrued contingent consideration outstanding, with a principal amount totaling approximately $1.8 million, whereby the Company is obligated to pay the outstanding contingent consideration on the following repayment terms (“Super Biz Note”): (i) upon receipt of new equity funding in the aggregate amount of $3.0 million or more subsequent to the date of the Super Biz Note, in one transaction or series of transactions, the Super Biz Note shall be repaid with interest in four (4) equal monthly installments commencing on the initial closing date of such equity funding; (ii) upon receipt of new equity funding in the aggregate amount of $5.0 million or more subsequent to the date of the Super Biz Note, in one transaction or series of transactions, the Super Biz Note shall be repaid with interest in three (3) equal monthly installments commencing on the initial closing date of such equity funding; (iii) upon new equity funding received by the Company in the aggregate amount of $7.0 million or more subsequent to the date of the Super Biz Note, in one transaction or series of transactions, the Super Biz Note shall be repaid with interest in two (2) equal monthly installments commencing on the initial closing date of such equity funding; or (iv) in the event none of subsections 2(i)-(iii) occur, then the Super Biz Note shall be repaid in full on June 1, 2025 (the “Maturity Date”). Interest accrues on the outstanding principal at the rate of 8.5% per annum, and accrues until the earlier of (i) repayment of the Super Biz Note in full, or (ii) the Maturity Date; provided, however, during the existence of an event of default, as defined in the Super Biz Note, interest shall accrue on all outstanding principal at the contractual default rate, as defined in the Super Biz Note. Super Biz Note related interest expense for Fiscal Year 2024 totaled $64,000. All outstanding principal and accrued interest may be prepaid by the Company prior to the Maturity Date at the election of the Company. Upon the occurrence of any event of default, as defined in the Super Biz Note, the Founders may at any time declare all unpaid obligations to be immediately due and payable. Melon Acquisition On May 4, 2023, Super League entered into the Melon Purchase Agreement with Melon, pursuant to which the Company acquired the Melon Assets. In connection with the Melon Acquisition described at Note 5, contingent consideration is recorded as a liability in the accompanying consolidated balance sheets in accordance with 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 at fair value and re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The fair value of the Melon Contingent Consideration on the valuation date was determined utilizing a Monte Carlo simulation model and measured using Level 3 inputs. Assumptions utilized in connection with utilization of the Monte Carlo simulation model as of December 31, 2024 included a risk free interest rate of 4.79%, a volatility rate of 70%, a closing stock price of $2.15 and a discount rate of 30%. The change in fair value, which is included in contingent consideration expense in the accompanying consolidated statements of operations for the periods presented was comprised of the following: Fiscal Year Ended December 31, 2024 2023 Beginning balance $ 538,000 $ - Contingent Consideration – Initial accrual – May 2023 - 1,350,000 Change in fair value (4) (148,000 ) (682,000 ) Current period accrued contingent consideration (130,000 ) 61,000 Post closing adjustments (2) - (191,000 ) Contingent consideration payments (3) (122,000 ) - Accrued contingent consideration (1) $ 138,000 $ 538,000 (1) As of December 31, 2024, the accrual for the Second Earn Out Period included 35,775 shares of common stock valued at $0.62, the closing price of our common stock as of December 31, 2024. As of December 31, 2023, the accrual for the First Earn Out Period totaling $333,000, included 72,118 shares of common stock valued at $1.52, the closing price of our common stock as of December 31, 2023. 54 Table of Contents (2) The Melon Purchase Agreement provided for adjustments to the calculated Melon Contingent Consideration amounts to account for advanced payments made to Melon from customers prior to the Melon Acquisition Date, for which the corresponding work was not performed as of the Melon Acquisition Date. (3) In May 2024, the Company paid Melon Accrued Contingent consideration related to the Melon First Earn Out Period, comprised of $32,000 of cash payments and payment of 72,118 shares of our common stock valued at $90,000 on the date of issuance. (4) Reflected in the consolidated statements of operations for the applicable period. Loss on intangible asset disposal In June 2023 , the Company assigned the intangible assets originally acquired in connection with the Company’s acquisition of Bannerfy in fiscal year 2021, to the original sellers. The assets were disposed of in connection with management’s review of operations and decision to allocate resources elsewhere. As a result, the Company recorded a disposal of net developed technology related intangible assets acquired in connection with the acquisition of Bannerfy totaling $2,284,000, which is included in “Loss on intangible asset disposal” in the accompanying consolidated statements of operations for Fiscal Year 2023. Intangible Asset Impairment Impairment Charges. In the fourth quarter of Fiscal Year 2023 we recorded a non-cash impairment charge related to our partner relationship related intangible assets, comprised of our Microsoft Minecraft server and InPvP developed technology intangible assets originally acquired in connection with the acquisition of Mobcrush, Inc. in June 2021. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant underperformance relative to expected historical or projected future operating results, and significant changes in the manner of our use of the acquired assets or the strategy in the context of our overall business. Due to underperformance relative to historical and projected future operating results and a decision to deploy resources in other areas of the business, we performed an impairment analysis and determined that the sum of the expected undiscounted future cash flows resulting from the use of the assets was less than the carrying amount of the assets, resulting in an impairment loss totaling $7.1 million, which is recorded in the accompanying consolidated statements of operations for Fiscal Year 2023. The fair value was determined using a discounted cash flow approach, with cash flow projections over the remaining life of the intangible assets of five years and a discount rate of 16% based on the Company’s estimated cost of capital. The impairment charge was based on the difference between the calculated fair value of the intangible assets totaling $860,000 and the carrying value of the applicable intangible assets which totaled $7,912,000 as of December 31, 2023. There were no intangible asset impairment charges recorded for the year ended December 31, 2024. Other Income (Expense) Gain on Sale of Minehut Assets On February 29, 2024, the Company sold its Minehut related assets (“Minehut Assets”) to GamerSafer, in a transaction approved by the Board. Pursuant to the GS Agreement, the Company will receive $1.0 million of purchase consideration (“Minehut Purchase Consideration”) for the Minehut Assets, which amount will be paid by GamerSafer in revenue and royalty sharing over a multiple-year period, as described in the GS Agreement. Other than with respect to the GS Agreement, there is no relationship between the Company or its affiliates with GamerSafer or its affiliates. The transaction allows Super League to streamline its position in partnering with major brands to build, market, and operate 3D experiences across multiple immersive platforms, including open gaming powerhouses like Minecraft, and aligns with the Company’s cost improvement initiatives. Super League and GamerSafer will maintain a commercial relationship which ensures that Minehut can remain an ongoing destination available to Super League’s partners. The carrying value of Minehut related assets totaled $475,000 as of February 26, 2024, comprised of total carrying costs of $1,671,000, net of accumulated