Super League Enterprise(SLE) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited interim financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Condensed Consolidated Financial Statements This section presents the unaudited interim financial statements for Super League Enterprise, Inc. as of September 30, 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,140 | $2,482 | | Accounts receivable | $7,831 | $6,134 | | Total current assets | $10,360 | $9,997 | | Intangible assets, net | $14,929 | $20,066 | | Goodwill | $1,864 | $0 | | Total assets | $27,242 | $30,210 | | Liabilities & Equity | | | | Accounts payable | $8,360 | $6,697 | | Total current liabilities | $10,197 | $10,693 | | Total liabilities | $10,627 | $11,006 | | Total stockholders' equity | $16,615 | $19,204 | | Total liabilities and stockholders' equity | $27,242 | $30,210 | Condensed Consolidated Statements of Operations This statement details the company's revenues, costs, and net loss over specific three and nine-month periods Condensed Consolidated Statements of Operations (Unaudited, in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,195 | $4,508 | $15,569 | $12,555 | | Cost of Revenue | $4,655 | $2,719 | $9,512 | $7,086 | | Gross Profit | $2,540 | $1,789 | $6,057 | $5,469 | | Total operating expense | $7,036 | $53,870 | $25,959 | $74,254 | | Net Operating Loss | ($4,496) | ($52,081) | ($19,902) | ($68,785) | | Net Loss | ($2,984) | ($52,602) | ($17,056) | ($69,238) | | Basic and diluted net loss per common share | ($1.01) | ($28.14) | ($7.44) | ($37.37) | - Operating expenses for the three and nine months ended September 30, 2022, included a significant non-cash goodwill impairment charge of $42.0 million, which was not present in the 2023 periods[11] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($14,090) | ($16,036) | | Net cash used in investing activities | ($658) | ($1,514) | | Net cash provided by financing activities | $13,406 | $4,160 | | Net (Decrease) in Cash | ($1,342) | ($13,390) | | Cash at beginning of period | $2,482 | $14,533 | | Cash at end of period | $1,140 | $1,143 | Notes to Condensed Consolidated Financial Statements These notes provide critical context to the financial statements, including a 'Going Concern' warning, details on the Melon, Inc. acquisition, equity and debt financing, and a reverse stock split - The company's financial statements have been prepared on a going concern basis, but recurring net losses ($17.1 million for the nine months ended Sep 30, 2023) and net cash used in operations ($14.1 million) raise substantial doubt about its ability to continue as a going concern[25][26] - On May 4, 2023, the company acquired substantially all assets of Melon, Inc., a development studio, for total consideration of $2.22 million, which included $150,000 in cash, $722,000 in stock, and $1.35 million in fair value of contingent consideration, resulting in $1.86 million of goodwill[91][98][99] - In June 2023, the company disposed of intangible assets originally from the 2021 Bannerfy acquisition, resulting in a write-off of $2.28 million, recorded as 'Loss on intangible asset disposal'[89] - The company completed several series of convertible preferred stock offerings (Series A and Series AA) in late 2022 and 2023, raising gross proceeds of $12.6 million and $11.8 million, respectively, to fund operations and repay debt[126][140] - Effective September 11, 2023, the company executed a 1-for-20 reverse stock split of its common stock and changed its name to Super League Enterprise, Inc., with all share and per-share data retroactively adjusted[18][117][119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 60% year-over-year revenue increase for Q3 2023, driven by a 124% surge in Publishing and Content Studio revenue, alongside significant operating expense reductions and strategic progress Results of Operations For Q3 2023, total revenue grew 60% year-over-year to $7.2 million, primarily due to a 124% increase in Publishing and Content Studio revenue, while operating expenses significantly decreased Revenue by Category (in thousands) | Revenue Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Media and advertising | $2,886 | $2,321 | 24% | $6,904 | $7,162 | (4)% | | Publishing and content studio | $3,960 | $1,768 | 124% | $7,547 | $3,994 | 89% | | Direct to consumer | $349 | $419 | (17)% | $1,118 | $1,399 | (20)% | | Total Revenue | $7,195 | $4,508 | 60% | $15,569 | $12,555 | 24% | - The 124% increase in Q3 Publishing and Content Studio revenue was driven by a $2.3 million (184%) increase in custom game development and immersive experience revenues for clients like Kraft Lunchables, Hamilton, and Universal Pictures[191] - Cost of revenue for Q3 2023 increased 71%, outpacing the 60% revenue growth, attributed to a significant custom integration and platform media contract with a higher average direct cost profile[190] - Engineering, technology, and development costs for Q3 2023 decreased by $1.8 million (46%) year-over-year, driven by an $840,000 reduction in cloud services costs and a $686,000 decrease in personnel costs from optimization activities[201] - General and administrative expenses for Q3 2023 decreased by $978,000 (30%) year-over-year, primarily due to lower non-cash stock compensation and reduced depreciation and amortization[202] Liquidity and Capital Resources As of September 30, 2023, the company's cash position decreased to $1.1 million, with net cash used in operating activities at $14.1 million, raising going concern doubts and necessitating reliance on recent equity financings - The company's cash position decreased from $2.5 million at the end of 2022 to $1.1 million as of September 30, 2023[214] - Management acknowledges that recurring losses and cash usage raise substantial doubt about the company's ability to continue as a going concern, and future operations depend on raising additional capital through equity or debt financing[216][218] Cash Flows from Financing Activities (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Proceeds from issuance of preferred stock, net | $12,060 | $0 | | Proceeds from issuance of common stock, net | $1,885 | $320 | | Proceeds from convertible notes, net | $0 | $4,000 | | Payments on convertible notes | ($539) | ($160) | | Net cash provided by financing activities | $13,406 | $4,160 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant exposure to market risks from changes in interest rates, foreign currency exchange rates, or derivative transactions in the ordinary course of business - The company does not currently have exposure to market risks from changes in interest rates, foreign currency exchange rates, or derivatives[266] Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner[267] - No changes in internal control over financial reporting were identified during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[268] PART II. OTHER INFORMATION This section covers other required disclosures, including legal proceedings, updated risk factors, unregistered sales of equity securities, and a list of exhibits Item 1. Legal Proceedings The company reports that there are no legal proceedings to disclose for the period - The company has no legal proceedings to report for the period[271] Item 1A. Risk Factors This section highlights new risks associated with the acquisition of Melon, Inc., including potential integration difficulties and challenges in realizing anticipated benefits - New risk factors have been introduced related to the acquisition of Melon, Inc.[272] - The success of the Melon acquisition depends on the company's ability to efficiently integrate its operations, which could be a lengthy process and result in the loss of key employees or disruption of ongoing business[273] - The integration process presents challenges in coordinating geographically dispersed organizations, addressing different corporate cultures, and may distract management from day-to-day operations[274] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company states that no unregistered securities were issued during the three months ended September 30, 2023, that had not been previously reported - There were no unregistered sales of equity securities during the quarter that were not previously reported[276] Item 5. Other Information The company reports that there is no other information to disclose for this period - The company has no information to report under this item[279] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Underwriting Agreement, Certificate of Amendment for name change and reverse stock split, and officer certifications - Key exhibits filed include the Underwriting Agreement for the August 2023 public offering, the Certificate of Amendment for the reverse stock split and name change, and Sarbanes-Oxley certifications[281]