February 8, 2019
Barry Cottle
Executive Chairman
SG Social Games Corporation
6601 Bermuda Road
Las Vegas, Nevada 89119
Re: SG Social Games Corporation
Draft Registration Statement on Form S-1
Submitted December 17, 2018
CIK No. 0001760717
Dear Mr. Cottle:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary
The Transactions, page 6
1. To facilitate an understanding of the nature of the transactions, please
identify the
transaction as an "Up-C." Also expand your disclosure to explain the
business or strategic
rationale for why this corporate structure was selected, including any
material benefits to
the parties involved.
Summary Actual and Pro Forma Consolidated Financial and Other Data, page 15
2. We note your presentation of AEBITDA margin. Please revise throughout
your filing to
disclose, with equal or greater prominence, the most directly
corresponding GAAP
Barry Cottle
FirstName Games Corporation
SG Social LastNameBarry Cottle
Comapany NameSG Social Games Corporation
February 8, 2019
February 8, 2019 Page 2
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FirstName LastName
measure, Net Income margin. Refer to Item 10(e)(i)(A) of Regulation
S-K.
A small number of games has generated a majority of our revenue, page 20
3. Given your disclosure that Jackpot Party Casino has accounted for a
substantial portion of
your revenue since 2012 and you expect it to continue to do so over
the next several years,
please quantify the percentage of revenues it accounts for in the
periods presented.
We rely on a small percentage of our players for nearly all of our revenue,
page 21
4. Please quantify the percentage of your paying players that account for
nearly all of your
revenues for the periods presented.
Future issuances or resales of Class A common stock by SG Holding or others,
page 46
5. Please discuss the dilutive effects to shareholders if LLC Interests
are redeemed or
exchanged for Class A common stock by SG Holdings.
Use of Proceeds, page 54
6. You state that your management will have broad discretion to direct
Social Parent LLC's
use of proceeds, and you may cause Social Parent LLC to make cash
payments to SG
Holding pursuant to the Tax Receivable Agreement. To the extent the
amount of cash
payments to SG Holding is known prior to the effectiveness of the
registration statement,
please revise to quantify the amount.
Unaudited Pro Forma Condensed Consolidated Financial Information, page 62
7. Please revise your pro forma financial statements to separately
present adjustments related
to the organizational transactions and adjustments related to the
offering. Please also
include a sub-totaled column showing the historical financial
information adjusted for the
organizational transactions but before the effects of the offering.
Refer to the instructions
to Rule 11-02(b)(6) of Regulation S-X.
8. On page 70, you disclose that after this offering the company will be
subject to U.S.
federal, state, foreign and local income taxes with respect to its
allocable share of any
taxable income of Social Parent LLC. Please clarify whether you expect
income tax
expense to differ from the amounts presented in the Predecessor
financial statements and
if so what consideration was given to adjusting pro forma income tax
expense.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Performance Indicators and Non-GAAP Measures, page 70
9. Your disclosures indicate that you use third-party data to limit
double counting in your
MAU and DAU metrics. Please explain how using third-party data limits
double counting
and how you ensure the accuracy of the metrics disclosed. You disclose
on page 31 that
Barry Cottle
FirstName Games Corporation
SG Social LastNameBarry Cottle
Comapany NameSG Social Games Corporation
February 8, 2019
February 8, 2019 Page 3
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FirstName LastName
you do not independently verify such metrics.
10. MAU is defined as the number of individual users who played a game
during a particular
month. Please revise to clarify how MAU is calculated for the periods
presented, such as
for the years ended December 31, 2017 and 2018. Clarify whether the
MAU metric
disclosed is only for the last month in the period or whether it
represents the average for
each month within the period.
11. Please revise to clarify the period used to calculate average DAUs.
For example, explain
whether the DAUs used to calculate the average DAU for the fiscal year
ended December
31, 2018 are based on the average DAUs for the month of December, the
quarter ended
December 31 or some other period.
12. On page 4, you describe developing your monetization and marketing
engines to improve
player engagement, increase paying player conversion and drive
per-player monetization.