amortization of $1,196,000, and historically were included in intangible assets, net in the consolidated balance sheet. The Company initially recorded a receivable for the total estimated Minehut Purchase Consideration totaling $619,000, of which $224,000 was included in prepaid expense and other current assets and $395,000 was included in other receivables in noncurrent assets, and recognized a gain on sale of the Minehut Assets totaling $144,000, which was included in other income in the consolidated statements of operations. The Minehut Purchase Consideration in the GS Agreement is variable pursuant to the guidance set forth in ASC 606. Under ASC 606, purchase consideration is variable if the amount the Company will receive is contingent on future events occurring or not occurring, even though the amount itself is fixed. As such, the Company estimated the amount of consideration to which the Company will be entitled, in exchange for transferring the Minehut Assets to GamerSafer, utilizing the expected value method which is the sum of probability-weighted amounts in a range of possible consideration outcomes over the applicable contractual payment period, resulting in an estimated receivable of $619,000. Amounts collected over and above the estimated purchase consideration recorded at contract inception, if any, will be recognized as additional gains on the sale of Minehut Assets when realized in future periods, up to the $1.0 million stated contractual amount of Minehut Purchase Consideration. Additional gains recorded subsequent to the sale and initial accounting for the transaction totaled $39,000, resulting in a cumulative gain on sale for Fiscal Year 2024 totaling $183,000. 55 Table of Contents Change in Fair Value of Warrant Liability Series AAA Junior -3 and Series AAA Junior – 4 Warrants The Series AAA Junior-3 and Series AAA Junior-4 subscription agreements entered into in September 2024, included the sale of an aggregate of 1,096 units (the “Units”), each Unit consisting of (i) one share of newly designated Series AAA-3 Junior Convertible Preferred Stock or Series AAA-4 Junior Convertible Preferred Stock, as reflected in the table above, and (ii) a warrant to purchase 1,000 shares of the Company’s common stock (the “September 2024 Series AAA Junior Investor Warrants”), at a purchase price of $1,000 per Unit, for aggregate gross proceeds to the Company of approximately $1,096,000. The Investor Warrants are exercisable at $1.00 per share at the option of the holder, subject to adjustment, are exercisable immediately upon issuance and expire three years from the respective issue dates of the Units, subject to certain beneficial ownership limitations. The Investor Warrants contain customary adjustments in the event of stock splits, stock dividends and other corporate events, and contain price-based anti-dilution protections. Any price-based anti-dilution adjustments are conditioned on, and subject to, Stockholder Approval. The September 2024 Series AAA Junior Investor Warrant agreements also contain a provision that states that, upon exercise of the warrant by an investor, if for any reason the company fails to deliver the shares by the settlement date, the investor can require the company to make a cash payment (“Buy-In Provision”). The cash payment would be based on the amount (if any) that the investor lost by having to purchase shares in the open market because of the company’s failure to deliver the shares. As a result of the Buy-In Provision, the ability to deliver shares upon exercise of the Investor Warrants in every circumstance is generally not within the control of the Company as contemplated by the accounting standards, and thus, a partial cash settlement may be required outside of the Company’s control. As such, the September 2024 Series AAA Junior Investor Warrants do not meet the requirements for equity classification, and therefore, the fair value of the September 2024 Series AAA Junior Investor Warrants are recorded as a liability on the consolidated balance sheet and re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. Refer to the table below. Placement Agent Warrants The Placement Agent Warrants issued in connection with the Series A Preferred Stock, Series AA Preferred Stock and Series AAA Preferred Stock (including the Exchange), described above, include provisions that are triggered in the event of the occurrence of a Fundamental Transaction, as defined in the underlying warrant agreement, which contemplates the potential for certain transactions that result in a third-party acquiring more than 50% of the outstanding shares of common stock of the Company for cash or other assets. Given the existence of multiple classes of voting stock for the Company, as described above, the Fundamental Transaction provisions in the warrant agreements could result in a 50% or more change in ownership of outstanding common stock, without a 50% change in voting interests. As such, the Placement Agent Warrants are not eligible for the scope exception under ASC 815, and therefore, the fair value of the Placement Agent Warrants are recorded as a liability on the consolidated balance sheet and re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The fair value and change in the fair value of the warrant liability, measured using Level 3 inputs, and the related income statement impact was comprised of the following for the applicable periods presented: For the Year Ended December 31, 2024 2023 Series AAA Junior-3 and Series AAA Junior-4 Warrants: Beginning balance $ - $ - Initial fair value of warrant liability – grant date (1) 346,000 - Change in fair value 2,000 - Subtotal - fair value of warrant liability - Series AAA Junior -3 and Series AAA Junior – 4 Warrants 348,000 - Placement Agent Warrants: Beginning balance $ 1,571,000 $ - Initial fair value of warrant liability – grant date (1) 133,000 4,469,000 Change in fair value (1,117,000 ) (2,898,000 ) Subtotal - fair value of warrant liability – Placement Agent Warrants 587,000 1,571,000 Total fair value of warrant liability $ 935,000 $ 1,571,000 (1) Estimated fair value on the date of issuance. 56 Table of Contents Interest Expense Interest expense for the periods presented was comprised of the following: Fiscal Year Ended December 31, 2024 2023 Super Biz Note: Accrued Interest $ 64,000 $ - Hudson Note: Interest expense, including accrued interest 194,000 - Change in fair value 225,000 - RP Note: Interest expense, including accrued interest 71,000 - Change in fair value (62,000 ) - SLR Facility: Interest expense and other fees 63,000 3,000 Other 4,000 47,000 Total interest expense $ 559,000 $ 50,000 Loss on Extinguishment of Liability In August 2024, the Company issued the Super Biz Note to the Founders in connection with the remaining Super Biz Second Earn Out Period accrued contingent consideration outstanding, with a principle amount totaling approximately $1.8 million. Interest accrues on the outstanding principal at the rate of 8.5% per annum, and accrues until the earlier of (i) repayment of the Super Biz Note in full, or (ii) the Maturity Date. In addition, in connection with the issuance of the Super Biz Note, during the period commencing January 2, 2025 and concluding on January 6, 2025, the Company will issue 262,501 shares of the Company’s common stock to the Founders, valued at $336,000, based on the closing price of our common stock on the date of issuance of Super Biz Note. The issuance of the Super Biz Note in exchange for the related accrued contingent consideration balance was accounted for as an extinguishment of the original liability due to the fact that the present value of the cash flows under the terms of Super Biz Note was determined to be at least 10 percent different from the present value of the remaining cash flows under the terms of the original obligation. As a result, a gain on extinguishment totaling $336,000 was recorded in the consolidated statements of operations, and credited to additional paid in capital (included in “Other” in the consolidated statements of stockholder’s equity), for Fiscal Year 2024, primarily comprised of the fair value of the 262,501 shares of restricted stock to be issued, as described above. The default interest