Super League Gaming : Shareholder Letter Q2 2022

Letter to Shareholders

FISCAL Q2 | 2022

The Rocketship to the metaverse.

NASDAQ: SLGG

August 11, 2022

Fellow Shareholders,

Another quarter in the books, and I am excited to report our growth trajectory continued into the second quarter of 2022, highlighted by reaching over 70 million unique monthly players through our metaverse gaming network. I am so incredibility proud of the team's work. For those of you who have not had the chance to join me, check out my trip to the metaverse here. This is great example of our extraordinarily talented team, and as I have spoken to previously, our assets and technology.

Our challenge and opportunity is to capture the massive shift in the digital advertising market toward in-game advertising. We continued to strengthen our leadership position in video game experiences and entertainment by winning a larger share of advertisers' wallets, further monetizing our sought-after premium advertising inventory, and adding new partners to expand our global network sales fleet. Our second quarter summary results are below.

Q2 Results

Our focus on topline revenue growth resulted in second quarter 2022 revenues of $4.3 million, up nearly 300% compared to $1.1 million in the second quarter of 2021, driven by strong percentage increases in our advertising and sponsorship and direct to consumer revenue streams.

Advertising and sponsorships revenue increased 625% to $3.5 million and comprised 82% of total revenues. This increase was primarily due to a 36% increase in our direct sales advertising revenue- generating customers driven by our growing premium in-game and in-stream advertising inventory, and an approximately 560% increase in the average revenue per customer.

Direct-to-consumer revenues, which consists of sales of digital goods and subscriptions across our owned and operated Minehut digital property and our Mineville and Pixel Paradise, official Microsoft Minecraft servers, increased 102% to $473,000 and accounted for approximately 11% of revenues for the second quarter of 2022 compared to 22% of revenues in the year ago comparable quarter.

Second quarter 2022 cost of revenues were $2.5 million compared to $533,000 in the comparable prior year quarter. The increase was primarily due to the significant increase in related revenues in the second quarter of 2022 compared to the prior year quarter. As a percent of revenue, gross profit in the second quarter of 2022 was 43% compared to 51% in the prior year quarter. The decrease was due to the impact of a full quarter of Mobcrush related influencer marketing revenues in the second quarter of 2022, which on average have higher direct cost profiles, as compared to one-month of these revenues reflected in the second quarter of 2021. While the 43% is relatively high, we continue to target a range of 45-50% in future periods reflective of the Company's premium advertising model.

Total operating expenses in the second quarter of 2022 were $10.6 million compared to $6.9 million in the comparable prior year quarter. The increase was primarily due to an increase in personnel costs associated with our FY 2021 M&A activities, and noncash amortization of intangible assets acquired in connection with these FY 2021 acquisitions. Also contributing, albeit to a lesser extent, were higher cloud services and other technology platform costs, reflecting the expansion of activities in connection with our fiscal year 2021 acquisitions and the continuing strong engagement across our digital properties. Non-cash amortization of intangible assets for the second quarter of 2022 totaled $1.3 million compared to $0.5 million in the second quarter of 2021. Non- cash stock compensation charges for the second quarter of 2022 totaled $1.0 million compared to $0.6 million in the second quarter of 2021.

"We continued to strengthen our leadership position in video game experiences and entertainment."

On a GAAP-basis, which includes the impact of noncash charges and credits, net loss in the second quarter of 2022 was $8.7 million, or $(0.24) per share, compared to a net loss of $2.0 million, or $(0.07) per share, in the comparable prior year quarter. As previously reported, our first quarter 2021 results included $4.3 million of noncash gains resulting in a significantly lower EPS. Excluding the impact of these noncash gains, net loss in the second quarter of 2021 was $6.3 million, or $(0.23) per share. The weighted average diluted share count for the second quarter of 2022 was 36.9 million, compared to 27.2 million for the second quarter of 2021.

Pro forma net loss for the second quarter of 2022, which excludes the impact of certain noncash charges and credits, was $6.4 million, or $(0.17) per share, compared to a pro forma net loss of $5.2 million, or $(0.19) per share, in the comparable prior year quarter.

Looking at our balance sheet as of

June 30, we reported $7.1 million in cash, and total shareholders' equity of $76.2 million. Consistent with our previously disclosed outlook, our average monthly net cash burn rate for 2022 is expected to be in the $1.7 million range as we continue to focus on top line revenues and control costs in connection with our commitment to reducing costs and improving the bottom line.

As previously disclosed, to strengthen our liquidity, in March of this year, we entered into an equity line of credit facility with an investor, where we have the right but not the obligation to sell up to 7.3 million shares of common stock, subject to the terms of the underlying agreement as previously filed with the SEC. In May 2022 we closed an additional $4.0 million in financing, and this financing, combined with the equity line of credit and earlier announced financing facilities, we believe provides the company with the ability to deliver against our 2022 growth strategy.

