Super League Gaming : Shareholder Letter Q1 2023

Letter to Shareholders

FISCAL Q1 | 2023

NASDAQ: SLGG

May 15, 2023

Fellow Shareholders,

I'm pleased to share our fiscal first quarter 2023 results and summarize some of our exciting developments as we

continue to establish Super League as a leader in the immersive web. While Q1's topline was lighter than expected, we were not singled out. These are similar results you have seen reflected in numerous companies' quarterly filings for the quarter ended March 31, 2023. The continued uncertainty related to the Federal interest rate policy and potential recession caused large corporations to delay finalizing 2023 advertising budgets, leading to a light first quarter advertising spend. In terms of first quarter revenue, we reported $3.3 million, in line with our historical seasonality. While this number is down relative to the same quarter prior year, on a normalized basis we are up 17% due to a one-time,non-coreTechnology-as-a-Service (TaaS) payment from Verizon for close to $1 million. That said, the second quarter has shown a very strong start indicating that advertisers are back, and we have made notable progress over the last month by acquiring Melon, an immersive experience studio, and materially strengthening our balance sheet through private offerings, as previously announced. Our strategy is working, and we continue to make meaningful strides that dramatically improve our position as we look towards the horizon and our $100 million revenue target in the next 3 years.

Led by gaming engines and the advancement in smarter screens, the internet is changing right before our eyes and increasingly becoming a 3D experience.

The next generation internet (Web 2.0 and 3.0) has arrived. It is more immersive, customizable, collaborative and sticky for consumers. We have already proven that our immersive publishing, media and creator tool engine is valuable and scalable. We currently reach over 100 million monthly unique players generating well over 1 billion monthly impressions and growing in some of the largest game platforms in the world. We are now applying that technology and capability backbone to more established, virtual world platforms - we are becoming a multiverse company. This diversification means more audience reach, and the ability to not only meet any brand partner's marketing objectives, but also offer a solution toward their forward web strategy beyond game platforms. Today, people under 30 spend more time on their phones in immersive worlds than any other activity, except

watching videos. And Gen Z specifically spends over

7 hours a week hanging out with friends in immersive spaces (2X the time they spend in real life with friends) vs approximately 5 hours on social media. The headline here is that immersive spaces are the new dominant form of digital social interaction for younger generations. As brands look to create immersive spaces as an extension of their web presence, Super League is ready to step in with our one-stopshop solution. Brands get acquainted with our powerful immersive engine to reach elusive young audiences and achieve campaign-oriented marketing objectives, but they stay and spend increasingly more with us because they see having a

persistent channel in these worlds as a marketing

requirement - no different than the need to have a TikTok or YouTube channel. Yet that is not the end game - it is not the big prize for Super League and our shareholders. It is where our business model is headed, but it is happening now,as we lend our enterprise solution to transform and modernize their overall web strategy and presence.

Our roots are in gaming platforms. Our future is in

building the premiere publishing and

monetization engine for the immersive web.

As for our overall health, pipeline trends continue to remain strong and growing as we work with some of the biggest brands in the world across entertainment, fashion, CPG and more - brands like Disney, Mattel, Loreal, Mars, and Skechers. We served over 100 brands in 2022 with 7 customers spending in excess of $1 million in aggregate. We continue our strong 70%+ repeat customer rate and have 42 six-figure deals in our current pipeline, with 17 deals over $500,000 and 6 over $1 million - including a record-breaking program with Kraft.

Additionally, our reseller, or global sales network,

strategy is working as well. This nascent indirect sales channel last year delivered close to 15% of our annual revenue and represented over 20% in Q1 2023. Our partners are coming up the learning curve in selling our immersive media products with increasing deal-sizes, serving as a feeder to our immersive experience publishing pipeline, and accelerating our awareness with top global brands.

Subsequent Events

M&A and consolidation are becoming predominant themes in our space. This makes our multiverse approach to virtual world publishing even more

poignant in today's market. To that end, we

opportunistically acquired Melon, a ground-breaking development studio renowned for creating award winning, high-profile experiences across an impressive array of global brands, including the likes of The NFL, Chipotle, American Girl, Clarks, and Dave &

Buster's. This isn't just any game development studio, Melon are innovators creating valuable partner solutions that drive business objectives. One of the most compelling examples was their Chipotle activation last year which proved immersive game experiences can be a driver for download apps and retail foot-traffic. We believe being a leader in proving the digital-to-physical crossover is a game-changer for brands.

The acquisition is immediately accretive and intelligently structured in alignment with shareholder interests with a nominal cash outlay and performance

-based earn out compensation incentives.