provision included in the Super Biz Note represents an embedded derivative with a fair value of $171,000 as of August 1, 2024, the date of issuance of the Super Biz Note. The fair value of the derivative liability is included in the December 31, 2024 consolidated balance sheet under the caption “Promissory note – contingent consideration,” and is required to be marked to market at each balance sheet date. The change in fair value of the derivative liability totaled ($94,000) for Fiscal Year 2024. Loss on Exchange of Placement Agent Warrants In December 2023, as further described in Note 7, with respect to shares of Series AAA Preferred Stock issued in exchange for shares of Series A Preferred and Series AA Preferred, in the Series AAA Offerings (the “Exchange”), the Placement Agent exchanged previously issued Placement Agent Warrants to purchase 88,403 shares of common stock of the Company that were issued in connection with the Company’s Series A Offerings and Series AA Offerings, at exercise prices ranging from $7.60 to $13.41 per share, for new Placement Agent Warrants to purchase a total of 347,428 shares of common stock at an exercise price of $1.674 per share and 199,778 shares of common stock at an exercise price of $1.71 per share. The terms of the new Placement Agent Warrants and the original placement agent warrants (recorded as a liability under ASC 815) was determined to be substantially different based on an analysis of the fair value of each instrument immediately before and after the modification, resulting in a loss on extinguishment, recognized in other income (expense) in the consolidated statements of operations for Fiscal Year 2023, totaling $681,000. 57 Table of Contents Debt Issuance Costs The Company paid debt issuance costs totaling $180,000 in connection with the issuance of the Agile Note as described at Note, which is included in “Other” in Other Income and expense in the consolidated statements of operations for FY 2024. (Provision) Benefit for Income Taxes Provision for income taxes for Fiscal Year 2024, totaling $161,000, reflects noncash tax expense recorded in connection with the tax treatment of changes in contingent consideration payable as of December 31, 2024. A corresponding deferred tax liability totaling $161,000 is reflected in the consolidated balance sheet as of December 31, 2024. In June 2023, the Company assigned the intangible assets originally acquired in connection with the Company’s acquisition of Bannerfy, Ltd. (“Bannerfy”)(the “Bannerfy Acquisition”) in 2021, to the original sellers, as described at Note 4. 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 carried over, with no step-up to fair value of the underlying tax bases of the acquired net assets. The acquisition method of accounting included the establishment of a net deferred tax 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 FASB ASC Topic 805 – Business Combinations (“ASC 805”), a difference between the book and tax bases of the assets arises. FASB ASC Topic 740 – Income Taxes (“ASC 740”), required the use of simultaneous equations to determine the assigned value of the asset and the related deferred tax asset or liability. As a result of the disposal of the Bannerfy intangible assets, the Company fully amortized the related remaining net deferred tax liability, resulting in a $313,000 tax benefit reflected in the consolidated statements of operations for Fiscal Year 2023. Liquidity and Capital Resources General Cash and cash equivalents totaled approximately $1.3 million and $7.6 million at December 31, 2024 and 2023, respectively. The change in cash and cash equivalents for the periods presented reflects the impact of operating, investing and financing cash flow related activities, as described below. 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 as disclosed in the consolidated statements of operations for the periods presented herein, and had an accumulated deficit of $270.0 million as of December 31, 2024. Noncash stock compensation, amortization and impairment charges for Fiscal Year 2024 and 2023 totaled $3.9 million and $17.4 million, respectively. For Fiscal Years 2024 and 2023, net cash used in operating activities totaled $11.5 million and $15.5 million, 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 threat of other outbreaks or pandemics, 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 FASB ASC 205-40, “Presentation of Financial Statements - Going Concern,” (“ASC 205”). Management ’ s Plans Entry into Loan Agreements Agile II. On the Agile II Effective Date, the Company entered into the Agile II Loan Agreement, with the Collateral Agent and Agile, pursuant to which the Company issued to Agile a the Agile II Note. Pursuant to the Agile II Loan Agreement: (i) the Agile II Note matures 32 weeks from the Agile II Effective Date; (ii) carries an aggregate total interest payment of approximately $1.05 million, and (iii) immediately upon the occurrence and during the continuance of an Event of Default (as defined in the Agile Loan Agreement), interest shall accrue at a fixed per annum rate equal to the applicable rate plus five percent. The Company is required to repay all the obligations due under the Agile II Loan Agreement and the Agile II Note in 32 equal payments of $110,937, with the first payment being made to Agile on February 17, 2025, and every seven days thereafter until the maturity date. The proceeds received from the Agile II Note will be used to fund general working capital needs. In connection with entering into the Agile Loan Agreement, the Company was required to pay an administrative fee of $125,000 to the Collateral Agent, which was paid at the closing out of proceeds of the issuance of the Agile II Note. $1.5 million of the Agile II Note was used to repay the remaining balance under the Agile Note, with net proceeds to the Company of approximately $875,000. 58 Table of Contents 1800 Diagonal Lending, LLC . On the Diagonal Effective Date, the Company and Diagonal) entered into the Diagonal Agreement, pursuant to which the Company issued the Diagonal Note in the principal amount of $300,000, for which the Diagonal Note, among other things, (a) matures on December 30, 2025 (unless otherwise accelerated upon an Event of Default (as defined below)) (the “Diagonal Maturity Date”), (b) accrues interest at a rate of 10% per annum on the unpaid principal balance from the Diagonal Issuance Date until the principal and interest becomes due and payable, whether on the Maturity Date or upon acceleration by prepayment or otherwise, (c) interest begins to accrue on the Diagonal Issuance Date but shall not be payable until the Diagonal Note becomes payable, and (d) interest will accrue at a rate of 22% per annum for any amount of principal or interest which is not paid as required under the Diagonal Note, or during an Event of Default. Pursuant to the Diagonal Note, Diagonal has the right, from time to time, and at any time, during the period beginning on the date which is 180 days from the Diagonal Effective Date and ending on the earlier of (a) the Diagonal Maturity Date, or (b) the date of payment of the Default Amount, each in respect of the remaining outstanding amount of the Diagonal Note into fully paid and non-assessable shares of Common Stock at the Conversion Price. Pursuant to the Diagonal Note, the following events, among other things, constitute an Event of Default: (i) failure to pay principal and interest when due; (ii) the Company fails to issue shares of Common Stock upon exercise of Diagonal’s conversion rights under the Diagonal Note; (iii) the Company’s breach of any material covenant or other material term or condition in the Diagonal note or the Diagonal Agreement, and such breach continues for a period of 20 business days after written notice from Diagonal; (iv) any breach of the representations and warranties set forth in both the Diagonal Agreement and the Diagonal Note; (v) the Company institutes any assignment for the benefit of creditors, or applies for or consents to the appointment of a receiver or trustee for it or for a substantial part of its property or business; (vi) the Company institutes, or any proceeding is instated against the Company, relating to any