Second Quarter & Subsequent Highlights

Recently we announced a new initiative, the Endless Play program, to celebrate and highlight millions of player-generated Minecraft experiences within Minehut, our thriving Minecraft community. Minehut is one of the largest Minecraft community platforms in the world, boasting nearly eight million user-generated servers and the widest selection of Minecraft gameplay anywhere in the Java ecosystem. Endless Play represents our latest commitment to expand the reach of our owned and operated metaverse gaming portfolio. With metaverse gaming platforms now representing an extraordinary area of growth in the video game industry, we continue to demonstrate our unique ability to support motivated and talented gaming creators, whose creations inspire and entertain avid player communities.

During the quarter we had the opportunity to form an exclusive alliance with IMS, part of Aleph Group, Inc. and global partner of the world's leading digital platforms, in Brazil, Mexico, Argentina, Colombia, Chile, Peru, Uruguay, Ecuador, Paraguay, Central America and Italy. The partnership will allow brands throughout the region to take advantage of unique relationships we have formed with dozens of talented game developers inside the Roblox metaverse, where millions of players create, share and play in immersive worlds every day.

Finally, we introduced DreamWorks Animation's "The Bad Guys" to the gaming metaverse through innovative interactive 3D ads to power exceptional player engagement with five unforgettable characters from the new animated feature film. DreamWorks Animation, a division of the Universal Filmed Entertainment Group within NBCUniversal, is our first partner showcasing our recently launched innovative 3D ad units. The promotional campaign, designed to excite gaming communities around the film's unforgettable characters, leverages Super League's innovative 3D interactive ad units and international advertising network, which reaches 70mm young gamers monthly.

Outlook

Turning to our outlook, we are reiterating our previously stated outlook of $20 to $22 million in revenue for fiscal year 2022. We also are beginning to see operating leverage start to kick in through controlling our costs while simultaneously seeing sales force efficiency improving. Ultimately the benefit is to our operating loss which is improving faster than we originally planned.

Summary

With strong revenue expansion and second quarter results, we are focused on executing on our plan and growth expectations in the second half of 2022. Let me remind you, the potential market is massive; there are 3 billion gamers on the planet and well over 20% of them enjoy open-world games or metaverse games. Looking ahead, we will continue to deepen our metaverse game world and content moat to increase audience engagement. We are growing our in-game media and analytics suite with new, innovative ad products and additional developer tools and expanding our global network sales partnerships to capture more value faster on our unique advertising inventory. We continue to believe our tremendous progress will drive a step-change in topline growth with strong margins to clear a path to profitability. We thank all our shareholders for your ongoing support and are working diligently to build on the short and long-term value of our company.

Sincerely,

Ann Hand

Ann Hand

CEO of Super League Gaming

About Super League Gaming

Super League Gaming (Nasdaq: SLGG) is a leading publisher of games, monetization tools and content channels across metaverse gaming platforms that empower developers, energize players, and entertain fans. The company's solutions provide incomparable access to an audience consisting of players in the largest global metaverse environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms. Fueled by proprietary and patented technology systems, the company's platform includes access to vibrant in-game communities, a leading metaverse advertising platform, a network of highly viewed channels and original shows on Instagram, TikTok, Snap, YouTube, and Twitch, cloud-based livestream production tools, and an award- winning esports invitational tournament series. Super League's properties deliver powerful opportunities for brands and advertisers to achieve impactful insights and marketing outcomes with gamers of all ages. For more, go to superleague.com.

SUPER LEAGUE GAMING, INC
CONDENSED BALANCE SHEET
(Unaudited)	June 30, 2022	December 31, 2021
Assets
Cash and cash equivalents	$	7,069,000	$	14,533,000
Accounts receivable		4,643,000		6,328,000
Prepaid expenses and other current assets		1,285,000		1,334,000
Total current assets		12,997,000		22,195,000
Property and Equipment, net		203,000		104,000
Intangible and Other Assets, net		22,664,000		24,243,000
Goodwill		50,263,000		50,263,000
Liabilities
Accounts payable and accrued expenses	$	5,439,000	$	5,514,000
Deferred Revenue		29,000		76,000
Convertible Debt, net		4,019,000		-
Total current liabilities		9,487,000		5,590,000
Deferred tax liability		472,000		518,000
Stockholders' Equity
Common Stock		46,000		46,000
Additional paid-in capital		218,050,000		215,943,000
Accumulated deficit		(141,928,000)		(125,292,000)