Furthermore, Melon's immersive experience capability augments our industry-leading publishing, media and measurement and monetization tools creating a vertically integrated gold standard, a powerhouse in this fast-growingsector. And the impact is immediate. Not only were we able to fully integrate their talented team within the first week, but we also saw pipeline synergies out of the gate. This is instantly quantifiable - a bigger pipeline, larger deal sizes and, very notably, improved margins - we are controlling the full value chain and walking up our margin profile in a march toward profitability.

Beyond Melon, we continued to increase our

ownership stakes in Roblox games, with more than 20

now in our portfolio. This gives us control of more media inventory and is part of our revenue diversification strategy as we look to expand more meaningfully into direct-to-consumer, recurring revenues. Additionally, we announced an exclusive strategic partnership with Landvault, the leading digital "construction" company in the metaverse to serve as their partner, as we further expand our current efforts in Abu Dhabi to the greater UAE and GCC region. Just focusing on that region alone and their investment in the metaverse could support our current year revenue ambitions.

As we work towards our goal of achieving profitability,

capital is the lifeline to any growth stage company.

Recently, we significantly bolstered our balance sheet with the successful completion of a $23.8 million capital raise including $9.9 million subsequent to the end of the first quarter. We applied some of these net proceeds to fully extinguish our debt and pay earnout provisions related to some M&A in 2021. Additionally, we have been extremely diligent with our expense reduction plan, cutting approximately ~35% off our operating expense on an annualized run-rate while continuing to invest in our high-growth revenue products and the resources against those product- lines. With this lean, agile organization, we have created material operating leverage - every revenue

dollar coming in is of greater value.

Q1 2023 Results

First quarter 2023 revenues were $3.3 million, compared to $3.8 million in the first quarter of 2022. Excluding a one-off product design and software development kit-related (or TaaS) program totaling $919,000 recognized during first quarter 2022, total revenue, on a more normalized basis, for the three months ended March 31, 2023 increased $473,000, or 17% compared to the prior year quarter.

Media and advertising revenue decreased 10% to $1.7 million, and comprised 50% of total first quarter 2023 revenues. The net decrease in media and advertising revenues included a 212% increase in reseller sales revenues reflecting our continued focus on

developing and expanding our global network of

resellers to sell our international media inventory.

Publishing and content studio sales revenue decreased 9%, to $1.3 million, and comprised 38% of total revenues. Publishing and content studio sales revenue for the three months ended March 31, 2022 included product design and software development kit-related revenue pursuant to a development agreement with a customer. Excluding product design and software development-kit related revenue recognized during first quarter 2022, publishing and content studio revenues increased $786,000, or 162%, driven primarily by an increase in- game development and immersive experience

related revenues, resulting in a 278% increase in

average publishing and content studio sales revenue per customer.

First quarter 2023 cost of revenue remained relatively flat totaling $1.9 million for the first quarter of 2023 and 2022, as compared to the 12% decrease in revenues. As a percent of revenue, gross profit in the first quarter of 2023 was 41% compared to 49% in the prior year comparable quarter. The less than proportionate change in cost of revenue was driven by higher margin product design and software development kit related revenue recognized during the three months ended March 31, 2022. Excluding

product design and software development kit

related revenues and costs, first quarter 2023 revenue and cost of revenue increased 17% and 21%, respectively, compared to the prior year quarter.

GAAP operating expense in the first quarter of 2023 was $8.6 million, compared to $9.8 million in the comparable prior year quarter. The decrease in operating expense was primarily due to a 47% reduction in cloud services and other technology platform costs, and decreases in personnel, marketing and other corporate costs, reflecting the impact of ongoing cost reduction and optimization activities.

Excluding non-cash stock compensation and

amortization expense, proforma operating expense

in the first quarter of 2023 was $6.5 million compared to $7.4 million in the comparable prior year quarter. Operating expenses in the first quarter of 2023 also included accrued contingent consideration expense totaling $468,000, related to earn out provisions in

connection with our acquisition of Super Biz in fiscal year 2021. Excluding accrued contingent consideration, proforma operating expense was $6.0 million, a material reduction in operating expense as compared to $7.4 million (excluding noncash items) in the comparable prior year quarter, reflecting the impact of the Company's ongoing cost-saving measures.

On a GAAP-basis, which includes the impact of non- cash charges totaling $2.1 million and accrued contingent consideration totaling $468,000, net loss in the first quarter of 2023 was $7.2 million, or $(0.19)

per share, compared to a net loss of $7.9 million, or

$(0.21) per share, in the comparable prior year quarter. The weighted average diluted share count for the first quarter of 2023 was 37.7 million, compared to 36.8 million for the first quarter of 2022.

Pro forma net loss for the first quarter of 2023, which excludes the impact of noncash charges and credits, was $5.1 million, or $(0.14) per share, compared to a pro forma net loss of $5.6 million, or $(0.15) per share, in the comparable prior year quarter. Excluding accrued contingent consideration expense, proforma net loss for the first quarter of 2023 was $4.6 million or $(0.12) per share.