bankruptcy, insolvency, reorganization, or liquidation proceedings; (vii) the Company fails to maintain the listing of its Common Stock on the Nasdaq Capital Market or on the Over The Counter boards or an equivalent exchange; (viii) the Company failing to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or ceases to be subject to the reporting requirements of the Exchange Act; (ix) the Company institutes any dissolution, liquidation, or winding up of the Company or any substantial portion of its business; (x) the restatement of any financial statements filed by the Company with the Securities and Exchange Commission, if the result of such restatement would have constituted a material adverse effect on the rights of Diagonal; (xi) the Company proposes to replace its transfer agent and fails to provide a fully executed irrevocable transfer agent instructions signed by the successor transfer agent; and (xii) a breach or default by the Company of any covenant or other term or condition contained in any other agreement by the Company, after the passage of all applicable notice and cure or grace periods (each individually an “Event of Default”, and collectively, “Events of Default”). Upon the occurrence and during the continuation of any Event of Default that is enumerated in Section 3.2 of the Diagonal Note, the Diagonal Note shall become immediately due and payable, and the Company shall pay to Diagonal an amount equal to the Default Amount (as defined below), multiplied by two. For other Events of Default not enumerated in Section 3.2 of the Diagonal Note, the Diagonal Note shall become immediately due and payable in an amount equal to 150% times the sum of (a) the then outstanding principal amount of the Diagonal Note, plus (b) accrued and unpaid interest on the unpaid principal amount of the Diagonal Note to the date of payment, plus (c) Default Interest, if any, on the amounts referred to in clauses (a) and/or (b), plus (d) any amounts owed to Diagonal pursuant to Sections 1.3 and 1.4(g) of the Diagonal Note (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (b), (c) and (d) shall collectively be known as the “Default Amount”) and all other amounts payable under the Diagonal Note shall immediately become due and payable, together with all costs, including, without limitation, legal fees and expenses, of collection, and Diagonal shall be entitled to exercise all other rights and remedies available at law or in equity. The Diagonal Note was issued with an OID of 4.75%, with net proceeds to the Company of approximately $279,000 after giving deducting the OID, reimbursement of Diagonal’s expenses in an amount equal to $7,000, and other estimated offering expenses. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes. Belleau Note Purchase Agreement. On March 28, 2025, we entered into the Belleau Purchase Agreement with Belleau. Pursuant to the Belleau Purchase Agreement, the Company will issue to Belleau the Belleau Notes, with an aggregate principal amount of $1,500,000 (the “Belleau Principal”). The consummation of the sale of the initial Belleau Note was consummated on the Belleau Effective Date, with gross proceeds to the Company of $300,000. The consummation of the sale of the two remaining Belleau Notes will occur in the amounts and on the dates as follows: (a) $600,000 on April 14, 2025; and (b) $600,000 on April 28, 2025. Each of the Belleau Notes: (x) matures on the date that is 12 months from the date of the issuance of each respective Belleau Note; (y) may be prepaid in part or in full at any time by the Company without penalty; and (z) accrues interest at a rate of 20% simple interest per annum. The Belleau Interest that accrues on each respective Belleau Note is payable on each respective Belleau Maturity Date in the form of restricted shares of the Company’s Common Stock equal to 20% of the Belleau Principal, calculated at a price per share of $0.35. In the event of a prepayment of any Belleau Note by the Company, the Belleau Interest will be payable in full at the time of such prepayment. The Belleau Note also provides for: (i) standard events of default, including (a) any default in the payment of the Belleau Principal or Belleau Interest on their respective due dates, (b) the occurrence of a Bankruptcy Event (as defined in the Belleau Note), or (c) the Company commits any material breach or default of any material provision of the Belleau Note, if not cured within 20 days following the written notice from Belleau specifying in reasonable detail such breach or default (sections (a) through (c), the “Belleau Events of Default”); and (ii) customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, arbitration, and the exercise of remedies upon a breach or default. Upon the occurrence of an Event of Default, the Belleau Note will bear interest at the default interest rate of 20% per annum, payable in cash, and upon Belleau’s written notice to the Company, all payments of Belleau Principal and Belleau Interest will become immediately due and payable. The Company intends to utilize the proceeds from the sale of the Belleau Notes for working capital and general corporate purposes. Entry into Equity Purchase Agreement On February 14, 2025, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Hudson Global Ventures, LLC, a Nevada limited liability company (“Hudson”). Pursuant to the Equity Purchase Agreement, the Company has the right, but not the obligation, to sell to Hudson, and Hudson is obligated to purchase, up to $2.9 million of newly issued shares (the “Total Commitment”) of the Company’s common stock, from time to time during the term of the Equity Purchase Agreement, subject to certain limitations and conditions (the “Hudson Offering”). As consideration for Hudson’s commitment to purchase shares of common stock under the Purchase Agreement, the Company issued to Hudson 300,000 shares of common stock, valued at $165,000, following the execution of the Equity Purchase Agreement (the “Commitment Shares”). Unless earlier terminated, the Equity Purchase Agreement will automatically terminate upon the earliest of (i) the expiration of the Commitment Period (as defined in the Equity Purchase Agreement), (ii) Hudson’s purchase or receipt of the Total Commitment worth of common stock, or (iii) the occurrence of certain other events set forth in the Equity Purchase Agreement. The Company has the right to terminate the Equity Purchase Agreement at any time after Commencement, at no cost or penalty, upon prior written notice to Hudson. 59 Table of Contents The Company intends to use the net proceeds, if any, from the Hudson 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 Equity Purchase Agreement contains customary representations, warranties and agreements by the Company, as well as customary indemnification obligations of the Company. In connection with the Equity Purchase Agreement, the Company entered into a Registration Rights Agreement, pursuant to which the Company agreed to register the Commitment Shares and the shares issuable pursuant to the Equity Purchase Agreement. Management continues to explore 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. 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. 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. Cash Flows for the Fiscal Years Ended December 31, 2024 and 2023 The following table summarizes the change in cash and cash equivalents for the periods presented: Fiscal Year Ended December 31, 2024 2023 Net cash used in operating activities $ (11,462,000 ) $ (15,489,000 ) Net cash used in investing activities (283,000 ) (825,000 ) Net cash provided by financing activities 5,446,000 21,441,000 Increase (decrease) in cash and cash equivalents (6,299,000 ) 5,127,000 Cash and cash equivalents, at beginning of period 7,609,000 2,482,000 Cash and cash equivalents, at end of period $ 1,310,000 $ 7,609,000 Cash Flows from Operating Activities. Net cash used in operating activities during Fiscal Year 2024, primarily reflected our net loss, net of adjustments to reconcile net loss to net cash used in operating activities, which included noncash stock compensation charges of $1,289,000, depreciation and amortization charges of $2,612,000, net changes in fair value of warrant liabilities of ($1,115,000) and net changes in working capital of $1,364,000. Changes in working capital primarily reflected the impact of the settlement of receivables and payables in the ordinary course. Net cash used in operating activities during Fiscal Year 2023, primarily reflected our net loss, net of adjustments to reconcile net loss to net cash used in operating activities, which included noncash stock compensation charges of $2,735,000, depreciation and amortization charges of $5,376,000, intangible asset impairment charges of $7,052,000, disposal of intangible asset charges of $2,284,000, net changes in fair value of warrant liabilities of ($2,898,000) and net changes in working capital of $116,000. Changes in working capital primarily reflected the impact of the settlement of receivables and payables in the ordinary course and the payment of the cash portion of the Super Biz Contingent Consideration, as described above. 