As your revenues are generated from paying players, please tell us
whether you monitor
the extent to which you convert non-paying to paying players, the
number of paying
players, and per-player monetization. If so, revise to disclose any
related metrics used and
provide a quantitative and qualitative analysis of the changes in
these metrics for each
period presented. Refer to Item 303(a)(3) of Regulation S-K and
Section III.B.1 of SEC
Release No. 33-8350.
Results of Operations, page 73
13. Please provide a qualitative analysis of the changes in your key
performance indicators for
each period presented. Refer to Item 303 of Regulation S-K and Section
III.B.1 of SEC
Release 33-8350.
Liquidity and Capital Resources, page 80
14. Please revise to address the fact that you will be a holding company
with no operations of
your own, and that you will depend on distributions from Social Parent
LLC to pay your
taxes and expenses, including payments under the Tax Receivable
Agreement. Please also
disclose any restrictions or other factors that could inhibit Social
Parent LLC's ability to
pay dividends or make other distributions to the parent company. Refer
to Item 303(a)(1)
of Regulation S-K.
Contractual Obligations, page 82
15. Please revise to include the amount of estimated annual payments under
the Tax
Receivable Agreement. Additionally, on page 114, you state that you
would be required
to make an "immediate cash payment equal to the present value of the
anticipated future
tax benefits that are the subject of the TRA." Please revise the
liquidity section to discuss,
quantitatively and qualitatively, the impact of this immediate cash
payment on your
liquidity.
Barry Cottle
FirstName Games Corporation
SG Social LastNameBarry Cottle
Comapany NameSG Social Games Corporation
February 8, 2019
February 8, 2019 Page 4
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FirstName LastName
Certain Relationships and Related Party Transactions, page 110
16. Please discuss the term and termination provisions of the Intercompany
Services
Agreement and IP License Agreement with Scientific Games. In this
regard, we note your
risk factor disclosures on pages 35 and 39 regarding the Intercompany
Services
Agreement that you "will be able to continue to use these Scientific
Games services for a
fixed term established on a service-by-service basis..." and you will
"have the right to
terminate a service before its stated termination date" if you give
notice to Scientific
Games.
Description of Capital Stock
Common Stock, page 119
17. You disclose that holders of shares of your Class A common stock and
Class B common
stock will vote together as a single class on all matters on which
stockholders are entitled
to vote generally, except as otherwise required by law. Please expand
to describe instances
when the holders of outstanding shares of Class A common stock and
Class B common
stock would be entitled to vote separately as different classes.
SG Social Holding Company II, LLC Consolidated Financial Statements
Consolidated Statements of Income and Comprehensive Income, page F-6
18. You disclose on page F-11 that you are not presenting historical
earnings per share
("EPS") for the Predecessor because the capital structure is not
indicative of the
anticipated capital structure of SG Social Games Corporation following
this Offering.
Please revise to present historical EPS for each period presented and
include a footnote
with reconciliations. Refer to ASC 260-10-45 and ASC 260-10-50-1. In
addition, if the
organizational transactions will result in a material reduction in
earnings per share,
please present pro forma EPS for the latest year and interim period to
give effect to these
changes in capital structure.
General
19. In the market and industry data section on page iii, you state that
you "do not make any
representation as to the accuracy of that information" in the industry
publications. This
statement appears to disclaim the issuer's responsibility for
information in the registration
statement. Please revise.
20. Please supplementally provide us with copies of any graphical
materials or artwork you
intend to use in your prospectus. Upon review of such materials, we
may have further
comments. For guidance, refer to Question 101.02 of our Securities Act
Forms
Compliance and Disclosure Interpretations.
21. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
Barry Cottle
SG Social Games Corporation
February 8, 2019
Page 5
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications
You may contact Joyce Sweeney, Senior Staff Accountant, at 202-551-3449
or Christine
Dietz, Assistant Chief Accountant, at 202-551-3408 if you have questions
regarding comments
on the financial statements and related matters. Please contact Folake Ayoola,
Special
Counsel, at 202-551-3673 or Barbara Jacobs at 202-551-3735 with any other
questions.
Sincerely,
FirstName LastNameBarry Cottle
Division of
Corporation Finance
Comapany NameSG Social Games Corporation
Office of
Information Technologies
February 8, 2019 Page 5 and Services
FirstName LastName