As of March 31, 2023, we reported $0.6 million in cash. Continuing to enhance our liquidity has been a top priority. During the first quarter of 2023, we raised net proceeds totaling $2.0 million. In addition, in April and May 2023, we raised an aggregate of $9.9 million. These transactions were closed in a very challenging capital market environment and reflect our investors' confidence in our growth strategy and our ability to continue to finance our working capital needs. We encourage our investors to monitor our filings with the Securities and Exchange Commission for additional information. As previously indicated, as shareholders ourselves, we're committed to achieving positive cash flow while minimizing the dilutive effects in connection with any financing transaction

consistent with our commitment to execute on our

long-term strategy and continue our growth trajectory.

Outlook

In our Q4 2022 shareholder letter, I talked about being in the strongest position in our history to execute on our vision. Since then, we've only gotten stronger. Now backed by a more focused operation, a strengthened balance sheet with no debt, more diverse revenue streams with improved marginality and the premier vertically-integrated,one-stop shop solution, we have ignited our booster rocket for growth.

Our key leverage points remain:

Monetizing what we have built - a strong and growing pipeline with larger campaign deal sizes and high repeats proving we can take a greater share of advertisers' wallets and be a "go to" for their marketing needs driven by improved sales force effectiveness inclusive of higher salesperson throughputs and "win"

percentages.

Optimizing our global sales partner network - utilizing our partners' P&Ls and established media sales teams and brand relationships to sell our international audience inventory for greater sell-throughrates.

Diversifying the nature and shape of our revenue streams - moving more into persistent owned and 3rd party annual experiences and media programs for more recurring and predictable revenues along with the opportunity to move further downstream with high margin, direct-to-consumerand 1st party data monetization and a greater share of the digital economy.

We continue to see a clear line of sight towards growing our annual revenues to over $100 million, with a gross margin in the high 50s to low 60s. Our gross margin goal will be further supported through the acquisition of Melon as I noted above along with product development roadmaps and other internal strategies. This launchpad has provided us with the ability to build a great business just by monetizing what we have right now, yet build something much more material and leading over the next 2-3 years.

We're building an enterprise model for the future of the internet, and the immersive web. As I stated previously, partners seek us out to help them solve

their marketing challenges - they remain because

we offer them a solution for their Web 2/3 digital strategy.

We are grateful for your interest and ongoing support. Please join us for a continued earnings discussion today at 5pm E.T. in which we will answer pre- submitted questions from our shareholders and live questions from our covering analysts.

Sincerely,

Ann Hand

CEO of Super League Gaming

About Super League Gaming

Super League (Nasdaq: SLGG) is a leading strategically-integrated publisher and creator of games and experiences across the world's largest immersive digital platforms. From metaverse gaming powerhouses such as Roblox, Minecraft and Fortnite, to the most popular Web3 environments such as Sandbox and Decentraland, to bespoke worlds built using the most advanced 3D creation tools, Super League's innovative solutions provide incomparable access to massive audiences who gather in immersive digital spaces to socialize, play, explore, collaborate, shop, learn and create. As a true end-to-end activation partner for dozens of global brands, Super League offers a complete range of development, distribution, monetization and optimization capabilities designed to engage users through dynamic, energized programs. As an originator of new experiences fueled by a network of top developers, a comprehensive set of proprietary creator tools and a future-forward team of creative professionals, Super League accelerates IP and audience success within the fastest growing sector of the media industry. For more, go to superleague.com.

SUPER LEAGUE GAMING, INC CONDENSED BALANCE SHEET (Unaudited)

		March 31, 2023	March 31, 2022
Assets
Cash and cash equivalents	$	590,000	$	2,482,000
Accounts receivable			3,463,000		6,134,000
Prepaid expenses and other current assets			1,179,000		1,381,000
Total current assets			5,232,000		9,997,000
Property and Equipment, net			130,000		147,000
Intangible and Other Assets, net			19,040,000		20,066,000
Total assets		$	24,402,000	$	30,210,000
Liabilities
Accounts payable and accrued expenses	$	5,779,000	$	6,697,000
Accrued contingent consideration			3,674,000		3,206,000
Deferred Revenue			29,000		111,000
Convertible Debt, net			-		679,000
Total current liabilities			9,482,000		10,693,000
Deferred tax liability			313,000		313,000
Total liabilities			9,795,000		11,006,000
Stockholders' Equity
Preferred Stock			-		-
Common Stock			47,000		47,000
Additional paid-in capital			232,539,000		229,900,000
Accumulated deficit	(217,979,000)	(210,743,000)
Total stockholders' equity			14,607,000		19,204,000
Total liabilities and stockholders' equity		$	24,402,000	$	30,210,000