60 Table of Contents Cash Flows from Investing Activities. Cash flows from investing activities were comprised of the following for the periods presented: Fiscal Year Ended December 31, 2024 2023 Cash paid in connection with the acquisition of Melon, net $ - $ (150,000 ) Proceeds from sale of Minehut Assets 192,000 - Purchase of property and equipment (23,000 ) (8,000 ) Capitalization of software development costs (452,000 ) (650,000 ) Acquisition of other intangible and other assets - (17,000 ) Net cash used in investing activities $ (283,000 ) $ (825,000 ) Sale of Minehut Assets. On February 29, 2024, the Company sold its Minehut Assets to GamerSafer as described above. Pursuant to the GS Agreement, the Company will receive $1.0 million of purchase consideration for the Minehut Assets, which amount will be paid by GamerSafer in revenue and royalty sharing over a multiple-year period, as described in the GS Agreement. During Fiscal Year 2024 we received Minehut Purchase Consideration payments totaling $192,000. Melon Acquisition. On May 4, 2023, we entered the Melon Purchase Agreement with Melon, pursuant to which the Company acquired the Melon Assets, as described above. At the Closing, the Company paid an aggregate total of $900,000 to Melon, of which $150,000 was paid in cash, and the remaining $750,000 was paid in the form of shares of the Company’s common stock, valued at the Melon Closing Share Price, as described above. Capitalized Internal Use Software Costs . Software development costs incurred to develop internal-use software during the application development stage are capitalized and amortized on a straight-line basis over the software’s estimated useful life, which is generally three years. Software development costs incurred during the preliminary stages of development are charged to expense as incurred. Maintenance and training costs are charged to expense as incurred. 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. Cash Flows from Financing Activities . Cash flows from financing activities were comprised of the following for the periods presented: Fiscal Year Ended December 31, 2024 2023 Proceeds from issuance of preferred stock, net of issuance costs $ 2,393,000 $ 19,295,000 Proceeds from issuance of common stock, net of issuance costs 1,000,000 1,885,000 Proceeds from promissory notes, net 3,257,000 - Payments on promissory notes (396,000 ) - Payments on convertible notes - (539,000 ) Accounts receivable facility advances 1,174,000 - Payments on accounts receivable facility (1,950,000 ) - Contingent consideration payments – Melon Acquisition (32,000 ) - Proceeds from common stock options and purchase warrant exercises - 800,000 Net cash provided by financing activities $ 5,446,000 $ 21,441,000 61 Table of Contents Equity Financings Issuances of Convertible Preferred Stock On the dates set forth in the table below, we entered into subscription agreements with accredited investors in connection with the sale of newly designated series of Convertible Preferred Stock, each series having a $0.001 par value and a $1,000 purchase price, as follows (rounded to the nearest thousands, except share and per share data): Preferred Stock Proceeds Conversion Shares - Common Stock Other Series Designation Closing Date Conversion Prices (2)(3)(4) Shares Purchased/ Issued in Exchange (6) Conversions / Exchanges Outstanding - December 31, 2024 Gross Proceeds Fees Net Proceeds Original Conversions / Exchanges (5) December 31, 2024 Original Placement Agent Warrants (1) A November 22, 2022 $ 12.40 5,359 (5,359 ) - $ 5,359,000 $ 697,000 $ 4,662,000 432,000 (432,000 ) - 62,000 A-2 November 28, 2022 $ 13.29 1,297 (1,297 ) - 1,297,000 169,000 1,128,000 98,000 (98,000 ) - 14,000 A-3 November 30, 2022 $ 13.41 1,733 (1,733 ) - 1,733,000 225,000 1,508,000 129,000 (129,000 ) - 18,000 A-4 December 22, 2022 $ 7.60 1,934 (1,934 ) - 1,934,000 251,000 1,683,000 254,000 (254,000 ) - 36,000 A-5 January 31, 2023 $ 11.09 2,299 (1,519 ) 780 2,299,000 299,000 2,000,000 207,000 (137,000 ) 70,000 30,000 AA April 19, 2023 $9.43/$1.89 7,680 (3,981 ) 3,699 7,680,000 966,000 6,714,000 4,072,000 (2,111,000 ) 1,961,000 112,000 AA-2 April 20, 2023 $10.43/$2.09 1,500 (1,500 ) - 1,500,000 130,000 1,370,000 719,000 (719,000 ) - 17,000 AA-3 April 28, 2023 $9.50/$1.90 1,025 (1,000 ) 25 1,025,000 133,000 892,000 539,000 (526,000 ) 13,000 16,000 AA-4 May 5, 2023 $9.28/$1.86 1,026 (526 ) 500 1,026,000 133,000 893,000 553,000 (283,000 ) 270,000 16,000 AA-5 May 26, 2023 $10.60/$2.12 550 (500 ) 50 550,000 72,000 478,000 259,000 (236,000 ) 23,000 8,000 AAA November 30, 2023 $ 1.67 9,388 (1,993 ) 7,395 5,377,000 645,000 4,732,000 5,608,000 (1,191,000 ) 4,417,000 466,000 AAA-2 December 22, 2023 $ 1.71 5,334 (2,186 ) 3,148 2,978,000 357,000 2,621,000 3,119,000 (1,278,000 ) 1,841,000 253,000 AAA-Junior June 26, 2024 $ 1.25 1,210 (845 ) 365 1,210,000 145,000 1,065,000 968,000 (676,000 ) 292,000 140,000 AAA-Junior - 2 July 10, 2024 $ 1.25 551 (110 ) 441 551,000 66,000 485,000 441,000 (88,000 ) 353,000 64,000 AAA-Junior - 3 September 20, 2024 $ 1.25 697 - 697 697,000 84,000 613,000 558,000 - 558,000 81,000 AAA-Junior – 4 September 30, 2024 $ 1.25 399 - 399 399,000 48,000 351,000 319,000 - 319,000 46,000 41,982 (24,483 ) 17,499 $ 35,615,000 $ 4,420,000 $ 31,195,000 18,275,000 (8,158,000 ) 10,117,000 1,379,000 (1) Pursuant to the terms of the Placement Agent Agreements, we agreed to issue to the Placement Agent, following the final closing under the individual Preferred Stock Offerings (effective as of the respective individual series closing dates), five-year warrants to purchase 14.5% of the shares of common stock issuable upon conversion of the respective series of Convertible Preferred Stock sold in the respective Preferred Stock Offering, at an exercise price equal to the applicable Preferred Stock Offering conversion price. See below for placement agent warrants exchanged in connection with the Exchange. (2) The Conversion price for Series AA Preferred Stock outstanding as of August 23, 2023, totaling 10,706 shares of Series AA Preferred Stock, was adjusted to $2.60 as a result of the Series AA Down Round Feature described below. (3) The Conversion prices for the Series AA Preferred Stock outstanding as of November 30, 2023, totaling 7,322 shares of Series AA Preferred Stock, were adjusted to the conversion prices shown in the table above, as a result of the Series AA Down Round Feature described below. (4) The triggering of the Down Round Feature for the Series AA Preferred Stock, occurring in August 2023, resulted in a deemed dividend totaling $6,446,000, which was charged to retained earnings in the September 30, 2023 consolidated balance sheet. (5) As adjusted to reflect reduction in conversion prices as a result of the Series AA Down Round Feature, described below. (6) Series AAA and Series AAA-2 totals include 4,011 and 2,356 preferred shares, respectively, issued in connection with the Exchange Agreements described below. Use of net proceeds included working capital, general corporate purposes, and certain indebtedness (Series A Preferred only), including sales and marketing activities and product development. For the three months ended March 31, 2023, $719,000 of the net proceeds from the Series A Offerings were utilized in connection with the final redemption of the Notes. 62 Table of Contents Issuances of Common Stock On October 24, 2024, the Company entered into a securities purchase agreement with a certain accredited investor for the registered direct offering of an aggregate of 1,136,364 shares of the Company’s common stock, par value $0.001 per share (the “Shares”), at a purchase price of $0.88 per Share (the “Registered Direct Offering”). The registered direct offering closed on or about October 25, 2024, subject to the satisfaction of customary closing conditions in the purchase agreement, and resulted in gross proceeds to the Company of approximately $1.0 million. On August 21, 2023, we entered into the Underwriting Agreement with the Underwriter (as defined above), relating to the Company’s Common Stock Offering of the Firm Securities to certain investors. Pursuant to the Underwriting Agreement, the Company also granted the Underwriters the Option to purchase the Option Securities. On September 12, 2023, the Underwriter partially exercised its Option and purchased an additional 32,616 shares of common stock at a price of $2.60 per share. The issuance by the Company of the Option Securities resulted in total gross proceeds of approximately $84,800, before deducting underwriting discounts, commissions, and other offering expenses payable by the Company. On August 23, 2023, the Company issued the Firm Securities and closed the Offering at a public price of $2.60 per share, and $2.58 per share underlying each Pre-Funded Warrant, for net proceeds to the Company of approximately $1.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Each Pre-Funded Warrant had an exercise price per share of common stock equal to $0.001 per share. The Firm Securities were offered, issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the SEC pursuant to the Registration Statement under the Securities, as supplemented by the Prospectus Supplement, filed with the SEC pursuant to Rule 424(b) of the Securities Act on August 23, 2023. Debt Financing Agile Promissory Note On November 8, 2024 we entered into the Agile Loan Agreement, with Agile pursuant to which the Company issued to Agile a Confessed Judgment Secured Promissory Note for an aggregate value of $1.85 million (the “Agile Note”). Pursuant to the Agile Loan Agreement: (i) the Agile Note matures 28 weeks from the Effective Date; (ii) carries an aggregate total interest payment of approximately $0.78 million (the “Applicable Rate”), and (iii) immediately upon the occurrence and during the continuance of an Event of Default (as defined in the Agile Loan Agreement), interest shall accrue at a fixed per annum rate equal to the Applicable Rate plus five percent. The Company is required to repay all the obligations due under the Agile Loan Agreement and the Agile Note in 28 equal payments of $93,821, with the first payment being made to Agile on November 14, 2024, and every seven days thereafter until the Maturity Date. The proceeds received from the Agile Note were used to fund general working capital needs. Pursuant to the Agile Loan Agreement, upon the occurrence of certain events, including (a) a change in the Company’s business other than the business engaged in by the Company on the Effective Date, (b) cause or permit, voluntarily or involuntarily, any Key Person to cease being actively engagement in the management of the Company without prior notice to Agile, (c) a change in control of the Company (expressly excluding the pending transactions with Infinite Reality, Inc.) or otherwise approve the liquidation or dissolution of the Company or its Subsidiary (collectively, a “Change in Business, Management, or Ownership”), or (d) the Term Loan is accelerated upon the occurrence of an Event of Default, the Company shall be required to immediately pay to Agile an amount equal to the sum of: (i) all outstanding principal of the Agile Note plus accrued and unpaid interest thereon through the prepayment date, (ii) a fee equal to the aggregate and actual amount of interest (at the contract rate of interest) that would be paid through the Maturity Date (the “Prepayment Fee”), plus (iii) all other obligations that are due and payable, including, without limitation, interest at the Default Rate with respect to any past due amounts. The Company is allowed to make a full prepayment or partial prepayment of any or all of the Obligations arising under the Agile Loan Agreement and the Agile Note, provided, the Company shall be obligated to pay the Prepayment Fee. In connection with entering into the Agile Loan Agreement, the Company was required to pay an administrative fee of $92,500 to the Collateral Agent, which was paid at the closing out of proceeds of the issuance of the Agile Note. Refer to Note 6 for additional details. Related Party Promissory Note On November 19, 2024 we entered into the RP Purchase Agreement with a non-employee member of the Board, or Purchaser. Pursuant to the RP Purchase Agreement, the Company issued to the Purchaser the RP Note in the amount of $1,500,000, for which the RP Note (i) matures on the RP Maturity Date, (ii) may be pre-paid at any time by the Company without penalty, and (iii) accrues interest on the RP Principal at a rate of 40% simple interest per annum. The RP Interest is payable on the RP Maturity Date. In the event of a prepayment of the RP Note by the Company, the RP Interest will be pro-rated for the period the RP Note is outstanding. The Company utilized the proceeds for working capital and general corporate purposes. Refer to Note 6 for additional information. 63 Table of Contents Account Receivable Financing Facility We entered into a Financing and Security Agreement (the “SLR Agreement”) with SLR Digital Finance, LLC (“Lender”), effective December 17, 2023 (the “SLR Effective Date”). Pursuant to the SLR Agreement, Lender may, from time to time and in its sole discretion, make certain cash advances to the Company (each an “Advance”, and collectively, “Advances”), against the face amounts of certain uncollected accounts receivable of the Company on an account-by-account basis (each, a “Financed Account”, and collectively, the “Accounts”), at a rate of 85% multiplied by the face value of such Account (the “Advance Rate”), less any reserved funds and any other amounts due to Lender from the Company, up to a maximum aggregate Advance amount of $4,000,000 (the “Maximum Amount”)(the Advances on the Accounts is hereinafter, the “Facility”). Upon receipt of any Advance, the Company will have assigned all of its rights in such receivables and all proceeds thereof. The proceeds received from the Facility are, and will be, used to fund general working capital needs. The SLR Agreement is effective for 24 months from the SLR Effective Date (the “SLR Term”), automatically extends for successive SLR Terms (each, an “SLR Renewal Term”), and the Company is obligated to pay the Lender an early termination fee in the event the SLR Agreement is terminated under certain circumstances prior to the end of any SLR Term or SLR Renewal Term, as more specifically set forth in the SLR Agreement. In connection with the Facility, the Company agreed to, among other things, (i) pay a finance fee equal to 2% of the Maximum Amount, payable in 24 equal monthly installments on the last day of each month of the SLR Term until paid in full, (ii) pay a servicing fee equal to 0.30% multiplied by the actual average daily amount of Advances outstanding at the time of determination (the “Outstanding Amount”) for the applicable month, on the last day of each calendar month during the SLR Term (or so long as any obligations arising under the SLR Agreement are outstanding); (iii) be charged a monthly financing fee (the “Financing Fee”), due upon receipt of full payment of a Financed Account by Lender, equal to 1/12 of (a) the prime rate plus 2% (the “Facility Rate”), multiplied by (b) the amount of the Outstanding Amount; and (iv) utilize the facility such that the monthly average aggregate Advances outstanding is at $400,000 (the “Minimum Utilization”). In the event that the Company’s monthly utilization is less than the applicable Minimum Utilization for any month, the Financing Fee for such month shall be calculated as if the applicable Minimum Utilization has been satisfied. As security for the full and prompt payment and performance of any obligations arising under the SLR Agreement, the Borrowers granted to Lender a continuing first priority security interest in all the assets of the Borrowers. The SLR Agreement also provides for customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, arbitration, and the exercise of remedies upon a breach or default. Refer to Note 6 for additional information. Contractual Obligations and Off-Balance Sheet Commitments and Arrangements As of December 31, 2024, other than as described herein, we had no significant commitments for capital expenditures, nor do we have any committed lines of credit, other committed funding or long-term debt, and no guarantees. As of December 31, 2024 we maintain approximately 1,550 square feet of office space which is leased on a month-to-month basis. We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements included elsewhere herein. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. Contingencies Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Recent Accounting Pronouncements Refer to Note 2 to the accompany consolidated financial statements contained elsewhere in this Report. 64 Table of Contents Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of our financial statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in our financial statements. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in the audited financial statements and notes thereto included elsewhere herein. The following accounting policies were identified during the periods presented, based on activities occurring during the periods presented, as critical and requiring significant judgments and estimates. Revenue Recognition The Company generates revenue from (i) innovative advertising including immersive game world and experience publishing and in-game media products, (ii) content and technology through the production and distribution of our own, advertiser and third-party content, and (iii) direct to consumer offers, including in-game items, e-commerce, game passes and digital collectibles. Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services and when the customer obtains control of the good or service. In this regard, revenue is recognized when: (i) the parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations; (ii) the entity can identify each party’s rights regarding the goods or services to be transferred; (iii) the entity can identify the payment terms for the goods or services to be transferred; (iv) the contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract); and (v) it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. We make estimates and judgments when determining whether we will collect substantially all of the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer. We assess the collectability of receivables based on several factors, including past transaction history and the creditworthiness of our customers. If it is determined that collection is not reasonably assured, amounts due are recognized when collectability becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash for transactions where collectability may have been an issue. Management’s estimates regarding collectability impact the actual revenue recognized each period and the timing of the recognition of revenue. Our assumptions and judgments regarding future collectability could differ from actual events and thus materially impact our financial position and results of operations. Depending on the complexity of the underlying revenue arrangement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine each parties rights regarding the goods or services to be transferred, each parties performance obligations, whether performance obligations are satisfied at a point in time or over time, estimates of completion methodologies, the timing of satisfaction of performance obligations, whether we are a principal or agent in the arrangement and the appropriate period or periods in which, or during which, the completion of the earnings process and transfer of control occurs. Depending on the magnitude of specific revenue arrangements, if different judgments, assumptions and estimates are made regarding revenue arrangements in any specific period, our periodic financial results may be materially affected. Accounting for Business Combinations We account for our business combinations under the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interest requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items. In addition, when we have acquisitions where substantially all of the fair value of assets acquired is concentrated in a single asset or group of similar assets, we account for the acquisitions as asset acquisitions. Impairment of Long-Lived Assets The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends; significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments; and significant decline in our stock price for a sustained period. 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. 65 Table of Contents 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. Significant judgements and estimates may be required in connection with determining the number of reporting units; determining intangible asset groupings; if, and in what period a triggering event has occurred requiring and impairment review; determining the nature timing and extent of undiscounted cash flows, including revenue forecasts and related growth rates and applicable costs; residual values if any; and discount rates and other inputs used in connection with the calculation of the fair values of applicable asset groups. Variations in any of these judgements and estimates could have a material impact on our financial results. In the fourth quarter of Fiscal Year 2023 we recorded a non-cash impairment charge related to our partner relationship related intangible assets, comprised of our Microsoft Minecraft server and InPvP developed technology intangible assets originally acquired in connection with the acquisition of Mobcrush, Inc. in June 2021. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant underperformance relative to expected historical or projected future operating results, and significant changes in the manner of our use of the acquired assets or the strategy in the context of our overall business. Due to underperformance relative to historical and projected future operating results and a decision to deploy resources in other areas of the business, we performed an impairment analysis and determined that the sum of the expected undiscounted future cash flows resulting from the use of the assets was less than the carrying amount of the assets, resulting in an impairment loss totaling $7.1 million, which is recorded in the accompanying consolidated statements of operations for Fiscal Year 2023. The fair value was determined using a discounted cash flow approach, with cash flow projections over the remaining life of the intangible assets of five years and a discount rate of 16% based on the Company’s estimated cost of capital. Fair Value Option (“FVO”) Election The Company accounted for certain promissory 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 promissory 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 adjustments, subsequent to the issuance date, as required by ASC 825, are 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 statements of operations. With respect to the promissory notes described at Note 6, as provided for by ASC 825, the estimated fair value adjustments are 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 interest expense in the accompanying consolidated statements of operations. The fair value of the promissory notes described at Note 6 was estimated based on a calculation of the present value of the related cash flows (i.e. payments of principal and interest based on contractual agreement terms) using a discount rate that reflected market rates and related credit risk. The FVO was elected for the promissory notes described at Note 6 due to the short term nature of the promissory notes and to provide relevant and timely information regarding the current market value of the debt, which is marked to market at each balance sheet date reflecting the effects of market fluctuations and other factors. Significant judgements and estimates may be required in connection with the determination of whether or not to elect the FVO for specific assets and/or liabilities. In addition, significant judgements and estimates may be required in connection with the determination of appropriate discount rates utilized in connection with present value related valuation techniques. Discount rate assumptions typically reflect the estimated yield to maturity of the debt instrument, incorporating the estimated market-implied rate of return an investor would receive if they held the debt until maturity, and taking into account all future cash flows and the current market price; adjusted for credit risk and market conditions. In addition, judgements and estimates are required in connection with the determination of the portion of subsequent fair value adjustments relate to instrument-specific credit risk, which are reflected in OCI, and the portion of subsequent fair value adjustments that relate to changes in interests rates or other variables, which are reflected in the consolidated statements of operations. Variations in any of these judgements and estimates could have a material impact on our financial results. 66 Table of Contents Modifications to Equity Linked Instruments During certain of the periods presented herein, holders of our preferred stock with outstanding Additional Investment Rights (“AIRs”) received (i) a six (6) month extension of the exercise period of such AIRs; and (ii) an adjustment to the conversion prices for such AIRs, to the existing conversion price floors for each respective subseries of preferred stock, as described in Note 6 to the consolidated financial statements. In connection with the modifications the AIRs with initial aggregate underlying common shares totaling 1.3 million, were modified as described above, resulting in an incremental increase in fair value totaling $364,000, of which $294,000 was charged to additional paid-in capital as a financing costs, and $70,000 which was charged to other expense in the consolidated statements of operations as a legal settlement cost. Accounting standards require that a reporting entity recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction in the same manner as if cash had been paid as consideration. As of each of the applicable AIR modification dates the Company utilized an option pricing model, employing the back solve method for purposes of determining the implied common stock value of the Company for input into a Black Scholes option pricing model to determine the fair value of the AIRs immediately before and after the modifications described above, using Level 3 inputs. Weighted average assumptions utilized in the Black Scholes option pricing model included implied (derived) common stock prices from $0.72 to $0.86, conversion prices ranging from $1.856 to $13.25 (based on the applicable original and modified preferred stock conversion prices), risk free interest rates ranging from 4.64% to 5.36%, terms ranging from .24 years to .92 years and volatility assumptions ranging from 68% to 91%. Significant judgements and estimates may be required in connection with the selection of the techniques and methods used in the determination of the implied common stock value of the company, including selection of the back solve method, and significant judgements and estimates may be required in connection with the assumptions utilized in the Black Scholes options pricing model, including assumptions for the remaining term of the applicable instruments, risk free interest rates and volatility. Variations in any of these judgements and estimates could have a material impact on our financial results. Determination of Fair Value – Warrants During the period presented the Company issued certain common stock purchase warrants (“Warrants”) as described at Note 6 to the consolidated financial statements. The fair value of warrants are determined using a Black Scholes option price model, measured using Level 3 inputs. The fair value of the warrants described above was estimated using the Black-Scholes-Merton option pricing model and the following weighted-average assumptions for the applicable dates: December 31, December 31, 2024 2023 Expected Volatility 100% - 101 % 98 % Risk–free interest rate 4.27% - 4.38 % 3.84 % Dividend yield - % - % Expected life of options (in years) 2.71 - 4.74 4.5 - 5.0 Significant judgements and estimates may required in connection with determining the classification of warrants between liabilities and equity, as well as in connection with the assumptions utilized for the expected volatility, risk free interest rate and term in the Black Scholes calculations used to value warrants outstanding at each balance sheet date, if liability classified. Variations in any of these judgements and estimates could have a material impact on our financial results. Relaxed Ongoing Reporting Requirements We qualify to report as a “smaller reporting company” (as defined in Rule 12b-2) under the reporting rules set forth under the Exchange Act. For so long as we remain an “smaller reporting company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “smaller reporting companies,” including but not limited to not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “smaller reporting company,” and our stockholders could receive less information than they might expect to receive from more mature public companies. We expect to take advantage of these reporting exemptions until we are no longer a smaller reporting company. Upon the completion of our initial public offering in February 2019, we elected to report as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act, which allowed us to take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies,” including but not limited to: ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; ● taking advantage of extensions of time to comply with certain new or revised financial accounting standards; ● being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and ● being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We were eligible to remain an “emerging growth company” for five years from the date of our initial public offering, and as such, ceased being an “emerging growth company” as of Fiscal Year 2024. However, as described above we continue to be a “smaller reporting company.” As a result of no longer qualifying for “emerging growth company” status, our independent auditors, commencing with their audit of our consolidated financial statements as of and for the year ended December 31, 2024, are required by the Public Company Accounting Oversight Board (“PCAOB”) to include a description of Critical Accounting Matters (“CAMs”) as a component of their audit opinion commencing with the audit of our consolidated financial statements for Fiscal Year 2024. 67 Table of Contents A CAM is defined as any matter arising from the audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee, as a component of typical and customary matters required to be communicated to the audit committee each year and that: ● Relates to accounts or disclosures that are material to the financial statements; and ● Involved especially challenging, subjective, or complex auditor judgment. The PCAOB requires auditors to communicate with the company's audit committee regarding certain matters related to the conduct of their audit, including information about the overall audit strategy, timing of the audit and the significant risks identified during the auditor's risk assessment procedures. As described by the PCAOB, CAMs are intended to enhance the auditor’s report to provide audit-specific information that is meaningful to investors and other financial statement users. Further, the purpose of CAMs is to shed light on certain matters in an audit that involved especially challenging, subjective, or complex auditor judgment. Our auditors have included descriptions of CAMs surrounding their audit strategy and procedures for their audit of revenue recognition and their audit of the modification of certain AIRs related to preferred stock outstanding during Fiscal Year 2024.